Explaining Indian Economic Crisis

In September 2008, the collapse of Lehman Brother helped trigger an economic and financial crisis that swept across the globe. Since then, the whole global economy is suffering a continuous economic meltdown. On the other hand, the Fabian socialist democratic governments¹ around the world are trying to delay the collapse and obviously, they are failing.

Wrong Steps of Indian Government Exacerbated Economy of India

In 2008, Indian government boasted about its strictly regulated banking system and claimed that Indian economy is strong enough to resist any economic meltdown. However, the UPA government and the Reserve Bank of India knew more than what Indian ignorant citizens believed. Reserve Bank knew that India is much more in danger than any developed country and to counter the effects of global recession, Indian UPA government and Reserve Bank of India blindly followed Keynesian idea and the same path of economic stimulus and bailouts² as was followed by the US government.  Huge economic stimulus for the failing economic sectors of Indian market was offered. This was done in a hope that by increasing supply, they will somehow increase the demand. Same was done in the United States, in United Kingdom and other Eurozone countries and in China.

Government Caused Inflation, Price Rise and Poverty

Indian government failed to learn anything from the experiences of other countries who miserably failed with their Keynesian approach towards economic busts. As a result, Indian government forced whole India towards an uncontrollable inflationary mode that gradually started showing its colors of consequences and Indian citizens started feeling the pressure of price rise.

Price rise was inevitable because of the governmental foolhardiness to increase supply of currency in the market on the name of increasing liquidity. The reality was, Indian housing sector, Indian aviation sector, Indian agriculture sector, Indian cement sector and many more were suffering a huge crisis and to ease that out, Reserve Bank of India allowed easy money printed out of thin air so that  the suffering sectors could attain easy loans to maintain the production. The aim was to maintain the GDP growth and the Industrial growth to a higher level. However, government failed to realize the simple fact that by increasing currency in the market through their corrupt regulations based on bailing out companies and whole sectors out of the failure will ultimately increase the price rise of everything in the market.

This is a simple fact that by increasing currency or by printing money out of thin air or even by gaining back all the black money from the Swiss banks will not make India any rich and this fact has been explained here. However, the UPA government headed by one of the most famous economist of India failed to understand this simple rule of economics. Not only Manmohan Singh, but Montek Singh Ahluwalia, P. Chidambaram and Pranab Mukherjee, all of those pseudo-geniuses failed to understand this simple economic rule that by increasing currency, one cannot increase prosperity, but yes, price rise and poverty will certainly increase.

Was it Wrong Policy or Governmental Fraud?

The fact is, all those bailouts offered by the Indian government and the RBI were nothing but a scam, a fraud in favor of Indian industrial houses and the super rich people at the expense of poor and middle class Indians. It is simple reality that the price rise doesn’t make any impact on those Indian billionaires and millionaires, rather it affects people leading simple middle class or lower middle class life and it hurts maximum to the poor people. Yet, government never thinks any good about the poor and middle class citizens, what it thinks for is about the profits and economic problems of the rich class.

In order to support their irrational and dishonest policy of bailing out the failing sectors, government suggested that it is important to maintain the progress and production rate and these bail outs will ultimately help India to become a super rich state, a growing economy. So, Indian government again gave the sweet pill of ‘greater good’ of the society which was to make India super rich super economic power and in return, UPA government demanded poor and middle class citizens to appreciate governmental move of bailouts and economic stimulus.

When Indian citizens started complaining about heavily increasing prices of common goods, our Finance Minister Pranab Mukherjee claimed that growth brings inflation and price rise³ and our Prime Minister supported Mr. Pranab Mukherjee’s irrational idea. If growth increases price rise, then growth increases poverty too. How can citizens become poorer if the nation is growing and becoming rich?

However, the truth cannot remain in dark for long. The recent figures of Indian Industrial Production (IIP) suggests that governmental bid of economic stimulus and bailouts miserably failed and the production rate despite of all economic stimulus and bailouts is suffering a huge drop as it is negative (-5.1 %)⁴ which in October 2010 was 11.2 %., thus it isn’t growing, it is shrinking. Not only this, the overall Indian growth rate is also expecting a huge decline and even the government has lowered its GDP growth forecast to 7.5%⁵ which initially was expected to 9% and was 9% in 2009. Indian aviations sector is already suffering huge crisis and the Indian Airlines, and Kingfisher Airlines are looking for chances to gain more economic stimulus and bailout package. Thus, neither India is growing nor the Industrial Production is growing. On the other hand, inflation, price rise, corruption and poverty are certainly growing.

