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Homer has stood on his head; it is now the Greeks who have been gifted a ‘Trojan’ horse. The gift is a financial bailout package, so that the country does not default on its international debt obligations. But the Greeks have looked to see what is inside the horse, and they don’t like what they see.
And why is Greece being put through the wringer ? Because the French and Germans don’t want their banks (which own much of Greek debt) to take a bigger ‘hair-cut’. Greece’s first bailout package asked debt-holders to write off 21% of the debt; the market now says the hair-cut should be 60%. If Europe’s banks took that hit, Greece could escape the torture to which its citizens think it is being subjected. Moral of the story: if you don’t manage your economy well, expect to get raped when the ‘rescuers’ come charging in.
It is a lesson to which India should pay heed. India is not in Greek shoes, but some lights are flashing red. Inflation is higher than in most countries; the trade deficit is high and the Reserve Bank of India says it is unsustainable; the budget deficit is both high and probably climbing; and the country’s debt-to-GDP ratio is about twice the average for emerging markets. All these point to poor macro-economic management, not in one or two years but over a longer period. And the world is beginning to take notice. India’s stock market is about the worst performer this year, foreign direct investment has crashed, and the rupee has lost more ground than almost all other currencies.
The government may be about to add to the risks, if the bleeding hearts at the National Advisory Council have their way on the universal provision of foodgrain at a price no more than 15% of that grain’s cost to the government—which means that Mukesh Ambani can get his wheat at the same price as a poor Jharkhand tribal. Both will also get their cooking gas at about half its cost. Other proposed entitlement programmes and subsidies will add to the government’s financial burden. Meanwhile, politicians’ thoughts are turning to the next elections, which means the tap could be opened wider. India’s macro-economic risk levels will then go up.
We are nowhere near Greece’s level of impecuniousness, but if we are not careful we could end up needing some help. Anyone here who likes Trojan horses?
