A recent issue of Time offers an interesting snippet of information: 47 per cent of Americans can’t raise $2,000 in 30 days without selling an asset. I dare say most of the middle classes in India, including the lower echelons of the descriptor, can find, or borrow, one solitary lakh of rupees in one month without liquidating any asset.
Of course, our poor, some 500 million Indians, and almost the same percentage of our 1.25 billion population, can’t think of raising that kind of money. However, the comparison is between the richest country in the world, which is going through a rough economic patch, and the country with the second fastest growing economy which is going through political turbulence and governance deficit.
But then America is largely made up of wage-earners. These range from the mind-boggling compensation of the business leaders to the millions of Americans living on weekly pay-slips. This is because some three per cent of the US’s population actually owns everything there and has a predominant say in most areas of American influence across the world. Capitalism has its advantages, but they are rarely spread evenly.
Another major difference between the US and India is the sheer extent of national debt.
India, with an economy hovering short of $2 trillion, has a large current account deficit, but in percentage terms, it is still in single digit. India also has a sizeable chunk of national debt, measured against GDP, and in percentage terms this is definitely in double digits. Our off-book liabilities, such as those of various poorly-run State power corporations, ad hoc ‘non-Plan’ expenditure and the like, are considerable. We probably owe at least one-third to two-fifths of our GDP when all of it is accurately admitted to.
This could have been higher, but partly because of our infrastructure bottlenecks in power, roads, trains, ports, airports, automation, health, education, methodology, etc, they collectively act to dampen confidence in our economy and slow it down. We are growing at anywhere between seven to nine percent per annum nevertheless.
In comparison, America, the world’s sole superpower, is hardly growing now but continues to borrow in many multiples, not percentages, of its $13 trillion to $15 trillion economy. The US’s national debt is reported at 64 per cent of its GDP, but add in all the off-balance sheet liabilities and it is more like 500 per cent, according to Fortune.
Mr Bob Rodriguez, the CEO of a $16 billion money management firm, First Pacific Advisors, thinks there will be a debt crisis in the American economy within two to five years and that it will shake the global financial systems much harder than the financial crisis of 2008. Mr Rodriguez expects US Government borrowing to hit a wall of international under-confidence, sending global interest costs spiralling out of control.
America is the greatest debtor in the world and China, alongside most of the other leading countries, including India, is its greatest lender. And the US dollar is the main currency of global trade. So, if America goes through a debt burden crisis, it will be many magnitudes bigger than the 2008 financial crisis. It will have a horrific domino effect and hit most national economies.
To prevent that from happening, Mr Rodriguez says, the US should consider fiscal belt-tightening now, not more and more borrow-and-spend policies to promote growth. However, many do not agree with Mr Rodriguez’s prescription, citing the Great Depression of the 1930s when precisely this was done.
India, on the other hand, goes too much the opposite way, ever ready to strangulate growth by citing inflation but never really looking for efficiencies and modernisation as substitute strategies. We end up being feted by the World Bank, the IMF and the WEF by default. But it is interesting to note that no other country wants to follow the Indian way, lacking perhaps our sizeable domestic demand.
That we routinely sacrifice our destiny on the altar of fiscal prudence is cold comfort to those of us who want this country to first, for once, achieve its true potential, because that could heave us into a different shore and paradigm going forward.
Slowdowns hit the poorest hardest and this is as true of people as of nations. But a recent book by management guru Upendra Kachru, India: Land of a billion entrepreneurs, meditates entertainingly on how we have the largest number of shops and mobile hawkers, in urban and rural India alike, relative to our population, in the world. He writes, “The way entrepreneurs operate, whether their strategy is attack or defence, differentiates them.” Indian fiscal policy, on the whole, is defensive.
This prudent stance may well be built into the national DNA. Traditional Indian business always emphasises the balancing of the daily cash books with a bias towards income over expenditure. Our middle classes can come up with a lakh of rupees because they have salted it away in public sector banks and post office PPF accounts or invested it in life insurance policies and even in the relatively new-fangled mutual funds with open plan formats.
Welfarism, including the NAC variety, is largely, if not wholly, directed at the poor and the destitute, even as it infamously enriches the gravy train. Perhaps the Americans, long used to being on top, are habituated to spending every cent they have, something we cannot afford to do in any event. There will be no bailouts for us because we at least have food on the table and a roof above our heads.
When the middle classes in India have no money to fall back upon, given the less than dire nature of our needs, they are on their own. The poor are much worse off, yet we have over 25 lakh better off farmers committing suicide.
Perhaps this lack of bold carpe diem is a civilisational deficit in a nation that boasts of traditions that go back more than 5,000 years. Preferring to always err on the side of caution, we don’t seem to have the guts to realise our full potential, not only just now, but at any time during our long story of survival.
This virtue of making sure we have a financial cushion is partly due to our innate conservatism, our trust in gold and silver over currency, and the saving habit that has only strengthened with greater prosperity after 20 years of the reforms process. The savings rate has actually gone up by over 10 per cent to about 32 per cent of household earnings instead of the other way around.
