Corruption and Poor Governance Hurt India's Image at Davos 2011

[RiazHaq]

Brand India has lost its luster at Davos in 2011!

Poor governance and corruption are endemic in India, and have been the talk of the town at Davos this year, tarnishing the meticulously crafted image of "Shining India" at the World Economic Forum since 2006. The immediate effect is that India's foreign direct investment (FDI) is already down by a whopping 36% in 2010 from 2009, and there is no recovery in sight yet. Meanwhile India's current account deficit is exploding, accounting for about 3.5% of GDP.

In 2006, the "India Everywhere" campaign orchestrated by Indian planning commission officials and the Confederation of Indian Industry (CII) dominated the ambiance of the World Economic Forum at Davos, Switzerland. They spent two years and more than $4 million and put together an elaborate marketing and PR campaign to ensure that the "India story" got prominent play and did not get drowned in the noise at Davos. The success of the initiative was apparent by the dramatic increase in FDI inflow to India which doubled from less than 1% of GDP to nearly 2% of the expanded GDP in 2008.

Here is how Times of India reported the scene from Switzerland in 2006:

For once, India is really everywhere at Davos. With the 35th World Economic Forum (WEF) opening at the Swiss mountain resort, one cannot help but notice India Everywhere.

Right from the moment you step off the aircraft at Zurich airport, big hoardings proclaiming India greet you. Upon reaching Davos, located about 150 km from Zurich, the Indian colours are just about everywhere.

In fact, you see more of India than Switzerland in Davos this year.

The buses wear Indian colours, the bus shelters have Indian advertisements, and key bars, pubs and hotels in the city where the economic meet began Wednesday evening are serving up Indian snacks and Indian wines and beer.

Reports from the World Economic Forum at Davos in 2011 offer a very different narrative.

Coming after the massive multi-billion dollar telecom corruption scandal in 2010 and expression of deep concern by some prominient India businessmen about the nation's governance deficit in 2011, India's presence at the World Economic Forum 2011 was decidedly lower key when compared with the heady days of 2006.

Summing up the sentiment at Davos, an Indian journalist opined as follows: "..such a forthright disregard for the so-called "India story" may understandably offend nationalist sentiments and bring on the "west versus rest" polarization that keeps many public intellectuals in business. But the harsh truth is that India has been sold, resold and re-re-sold in so many samosa and Sula evenings that it has lost novelty."

Haq's Musings: India at Davos: Story of Corruption and Governance Deficit

 

[Fasih Khan]

Eh 'Green Media' Screams about to Start

 

[RiazHaq]

Here are some excerpts from a piece by Prabhu Chawla of the Indian Express on India at Davos 2011:

.. the ‘event managers’ of the India show were late by three years as nobody in the famous Alpine ski resort today has the patience to hear the old “India Story” that drew applause till 2008 — to the strains of Bollywood music in Zurich — and the line “India Everywhere.” In retrospect, the Indian extravaganza at Davos seems as pretentious as the throng of Kolkata’s dubious book lovers. By 2009, attendance began falling in India-related events at Davos. In that year not even 20 guests attended an Indian IT czar’s evening session. India in 2011 is a disaster story, with Foreign Direct Investment (FDI) contracting by a stunning 31 per cent in a single year — from $34.6 billion in 2009 to $23.7 billion. On the other hand, FDI to Singapore, a country one-fifth the size of the National Capital Region of Delhi, has grown by 122 per cent in 2010—an astounding $37 billion. What is rising is the flight of Indian-owned capital from India: estimated an astonishing $75 billion in the first decade of the millennium, according to a Columbia University study. Against this backdrop, the question that needs to be asked is: Why must the government spend millions of tax rupees to fly its flag at the Alpine jamboree? What object do the evening parties at Davos serve, attended by the same people who usually meet in Mumbai and Delhi for the same purpose — whining and dining.

