Today is Bastille Day in France and the Prime Minister of India, Dr Manmohan Singh, at the invitation of President Sarkozy, is visiting Paris (where the Government of India has flown in military contingents to participate in the annual parade), before he goes to another summit in Egypt with Present Mubarak and others, following his recent summits in Italy with the Pope and others, and in Russia with President Medvedev and others, and in London with President Obama and others, etc. Dr Singh has almost certainly become the most internationally well-travelled of all Indian leaders on official visits ever in history, which adds to his having had the longest experience in India’s bureaucracy of any Indian political leader in history, which came to be followed by his stint in the Rajya Sabha as Finance Minister and now as a two-term Prime Minister.
But as a result of being out of the country yesterday, the Prime Minister would have missed the TV interview broadcast last night with his chief economic policy aide when it was said that “foreign investors and analysts” are an important constituency for Indian economic policy-makers, as expressed in the President’s speech to the new 15th Lok Sabha or Pranab Mukherjee’s Budget speech last week. The interviewer seemed to agree and constantly pressed the aide, who is doubtless the most prominent Government economist on television, about how stock-market brokers and businessmen seemed to have found the Budget not to their immediate liking, and how privatisation or “raising insurance caps” would have been seen by businessmen as crucial elements of future economic reform. In fact privatisation or the insurance business have little to do with any important economic reform but the lobbying power and spin-control of organised business becomes manifest in getting interviewers to ask such questions of Government spokesmen – all part of the (doubtless unconscious) process of camouflaging their private interests in the guise of purported public economic policy discussion.
I have taken a very different view. For example, I said a few years ago in starkest contrast:
“Running through the new foreign policy is a fiction that it is driven by a new economic motivation to improve development and mass well-being in India. The bizarre idea of creating hundreds of so-called “Special Economic Zones” (reminiscent of 17th and 18th Century colonial fortifications) illustrates this. India’s ordinary anonymous masses ~ certainly the 850 million people entirely outside the organised sector ~ have little or nothing to do with any of this. Benefits will accrue only to the ten million Indian nomenclatura controlling or having access to the gaping exit holes to the outside world in the new semi-closed economy with its endless deficit finance paid for by unlimited printing of an inconvertible domestic currency. It is as fallacious to think private investment from foreign or domestic businessmen will support public “infrastructure” creation as it is to think foreign exchange reserves are like tax revenues in being available for Government expenditure on “infrastructure”. Such fallacies are intellectual products of either those who know no economics at all or those who have forgotten whatever little they might have been once mistaught in their youth. What serious economics does say is that Government should generally have nothing to do with any kind of private business, and instead should focus on properly providing public goods and services, encourage competition in all avenues of economic activity and prevent or regulate monopoly, and see to it all firms pay taxes they are due to pay. That is it. It is as bad for Government to be pampering organised foreign or domestic business or organised labour with innumerable subsidies, as has been happening in India for decades, as it is to make enterprise difficult with red tape and hurdles. Businessmen are grown ups and should be allowed to freely risk their capital and make their profits or their losses without public intervention. An economics-based policy would have single-mindedly sought to improve the financial condition of every governmental entity in the country, with the aim of improving the provision of public goods and services to all 1,000 million Indians. If and when budgets of all governmental entities become sound, foreign creditors would automatically line up before them with loans to sell, and ambitious development goals can be accomplished. As long as public budgets (and public accounts) remain in an outrageous shambles, nothing can be in fact achieved and only propaganda, corruption and paper-money creation results instead. Whatever economic growth does occur is due to new enterprise and normal technological progress, and is mostly despite and not because of New Delhi’s bureaucrats (see “The Dream Team: A Critique”, The Statesman 6-8 January 2006). The first aspect of the new Indian foreign policy has been for Government to become wholly ingratiating towards any and all “First World” members visiting India who may deign to consider any kind of collaboration whatsoever. The long line of foreign businessmen and heads of government having photo-ops with the Indian PM began with Vajpayee and has continued with Manmohan, especially when there is a large weapons’ or commercial aircraft or other purchase to be signed. The flip-side has been ministerial and especially Prime Ministerial trips abroad ~ from Vajpayee’s to a Singapore golf-cart immediately after commiserating Gujarat, to Manmohan receiving foreign honorary doctorates while still holding public office. Subservience to foreign business interests in the name of economic policy extends very easily to Indian naval, military or diplomatic assets being used to provide policing or support services for the great powers as and when they may ask for it. Hence, Indian naval forces may be asked by the Americans to help fight pirates in the Indian Ocean, or escort this vessel or that, or India may be asked to provide refuelling or base facilities, or India may be requested to vote against Iran, Venezuela or whomever here or there. But there would be absolutely no question of India’s role in international politics being anything greater than that of a subaltern or comprador whose response must be an instant “Ji, Huzoor”. The official backing of the Tharoor candidacy was as futile and ridiculous as the quest for UN veto-power or the willingness to attend G-8 summits as an observer. While subservience towards the First World’s business and military interests is the “kiss up” aspect of the new foreign policy, an aggressive jingoism towards others is the “kick down” aspect….”
Dr Singh’s aide at one point challenged his friendly interviewer suggesting the very need for “fiscal stimulus” could hardly be questioned as if such a thing was beyond his imagination. And again, I am afraid, I may have been quite alone in December 2008 in lambasting as counter-productive all this purported “fiscal stimulus”. Just another colossal, indeed perverse, waste of public resources driven by organised business lobbies in their own interests, since in fact no one — not Dr Singh nor any of his aides, acolytes or flatterers, foreign or domestic, or anyone else anywhere — has any empirical or theoretical models of any kind depicting the phase, period or amplitude of any possible business-cycle that India’s economy may be on. Since none of them has any idea whatsoever of what the amplitude or frequency is of any such purported business cycle, they are as likely to have caused a pro-cyclical exacerbation of the amplitude as any sort of counter-cyclical dampening! (Viz., Leibniz ‘s principle of insufficient reason.)
How to see what is happening in Indian macroeconomic policy in the simplest comparative static terms is this: both the IS and LM curves are being pushed outwards drastically based on a deliberately erroneous assumption that there is or might develop mass involuntary unemployment of the sort Maynard Keynes once described in 1936. The overall impact on nominal interest-rates is indeterminate; the process of inflationary deficit-finance with an inconvertible currency that the Government has indulged in for half a century merely continues, further pushing us towards a potential hyperinflation.
The Bourbon regime swept away by the French Revolution that Bastille Day celebrates were said to have “learnt nothing and forgotten nothing”. I am afraid the macroeconomic illogic often found among Government economists, private commentators and business lobbyists in India today suggests to me nothing less than that they have either learnt nothing or forgotten everything from their economics classes decades ago! We in India may need our own storming of the Bastille to sweep away the perverse thoughts and power structures of the post-1947 Dilli Raj.