The Indian economy is one of the most boring topics to write on. Most would prefer a column on Sachin’s RS nomination or who could be the next president. And yet, the situation is worrisome. The economic stats that matter are not good.
The government is behaving like a drunken husband who borrows to buy liquor. In simple terms, imagine a middle-class man who earns Rs 10,000 per month. His house needs urgent repairs. He also has past debts to clear. Thus, every month he has to pay Rs 3,000 as interest. He lives well and spends Rs 12,000 as living costs. He spends Rs 2,000 on urgent repairs, but needs a lot more to fix the house.
Thus, his overall spend is Rs 17,000 compared to his income of Rs 10,000. To fill the gap, he borrows Rs 7,000 every month (thus increasing his total debt and the next month’s interest). He doesn’t have the money to educate his kids or fix the house anytime soon. Yet, he calls himself an emerging superpower, shows off his spending power and ability to launch missiles. What would you call such a man? An economic powerhouse? Or will you call him irresponsible, unaccountable and deluded?
Well, the above example is that of our government finances. This is roughly how the government accounts look, except that the ‘Rs 10,000 a month income’ happens to be around Rs 9.5 lakh crore per annum, the net Central government receipts. In addition to this, the government plans to borrow Rs 5.5 lakh crore this year, and spend a total of Rs 15 lakh crore to keep itself going. This public debt keeps rising. Like a debt trap, interest costs balloon, and that in turn requires more borrowing. In fact, compared to two years ago, government debt is higher by 37%, rising much faster than the GDP.
What is the government doing? It is splurging money to please voters and has no intention of keeping the country’s finances healthy. It isn’t corruption technically, but it is ruining the nation’s accounts. At the same time, the government is hesitant to raise revenue through divestments, land sales or proper mining policies.
Sadly, few Indians care. Many of us actually believe all this somehow doesn’t affect our own lives. Government finances are too complicated and distant to bother us.
And yet, we are entering the danger zone. Interest rates and borrowing costs have zoomed up. Most private businesses today are unable to borrow below 15% per annum. They are not making big growth plans anymore. Inflation is well above 10%. The rupee has collapsed 20% in the last two years. Foreign investors find our investment environment lackluster to downright hostile -with strange, illogical laws like the GAAR (general anti-avoidance rule), which allows retrospective taxation and challenge to any tax-saving policy, based on the judgment of the tax inspector. We want foreigners to give us their money and never expect a return back. They have choice of other markets, and are running away. The rating agency warnings are not helping either.
To scoop out more money, the government is hurting everyone with additional service taxes, airport cesses, new taxes for the hospitality industry. It is like suffocating an already sick hen that barely lays eggs.
What does all this mean? Our GDP growth has slowed down, from the 8% zone to the 5% zone. And that will have a dramatic effect on new jobs. Indians grumble but ultimately accept, even expect, inflation. We pardon the government for most sins. Economic mismanagement is the least of them. However, there is one problem Indians haven’t faced en masse as yet- a widespread job crisis.
GDP growth is one of the best predictors of’ new jobs’, something our country badly needs given the population pyramid. The number of youngsters requiring a decent job is set to rise. The only way to deliver these aspirations is strong GDP growth. However, we are becoming worse every quarter.
In the next five years, we might witness a full-blown job crisis. That will mean tremendous pain for unemployed but talented people, and cause a lot of instability in the country. Unemployment, after all, is the biggest cause of revolutions.
The solution is reform. We should stop debating reforms and embrace a proper market economy. We need fair rules and no government bullying. Our media has to point out the nature of the crisis in front of us, rather than waste time on pointless political issues. Finally, we citizens have to focus on what is important, and not on personalities, communal/caste issues or on symbolisms thrown at us by the government. The people in charge are bankrupting us. Please stop them from doing so. Or, the next person without a job could be from your house.