Economic Highlights
New Delhi, 4 April 2022
Lanka’s Fiscal Disaster
INDIA MUST HEED
WARNING
By Shivaji Sarkar
Is globalisation failing? The Sri Lankan economic
crisis is a grave warning that reckless consumption promoted by global Multi-National
Companies, the International Monetary Fund and World Bank at the cost of localised
economies and ignoring decentralised agriculture, rural or small
entrepreneurship, is not a sustainable model.
The Ukraine war is possibly the last nail in a
crisis-hit world. The war is not a doing of India, but it is disrupting the
global supply chain impacting all countries “like the Covid-19 pandemic”,
Finance Minister Nirmala Sitharaman tells the Rajya Sabha.
The Sri Lanka crisis and the disquiet among
the working class, reflected by the March 28-29 all-India strike by dozens of
labour unions, are a pointer to an impending danger. It is due to the faulty global
designs of curbs on wages, cash transactions, over dependence on banks, extreme
stress on high-cost infra and other facilities. Sitharaman assures that the Central
government is focusing on “sustained recovery through a predictable taxation
regime.”
India has to recall the strength of its mixed
economy. That was the people’s economy and it overcame the Soviet Union
collapse or the 2007 meltdown. But since 1948, Sri Lanka had never been in such
deep economic crisis. It has 10-hour power cuts, extreme fuel crisis and rice
selling at Rs 500 a kg. Exams are put off for shortage of paper and two
newspapers have ceased publication. Colombo rushes to sign six pacts with India
with a $2.4 billion credit lines and is assured petroleum supply.
A small neighbour in deep trouble with forex
reserves falling to $2.3 billion, not enough for immediate imports and an external
debt pegged at $45 billion, $8 billion to China alone, and outstanding
sovereign bonds of $12.55 billion, does shake India in more than one way. The
119 per cent Lankan debt to GDP now has started distress refugee influx into India’s
southern shores of Tamil Nadu. Lanka hit by the globalisation, reckless imports,
multiplexes, malls and artificial glitter has lessons for all.
The crisis was in the making
for almost a decade, largely due to the country’s excessive dependence of
imports and borrowings for a raft of massive infrastructure project. It highlights how
unbridled borrowing for big-ticket infra projects, such as those under China’s
Belt and Road Initiative (BRI), can lead to complications. The government’s tax cuts and switch to organic
agriculture further squeezed the revenues.
On the Indian front, the working class
protest called by dozens of labour unions representing both public and private
sectors highlights the difficult situation that stalks the country with more
privatisation, striving to bypass the minimum wages and less jobs. It’s against
trade unions say, new labour law allowing contract employment; giving employers
greater leeway in setting wages and extending working hours. Sale of PSUs
throws more out of jobs. Reports say that banks were hit across the country and
in some areas in the south, transport and normal life were affected.
The government has repeatedly been telling
the unions that it is trying to create jobs, continuing with free food grains
and edible oil dole at least till September for 80 crore people belonging to
the families of farmers and labourers. This is a heavy burden on the exchequer.
The government committed to welfare is spending almost Rs 4.5 lakh crore since
2020 through a regime of high inflation and not so high production as
purchasing power capacity has reduced.
Sri Lanka, the workers’ stir and the global economic
crisis testify that the 1991 privatisation prescription of the IMF-World Bank is
not a solution. The G-20 prescription of monopolisation and centralisation of
the economy, at the cost of the labour, has caused more problems for real
growth though it multiplies profits of the MNCs and large companies control the
economies. It has led to an inequitable growth and the pandemic has come as a
further destroyer of whatever little was left.
The world did not learn from the follies of
2007-08 Lehman Brother-financial institutions induced sub-prime crisis of
siphoning of people’s deposits that hit the United States and Europe the most.
The US public sector AIG took the worst hit.
It also shows that a globalised war by the US
in Afghanistan, Iraq, Syria and the Middle East has helped none, but the arms’
lobby. It weakens the economies of the super power and its NATO allies. Shaky
European economies are afraid of going to a war with Russia or even check its
aggression in Ukraine. The Americans are against Joe Biden administration
rushing to another war as they don’t want any more body bags. The US today has
almost $27 trillion of global debt, largely from five countries, including
China.
The crisis continues globally and India would
need to lead in correcting the course. Should the world go back to strengthening
the public sector and check the private that has fudged balance sheets and misappropriated
public money? It’s wishful thinking in an unethically controlled world.
The Narendra Modi government has the power
with its massive mandate to take the call for a change. It must review infra
and extreme dependence on coal-generated electricity for domestic to running of
trains, buses and cars. The centralised control is susceptible to security
threats that can jeopardise economic activities. It should promote a cash
economy as digital stresses the banking system and is vulnerable to fraudulent
deals. Cash is inclusive, quick and has the least cost.
Sri Lanka learns the hard way that high
consumption is not sustainable without higher production, income and
self-reliance. India has been trying to be atmanirbhar, reincarnation of
the Gandhian swadeshi, but all the same opting for Free Trade Agreement with Australia
and West Asian countries. It also has 87.8 per cent debt to GDP ratio. The
model of expensive toll roads, high priced transportation-communication, high
income and other taxes are leading to soaring costs, inflation and a thaw in
the economy. Additionally, India unwisely is junking 10-year-old private,
government vehicles and kisan’s tractors. It devastates wealth building.
Similar luxurious follies have led to the Lankan crisis.
During the last 30 years, the world has seen
Soviet Marxism collapsing, Maoism turning to capitalist exploitation,
Manmohanomics failing and Theodore Levitt’s globalisation becoming junk. It is India’s turn to give a viable
alternative of sustainable consumption and a mix of people-centric independent low-cost
mixed economy, free from the control of big banks and large corporations. Sri Lanka
exposes the dangers; the world must trudge cautiously. ---INFA
(Copyright, India
News & Feature Alliance)
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