When put in the China-context, the India story looks even grimmer. The dragon slalomed past the tiger in Davos 2011. China did not have to announce its presence from a restaurant corner, offering samosas as fondue; its aura was felt everywhere. The China-focused sessions spoke more about what China could do for the world than about itself, or its potential. There was no China hoarding visible anywhere. Their delegates numbered just over 20. But hardly a session went without a Chinese face on the podium, or a deferential mention of the country in the proceedings. It was ironic when Min Zhu, a Chinese special adviser to the IMF, not only stole the show in a discussion on India — addressed among others by Chidambaram and ICICI Bank chief Kochhar — but also advised Indians quite magisterially on how serious they ought to get on the inflation problem.
-----
There were plenty more reasons for India to keep a muted profile at Davos 2011. The country has just clocked a current account deficit of $15.8 billion in July-September 2010 — a bewildering 72 per cent increase on the previous year’s $7.26 billion....

Incredible India at Davos | Davos | FDI | Indian Express

 

[RiazHaq]

India's prime minister has warned that the country's rapid economic growth is under "serious threat" from inflation, according to the BBC:

Manmohan Singh said getting inflation under control was a matter of urgency, raising the prospect of an eighth interest rate rise in under 12 months.

Emerging markets like India, where GDP growth is running at 8.5%, are helping to drive global economic recovery.

But Mr Singh said India's inflation rate of 8.4% - and food price inflation of 17% - was unsustainable.

"Inflation poses a serious threat to the growth momentum. Whatever be the cause, the fact remains that inflation is something which needs to be tackled with great urgency," he said.

Analysts believe that surging food and oil prices mean that India's central bank may have to raise interest rates before its next policy meeting, which is scheduled for 17 March.

India's stock market has fallen this year on fears that high inflation will scare off foreign investors.

Wages in India are also rising as workers demand pay that keeps up with the cost of living.

BBC News - India's economic growth under 'threat' from inflation

 

[RiazHaq]

Is India in coma? Is it a corrupt banana republic? asks Mohan Murti in an Op Ed in The Hindu:

A few days ago I was in a panel discussion on mergers and acquisitions in Frankfurt, Germany, organised by Euroforum and The Handelsblatt, one of the most prestigious newspapers in German-speaking Europe.

The other panellists were senior officials of two of the largest carmakers and two top insurance companies — all German multinationals operating in India.

The panel discussion was moderated by a professor from the esteemed European Business School. The hall had an audience that exceeded a hundred well-known European CEOs. I was the only Indian.

After the panel discussion, the floor was open for questions. That was when my “moment of truth” turned into an hour of shame, embarrassment — when the participants fired questions and made remarks on their experiences with the evil of corruption in India.

The awkwardness and humiliation I went through reminded of The Moment of Truth, the popular Anglo-American game. The more questions I answered truthfully, the more the questions get tougher. Tougher here means more embarrassing.

European disquiet

Questions ranged from “Is your nation in a coma?”, the corruption in judiciary, the possible impeachment of a judge, the 2G scam and to the money parked illegally in tax havens.

It is a fact that the problem of corruption in India has assumed enormous and embarrassing proportions in recent years, although it has been with us for decades. The questions and the debate that followed in the panel discussion was indicative of the European disquiet. At the end of the Q&A session, I surmised Europeans perceive India to be at one of those junctures where tripping over the precipice cannot be ruled out.

Let me substantiate this further with what the European media has to say in recent days.

In a popular prime-time television discussion in Germany, the panellist, a member of the German Parliament quoting a blog said: “If all the scams of the last five years are added up, they are likely to rival and exceed the British colonial loot of India of about a trillion dollars.”

Banana Republic

One German business daily which wrote an editorial on India said: “India is becoming a Banana Republic instead of being an economic superpower. To get the cut motion designated out, assurances are made to political allays. Special treatment is promised at the expense of the people. So, Ms Mayawati who is Chief Minister of the most densely inhabited state, is calmed when an intelligence agency probe is scrapped. The multi-million dollars fodder scam by another former chief minister wielding enormous power is put in cold storage. Prime Minister Manmohan Singh chairs over this kind of unparalleled loot.”

