Welcome to Waiting For Us Podcast Episode Number 3. Today I would like to continue talking what we discussed in the last episode that when you ask people about India’s lack of progress in comparison to the developed economies, people say that India is a young democracy and we need more time. As I said in the last episode that 70 years is a long time and we have fallen far behind than the rest of the world.
In this episode I want to discuss 2 points:
- Why has India lagged behind in the last 70 years?
- Why we cannot wait or continue the same way for another 70 years?
If you look around the world and see the success people from India has achieved in other countries across the world, it is just stunning. A few Indian entrepreneurs have created companies adding trillions of dollars in GDP of these countries. India’s blue-collar workers has transformed cities and countries across middle east. Indians are single-handedly one of the richest and most successful minorities around the world. Indians are hardworking, intelligent, ambitious and extremely talented in all spheres of life. But after 70 years of self-rule at home, we have continued to struggle with the same issues of poverty, healthcare, poor infrastructure and education to name a few we inherited 70 years ago.
So, it is surely not the people. It is the policies we have adopted and the policy makers we have elected, which has kept us behind. Let me try to explain as why we have lagged behind other countries in the last 70 years.
At the time of India’s independence, since India was ruled by capitalists for over 300 years and communism was not something, which Indian population could ever adopt, India’s leaders chose asocialistic system, which we borrowed from Britain and central planning from Soviet Union due to British and Soviet Union influence on Indian leaders. Over the next forty years, India only got worse as India’s policy makers did not understand the negative consequences of the system we adopted. There were no motivations or mechanisms in the government run organizations to excel in their roles and to compete with the outside world. Job guarantees and corruption became central to all of the government organizations and seeped at the lowest level of society. So, in the first forty years of self-rule, when the Germans, Japanese, Europeans and Americans advanced science, technology and industry, India continued to fall behind. Since, our policy makers personally benefitted from the system in enriching themselves, they did not care to implement any reform. To make the situation worse, poor literacy rate also exploded the population, making the whole system to come to a collapse by 1990.
In 1990, as India imported much more than it exported and ran out of foreign reserve currencies to import the day to day commodities like petrol for its people. So, in 1990, for India to be able to continue to buy the basic commodities from the outside world, India was forced to devalue the Rupee and open a few sectors of economy to private enterprise. Today most of the economic growth, jobs and wealth have come from those sectors of the economy in the last 30 years. Bu the rest of the Indian economy such as the Public Sector Undertakings, Banks and behemoth government enterprise have continued as they were prior to 1990.This is one of the key reasons, we have not made the same progress made by others in the last 70 years.
Now let’s discuss as why we cannot continue the same way over the next 70 years.
According to India’s 2019 budget, Indian government income from taxes and other sources was 27 trillion rupees and Indian government spent a total of 34 trillion rupees. India borrowed the difference of 7 trillion rupees from its citizens and from outside sources such as NRIs, IMF, World Bank and other countries. As you can see that Indian government has been spending more money than it collects in taxes and today India has accumulateda debt of 94 trillion rupees. Now I am using trillions to make the numbers easy to understand. 1 trillion is equal to 1 lac crores.
Now what is most interesting that Indian government spent 25 trillion rupees in funding hundreds of its money losing Public Sector companies including Air India, BSNL, MTNL, Electricity Boards, Mining, Railways and Government Banks. India government borrowed 7 trillion rupees to fund its key social responsibilities such as Education, Healthcare, Infrastructure, environment and other social functions. It is no wonder that all of those key functions including Education, Healthcare, Infrastructure including roads and transport, drinking water, power generation, sanitation and others are far behind than what India’s citizen require.Since India spends all of its tax revenues on the government sector companies, it is squeezed to borrow as little as possible to provide other services. So, its 20 million government sector employees and politicians enjoy a good life but rest of its 1.2 billion citizens live in filth with poor healthcare, unhealthy air, lack of drinking water, dilapidated infrastructure and poor education.
Let me try to explain the situation in simpler terms. Let’s say you have a salary of 25 thousand rupees per month. You spend 15 thousand in house rent and 10 thousand rupees in car payment. You borrow 7 thousand every month now to pay for food and house help and your kids’ education. Since you have to borrow the money for food, house help and kids’ education, it is most likely that you will not splurge on food, you will only get help for key house chores and you will most likely send your kids to government schools. As you try to manage this, you have reached a debt of 94 thousand rupees.
