India Living Beyond Its Means

Posted on 09/14/13
By Mahendra Ved | Via New Straits Times
A Jewelry store in India's jewelry capital city of Jypore. India imported gold worth $61.5 billion in 2011-12, making it one of the largest consumer of gold in the world. (Photo by Rolling Okie, Creative Commons License)
A Jewelry store in India’s jewelry capital city of Jypore. India imported gold worth $61.5 billion in 2011-12, making it one of the largest consumer of gold in the world. (Photo by Rolling Okie, Creative Commons License)

Biscuits served at a tea-time meeting I recently attended were all imported. Their “Made in” tag showed six nationalities.

However, with a US$1.84 billion market, India is the third largest biscuits manufacturer after US and China. With foreign players coming in, it is expected to grow at 15 to 17 per cent in the next few years.

The mention of biscuits takes me to gold biscuits. India imported gold worth US$61.5 billion, recording a 44.4 per cent growth during 2011-12 as compared with a rise of 43.5 per cent in 2010-11 (US$42.5 billion). Most of it ends up in temple treasuries and as jewelry.

Along with gold, oil imports cause a big drain on the foreign exchange reserves. India’s crude oil import bill jumped 40 per cent to US$140 billion in 2011-12. Acknowledging the growth of transport and industrialization, there is still scope for curbing the use for passenger vehicles.

As the fuel bill rises, so does the passenger car market that, despite a slump, continues to introduce new models. Preference for small cars is giving way to family’s wishes for things big. To those wavering, bank loans are available to buy, from modest two-wheelers to limousines.

After decades of low consumption, when simplicity, socialism and self-reliance were the watch-words, the Indian consumer’s appetite, post reforms, knows no bounds.

There are other edibles like biscuits: corn from Australia, apples and almond from California, cheese from Switzerland, and so on. Government resisted them as low priority in the pre-reforms era. Now, consumer is the king.

The upper middle-class consumers may afford these goodies at an individual level, but certainly not as a nation. It may not always be the same quality, but India makes it all. But try reasoning with this class? It earlier travelled abroad to get them, but now wants it all on the dinner table.

My rant against this class is because India cannot be an island of goodies, of foreign education, of medical treatment abroad, with the global downturn and the second Asian financial crisis coming. Also, the impending war in Syria raises frightening prospects of crude oil costing over US$150 a barrel.

The rupee lost 25 per cent of its value in the last two months and could hurtle down further. Economic stress is telling on Indian polity.

Kingshuk Nag, writing in Times of India warns: “As a nation, we are living beyond our means and you can’t continue doing so unless we want India to crash (and not the rupee alone). That is exactly what is happening: The crash of the rupee is a symptom of the problems that ail the economy.”

However, this is unfashionable talk in a poll-bound nation where blame game is the order of the day. No economist, no politician, no TV celebrity talks of the need for austerity. They only speak of the curbs the Reserve Bank of India, the country’s central bank is putting or should put, to arrest the decline of the economy’s growth and of the rupee.

This adds up to government-bashing that is not without justification, but cannot be the sole answer and remedy.

Everyone is fighting shy of angering the middle class that dominates the media and the social media intercourse. The not-so-remote control is with the India Inc.

Prime Minister Manmohan Singh has indicated measures to curb the rising gold imports, an undoubtedly unpopular measure, whoever takes it, since gold is used from cradle to coffin.

But main opposition Bharatiya Janata Party (BJP) has opposed these curbs and any attempt by the government to acquire or borrow gold from temples or from individuals through bank schemes.

In the surcharged atmosphere, the issue is being made one of “faith” and of “family pride”.

Manmohan keeps reducing subsidy on fuel making it expensive for the public. But drastic measures — the “hard” decisions on economic reforms that he talks of — are unlikely by a government that is facing flak on numerous issues.

The reality is that the process of reforms has been skewed in favor of the city and against the countryside.

It has promoted the culture of consumption without any breaks. And Manmohan, who began it all, is now riding a tiger that he cannot dismount. This dilemma will trouble every future prime minister/finance minister.

Indians need to prioritize their spending. Just-retired RBI governor D. Subbarao chastised finance minister P. Chidambaram, adding, in parenthesis, that the rupee crisis owed more to profligate spending in India than to any decision taken in America, which has been the government’s stock explanation.

The crisis has gone well beyond a nation’s gross domestic product. The only way to save the rupee and to prevent its free fall is to start practicing swadeshi (self-reliance) all over again. But this is a cry in the wilderness.
Societies construct their economic institutions. However, politics determines their nature and functions, allowing some classes to become exploitative or extractive. Moving from socialist welfarism to “reforms with human face”, the Indian experiment has, willy-nilly, served interests and built riches of those who command levers of power and dominate over political institutions.

No longer a favorite of the privileged classes, the ruling Congress, at this eleventh hour, is seeking to bypass them by pushing populist measures to help the rural poor.

Lok Sabha, the Parliament has passed Food Security Bill to provide subsidized food grains to 67 per cent of the population, estimated to cost US$20 billion. This is credited, not so much to Manmohan, but to Congress chief Sonia Gandhi. The media calls it a possible “game changer” in the elections. The Opposition, although angry and dismayed, could not or did not block it.

Their anger is greater at the Land Acquisition Bill. It provides farmers a safeguard against their land being purchased cheap for commerce and industry. Are we back to socialism,  the media asks, reflecting anger of the corporate class that will find acquiring land expensive and procedures,  cumbersome.

Both are intensely debatable measures. Time will tell if the twin measures brighten the “human face”. This debate will transcend the parliamentary polls. And no matter who wins or loses, it will determine the direction of India’s course.

Mahendra Ved is a New Delhi-based writer and columnist.This article was originally published here in the New Straits Times.

Check Also

$100 Oil Is A Distinct Possibility 

An oil price spike is starting to look increasingly possible, with a rerun of 2008 …

The Downside For Oil Is Limited

Oil prices posted steep losses just as the bulls were back on the march. WTI briefly topped $70 per barrel in recent days and Brent was flirting with $80. But the rally was kneecapped by a variety of factors, and it could be challenging to break above those key pricing thresholds in the near future.

Leave a Reply