An article in a French newspaper titled “Playing the Game, Indian Style” wrote: “Investigations into the shadowy financial deals of the Indian cricket league have revealed a web of transactions across tax havens like Switzerland, the Virgin Islands, Mauritius and Cyprus.” In the same article, the name of one Hassan Ali of Pune is mentioned as operating with his wife a one-billion-dollar illegal Swiss account with “sanction of the Indian regime”.

A third story narrated in the damaging article is that of the former chief minister of Jharkhand, Madhu Koda, who was reported to have funds in various tax havens that were partly used to buy mines in Liberia. “Unfortunately, the Indian public do not know the status of that enquiry,” the article concluded.

“In the nastiest business scam in Indian records (Satyam) the government adroitly covered up the political aspects of the swindle — predominantly involving real estate,” wrote an Austrian newspaper. “If the Indian Prime Minister knows nothing about these scandals, he is ignorant of ground realities and does not deserve to be Prime Minister. If he does, is he a collaborator in crime?”

The Telegraph of the UK reported the 2G scam saying: “Naturally, India's elephantine legal system will ensure culpability, is delayed.”

Blinded by wealth

This seems true. In the European mind, caricature of a typical Indian encompasses qualities of falsification, telling lies, being fraudulent, dishonest, corrupt, arrogant, boastful, speaking loudly and bothering others in public places or, while travelling, swindling when the slightest of opportunity arises and spreading rumours about others. The list is truly incessant.

My father, who is 81 years old, is utterly frustrated, shocked and disgruntled with whatever is happening and said in a recent discussion that our country's motto should truly be Asatyameva Jayete.

Europeans believe that Indian leaders in politics and business are so blissfully blinded by the new, sometimes ill-gotten, wealth and deceit that they are living in defiance, insolence and denial to comprehend that the day will come, sooner than later, when the have-nots would hit the streets.

In a way, it seems to have already started with the monstrous and grotesque acts of the Maoists. And, when that rot occurs, not one political turncoat will escape being lynched.

The drumbeats for these rebellions are going to get louder and louder as our leaders refuse to listen to the voices of the people. Eventually, it will lead to a revolution that will spill to streets across the whole of India, I fear.

Perhaps we are the architects of our own misfortune. It is our sab chalta hai (everything goes) attitude that has allowed people to mislead us with impunity. No wonder Aesop said. “We hang the petty thieves and appoint the great ones to high office.”

The Hindu Business Line : Is the nation in a coma?

 

[applesauce]

India's prime minister has warned that the country's rapid economic growth is under "serious threat" from inflation, according to the BBC:

Manmohan Singh said getting inflation under control was a matter of urgency, raising the prospect of an eighth interest rate rise in under 12 months.

Emerging markets like India, where GDP growth is running at 8.5%, are helping to drive global economic recovery.

But Mr Singh said India's inflation rate of 8.4% - and food price inflation of 17% - was unsustainable.

"Inflation poses a serious threat to the growth momentum. Whatever be the cause, the fact remains that inflation is something which needs to be tackled with great urgency," he said.

Analysts believe that surging food and oil prices mean that India's central bank may have to raise interest rates before its next policy meeting, which is scheduled for 17 March.

India's stock market has fallen this year on fears that high inflation will scare off foreign investors.

Wages in India are also rising as workers demand pay that keeps up with the cost of living.

BBC News - India's economic growth under 'threat' from inflation

8.4 and 17% for food

and the western news has been going on for the longest time about how bad inflation is in china at 4-5 percent

 

[conworldus]

8.4 and 17% for food

and the western news has been going on for the longest time about how bad inflation is in china at 4-5 percent

China's inflation rate is indeed a concern, at 4.6% in December. The thing with China is that the perception of the Yuan being significantly undervalued, thus the western nations are pushing China to hike interest rate. Expecting the rates hike, hot money constantly flows into China, which makes inflation worse. With inflation worse, the government will feel more pressure to hike the interest rate. It has the potential to become a vicious cycle and cause an disastrous bubble. This is why China rather hike the reserve rate than the interest rate, thus keep the yield on the yuan low and keep the hot money stable.

