“Scaredey cat! Scaredey cat! Can’t
catch a rat!” When we were kids in junior school,
that’s what was chanted with healthy spite and
fervent maliciousness if you backed off from
anything or were proven with feet of clay. My
confession in matters economic is that I have become
a ‘scaredey cat’.
I don’t know how many people realise it, but India
is in a very difficult place. Its deterioration from
global envy to pathos and titter is huge. And the
overhang will continue even after we recover, if we
at all do under the present political dispensation.
A good place to begin is the rest of the world,
whose ebbs and flows determine how global capital
expands or retreats with clicks of the mouse. Let us
start with the world’s worst performing allegedly
advanced nation: Greece. Its real GDP is expected to
shrink by 7.1 per cent in calendar year 2012
compared to 2011. Its current account deficit now
runs at almost 7 per cent of GDP, making India’s at
4.5 per cent look positively brilliant. Guess where
its interest rate on 10-year government bonds are?
It is above 26 per cent — well over the usurious
daily rates that moneylenders charge to fish,
vegetable and fruit sellers at the bazaars of Mumbai
Unemployment is running at almost 22 per cent. With
more than one out of five adults in Greece without
jobs, one wonders how long the new political
dispensation can last before the people start
burning cars and pelting cops at Syntagma Square.
But Greece is only 2.5 per cent of the Euro Zone’s
GDP, you might say. So, let us move on to Spain and
Italy — two of the big four, along with France and
Germany. Spain’s GDP is expected to contract by 1.6
per cent in 2012. Its unemployment is close to 25
per cent, which is the highest in the Euro Zone. Its
budget deficit is 6.5 per cent with Prime Minister
Rajoy having little or no ability to cut back.
Spanish t-bills are being hocked at almost 6.3 per
cent; and it has provincial banks have almost 70 per
cent exposure to real estate loans, whose bad debts
are many times higher than what they recognise.
Italy is also in deep trouble: forecasted GDP for
2012 is expected to shrink by 2 per cent; t-bill
rate on 10-year government debt is running at 5.8
per cent; and unemployment is at over 10 per cent.
Then there is Angela Merkel, a chancellor whose
parsimony a Konrad Adenauer or Ludwig Erhard would
have been proud of. Merkel steadfastly believes that
no profligate Euro Zone members — coincidentally,
all in southern and Mediterranean Europe — should
get any more bailout at the expense of hard working
German taxpayers unless they wear sack-cloth and
ashes and flagellate themselves, eat unleavened
bread with ash, drink stale water and say “Hail
Mary” from here to kingdom come. This is silly
economics at its most medieval, worthy of Gothic
caricature in Asterix comic books.
Now the US and election year. Notwithstanding
President Obama’s Supreme Court victory on health
insurance, it is true that between now and January
2013 there will be no reforms worth the name. Though
rhe US is doing better than the Euro Zone, the
economy remains in doldrums. The best case estimate
for 2011 GDP growth is 2.3 per cent. Unemployment in
election year is ruling at 8.2 per cent — lower than
double-digits but bad enough to bedevil Obama; and
the budget deficit is at 7.6 per cent of GDP, which
can only be brought to balance by 2020 through huge
increases in tax or cut in government expenditure.
What about China? GDP growth is expected at 8.2 per
cent for 2012, But don’t be surprised if it posts
7.8 per cent — its lowest in many, many years.
Despite over $3.5 trillion of foreign currency
reserves, China is deeply concerned about how it can
re-calibrate the economy towards less excess
investment, lower export growth and greater domestic
consumption without opening the floodgates of
disaffection. This is China’s most fundamental
political-economy experiment. Knowing China, it may
well be executed; but it won’t be easy.
On to India, where we have done everything possible
to shoot ourselves in foot, not once but time and
time and time again. We have had to suffer from zero
economic and political governance; excess fiscal
deficits, whose combined might now runs at over 9
per cent of GDP; a current account deficit that is
well over 4 per cent of GDP — more like 4.5 per
cent, but whose counting; and leaders who are at
best disconnected, and at worst look like gophers at
headlights, not knowing where to go.
No wonder I’m a ‘scaredey cat’. So should you be.
Pray. But remain scared.
Published: Business World, July