Another country that saves like us is China. The Chinese have also been around for centuries and gone through many ups, like today, and downs too. But just because they save the Chinese don’t skimp on infrastructure, national security or growth like we Indians do.
Of course, our poor, some 500 million Indians, and almost the same percentage of our 1.25 billion population, can’t think of raising that kind of money. However, the comparison is between the richest country in the world, which is going through a rough economic patch, and the country with the second fastest growing economy which is going through political turbulence and governance deficit.
But then America is largely made up of wage-earners. These range from the mind-boggling compensation of the business leaders to the millions of Americans living on weekly pay-slips. This is because some three per cent of the US’s population actually owns everything there and has a predominant say in most areas of American influence across the world. Capitalism has its advantages, but they are rarely spread evenly.
Another major difference between the US and India is the sheer extent of national debt.
India, with an economy hovering short of $2 trillion, has a large current account deficit, but in percentage terms, it is still in single digit. India also has a sizeable chunk of national debt, measured against GDP, and in percentage terms this is definitely in double digits. Our off-book liabilities, such as those of various poorly-run State power corporations, ad hoc ‘non-Plan’ expenditure and the like, are considerable. We probably owe at least one-third to two-fifths of our GDP when all of it is accurately admitted to.
This could have been higher, but partly because of our infrastructure bottlenecks in power, roads, trains, ports, airports, automation, health, education, methodology, etc, they collectively act to dampen confidence in our economy and slow it down. We are growing at anywhere between seven to nine percent per annum nevertheless.
In comparison, America, the world’s sole superpower, is hardly growing now but continues to borrow in many multiples, not percentages, of its $13 trillion to $15 trillion economy. The US’s national debt is reported at 64 per cent of its GDP, but add in all the off-balance sheet liabilities and it is more like 500 per cent, according to Fortune.
Mr Bob Rodriguez, the CEO of a $16 billion money management firm, First Pacific Advisors, thinks there will be a debt crisis in the American economy within two to five years and that it will shake the global financial systems much harder than the financial crisis of 2008. Mr Rodriguez expects US Government borrowing to hit a wall of international under-confidence, sending global interest costs spiralling out of control.
America is the greatest debtor in the world and China, alongside most of the other leading countries, including India, is its greatest lender. And the US dollar is the main currency of global trade. So, if America goes through a debt burden crisis, it will be many magnitudes bigger than the 2008 financial crisis. It will have a horrific domino effect and hit most national economies.
To prevent that from happening, Mr Rodriguez says, the US should consider fiscal belt-tightening now, not more and more borrow-and-spend policies to promote growth. However, many do not agree with Mr Rodriguez’s prescription, citing the Great Depression of the 1930s when precisely this was done.
India, on the other hand, goes too much the opposite way, ever ready to strangulate growth by citing inflation but never really looking for efficiencies and modernisation as substitute strategies. We end up being feted by the World Bank, the IMF and the WEF by default. But it is interesting to note that no other country wants to follow the Indian way, lacking perhaps our sizeable domestic demand.
That we routinely sacrifice our destiny on the altar of fiscal prudence is cold comfort to those of us who want this country to first, for once, achieve its true potential, because that could heave us into a different shore and paradigm going forward.
Slowdowns hit the poorest hardest and this is as true of people as of nations. But a recent book by management guru Upendra Kachru, India: Land of a billion entrepreneurs, meditates entertainingly on how we have the largest number of shops and mobile hawkers, in urban and rural India alike, relative to our population, in the world. He writes, “The way entrepreneurs operate, whether their strategy is attack or defence, differentiates them.” Indian fiscal policy, on the whole, is defensive.
This prudent stance may well be built into the national DNA. Traditional Indian business always emphasises the balancing of the daily cash books with a bias towards income over expenditure. Our middle classes can come up with a lakh of rupees because they have salted it away in public sector banks and post office PPF accounts or invested it in life insurance policies and even in the relatively new-fangled mutual funds with open plan formats.
Welfarism, including the NAC variety, is largely, if not wholly, directed at the poor and the destitute, even as it infamously enriches the gravy train. Perhaps the Americans, long used to being on top, are habituated to spending every cent they have, something we cannot afford to do in any event. There will be no bailouts for us because we at least have food on the table and a roof above our heads.
When the middle classes in India have no money to fall back upon, given the less than dire nature of our needs, they are on their own. The poor are much worse off, yet we have over 25 lakh better off farmers committing suicide.
Perhaps this lack of bold carpe diem is a civilisational deficit in a nation that boasts of traditions that go back more than 5,000 years. Preferring to always err on the side of caution, we don’t seem to have the guts to realise our full potential, not only just now, but at any time during our long story of survival.
This virtue of making sure we have a financial cushion is partly due to our innate conservatism, our trust in gold and silver over currency, and the saving habit that has only strengthened with greater prosperity after 20 years of the reforms process. The savings rate has actually gone up by over 10 per cent to about 32 per cent of household earnings instead of the other way around.
Another country that saves like us is China. The Chinese have also been around for centuries and gone through many ups, like today, and downs too. But just because they save the Chinese don’t skimp on infrastructure, national security or growth like we Indians do.
Source: The Pioneer