India does not face such problem. First of all, it is a much smaller economy that doesn't carry too much weight, yet. Secondly, Indian inflation is mostly of domestic mismanagement instead of international hot money. Third, India runs a ridiculously high trade deficit for a developing economy, so hot money is unlikely to flow there. Summing all these up, India inflation is a lot less dangerous than a Chinese one. Of course Indian lower class suffers (just read the stats of how many people starve to death in India every year, you get the picture), but if the Indian government doesn't care, why should we?

 

[RiazHaq]

China's inflation rate is indeed a concern, at 4.6% in December. The thing with China is that the perception of the Yuan being significantly undervalued, thus the western nations are pushing China to hike interest rate. Expecting the rates hike, hot money constantly flows into China, which makes inflation worse. With inflation worse, the government will feel more pressure to hike the interest rate. It has the potential to become a vicious cycle and cause an disastrous bubble. This is why China rather hike the reserve rate than the interest rate, thus keep the yield on the yuan low and keep the hot money stable.

India does not face such problem. First of all, it is a much smaller economy that doesn't carry too much weight, yet. Secondly, Indian inflation is mostly of domestic mismanagement instead of international hot money. Third, India runs a ridiculously high trade deficit for a developing economy, so hot money is unlikely to flow there. Summing all these up, India inflation is a lot less dangerous than a Chinese one. Of course Indian lower class suffers (just read the stats of how many people starve to death in India every year, you get the picture), but if the Indian government doesn't care, why should we?

India is attracting a lot of money from the tidal wave of US dollars unleashed the US Fed's stimulus. Last year, India's FDI dropped by 36% but the FII went up by 61%.

In fact, India's current account deficit is being increasingly funded by short-term capital inflows (FII) rather than more durable foreign direct investment (FDI), posing a risk to external balance and funding of gap, according to a recent warning by Goldman Sachs. "Nearly 80 per cent of the capital inflows are non- FDI related. Given the excess spare capacity globally, FDI may remain weak going forward," the Goldman note said.

Joseph Stiglitz, a Nobel Laureate Columbia University economist, has argued that India is more vulnerable to an asset bubble than China, saying that “strong economies that don’t yet have capital control become the focal point” for the liquidity injected by the US Federal Reserve. Stiglitz thinks that India, more than China or Brazil, should watch out for the tidal wave of money made available from the Fed’s quantitative easing.

Haq's Musings: Indian Economy: Hard or Soft Landing in 2011?

 

[conworldus]

India is attracting a lot of money from the tidal wave of US dollars unleashed the US Fed's stimulus. Last year, India's FDI dropped by 36% but the FII went up by 61%.

In fact, India's current account deficit is being increasingly funded by short-term capital inflows (FII) rather than more durable foreign direct investment (FDI), posing a risk to external balance and funding of gap, according to a recent warning by Goldman Sachs. "Nearly 80 per cent of the capital inflows are non- FDI related. Given the excess spare capacity globally, FDI may remain weak going forward," the Goldman note said.

Joseph Stiglitz, a Nobel Laureate Columbia University economist, has argued that India is more vulnerable to an asset bubble than China, saying that “strong economies that don’t yet have capital control become the focal point” for the liquidity injected by the US Federal Reserve. Stiglitz thinks that India, more than China or Brazil, should watch out for the tidal wave of money made available from the Fed’s quantitative easing.

Haq's Musings: Indian Economy: Hard or Soft Landing in 2011?

Some data on it would be highly appreciated. I didn't know that India's FII is rising at such a fast pace. Of course, without capital control and a very very bubbled real estate sector, India is an easy target of the QE series sharks.

