Greek lessons

Greece has finally emerged from nine years of crisis, severe austerity, political turmoil and what is supposed to be the last of three bailout programmes the nation required. It was the largest bailout in history, which amounted to 288 billion euros ($330 billion) and the country now remains saddled with debt equivalent of 180 per cent of its annual economic output. Although Greece can say that it has pulled itself up and out from the worst, the country still has a long way to go. It has the huge debt to settle.

The case of Greece was not only one about financial mismanagement by the country itself but also about how banks in the Eurozone quietly allowed such a state of affairs to emerge. Fact is that while the bailout programme appeared to be saving Greece, it was actually saving the lenders in Germany and France and placing the blame at the doors of the Greeks for mismanagement of the nation’s finances.

To emerge from the situation, Greece found itself having to undergo trial by fire in the form of austerity measures that brought it to its knees. A quarter of the country’s gross domestic product (GDP) disappeared over eight years and unemployment rose above 27 per cent. The country has returned to growth with its huge public deficit turning into a budget surplus — before interest payments are made. It has also seen jobless rate falling below 20 per cent.

India is unlikely to be impacted positively or negatively by the changes in Greece as its trade linkages with that country are negligible. However, Greece can offer examples to India in terms of not permitting banks and other financial institutions to become arbitrary and getting involved in dubious transactions. If an impartial view is taken of almost all new economy related legislations being enacted by the Indian Parliament, it would be easily understood that the situation is being worsened through this kind of legal process.

For example, the very basis of bank nationalization was to make banking facilities not only available in rural India but also to reach out to the middle and economically weaker sections of society. Admittedly, the exercise failed not because the idea was incorrect but rather because the people involved in actual transactions are inefficient and highly corrupt. Knowing this machinery backside front, the new so-called liberalization laws are making the system exclusively friendly only to the super rich. It is an accepted fact that bad loans have been a crippling factor for the Indian banking system. Yet, on closer scrutiny, it is easily noticeable that the bulk of the NPAs of Indian banks are with the huge borrowers. Comparatively, the bad loans in the MSME or even the real estate business have not been as bad.

Apart from creating a plethora of laws aimed at facilitating the big sharks, the country is also failing in generating adequate jobs to meet the needs of people. Jobs in large numbers cannot be created only by supporting big corporates. Mechanisation, computerization and now robotics have gradually diminished requirement of manpower in very many sectors. These advancements only help the large industries. It is exclusively small, medium and agro related enterprises which generate large scale job opportunities. While a simple promise of increasing the Minimum Support Price (MSP) has not been followed through in earnest, the only heavy investment for agriculture can be seen in the farm insurance schemes. No doubt, crop insurance does save the farmer from personal tragedies. However, depending on insurance is assuming, right from the beginning, that there will be crop failures and the farmer will have a cushion in the form of this insurance policy. Considered in the correct perspective, this may be termed as a negative input. On the other hand, investments in large-scale are not visible in the agriculture sector. Neither is the MSME slice given enough backup and protection.

The International Labour Organisation has pointed out that India has to improve its wage policies to achieve inclusive growth. It has stated that the country still has a huge gender and wage gap. State Bank of

India Chairman Rajnish Kumar has pointed to issues with consortium lending and also said that it has led to the creation of more stressed assets. Kumar believes that delayed response of banks may have led to the mounting of stressed assets. India, too, is going through a tough phase in which it should remain austere and observe thrift. It cannot afford to splurge on the non-essentials or bail out cheats and frauds when fundamental issues are plaguing the country.