Tag Archives: Jawaharlal Nehru

India: a perfect storm

Pollyannas had looked to“the emerging economies” – China, India, Brazil, etc. — for growth to help ward off worldwide economic recession, as the Western economies and Japan stumbled.

It’s clear that isn’t going to happen. China is trimming its sails to dampen inflation, braking unlimited infrastructure expansion at any cost to produce jobs while trying to meet increasing constraints on its subsidized exports. Brazil, with a new administration enmeshed in traditional corruption, faces a commodities export crash while fighting off devastating import competition for its domestic manufacturing from its major customer, China.

But largely ignored — what with the dramatic Euro crisis and a threat of double-dip American recession –   is the more important emerging economy, India, now slipping back into its traditional morass. At stake was the hope 1.5 billion people, almost a quarter of the human race, could move with democratic values into a modern society. That possibility was long seen as counter to “the Chinese model” which economically successful, possibly temporarily, is essentially oldstyle Oriental despotism.

Heading the list of New Delhi’s woes is a leadership deficit. Italy-born, 64-year-old Mme. Sonia Gandhi, widow of a former prime minister and backseat driver to the ruling Congress Party, has been secreted away to New York for cancer surgery [if by a noted Indian émigré physician]. She leaves behind a power vacuum, not only in her ruling Party but in government. Prime Minister Manmohan Singh, a technocrat, increasingly is drowning in massive corruption, growing inflation and a flight of capital escaping crippling bureaucracy.

Rahul Gandhi, Mme. Sonia’s 41-year-old son, has yet to prove he has the charisma of three generations of independence leader Pandit Jawaharlal Nehru’s family who imperiously have dominated politics – if, arguably, preserving national unity. Caught in India’s worship of priestly figures, a traditional hunger strike by an anti-corruption hero, Anna Hazare, was mishandled. [Mr. Singh has had to backtrack from Mr. Hazare’s arrest.] The government, correctly, is terrified Mr. Hazare’s high-minded tactics could be appropriated by mushrooming anti-government, anti-business campaigns, further paralyzing governance and the economy.

India’s international role, too, is in jeopardy. Naïve Washington hopes for a U.S.-India alliance against Beijing’s growing aggressiveness have been dashed. American forgive and forget efforts have dawdled in extending nuclear and other advanced technologies after New Delhi defied the world to build atomic weapons — matched by Pakistan with Chinese and North Korean assistance. American vendors recently were shockingly left off the short list for a $10 billion fighter plane bid. There’s suspicion stricter American anti-bribery laws than notorious European “incentives” played a role. A 25-year-old case against Mme. Sonia’s deceased husband, Prime Minister Rajiv Gandhi, for a Swedish purchase was recently shelved, more or less indecisively.

Meanwhile, decades of addiction to a Moscow alliance continues among India’s diplomats, illogical as it might be what with growing Russian arms delivery failures and Moscow’s massive military sales to China. Furthermore, India’s proposed huge overseas defense purchases may not meet its security requirements. Mr. Singh has called India’s greatest threat “Maoist” insurgencies in a dozen Indian states. New Delhi and state governments have passed responsibility for their suppression back and forth with little success. These social conflicts grew out of pro-Chinese proclivities of Bengal’s Communists whose 30-year hold on Calcutta, India’s second city, was recently broken, probably only temporarily.

After three and a half wars, negotiations continue fitfully to reach a compromise with Pakistan, the twin regime bloodily carved out of British India over half a century ago. With its own Muslim population as large as Pakistan’s, Indian leaders increasingly appreciate an implosion there would threaten its own breakup. But terrorists with tentacles leading from Pakistani military through the perennial dispute over Indian occupation of Kashmir are torturous, made even more dangerous by occasional clashes of regular forces such as took place in early September. Washington, after fitful attempts, has failed to mediate the feud, caught between aiding a bankrupt Islamabad and attempting to warm post-Soviet Cold War relations with India.

This picture is clouded further by New Delhi’s fishing in troubled ethnic waters in Afghanistan, and Pakistan itself. The Pushtoon terrorist hotbed on the Afghan border is where Pakistani, Indian and Chinese interests conflict. China, meanwhile, continues a campaign of seduction of Pakistan, a massive Tibet buildup, including missiles and probably nuclear weapons, as well as infiltration in the Himalayan border states of Nepal and Bhutan and at both eastern and western ends of the 1500-mile frontier.