Looking at the FX graph I haven't noticed much appreciation of the rupee. If the current account is increasingly more financed by FII, then we can say that the current account deficit is maybe what keeps the rupee from appreciating. When the FII withdraws the rupee would then crash hard, and the India real estate sector will implode.

I don't know how serious of an impact on the world economy it implies, since India only carries a neglible percentage of world trade. But the psychological effect cannot be ignored.

 

[RiazHaq]

FII inflows into Indian stock markets surged 66% from $17.4 billion in 2009 to $29 billlion in 2010, according to The Hindu newspaper.

Mumbai, Dec. 31 Year 2010 saw foreign institutional investors buy Indian stocks for $29 billion net. This is the most that they have pumped into the Indian market in a single year despite the market-indices here being fairly range-bound during this period.

This is also much more than the inflows ($17.6 billion) seen in 2007, when the Sensex was on a gaining streak.

The markets did surge a little in 2009, too, when FIIs were net buyers for a total of $17.45 billion.

Domestic institutions, on the other hand, were net sellers of equities for Rs 19,503 crore in calendar 2010.

FIIs were also net buyers in equities in all months this calendar, except in January and May. August saw the highest net purchases in a single month this year for $13 billion.

On a year-to-date-basis, the Sensex and the Nifty returned 15 per cent and 16 per cent, respectively.

It was this relentless buying from the FIIs that pushed up the Indian markets in 2010.

Though the Sensex did reach an all-time high this year, it was quite range-bound. The benchmark has been trading between 17,000 points and 21,000 points right through 2010.

Over-valued

The buying spree on the part of FIIs slowed down in the last month amidst all the scams and the routine FII year-end exits when they need to pay their investors. Their net purchases during December has so far amounted to $0.3 billion only.

“Part of this pullback is because India is perceived to be overvalued vis-a-vis other emerging markets.

“Indian markets have enjoyed around a 30 per cent premium to the other emerging markets. But what has happened this year is that the scams have made FIIs start to question the rich valuations here,” said Mr Saurabh Mukherjea, Head of Equity at Ambit Capital. He added that the next year might see a moderation in FII inflows into the country.

Domestic institutions were net buyers of equity during December and November after being net sellers for five consecutive weeks. Mr Mukherjea said that insurance companies have been seeing inflows trickling in during December and that the fund houses here are also in “slightly better health”.

Mr K. Ramanathan, Chief Investment Officer at ING Investment Management, said that mutual funds faced a lot of redemptions this year and they did not get much incremental net inflows.

“The changes in the regulatory framework too hurt the mutual fund industry. Distributors find it better to sell insurance products as the brokerage there is better than from distribution of mutual funds,” he added.

The Hindu Business Line : FIIs were key growth drivers of Indian markets in 2010

 

[RiazHaq]

GENEVA: Global foreign direct investment (FDI) flows into India dropped by over 31 per cent in 2010 despite robust economic growth, according to the United Nations Conference on Trade and Development (UNCTAD).

However, China and other countries in South-East Asia continued to witness massive FDI flows, UNCTAD said in its Global Investment Trends Monitor report issued on Monday.

UNCTAD says global FDI flows remained almost stagnant in 2010, increasing by 1 per cent to USD 1.122 trillion.

UNCTAD forecasts that global FDI flows are likely to remain between USD 1.3 trillion and USD 1.5 trillion in 2011.

FDI inflows into India amounted to just USD 23.7 billion last year, as against USD 34.6 billion in 2009. "In India, we have seen a sharp decline and we can't explain why this has happened," said the UNCTAD's investment and enterprise division chief, James X Zhan, who prepared the investment report.

"We don't have the analysis," he said, maintaining that the decline in global FDI flows into India was based on the figures compiled by the central bank.

However, in sharp contrast, China received FDI worth USD 274.6 billion last year, compared to USD 233 billion in 2009. There is a "structural change," Zhan said in regard to the higher FDI flows to China, which is receiving huge investments on services and research and development activities.

