Sunday, November 30, 2008

Changing rules of dharma

Speaking of the global financial crisis, Sonia Gandhi recently applauded Indira Gandhi’s bank nationalization of 1969, saying that it had given India ‘stability and resilience’. Like the Bourbons of France our political class neither learns nor forgets anything. I don’t think Sonia Gandhi realizes quite what she was saying. India’s bank nationalization delivered neither growth nor equity. Any public sector bank manager will tell you how loans were diverted to friends of politicians rather than to commercially deserving farmers. Bad debts of banks rose alarmingly in the 1980s and moral hazards persist.

Indira Gandhi drew us further away from world trade, raised tariffs and taxes, and made us one of the world’s worst performing economies from 1966 to 1989. Industrial growth plunged to 4% a year vs. 7.7 % in 1951-1965. Manufacturing productivity declined half a per cent a year. Rakesh Mohan estimates that her mistakes cost the nation 1.3 per cent lower GDP per capita per year—meaning that our income would have been more than double today. I don’t blame Nehru for adopting the wrong economic model as socialism was the wisdom of his age; I blame Indira for not reversing course as sensible countries in East and Southeast Asia did. Even China changed in 1978, but we had to wait till 1991. She multiplied by zero and put us back by a generation.

But let’s not dwell on the past. India is in the midst of a dire crisis and we don’t seem to realize how much we are hurting. Panic has choked credit worldwide. Our economy is slowing pitifully. Exports are collapsing. Banks have stopped lending. Construction has come to a halt. Fear has taken over, and people are not buying (except mobile phones). As demand shrinks, so do revenues and profits of companies. Investment has stopped and lakhs in textiles and construction are out of work.

The Mahabharata points out that rules of dharma change in times of crisis when one is forced to observe apad-dharma. Paradoxically, defending capitalism requires state intervention. History teaches that decisive government action can stem the pain. If Lehman had been bailed out the world might not have gone over the cliff. But once normal times return governments must sell off the banks that they had bailed out and not leave them as cash cows for politicians, like our public sector banks.

The quickest way to restore confidence is to further cut interest rates, CRR and SLR, and recapitalize banks. Today’s rates are still too high. Since oil and commodity prices have plunged, the risk of inflation has receded. As property prices decline, and as old mortgage terms become available, people will begin to buy the homes they postponed when interest rates rose. When people buy houses, they give jobs to millions. The same goes for other sectors. Consumer spending will raise demand, restore production, and lead to investment. There is a currency risk in this strategy, of course, but the risk of deflation is greater.

Of course, we should spend massively in infrastructure, but the trouble is that even the current programs are not moving. World Bank has threatened to withdraw funding from highway projects. 234 out of 515 Central projects are delayed. Hence, public spending wont work when speed is of the essence. The saving grace is that we have been accidentally ‘pump priming’ via the rural employment guarantee scheme and loan waivers. What we must not do is to close borders no matter how much local industry clamours for protection. In the 1930s every country tried to protect its own industry. World trade declined 60% between 1929 and 1932 and this caused a worldwide depression. We must do everything to protect the fruits of globalization which has lifted millions out of absolute poverty over the past 20 years. No one can predict when the present crisis will be over. Things could get much worse, meanwhile, but capitalism will eventually correct itself.

16 comments:

Baiju Elikkattoor said...

"We must do everything to protect the fruits of globalization which has lifted millions out of absolute poverty over the past 20 years."


Sir, could please explain why around two lac odd farmers of our country reported to have found solaze in suicide had million been lifted out of absolute poverty by the fruits of globalisaton?

Anshul said...

Excellent anaysis......great work once again

If the collapse of one I-BANK(Lehman Bros.) can bring havoc in the financial markets across the world...what repurcussion the failure of bail-out plan for the Big-3 of Detroit can possibly have across various industries, I think, is something beyond imagination.
Sir,could you please write something about it in the light of the flip side of globalization...

Wisdom said...

Hi Guys!
Just wanted to send in a quick update- India's First book on corporate blogging written by top CEO blogger Rajeev Karwal and social media researcher Preeti Chaturvedi titled "Corporate Blogging in India" was launched at the Oxford Bookstore in Delhi on the 10th of Dec. A hardback version of the book, priced at Rs 345 is available at all leading bookstores. We have created a blog for the same at Corporate Blogging in India. If you don't find a copy at some bookstore, please order the same through our website www.wisdomtreeindia.com

madhan said...

This is very cool indeed! Thanks for sharing!


I am a first time visitor of your blog.

