Millennium Post

When assurances just ring hollow

The Prime Minister Manmohan Singh’s latest missive to the country as well as India Inc that his government would leave ‘no stone unturned’ to revive the economy appears to just fall flat in the face of the gloom that has engulfed the system at present. The PM’s so-called achievements include selling off the country’s prized telecom sector, along with increasing FDI caps on sectors as sensitive as defence, insurance, petroleum and natural gas among other, thus considerably weakening the hold of the government over these arenas, and letting the corporate lobbies abroad, particularly those sitting in Washington and London, dictate the terms to our industrial and financial sectors.

Despite this unbelievable feat of flushing its regulatory hold down the whims of overseas banks and foreign exchange funds, the PM actually has the gumption to cry foul over the critics pointing out the gravity of the situation, saying that the so-called shrillness of criticism makes for ‘good television’ only. However, it is obvious that the entire hue and cry over the rupee depreciating was nothing but a well-rehearsed threat issued by the US business lobbyists to open up the floodgates on Indian businesses, and the UPA government has meekly acquiesced to their terms. Hence, the UPA government’s reform push, ostensibly undertaken to stabilise the economy, is more hot air than actual matter, despite its spreading the fear that world’s leading credit rating agencies would resort to downgrading our economy unless the value of rupee is scaled up and the current account deficit is brought under control, both by pumping in more foreign currency into the Indian system.

However, the trend in the Indian system is particularly intriguing, partly because of the government’s and India Inc’s singleminded obsession with attaining higher GDP figures, and partly because of the skewed belief in increasing the borrowing limit to address the fiscal crunch. In a strange math, the UPA government, led by the likes of Manmohan Singh and P Chidambaram, is putting all their proverbial eggs in the basket of increased FDI rather than bolstering our domestic sector to stabilise the rupee and bring down the CAD. This borrowing, particularly the short-term bonds taken on loan from the American Federal Reserve, need to be paid back within one year, which augment the pressure on the economy and the Reserve Bank of India considerably. However, there’s no stopping the government from indulging in more profligacy by recklessly selling off assets, tangible or intangible, keeping in mind only myopic goals. India must learn from the plight of the spendthrift governments of Greece, Spain, Ireland and Portugal, who are neck-deep in debt trap and have resorted to begging from the European Union to bail them out.

On the other hand, economies such as the German and French, have relied on judicious expenditure and bringing down external borrowing to cut the demand and stabilize the euro, at least within their own systems. By allowing the dependence on FDI to grow exponentially, India is inviting real danger, with its forex reserves at the risk of dipping perilously low at the end of every fiscal year. The need instead is develop our own infrastructure, financial and otherwise, and lessen the liability that comes from overreliance on overseas financial bodies.               

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