Many Western companies have shifted their research facilities to China and there is rapid development in the hinterlands of the Communist country as well.

The sharp increase in global FDI flows to East and South-East Asian countries and Latin American nations in 2010 marked the first time that developing countries outpaced rich nations in attracting foreign investments.

China, Hong Kong and other South-East Asian countries like Indonesia, Malaysia, Singapore and Thailand were the main beneficiaries of the heightened FDI flows in the form of mergers and acquisitions (M&As) and greenfield investment.

Part of the reason for the stagnant investment flows the world-over was largely due to the poor performance of the developed economies, especially European countries, which were the worst-hit by the global financial turmoil.

The United States, which was the epicentre of the global economic meltdown in 2008, is gradually recovering from the crisis, with FDI flows increasing by 40% last year to USD 186.1 billion from USD 129.9 billion in 2009.

"The quarterly fluctuations during 2010 indicate that the worldwide FDI recovery is still hesitant," said the report.

Several risk factors such as the slow global economic recovery, investment protectionism, rising sovereign debt and continued volatility in the currency markets are likely to slow down the pace of foreign direct investment across the globe in 2011, it said.


Read more: Global FDI flows to India down 31% in 2010: UNCTAD - The Times of India Global FDI flows to India down 31% in 2010: UNCTAD - The Times of India

 

[Bigoren]

Well,China is on the main topic in this forum.

 

[kingofallkings]

I won't deny the topic. There is a lot of corruption and a lot of it has been unearthed this last year. It has been a cause of a lot of problems to us, especially by some members of the government.

But it is not as drastic as posted here entirely since people themselves are against such laggard policies.

 

[RiazHaq]

Hot money inflows now account for 58% of India's forex reserves, reports The Financial Express.

The ratio of volatile capital flows—defined to include cumulative portfolio inflows and short-term debt—to the country’s forex reserves increased to 58.1% in March 2010 compared to last year’s 47.9%.

According to the Reserve Bank of India (RBI), the ratio of short-term debt to the foreign exchange reserves declined from 146.5% in March 1991 to 12.5% in March 2005, but increased slightly to 12.9% in 2006.

However, with expansion in the coverage of short-term debt, the ratio increased to 14.8% in March 2008, to 17.2% in March 2009 and 18.8% in March 2010.

The country’s foreign currency assets are invested in multi-currency, multi-asset portfolios as per the existing norms which are similar to the best international practices followed in this regard. At end of March 2010, out of the total foreign currency assets of $ 254.7 billion, $ 132.1 billion was invested in securities, $ 117.5 billion was deposited with other central banks, BIS and the International Monetary Funds (IMF) and $ 5.1 billion was placed with the External Asset Managers (EAMs).

A small portion of the reserves has been assigned to the EAMs with the main objective of gaining access to and deriving benefits from their expertise and market research, said RBI.

The rate of earnings on foreign currency assets and gold, after accounting for depreciation, decreased from 4.82% in July 2007-June 2008 to 4.16% in July 2008-June 2009.

The RBI held 557.75 tonne of gold forming about 6.0%of the total foreign exchange reserves in value terms as at the end of March 2010.

Of these, 265.49 tonne are held abroad (65.49 tonne since 1991 and further 200 tonne since November 2009) in deposits / safe custody with the Bank of England and the Bank for International Settlements.

In November 2009, the RBI concluded the purchase of 200 metric tonne of gold from the IMF, under the IMF’s limited gold sales programme. The purchase was an official sector transaction and was executed over a two week period during October 19-30, 2009 at market-based prices. As a result of this purchase, the RBI’s gold holdings have increased from 357.75 tonne to 557.75 tonne.

Following the commitment made by India as part of the G-20 framework, the RBI has agreed to purchase SDR denominated notes from IMF up to $10 billion. As on March 31, 2010, $317.9 million was invested in notes of the IMF.

