The Indian economy rarely had the kind of problem it is facing now, pushing the country into a quandary. It is struggling to look for ways to come out of the morass.
Recall, in 1991, India pawned its gold with Bank of England and Union Bank of Switzerland to raise $600 million to meet the balance of payment crisis. But the rest of the economy did not seem to suffer much. The GDP in 1989-90 grew by 5.2 per cent and in 1991-92 it rose by 5.7 per cent.
This was the post-Soviet Union collapse period and India had large exposure to trade with Soviet Union. Despite this, the overall impact was not felt at the local markets or even rural economy. In 1997-98, the East Asian tigers saw a severe meltdown largely led by the real estate boom and banking failure. Then too India was not hit.
During 1992 to 1997, it was the period of largest scams in the stock market, collapse of UTI, siphoning of LIC and many bank funds through fraudulent manners by the ilks of Harshad Mehta and Ketan Parekh. It surpassed the records of scams in the first 40 years since independence.
However, in 2007-08 the Lehman sub-prime crisis owing to unethical and corrupt banking practices in the West singed India despite no direct exposure to the crisis. The government panicked and succumbed to combined chorus of the large private corporate. They had seen how the sub-prime procedures had soared profits of the western corporate despite an economic crash.
By this time the Left parties had parted ways with the UPA. It lacked practical advisers and opened up PSB coffers to looting companies. The 50 private giants took the bulk of the PSB loans then called “incentives” never to repay. It was almost a repeat of what had happened to banks in the UK and the US, including the largest AIG.
The banks started tottering. Their NPAs soared. People’s deposits were squandered away and continue till now. In short, the Indian crisis started in 1992 and the pattern remains.
The banks, PSBs in particular, but now many so-called private banks as well, are being systematically swindled away leading to a crisis of confidence. Officially, NPAs are touching Rs 9.1 lakh crore but otherwise estimated at Rs 14 lakh crore as there has been a lot of window dressing through mergers. The digital economy has made swindling easier!
It has hit savings – staple system for funding India’s growth. The Economic Survey 2018-19 states household savings dropped to 16.3 per cent in 2018 from 23.6 per cent in 2012, which coincides with the loot of the deposits by the giants. This is serious and sadly no government has addressed the issue. In 1960s and before even a 25 paise deposit was encouraged to fund the development projects. Now deposits are literally punished with high bank charges, TDS and other accessory fee on withdrawals.
The recent surge in cash hoarding, as per RBI figures, is a sequel to impractical usurious banking procedures. It has worsened with fly by night mutual fund operators, where deposits are made but it dwindles every day.
Earlier, such issues were carefully studied by Planning Commission and remedies suggested. The NITI Ayog last mulled over it in July 2017, when Arvind Panagariya said: “Low levels of savings and investment rates are still a cause of concern. Intense and dedicated efforts are needed.” But little came after that.
Demonestisation has virtually denuded household savings. Those who think India’s vast economy, the biggest in the world in the 100 crore hands, could function through a faulty, slow and inefficient digital system, apparently are living in a fool’s paradise.
Earlier, there used to be inquisitive and probing people in the political system who used to drive home sanguine points. But today somehow in a too much politicised world, such voices are stifled and stigmatised. Discussion and debates in public domain remain muted and give a taint which isn’t there. It’s like if someone suggests boosting savings, groups with vested interests shout for channelising it to the speculative but most unethical, stock market or such instruments, where the money can easily be swindled away. Or if it is suggested that Jewar airport (Uttar Pradesh) like projects would desertify the national capital region, the real estate agents in chorus say there is no aquifer in that region, as it suits the construction industry!
Or if poor owners of vehicles call for rescinding impractical ten-year junking rules, they are branded “anti-development”. The simple truth is the country is junking wealth creation. All over the world, the car owner is allowed to have the car for 40 years or more. Junking cars is bad policy and it certainly leads to slowdown. But those in power succumb to the lobbies, be it real estate, industry or car makers. The pollution lobbies are minting tons and the national economy is impoverished.
Yes, the country is drifting because sane voices are not heard anymore. Rather such voices are stifled. Else Rs 1.76 lakh crore of the Central bank would not have been squeezed out, which was people’s money.
Often it is said that Indian’s are sitting on stockpile of money. Perhaps though most poor are not aware. But they are unable to pay for the tuition fee of their wards even in socially-funded (that’s not subsidy) government institutions. Drop-out rate is increasing in private universities and institutions as the fee is too high. Yet again, the lobbies are making it unaffordable, be it IITs or IIMs. Education in this country is not subsidised and it requires social funding, more so as households are losing savings.
The antyodaya is an all-encompassing word. It does not mean mere uplift of the last unattended man. Instead, it means the system should be such that none remains unattended. But if one is attended and 10 are not tended it would have deleterious effect.
Prices are rising and the number of unattended is growing. Rhetoric would not solve this. The government must have a dialogue with all, even with its political rivals and the common man to chalk out a way. This approach would lead to growth or else the society and economy would drift.
Mere tinkering with rules would not lead to a solution. Clearly, the Narendra Modi government must take the right holistic action to correct the three decades-odd of loot and misdirected Manmohanomics. Sooner the better, for it as well as the nation.