The Mother of All Bubbles?

When Prime Minister Wen Jiabao trotted out his litany of promised reforms to the annual rubber-stamp parliament in early March, they reconfirmed growing suspicions of the Chinese economy’s fragility. Now more veteran observers are joining that little band [including this writer] who has predicted an implosion of the jerry-built system. Granted that some of us have been saying it for several years. But like most human and economic events, not only when but what would trip such a crash is rarely predictable [as was the case for the U.S. credit markets implosion].

Wen characteristically predicted the gross national product would grow by 8%. That is the magic number Chinese leadership – shorn of any other raison d’etre for the regime except rapid growth – has pulled out of the hat. Chinese and foreigners conventionally accept it as the minimum necessary to provide additional employment to ward off social instability. But like all GNP figures – but especially in China where “creative accounting” is a highly developed art form – it has limited validity.

I remember accompanying Prime Minister Jawaharlal Nehru many years ago to the old undivided Bihar, among India’s poorest states. Nehru, surrounded by thousands partaking of his darshan [“spiritual enrichment”], often oblivious to his stream-of-consciousness monologue, made a startling admission. He could not understand, he said, why he saw such poverty in Bihar while the per capita GDP statistics showed it one of India’s richest states. Common sense gave you the answer: Bihar by then already had India’s giant new steel mills. [Nehru called them “our modern temples”.] Not only was their product exaggerating the local per capita income count but its workers were recruited elsewhere nullifying benefit for local subsistence farmers and tribal hunter-gatherers.

Today China’s huge growing inequalities which Wen as always promised to eliminate are a function of what remains a still largely government-owned and mismanaged economy. Experts may argue over the extent China is an export-led economy. But three-quarters of those exports are from multinational companies assembling imported Taiwanese, Japanese, South Korean and other high value components. While producing jobs, they contribute minimally to the livelihood of most Chinese. For despite the vast migration into the cities – which regime policy rationalizes as strategy since it has no solution to a rural, agricultural sector it has shortchanged for more than two decades – no respite is in sight for growing regional and class disparities. And the highly publicized “Gucchi culture” of the coastal cities – increasingly the world’s largest market for luxury goods — represents only a small proportion of 1.3 billion Chinese.

Fewer world mainstream media maven are still pushing the idea Chinese growth would save the rest of the world from the continuing ravages of a universal recession. Since last fall when Beijing announced a somewhat bogus huge half trillion stimulus package [almost half was already committed funds to infrastructure projects decades out like the South-North Canal], there had been that hope. But the highly celebrated increase in intra-Asian trade depends on ultimate markets in the U.S. and the EU – both now deflated with stagnating if not increasing unemployment. China does rally the world commodities markets with energy and ore purchases albeit only as its steel inventories grow. [Beijing’s inexperience in negotiating with oligopolies is part of that mix.] Its vast foreign exchange holdings appear an unparallel asset – until it’s recalled they represent, largely, U.S. debt as counterpart for Chinese currency circulating in a rigidly protected and therefore limited consumer market.

After almost six months with foot on both gas and brake, Beijing has decided to slam the brakes, unable to “sterilize” stimulus funding even with the help of Chinese housewives’ phenomenal high household savings.

Not only are there signs of inflation, but the four major commercial banks – under political pressure from the semi-bankrupt State Owned Enterprises – were again tossing out vast loans likely never to be repaid. Instead of producing higher consumption over a broader market, estimates had 20% of the additional liquidity going into stocks despite unjustified dividend ratios. Real estate – including one infamous whole city in Inner Mongolia – for various reasons goes unsold and unoccupied. Like glorious Beijing Olympics white elephants, new skyscrapers were added to already untenanted silent towers a decade old in Shanghai’s Pudong “financial” district. Millions of motorcars have been sold with large government subsidies – but the cost of their operation including increasing imported energy is a calculation Beijing’s planners will soon have to face.

For all the talk of “capitalism with Chinese characteristics”, the economy remains run top-down in ghost-like Soviet fashion. True, the small private sector, even with its limited access to capital, produces most new jobs. But they are dependent largely on foreign markets which have not yet, and may not for the foreseeable future, return to their former glory.

Hang on for the Chinese to be mugged by reality. And the impact will hit its Asian trading partners hard too with unanticipated consequences for the West.