International Monetary Fund designated India as a creditor under its Financial Transaction Plan (FTP) in February 2003. During April 2009 to March 2010, SDR 130 million was made available to Romania, SDR 50 million to Sri Lanka and SDR 117.93 million to Belarus.

The total purchase transactions amounted to SDR 1194.16 million as at the end March 2010. India was included in repurchase transactions of the FTP since November 2005. There were no repurchase transactions during the half year ended March 2010.

The traditional trade-based indicator of reserve adequacy- import cover of reserves- which fell to a low of three weeks of imports at end-December 1990 reached a peak of 16.9 months of imports at the end of March 2004. At the end of March 2010, the import cover stands at 11.2 months.

Hot money rises to 58% of forex reserves

 

[RiazHaq]

The Indian economy is in trouble.

Although the economy continues to show high GDP growth, there is a growing disparity between India's sea of poor people and the few at the top of the heap. Out-of-control inflation, caused by the inflow of billions of dollars in hot money, combined with poor productivity due to weak physical infrastructure has resulted in corruption of unimaginable proportions, which has eaten away the gains made earlier. Prime Minister Manmohan Singh, who heads a group of disparate political parties under the banner of the United Progressive Alliance, is busy keeping the coalition government in power by doing little to prevent further deterioration of the nation's economy.
On June 16, the Reserve Bank of India (RBI) raised its benchmark lending rates for the tenth time in 18 months, as a monetary measure to slow down the rampaging inflation monster, which has already greatly hurt the poor, and is now beginning to hit the middle class, which had benefitted in recent years from the GDP growth and wage rise. The earlier nine such monetary measures within the past 18-month period did not slow down inflation. It is inevitable that the high interest rates will attract more short-term hot money into the country, spurring a faster rate of inflation in the coming days.
India has earned the distinction of incurring the highest inflation of major emerging markets. On June 14, the Singh government said inflation had increased 9.1% in May, compared with a year earlier, a rate higher than expected. High inflation was first observed two years ago in the rise of food prices that affected India's poor the most. But since India's hundreds of millions of poor have little voice in directing New Delhi's economic policies, for the greater part of the last two years such inflation was pooh-poohed by Indian economists, accusing the growing army of the middle class of "over-consumption of food." Now, inflation has shown up everywhere, once again, proving the shortsightedness of those economists.
What this picture, which I elaborate below, underscores, is the inescapable truth that if a fundamental shift away from the monetarist system is not initiated in the United States, and soon, we are looking at the literal devastation of the largest population centers in the world, such as India and China. This is, in fact, the concern of all humanity - and must be stopped.
The Growing Anti-Poor Bias Unwilling to change course, and stubbornly defending the failed economic policy, New Delhi is still harping on India's high GDP growth rate. The New York Times reported on June 15, that Kaushik Basu, the government's chief economic advisor, said, in an interview on June 13, that inflation was a problem that all developing countries were facing. "If you look at emerging economies around the world," Basu said, "India's performance looks pretty run of the mill."
But, neither Basu nor others in the Singh government are interested in taking a good look at the damage done by their strictly money-obsessed policies. "The last two years have been a lost opportunity" for India's governing United Progressive Alliance party, Citigroup said this month in a research report.
This monetarist obsession has given rise to full blown inflation across the spectrum. The unprecedented price rise in basic food items is severely impacting hundreds of millions of Indians. Despite the shouting by the globalizers, investment bankers, and their followers within India, millions of Indian families live on a daily diet which consists of cereal - rice, or wheat flour, or both - some vegetables, including onion, and a variety of lentil, or other similar items. Lentils provide the only significant source of protein they have access to, since they cannot afford to buy other high-protein foods, and this includes a large number of people who are non-vegetarians.
The latest figures indicate food price inflation is at 9.13% for the week ended June 11, on top of costlier fruits, milk, onions, and high-protein items. This figure is based on the Wholesale Price Index (WPI); the consumers buying from the retail market pay significantly more.
