A non-financial newspaper broke the news. It front-paged a story that foreign debts to be repaid in the next nine months plus deficits on trade account for oil imports will consume most of our reserves.
Was it not possible to foresee this? After all, we have always had a Finance Minister, a Finance Ministry with a slew of bureaucrats and advisers, an Economic Advisory Council to the PM, a Planning Commission and the RBI, not to mention the several Government and RBI-funded thinktanks — establishments (with sensor-driven toilets) costing taxpayers hundreds of crores of rupees every year.
But their talk never went beyond the abstract statistic of a rising current account deficit, that too only in very recent times. In fact, the EAC Chairman is on record that a CAD of $100 billion is easily financeable — not to worry. (His services are badly needed now — to visit the financial capitals of the world and drum up the money). The RBI too completely failed to alert the debt trap developing on the BoP front (unless it did so secretly), in its Monetary Policy reviews and announcements.
But who, in today’s climate, has the courage to say, ‘the emperor has no clothes’?
‘Pathetic’ is the quality of economic analysis and intellectual honesty in the highest bodies of policy and decision-making in the country. They, it seems, will never learn from experience. And never listen to the few who warned of the unsustainability of the CAD and forex balance sheet.
The Finance Minister’s desperate rush to foreign shores to borrow and shore up reserves in the last couple of months now falls into place.
But the numbers are huge. We could get by with a $5 billion -IMF loan 20 years ago. By today’s standards, peanuts.
For the past several years, India has been behaving as if it has a fiat currency like the US, which can print the dollars necessary to finance its imports. We borrowed to bridge the CAD. Nothing wrong, except that we should have simultaneously had a gameplan to increase exports.
Obvious, except to those at the helm of affairs who were so enamoured of foreign borrowing and investment that they entirely forgot that one day they must be repaid from dollar earnings. Those trips to and parties in Western countries to attract money can be so mind-numbing.
Not that China is not interested in foreign capital. It is, in spades. But on its own terms, linked to export growth and export-building capability. Their export boom, over $3 trillion of reserves and far lower foreign debt is there for all to see.
Hint: When Apple develops a new product, who do they call for mass production? Not, by a long stretch, India.
Do our Government and big business get the idea?
(The author is a Chennai-based financial consultant)