Pump-Priming the Global Economy

Lessons from the global economic debacle and why the government should plough some of its foreign exchange reserves into agriculture, health, housing and infrastructure.

By B G Verghese

New Indian Express, 17 November, 2008

Barack Obama did not join the G-20 summit in Washington last week; but that should not matter in going ahead with the formulations adopted at the meeting. The US needs to embrace the world and not walk away from it, having got it into the terrible current global meltdown through thoughtless decision-making, with a measure of European connivance, and the President-elect knows that. The logic of the US Congress’s cry against bailing-out the irresponsible fat-cats who landed their country in its present financial mess, does not stop at its borders but extends beyond as these same elements dragged the world economy down with them in a manner that exhibited neither high wisdom nor probity.

The IMF and Western banks’ insistent prescriptions encouraged irresponsible investments that fuelled the Asian financial crisis some years ago. On that occasion, the victims paid for others’ greed and folly. That story must not be repeated and there is today greater sense of contrition in Western and Bank-Fund board rooms. Dr Manmohan Singh summed up the Indian and Developing World’s position, which is that there must be a higher flow of World Bank funding to beat the global recession, a bigger say for some of the larger, emerging Developing World economies in the IMF and the management of a reformed international financial system, and that there should be no retreat into protectionism which would hurt the Third World hardest in a situation of falling commodity prices. The World Bank has agreed to enhance resource flows by opening a $9 billion window for infrastructure lending. Additionally the WTO Doha Round must be speedily concluded with less emphasis on huge First World farm subsidies and greater tolerance for far more modest Third World agricultural subsidies by drawing a distinction between ostentatious consumption on the one hand and survival on the other. The crying need for alleviating poverty and hunger through attainment of the lagging Millennium Development Goals cannot be ignored.

Twenty or more years ago when the world suffered the second “oil shock” and a recession was feared, the West and Japan met to think up a global infrastructures fund to undertake mega inter-regional projects that would inject demand and pump-prime the global economy. Ultimately Japan was asked to take the lead and set up the Global Infrastructures Foundation. This conceptualised some 10 mega projects among which were tapping the giant U-Bend of the Brahmaputra for hydro-electric power, a second Panama Canal, damming the Bering Straits and so forth. The time may be ripe for examining more seriously the U-Bend project as a regional venture partnering China, India and others, especially in the context of climate change. But over and beyond this, there is a huge accelerated investment agenda that India needs to press forward with domestically to counteract recessionary tendencies that are reflected in falling exports, production cuts (as in the automobile and steel sectors) and new investment decisions, including housing.

The country’s near $300 billion foreign exchange reserves warrants a Government announcement that it will invest at least an additional $50-100bn over the next five years, with more to follow to pump prime the economy. This investment has to be agriculture-HRD (education, health and housing)-infrastructure led as these have been the three major sectors holding the economy back. Agriculture and nutrition have been in decline and there is no way the country is going to generate mass employment and income at the grassroots level without a huge boost to agriculture for which there is enormous untapped potential in both rain fed and irrigated regions. The Kosi disaster has wiped clean the slate of agrarian inequity and hopelessness in northeastern Bihar, with nature providing opportunity for a great new beginning that could truly make that state a national bread basket. But, this apart, idle hands, unskilled, skilled and professional, can be put to work to rebuild and expand the country’s deteriorating lands and farm capital assets to herald a leap in agricultural production. NREGA funds and the launching of an imaginative national service corps could transform rural development and generate demands that could sustain a new tier of local industries and upgraded crafts. There is no other way to create and sustain an annual increment of 10-12 million new jobs over the ensuing decades, with small rural industries steadily graduating in scale and skills to more sophisticated local and medium industries.

The announcements recently made regarding new railways, highways, mass transit systems, ports, dams, power stations (including nuclear and non-conventional), airports and telecommunication and transmission corridors must be translated into action. A country that has brilliantly kept a rendezvous with the Moon is surely capable of comparable feats of vision, mission and accomplishment on earth. None of this, however, will be possible without a massive expansion in education at all levels and health, sanitation and housing so that the nation’s human resources are fully harnessed. The expansion has to be both quantitative and qualitative. The Northeast and J&K would be major candidates for big-time infrastructure expansion within and beyond international boundaries – an offer to extend the Srinagar-Barmulla railway line to Uri and Muzaffarabad for example, even as work goes on to complete the link to Udhampur.

During the Great Depression of the 1930s, Roosevelt pushed through a New Deal. Obama has to do likewise, not only at home but globally. India too must plan for such a New Deal at home and in the region. We are already assisting Afghanistan very substantially. But what about the neighbourhood closer home? This is the time to each out to Pakistan, Bangladesh, Nepal, Sri Lanka, the Maldives and Bhutan. New governments are in place, Bangladesh is preparing for polls and Sri Lanka needs to plan for the reconstruction of its devastated Northeast. This is the time to talk to our neighbours about a South Asian New Deal to fight recession and build new and happier regional relationships.

Would not this be the right time to add to the World Bank’s $8bn bail-out package for Pakistan with an Indian contribution for purposes to be mutually agreed upon, transcending historical mistrust and hatreds and reinforcing the peace process? India has the resources to mount such a New Deal for South Asia - a $ 10 billion package. It must summon the will and vision to do so for it cannot flourish if South Asia falters. .

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