Have you ever heard of a piper satisfied with pretend payment? The famous one, the Pied Piper of Hamelin, saw to it that the village that cheated him after he divested it of its rats, lost all its children too. Deficit financing is a little like pretend payment because it attacks the value of the money itself, degenerates the strength and vitality of the economy, and is, in reality, a waterfall of paper promises against the future — a future, in part, actively subverted and pauperised by wanton deficit-financed spending in the present.
It is a Devil take the hindmost kind of economic thinking fuelled by the cynical thought that the perpetrators of the outrage won’t be there when their successors discover the hollowness of their fiscal predicament. The irony is in the fact that deficit financing has nevertheless become the norm on how to run an economy all over the world. The mellifluous justification from certain economists is that policy initiatives cannot wait for the money to come into the till before it is spent. That kind of timid fiscal behaviour may be alright for the housewife running the kitchen from money stashed in her biscuit tin, but is hardly worthy of Finance Ministers and Planning Commissions invested with the lofty business of running the finances of a country.
In the powerful countries of the West, imitated alas by the emerging economies, the long-held conviction was that their mountain of debt accumulated with ever-increasing audacity would never actually come crashing down upon them. They had good reasons to believe that, including the buoyancy of their economies, the prowess of their technological innovation, the sophistication of their financial systems, the strength of their military and the skills of their diplomats. But it all fell apart and bears testimony to the truism that there is no such thing as a free lunch.
Yet, let us remember that Mr Bill Clinton, after eight years as President of the US, handed over an American economy with a surplus in its coffers and near nil unemployment. This may well have been partially due to the cyclical dividend of the Reagan-Thatcher years that preceded the Clinton era. The duo spurred private enterprise on both sides of the Atlantic, combated militant unionism, dismantled the USSR, brought down the Berlin Wall and reduced the sway of big Government. Mr Clinton benefitted from all this during his watch, but certainly did nothing adverse to stymie the cumulative economic dividend.
Mr Clinton’s performance is all the more remarkable because the Democratic Party is well known for huge public welfare spending. Of course, he was prevented from executing major reforms in the American Healthcare System by the powerful pharmaceutical, hospital and insurance lobbies. Had he succeeded in this, as President Barack Obama has to a certain extent in a much worse economic environment, it might have shot up Government spending and made his glowing report card look smudged with red ink.
In India, blessed as it is with abundant natural resources, a vast domestic market and a huge young and skilled work force, it probably takes monumental incompetence to have so many million people in the ranks of the ‘backward’ and the ‘poor’. This is also the welfarism / ‘conscience’ argument from the Socialist and Left-leaning thinkers in the Government, Opposition, coalition partners and elsewhere, unimpressed as they are by mere growth in the GDP. This, even as GDP-baiters rarely acknowledge that it is this very increase in the macro performance that has enabled us to raise our expectations, and among the middle-classes and above, our standard of living. Socialism, our old soul-mate, has given us very little back for all the love lavished upon it.
But indubitably, if one sees the predicament of our teeming millions of poor people deprived of all civilised life opportunities such as decent healthcare, housing and education and employment opportunities, the argument to do something substantial for them is most compelling. We have to uplift the masses to remove the dangerous inequality that plagues us. Still the question remains, and is no nearer a solution after 65 years of independence: How do we pay for it?
In the past, the Government of India rarely thought it necessary to worry about economic viability, harping instead on various Socialist shibboleths of inclusiveness. We are in danger of doing it again but we cannot sustain a combination of deficit financing and inefficient welfare delivery mechanisms riddled with corruption, without visiting ruin upon our heads. Our huge number of poor, cheated at every turn by people who make money in their name, evince false sympathy, exploit and manipulate, are not being helped by the Government bankrupting itself and future generations in their name.
The way to uplift the poor is by helping the rest of the economy to make the money to pay for their betterment. And this money is in foreign hands, Western, West Asian, Japanese, Far-Eastern, even Chinese, and very keen to invest in India in most fields given the right laws, business incentives and reduction in our infamous red tape. But Indian policy seems forever split between the past and the present without taking into account that there are vast values waiting to be unlocked and brought into the fray.
The fear and insecurity of the political establishment forces it to avoid bold policy steps. The consequent focus on electoral considerations at all times unfortunately runs riot over issues of governance. Politicians need to realise there is no way out unless we want to collapse into the predicted balkanisation and chaos. Besides, it isn’t just the plight of the poor pushing us in the direction of bold reforms, but also the demands of an infrastructure completely inadequate for the needs of our massive population. Our armed forces are poorly armed and menaced by a militarily superior China. Our agricultural economy suffers from age-old glut and shortages without the modernisation it is crying out for. Our private sector is starved of bank finance. We need money for every one of these purposes and myriad others, but seem to be doing nothing about it.
We are not in this position because we have no choice. We are not a small country like Greece or Iceland with limited options. We are not growing in double digits right now because we won’t exercise the choices, very many good ones, that we do have. Perhaps, early in 2012 as it is, we need to take a hard look at our assumptions and commit ourselves to growth as the engine and ladder to achieving the aspirations of all Indians.
