Economists are very bright people. But they have one problem. When they speak to non-economists, they sound like they’re from another planet.
Ordinary people like straight answers to problems, especially if they are critical. If you’re in the hospital with a critically ill patient, it is reassuring to know that the doctor has a definite diagnosis. Our economy is in a critical state. And all we have for answers is what the spin doctors are telling us. luckily, I am no economist. I’d like to take a shot therefore at understanding what has gone wrong with the India story. What follows are some thoughts from a non-expert, with extrapolations from previous pieces written on related subjects.
We middle classes are scrupulous about our bank accounts. We try hard, despite having to buy onions at the price of apples, not to tap into our savings. Come what may, we try and build our savings, not eat into it. We need to hold onto this sentiment if we are to understand somewhat the implications, and not just the meaning, of fiscal deficit. Common sense tells us that fiscal deficit is the difference between government revenue (not accounting for borrowings, of course) and government spending. Debt is the accumulated deficits over the years. Simply stated, today’s deficit becomes tomorrow’s debt. You and I also borrow, but with circumspection, and we are able to secure funds only after due diligence by the lender. The Government, on the other hand, can whip money out of the system just like that. Either by borrowing, or by tweaking policy. It can also borrow from overseas, pledging, as it were, its credibility as a sovereign (pun intended) nation.
The bottom line is this, while we scrape every ounce of opportunity to build our savings, the Government goes about spending money like the proverbial playboy. When welfare is handed out lazily, with the swagger and decadence that follows nightlong debauchery (much like the generous Devdas who has a zamindari to throw away), the middle classes have cause for worry. Entitlements and welfare are necessary, indeed most essential in a nation such as ours, with millions of marginalised and underserved citizens. But if welfare is distributed at election time to garner votes, and if the largesse raises fiscal deficit precipitously, and if the rise in the fiscal deficit cuts into the value of the savings set aside by the parsimonious middle classes, it is time everybody took a crash course in everyday economics. When the Government borrows recklessly to spend recklessly, the money you carefully set aside in your bank account loses its value. That is what inflation does. That is what the depreciation of the rupee does.
Even if we were to argue that food and education security are basic needs, where is the will to cut subsidies in non-basic areasIJ Politics in India means trying to keep all people happy most of the time. Diesel subsidies reduce commuting costs by a little for some people, but negatively impact people by shrinking the value of savings and raising the cost of living. It is not okay to believe that the real pinch of a poorly-run economy will never be felt by the middle classes. By borrowing to run government, by not creating conditions for investment and instead encouraging fund inflows to be directed at unproductive and speculative investments (like commodities and property), and by simply paralysing decision making, the UPA has led us to the precipice.
I recall in this context a conversation in Amitav Ghosh’s The River of Smoke. A Bombay-based Parsi opium merchant is warned of the strong action being contemplated by the Canton authorities. (The setting is 19th century China, with the British ruling the opium trade). The merchant suggests such action would end up as another passing phase, extrapolating as he does from his experience of the “power of the Europeans... in Egypt and in India, where it could not be withstood.” His confidant reverts by adding, “If you compare Chinese methods of ruling with those of our Sultans, Shahs and Maharajas, it is clear that the Chinese ways are incomparably better — government is indeed their religion.” In India everything else is done with religious fervour. Except governance. Trying to understand a little economics might help though. Just so that we’re not completely fooled by a profligate state.