Homer has been 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.
For starters, an increase in house tax for 80 per cent of house owners, to collect nearly one per cent of GDP. That’s like Pranab Mukherjee announcing a new tax to collect Rs 75,000 crore — more than all new taxation proposals in Indian Budgets in the last decade and more. The Greek tax has come after the government asked many pensioners to make do with between 60 per cent and 80 per cent of what they were getting till now. Meanwhile, 30,000 public sector workers are to be sent on a year’s forced leave, at 60 per cent of their pay, and they might lose their jobs completely when the leave ends. Greece has a population that is less than one per cent of India’s; so 30,000 people being sent packing is like 3 million being sent packing in India. The country has been consumed by strikes and street agitations over three years, as the bankrupt country has had to live with higher sales and luxury tax rates, increases in the qualifying age for pensions, and sundry economy measures. None of it has helped, because GDP this year is expected to shrink by seven per cent.
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 per cent of the debt; the market now says the hair-cut should be 60 per cent. 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 per cent 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?