The only way you can fix the personal situation is to downgrade your house and car or find a job which pays more. If you don’t do any of those things, you may go along for a while until your 94 thousand debt grows to a point where you will not be able to borrow any more. Because once you get to the point where you cannot borrow anymore and your expenses stay the same, it will be extremely painful.
India is in a similar situation today. The only way out of it is for the government to get out of funding its highly inefficient and money losing public sector companies, unprofitable railways and money losing banks and let the private sector make it operate it efficiently and profitably. And use the money it collects in taxes on the key functions India’s citizens need. There is no need for the government to continue to fund Air India when there is already a competitive aviation marketplace. It is one of the worst uses of taxpayer’s money when 95% of India’s population will never sit in an airplane in their lifetime. There is no need for the government to continue funding MTNL and BSNL, when there is already a competitive marketplace for telecommunications services. There is no need for the government to continue funding money losing banks when there are multiple large banks including ICCI and HDFC available for everyone to use for banking services.
If India’s debt continues to grow and the economy does not grow, India will not be able to buy the commodities and other things – such as petrol, medicines and other basic necessities which can only be purchased in USD or a non-rupee currency without devaluing the rupee again. Devaluation of the currency makes everything else produced in India more expensive overnight without any increase in individual’s income.Additionally, everyoneloses the value of their assets overnight as well.
Same thing happened in 1990. 100% of India’s economy was controlled by the government and once it ran out of foreign reserves, India was forced to devalue the rupee and forced to open a few sectors to private enterprise. Today, India has changed significantly. India has added another 500 million to its populationand climate change is adding an urgency to the management of India’s natural resources. A repeat of 1990 will be 100 times more painful.
Today, over 2 million people turn18 every month and are entering the job market. Asharp slowdown or disruption in economy will create disastrous outcomes. Climate change has already made droughts more severe and floods more deadly. Another few degrees rise in temperatures over the next 70 years will make parts of India inhabitable.
We must reverse the course by investing in functions, where government is really needed such as education, healthcare, infrastructure, law and order, defense, environment, natural resources such as water and land and add technology to make the governance transparent.
Today, there is tremendous need for investment in India’s judiciary. It takes generations to get a decision on a simple property dispute. All courts and government offices across the country lack funds for upgrades. Lack of computerizations across all businesses allows most businesses to avoid paying taxes and government banks to offer loans with no accountability to millions of politically connected individuals. Lack of transparency in India’s law and order hides the true crime rate in India. Anecdotes of robberies and other crime fills the local city newspapers. Lack of investment in education is producing millions of unemployable graduates. Do we really think, we can continue the same for the next 70 years?
If the transition of government investment is not made from the ever money losing banks, public sector companies and railways to education, healthcare, natural resources, judiciary, law and order, defense and social services for the poor, India will not make it to the next 70 years. We will be then governed by someone else. I do not have a crystal ball but it is not an unimaginable to see that better managed or resource rich states may want to leave the Union or are lured by other countries to affiliate with them. That is what exactly happened 400 hundred years ago when a British East India company showed up at our doors and signed business and military alliances with a few princely states and slowly moved in to take over. It is urgent that we act to change the course before it is too late.
If you agree that we can solve these problems by two basic principles – 1. Limit government roles to key functions and government should only act as a referee and 2. allow private enterprise to provide solutions to day-to-day problems in India then please visit www.waitingforus.in and send a message as how you can help. Thank you.
That can only happen if the all the money losing sectors are allowed to be run competitively wi
More India delays such a transition, impact will be harder across the board.
We have been there before. In 1990, India got to a point, where the sellers forced India to put gold as collateral and devalued the rupee. Every time rupee is devalued, the value of everyone’s wealth is reduced proportionally and
But in the end, we the people of India are responsible for our achievements and failures alike.
PSU Loss Rs 31,000 crore
Railways Rs 35,000 CroreDebt 58,283 crore
14 Public banks Rs 74,277.77 crore
1.5 lac crores loss between PSU, Railways and Government Run Banks and (0.6+0.7+lac Crores in Debt
Total Tax collection is 25 lac crores
Fiscal Deficit of 7 lac crores
7 trillion Rupees deficit
25 trillion collection
1.5 trillion annual loss between railways Banks and PSUs
200 trillion rupees economy
94 trillion in debt
Imagine the progress if India would have invested all this money in these key government functions and allowed private sector to run all of the businesses as it is done by the private sector in telecommunications, aviation, banking and other sectors privatized in the 1990s.
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