House is not in order
Instead of pledging its resources to help the eurozone, India could have used the funds to shore up the domestic economy and provide relief to the people, writes Sitaram Yechury.india Updated: Jun 26, 2012 01:28 IST
Under humanitarian considerations, all Indians would have probably endorsed the government’s decision to provide financial relief to assist people of other countries in the face of natural disasters and calamities. We Indians are very liberal, even at the expense of our own people’s livelihood, to provide such assistance. However, the pledge made by Prime Minister Manmohan Singh at the recently concluded G20 summit at Los Cabos, Mexico, to provide $10 billion does not qualify for this condition.
At the current exchange rate, this translates to over Rs. 56,000 crore. The generosity comes at a time when the people are subjected to growing economic burdens due to the relentless rise in the prices of all essential commodities. The hungry in India are going without food, even when the Supreme Court has ordered rotting foodgrains to be released and the government says there is no place in its godowns to procure foodgrains for this year. On top of this has come the hike in the prices of petroleum. The net result is further burdening the people.
We are being told that the $10 billion that India has pledged is “enlightened assistance, help for a key trading partner in distress”. The PM, speaking at the G20 gathering representing 80% of the global GDP, reasoned that this assistance has been provided to contribute to the eurozone. The presumption is that as economic growth picks up in the eurozone, it will be like a tide that will lift the ship of the Indian economy. The PM said: “An expansion of investment in infrastructure in developing countries is only possible if they can get access to long-term capital to finance such investments. This is difficult at a time when capital flows are disrupted.”
The hope that India’s contribution will help the eurozone recover does not carry much conviction. The recent meet of the European Union (EU) vindicates this. Despite a €100 billion bail-out package, Spain has crossed the rubicon from solvency to insolvency. The recent Greek elections have not promised any relief. Assessors of banking risks based in London say: “The markets are treating Spain’s focused bail-outs as a pregnancy: there is no such thing as a partial one.” The next country to follow is Italy. Germany, which is the strongest economy in the EU, has ruled out any new aid to Greece.
Under these circumstances, the hope of the Indian PM to bail out the eurozone at the expense of the aam aadmi are belied.
Singh is hoping that India will contribute to international finance capital with the hope that the recovery of the eurozone will create a new financial bubble whose expansion will benefit India by making greater finance available. Little has been learnt from the current crisis and double-dip recession. Bubbles inevitably burst. When they do, a fresh round of crises will engulf the global economy, including India.
The PM does seem to employ the same reasoning that he offered to the EU for our domestic economy. He told the G20 gathering that “austerity in the debt-ridden members of the eurozone can work only if surplus members are willing to expand to offset contraction elsewhere in the (euro) currency area.” He was clearly hinting that Germany, as the strongest economy in the eurozone, should stop fearing domestic inflation and loosen up its economy. Germany, however, is far from willing to comply with such gratuitous advice. The same logic should have led the PM to concentrate on expanding the Indian economy through massive increase in public investment rather than turning into a global philanthropist.
Rather than wait for a recovery of the eurozone and the next bubble, India could well have used the same amount of resources for public investments to build our much-needed infrastructure. This would have generated substantial additional employment.
Consequently, this would have vastly expanded aggregate domestic demand, providing the stimulus for growth in manufacturing and the rest of the economy.
The PM often uses the term “enlightened national interest” as the guiding principle for the government’s policies. Does pledging India’s resources “for enlightened assistance” to the developed EU meet India’s “enlightened national interest”? The only way to reverse the downslide in the Indian economy is to concentrate on expanding aggregate domestic demand, which will provide the impulse for a sustainable growth trajectory. The government needs to abstain from catering to the whims and needs of international finance capital at the expense of our domestic economy and the consequent negative effects on the people.
In any case, the European Union leaders seem to be paying little attention to the advice rendered by our prime minister and other global leaders. The president of the European Commission, Jose Manuel Barroso, reminded the gathering that the origins of the financial crisis were in the sub-prime lending market in the US, which had contaminated European banks. He further said that the Europeans had not come to the meeting “to take lessons on democracy or how to handle the economy”. Only he seems to know if he is referring to the advice given by our PM.
Sitaram Yechury is CPI(M) Politburo member and Rajya Sabha MP The views expressed by the author are personal