Reason behind Indian Economic Crisis

So, despite of all the bailouts and economic stimulus that government provided for Industrial sector and the aviation sector why is the production rate going so abysmally low?

The reason is simple. Indian economic and production growth was suffering an artificial boom that reached the height in 2008 and it caused a situation of bust. Despite all the strict regulation of Indian banks, India was a victim of huge recession and to defy and deny it, Indian government provided economic stimulus to avoid the ignominy of being a failed government and centralized state. However, such tricks never work because the artificial boom simply means wastage of resources and malinvestment. By promoting economic stimulus and bailout package, government only created further artificial demand to increase supply which meant more wastage of resources and malinvestment. It was simply like a person suffering a weight of say 80 Kilogram is burdened with another 100 kilogram by saying that it will help. But how could it help? The person who was feeling unable to lift 80 kilograms could never succeed in lifting and balancing 180 kilogram.

Just to help the Indian industrialists and the Indian PSUs, the UPA government burdened Indian middle class and poor citizens with extreme national debt (Indian national debt is alarmingly increasing) and cruel inflation. Thus, Indian middle class and poor citizens were sacrificed twice. Firstly, the economic stimulus and bailout money was provided to industrialist by borrowing and that money is to be paid back by the common Indian citizen. On the other hand, the same money that was flooded in market caused incessant inflation and continuous price rise of food articles, petrol and every other thing that a common man uses daily.

Now the UPA government is again discussing with the players of Industrial sector and certainly, they will try to plan something artificial demand again to support the industrial sector and to increase the growth rate again while the common Indian man will suffer more inflation, more price rise and more poverty. Same is the case of every other country that provided huge economic stimulus and bailout packages for failing industries. However, none of the government accepts their failure. The US President Obama believes that he actually saved America against a bigger disaster⁶ ; Indian Finance Minister Pranab Mukherjee believes that India is growing irrespective of negative Industrial production rate and huge slump in GDP growth rate.  The Eurozone is already suffering and China is also facing burden of increasing inflation and economic depression.

Conclusion: Economic meltdown occurs because of centralized banking and mixed economy. Economic cycles are result of governmental interventionism in market. More intervention in form of bailouts and economic stimulus cannot help, rather it created huge crisis. Yet, governments never accept this and keep following same old failed path because the government have nothing to do with poverty and unemployment of common citizens, the government always thinks about the super rich and offer them bailouts and economic stimulus in bribery and in return, these super rich offer bribery to politicians and government officers. It’s all bad nexus of Crony-capitalism Mixed economy⁷ . The solution is simple, true Capitalism with no governmental interventionism in economy. Indian government should stop intervening and let the failing industries fail and allow free erction of new industrial platform for free industries that will never demand economic stimulus and bailout packages and will remain responsible for their own failure or success.

1. Mixed Economy the Middle Vice, Rational Libertarian Corner [↩]
2. Indian Government offered Huge Economic Stimulus and Bailout for Failing Indian Industries that caused Inflation, Rational Libertarian Corner [↩]
3. Pranab Mukherjee Clarifies his calim that Growth Causes Inflation and Price Rice, Aug 5, ChennaiOnline [↩]
4. Indian Industrial Production Suffers a Huge Slump, Dec 12, Times of India [↩]
5. Indian Economy has hit a Rough Patch, Dec 12, Times of India [↩]
6. “Mr. Obama is fiercely proud of the record he achieved in keeping not just the United States but also the entire world out of an acute financial meltdown after 2008, presiding over enormous stimulus spending in tandem with unrestrained support from the Federal Reserve. The president and his allies now say that in doing so, they may well have prevented the world from falling into another Great Depression.”, The New York Times [↩]
7. Mixed Economy is a Vice, Rational Libertarian Corner [↩]