Freebie Mates With Collapsible Gates

We have two countries on our doorstep, Sri Lanka and Pakistan, with collapsed economies. So collapsed, that re-flotation is a herculean task.  So far out of control are they, that their survival as political entities may be in jeopardy. 

If these countries were commercial entities, they would be Chapter 11 bankrupts, with caretaker managements to realise what value could be salvaged from the wreckage.

Senior bureaucrats have come calling on Prime Minister Narendra Modi to warn of a fate like Sri Lanka, or Greece, if not for the whole country, certainly for certain states bent on distributing freebies they cannot afford.

States, profligate with promises of free this and that, in order to win elections. This is something of a winning formula for the Aam Aadmi Party (AAP), if not also for quite a few other state satraps and their parties. Andhra Pradesh, Telangana, West Bengal were also mentioned. 

Right now, it is the AAP that is in focus, even as they are off to try the same voodoo in Gujarat and Himachal Pradesh for their forthcoming elections.  The formula is freebies for the masses, with a heavy slug of minority appeasement politics where the latter are present in number.

Both Punjab and Delhi, now with AAP, are in dreadful financial condition. One, Delhi, has been driven to the point of destitution by two consecutive terms of AAP politics. Very few promises have been kept on the development side, as in buses, new schools, colleges, hospitals, roads. Yes, subsidies on electricity and water have been given to the poor, and correspondingly loaded on to the rest of the bills.

The other, already run aground by Congress and Akali Dal administrations before the AAP win, has no money to afford Arvind Kejriwal’s extravagant promises. It has massive debt that cannot even be serviced from state revenues.

The bureaucrats are rightly worried. Bhagwant Mann has already come calling on Prime Minister Modi to ask for Rs. 50,000 crores as a first tranche of a special Rs. 100,000 crore package for the border state of Punjab. The threat, if any, implied, and wreathed in yellow turban clad smiles. The other states mentioned, also come, shawls and bouquets at the ready, for begging trips to see the prime minister. Most end in anger and frustration once back home when they don’t succeed.

This point of break down caused by devil-may-care spending, had also come to India, the whole country, in 1991, via Rajiv Gandhi’s excesses on the back of an unreformed low growth economy. It was thought to be the fag-end of Nehruvian Socialism.

But no, it saw a revival for another decade, with the surprise win for Congress in 2004, after the failure of BJP’s ‘India Shining’ campaign and election.

Under Congress party President Sonia Gandhi, (and remote-controlled  Prime Minister Manmohan Singh), plus her extra constitutional Leftist National Advisory Council (NAC), welfare expenditure went through the roof. 

There was MNREGA, set up for the election of 2014. But, good as it was, it didn’t do the trick. It should have, as per the formula, but there were Hindu nationalist forces at work.

 What happens when there is an imbalance? Between 2004 and 2014 we didn’t develop any infrastructure to speak of. The armed forces got no aircraft, ships, or tanks. Exports languished. Imports burgeoned. Industry lacked investment and ‘animal spirits’. Commission agents, speculators, and real-estate prospered.

Pakistan could do no wrong. The terrorism in Kashmir and all over the country went unchecked. China just helped itself to Indian territory with not even a murmuring from us. We could not afford to get annoyed.

 This longish interlude, marked by huge corruption, was preceded by six years of the Vajpayee administration that saw India boldly go nuclear-weaponised, and establish the Golden quadrilateral of excellent highways.

But, all in all, after over 30 years since 1991, we can clearly say that, in our case, the bankruptcy turned out to be a blessing in disguise.

When it happened in 1991, we had just a week’s worth of foreign exchange reserves, and were about to default on our international debt payments. We had to first of all fly out some 40 tonnes of our gold reserves to Switzerland. This held the wolf away from the door, while the World Bank (WB) and the International Monetary Fund (IMF), worked out a rescue package attached to a long prescription of economic reforms.  It was a prescription that was non-negotiable, if India wanted to see a second tranche of funds.

Prime Minister PV Narasimha Rao, who took over after Prime Minister Rajiv Gandhi’s assassination, was probably our most learned prime minister to date. He seized upon the dictation from the WB and IMF to pry this country loose from the death embrace of socialism that had brought India to this pass.

The same malaise of reckless spending, a good deal of it on armaments in this case, brought down India’s all-weather friend, the mighty USSR. That too in the self-same 1991.

The friendship endures with the rump, which is Putin’s Russia.  President Vladimir Putin, an erstwhile KGB man of Soviet vintage, still thinks the economic mismanagement that dissolved the Warsaw Pact, broke the Berlin Wall, and dissolved the USSR, is plain unforgivable.

He has worked on reviving some of his nation’s former glory, via several annexations and alliances with countries in the neighbourhood like Belarus, Hungary and Serbia. The ongoing special military action in Ukraine, is also part of it.

In India, it is the liberalisation and economic reforms of 1991 that has sown the seeds of a prosperity that was never imagined by socialist India.

It is true that with 1.4 billion people headed towards 1.7 billion by 2050, despite a slowing birth rate, that every one of our citizens, via the inexorable logic of per capita income, will not be well off. This, even when our dollar economy more than trebles to $ 10 trillion plus.

But yes, this country will have the third largest economy in the world, perhaps as early as 2030.This is predicated however on a judicious mix of welfarism, and growth in the GDP, by all other means. Welfarism is unavoidable with at least 400 million poor people, with over 100 million below the poverty line. But we cannot be cavalier about it.

We cannot summon our finance minister, as Sonia Gandhi summoned Chidambaram and order him to write off Rs. 60,000 crores in farmer loans, off budget, only to have another Rs. 50,000 balloon up in just one year. That sort of monkey business didn’t work for Idi Amin’s Uganda, and it certainly won’t work for us.

We cannot really afford to have backed down on farm reforms that would have put money, perhaps even doubled and trebled the income of the small farmer, because of pressure from rich farmers in Mercedes Benz SUVs. But we have. And there’s the danger. The wolf is never that far from the door.

The suicides of poor farmers go on unabated. The rich farmers and commission agents pretend to have won the day for them, when everyone knows it was nothing of the sort.

Socialism of the irresponsible kind that wants to give tax payer money away to the poor, particularly in our perpetually overspending and indebted states, is touted as equity and justice politics. Politics of the people. A people, largely illiterate and poor, not familiar with the laws of economics, but armed with the universal franchising vote. A freebie is well understood. How the government pays for it is the government’s business after all.

And yet, in such a system, where the poor are handed sops, the productive forces, the rich, inevitably get richer. They may be a very small part of the overall population, but it is they that grow the economy.

To make it count and not let all the riches fritter away in non-productive expenditure, there have to be laws against making free with tax payer money you don’t have. And the politics that blackmails the Centre for unrealisable promises. It may be a good way to arouse the rabble. But this is abetment to anarchy, a lack of integrity, and not democracy.

Prudence and good economic management insists that AAP style conjuring of  pie-in-the-sky bonanzas must be outlawed and nixed. Unfortunately, the temptation to use ‘jumlas’ is something the BJP is also no stranger to. Jumlas are not designed to deliver. Is that the answer? Otherwise, who will bell the cat?

(1,411 words)

April 4^th, 2022

For: Firstpost

Gautam Mukherjee