Great work.

About this article.
The whole article gives us wonderful insight.

Anonymous said...

I will never look at Indira Gandhi the same way again..........Thanks.

DevBhai.com said...

For More Traffic Share Your Links With http://www.devbhai.com

Anonymous said...

You just deleted the comments I posted yesterday. I see everyone on the capitalism side is a vaishya including you.

Anonymous said...

yes capitalism will correct itself, at the expense of innocent hard working people and the miscreant's go Scott free. Only the fruits of capitalism are seen not the ones who get dislodged.Hence Hitler was superior mind who prevented free riding in the society.These aberrations are caused by the jewish minds.

vikassingh123455 said...

shivaashubhra Classified: apartments, personals, for sale, services, community, Matrimonials, Health/Beauty, Web Hosting, Forums/Classifieds/Directories, and events Shivaa Shubhra Classified is a free classifieds online ads site where you can post free ads & can get targeted traffic and high response for your advertisement.

City Spidey said...

CitySpidey is India's first and definitive platform for hyper local community news, RWA Management Solutions and Account Billing Software for Housing Societies. We also offer residential soceity news of Noida, Dwarka, Indirapuram, Gurgaon and Faridabad. You can place advertisement for your business on city spidey.

Gate Management System
Society Management App
Society Management
rwa Management App
Neighbourhood Management App
Apartment Management App
Apartment Management System
Visitors Management System
Apartment Management Software
Noida News
Gurgaon News
Ghaziabad News
Delhi News
Indirapuram News
Dwarka News

srjwebsolutions said...

We are leading responsive website designing and development company in Noida.
We are offering mobile friendly responsive website designing, website development, e-commerce website, seo service and sem services in Noida.

Responsive Website Designing Company in Noida
Website Designing Company in Noida
SEO Services in Noida
SMO Services in Noida

EG MEDI said...

Egmedi.com is online medical store pharmacy in laxmi nagar Delhi. You can Order prescription/OTC medicines online.
Cash on Delivery available. Free Home Delivery


Online Pharmacy in Delhi
Buy Online medicine in Delhi
Online Pharmacy in laxmi nagar
Buy Online medicine in laxmi nagar
Onine Medical Store in Delhi
Online Medical store in laxmi nagar
Online medicine store in delhi
online medicine store in laxmi nagar
Purchase Medicine Online
Online Pharmacy India
Online Medical Store


indian models91 said...

We are uhe solid first platform for modeling newcomers to achieve there new dreams. The first to train and promote out models at our expense to avoid burden on them. Join the most popular agency if you modelling jobs in Delhi for female freshers, models, students, housewives aiming to start there modeling career. We are top modelling agency in Delhi offering modelling jobs in Delhi for upcoming female freshers or experienced models who want to join lingerie modeling agencies.


modeling agencies in Delhi
modeling agencies
modeling jobs
modeling auditions
model coordinators
modeling jobs in Delhi

EG MEDI said...

Egmedi.com is online medical store pharmacy in laxmi nagar Delhi. You can Order prescription/OTC medicines online.
Cash on Delivery available. Free Home Delivery


Online Pharmacy in Delhi
Buy Online medicine in Delhi
Online Pharmacy in laxmi nagar
Buy Online medicine in laxmi nagar
Onine Medical Store in Delhi
Online Medical store in laxmi nagar
Online medicine store in delhi
online medicine store in laxmi nagar
Purchase Medicine Online
Online Pharmacy India
Online Medical Store

ANIL GUPTA said...

We are specialized in Mechanised cleaning of Underground and Overhead Water Tanks of all sizes. Door Step services across Delhi, Noida and Ghaziabad.


Water tank cleaning services in Noida
Water tank cleaning services in Ghaziabad
Water tank cleaning services in Delhi

Drain cleaning services in Noida

Drain cleaning services in Ghaziabad
Drain cleaning services in Delhi
Pipeline Cleaning Service in Noida


Pipeline cleaning services in Ghaziabad
Pipeline cleaning services in Delhi


Tank cleaning services in Noida

Tank cleaning services in Ghaziabad
Tank cleaning services in Delhi

Exide Battery said...

Battery Mantra Buy Car and Inverter battery online in India. BatteryMantra is Noida based India's No. 1 online battery store offering you genuine batteries of all the well-known battery brands at best prices.

Online Inverter Battery Store
Online Car Battery Store
Buy Inverter battery Dealer Noida
Buy battery online Noida
Online Inverter Battery Store
Buy car battery Noida