During a recent visit to India, which was prior to the release of the June 11 inflation figure, I took note of prices of some of the items which the poor have to consume in order to stay alive. The prices made me wonder how they survive. The urban poor have been forced to resort to criminal activities in order to procure food money in a cash-loose town.
What I discovered is that the cheapest variety of rice now costs twice as much as it did four years ago; wheat flour has also doubled during the same period; onion prices went up three- to fourfold; potato prices doubled, as did the price of eggs. The price of lentils (called pulses in India) has gone through the roof, and the cheapest variety, called masoor, has gone up at least threefold.
Milk, an essential requirement in a country where milk is the most frequently consumed drink, now costs Rs.28 (about $0.65) a liter. Chicken costs close to Rs.120 (about $2.80) a pound. Really, there is no food item, including fruits and green vegetables, that is not selling at twice or more the price it sold three or four years before. Needless to say, cooking oil, an extremely expensive item, has gone beyond the reach of the poor.
Now, consider what almost 40% of Indians earn daily. These are the poor, and they earn, on average, about Rs.70 ($1.60) per day. With those earnings, a family of four is left with just rice or wheat, a little salt, and a piece of onion for its meals, or a single meal with lentils and vegetable. This is the state of affairs for a huge part of India that is rarely seen, since it shames the middle-class and the academics, and the state of existence of the poor is denied.
The callous neglect of the agricultural sector, where most of the poor reside, has also exposed them to the global speculators. For instance, the abominable productivity of pulses and oilseeds, two necessary items for the poor to survive, forces India to import these items in large volume from the international market.
Devastation of the Farmers A recent Reuters article, "India's food chain in deep change," said that since the mid-1990s, an estimated 150,000 small farmers have committed suicide nationwide, most of them over debts, according to a survey by the Center for Human Rights and Global Justice at New York University. Behind that chilling figure is the fact that nearly 100 million farmer families not only do not benefit from growth and high prices, but have become victims of the cannibalistic economic policy of the present Administration.
Despite the high food prices in the market, farmers are finding it ever more difficult to make ends meet. The introduction of high-yielding seed varieties and increased use of fertilizers and irrigation spawned the Green Revolution in the 1960s, which allowed India to become self-sufficient in grains. Over the years, however, agriculture innovation and efficiency have stalled due to the Singh government's absolute neglect. As a result, farmers are getting squeezed by rising costs and inefficient agronomy.
But, New Delhi continues to turn the proverbial blind eye to conditions in rural India, where hunger is endemic among the country's more than 500 million poor. James Lamont, writing for the Financial Times, July 1, 2011 last February, cited a Punjabi farmer: "A good farmer with a good piece of land can just about break even," but the small farmers can no longer do so. While Punjab has remained the breadbasket of India, throughout the region, small farmers are sinking under the weight of debt. In India's fast-growing economy, costs are rising for agricultural inputs such as fertilizer and transport.The water table has fallen dramatically, and the cost of irrigation has risen, as farmers use more powerful pumps, consuming more electricity. Despite the Prime Minister's avowed commitment to develop basic infrastructure, such as power and water, vast parts of rural areas have remained without electricity, and due to the non-implementation of a comprehensive water-management plan for the rural areas, many farmers have remained wholly dependent on monsoon rains for growing their crops. Farmers are bitter over the fact that the rural poor are subsidizing the urban classes in New Delhi, Mumbai, and other megacities. The farmers are also under pressure from the government to hold down food prices. By keeping food prices down while paying for increasing production costs, these farmers are becoming increasingly indebted, as the cost of borrowing rises precipitously. Lamont was told by the Punjabi farmers that borrowing costs are now upwards of 24%. They are forced to sell their land to pay debts. But in a state with little industry, most are trapped on the land with few alternative livelihoods. As a result, suicide
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Inflation, Hot Money, and Sleaze Paralyze Indian Economy - Early Times Newspaper Jammu Kashmir