‘Fifth Nation syndrome’

The title of this post is taken from Dr A.P.J Abdul Kalam's recent speech. Taking cue from his wise words friend Arvind really goes further digging the Indian economic history and gives many interesting narratives on why we need to go back to our own way of practicing free gold market system for transactions in the society. A bit from his piece in DNA:

• In response, the Swaraj Party demanded that a sound monetary system be put in place and its member Jamnadas Mehta articulated the party’s position on the gold market, “We shall insist in the select committee that an automatic system shall be provided for the expansion and contraction of currency following a free inflow and outflow of gold in a free gold market.” Similar demands have sprung up in the West only in recent times after the occurrence of economic crises in the US and Europe.
• Jamnadas Mehta also rejected the claim that the bank’s board would be elected by an “independent” body of shareholders and stated, “We say that as the executive of the bank owe their existence to the government, they will simply carry out the government mandate in the running of the bank; the directors will have no control whatever.” In the past few decades, his prediction has come true not only in India, but also in other countries where central banks are supposed to act independent of the government.

Here is a very timely analysis by PB Mehta about political economy of India:

• The most criminal example of government mendacity has been its talk on the banking system. During the financial crisis, we patted ourselves on the back for having a prudent approach to banking. Guess what? The government told you lie after lie as the banking system became the main conduit through which crony capitalism flourished. Banks were running Ponzi schemes, giving out loans when there was no rational basis, failing to do due diligence if the borrower was too big to fail, shutting out small and medium enterprises and letting a handful of big players mop up credit at will. Of course, no government will talk the economy down. But no one is being held accountable for the major catastrophe in the making. Banks were put in this position in part because of a prior failure to bring in reforms. Now that they are in bad shape, their fragility is being used as an argument to not diligently clean up the system.

More interesting part is the following lines:

• The central driver of good economics is recognising the problem. Despite the slowdown, government will continue to produce lawyer-like alibis: the whole world is slowing down, the global conditions are adverse, five-and-a-half per cent is not bad. These arguments are patent nonsense.