Cost of freedom: Looking at Independence and national Indebtedness

As we celebrate our national Independence Day, we should take stock of one of the biggest threats to India’s sovereignty: the possibility of having to grapple with national indebtedness. This has already overwhelmed large parts of the post-colonial world. This independence day, we must consider ways and means to ward off dangers of indebtedness which have crippled the world’s other post colonial nations.

Several countries in Europe are already steeped in debt; Greece in particular, its debt nearly 200 per cent of the country’s gross income. Yet describing Greece as a post-colony is considered to be an insult. Colonialism and the post-colonial destiny of indebtedness are seen only in the context of nations outside the Euro-North Atlantic world. 

Over the last half century, the neo-colonial domination of the third world is the necessary background against which we can make sense of the current debt crisis. Greece’s plight and Greek debt are not exceptional developments. Much of the post-colonial world has suffered from indebtedness — ranging from peasant indebtedness to national indebtedness.

The graphic and often visual details of shuttered banks, public protests have made the Greek crisis a gripping and tragic narrative. But, a full-blown sovereign debt crisis has already been present in much of the post-colonial world over the last few decades. Several countries in the post-colonial world — from Sub-Saharan Africa to South East Asia — lie in a debt danger zone, where an economic downturn or a sudden jump in interest rates on world debt markets can trigger disaster. 

Footloose investors from countries with rock-bottom interest rates are looking for bigger returns than they can get at home. In many cases, the mobility has prompted post-colonial States, commercial firms, and financial institutions to go on fresh borrowing frenzy, inviting potential problems. At times these States are compelled to borrow; at times they build for themselves rosy futures to be realised by cheap borrowings. Despite the difference between the current Greek scenario and traditional national indebtedness of former colonies, there is an extraordinary similarity of experiences shared by all of them.

Even as debt accumulates, many think that the borrowed money can be gainfully deployed towards diversification of the economy and infrastructure improvement. But this does not deter empty financialisation of the country, privatisation of its assets, accompanied by massive corruption. Given the recent history of corruption in the last one decade, India is a not an exception to this trend.

In many countries, government debt is approximate to or even higher than 30% of GDP. Consider Tanzania for example, which after struggling with a severe debt crisis in the 1990s, has finally emerged from the crisis.

Repayments as share of government revenue have fallen from 27% to 2%; child mortality has reduced; fees for primary schools have been abolished. But government revenues in Tanzania are heavily dependent on exports of gold and precious metal ores.

Though dollar-dominated borrowing and falling commodity prices have endangered African countries, debt seems to be on the rise, in Tanzania as well as in Ethiopia. Likewise, Mongolia, which has welcomed foreign investment to exploit its huge natural resources, including coal, plans to borrow heavily to create this infrastructure. 

In short, current levels of lending threaten to recreate debt crises. The temptation to paper over the cracks with borrowed money is truly a global phenomenon linking the democratic West and the post-colonial world in a remarkable but enigmatic knot. One estimate puts net cross-border and worldwide lending increasing from $11.3 trillion in 2011 to $13.8 trillion in 2014. The same source also admits that all this debt is probably being accumulated because other sources of growth are increasingly in decline. As Greece’s left-leaning ruling party Syriza found, debts appearing manageable one day could quickly become unsustainable the next, if conditions in financial markets or “market sentiments” abruptly shift.

Periphery countries in the global economy have become the sites of channelling loans. Loans flow to these countries from the core regions with low interest rates to reap benefits — more because the acceptance of dollar and euro as common currencies make such mobility of credit easier. It only delays the appearance of the debt crisis, though the effects of a surge of capital inflows on real exchange rates should be clear to all. 

Domestic prices rise faster than those of trading partners. Investment increases in non-tradable sectors and in financial assets like domestic stocks and shares. Such situations everywhere, including in India, make exports more expensive and imports cheaper, further aggravating the decline. The emerging markets receiving large capital inflows also experience real estate and stock market booms followed by economic downturn. 

What one economist calls the “debt funded profligacy” results in capital flight and a financial crisis. As if in a pre-scripted drama, the lender countries level charges against the debt-ridden countries of irresponsibility. Then they make demands on them to adopt austerity measures for the common people. This has happened in many former colonial countries, and is now playing out in the Euro zone. So, Greek experience of indebtedness is similar to the experiences of Bhutan, Ethiopia, Ghana, Laos, Mongolia, Mozambique, Samoa, Senegal, et al. 

European exceptionalism, therefore, is a myth. The European peripheral countries therefore may like to examine the ways in which debt crisis has been handled, averted or postponed. For instance India, Malaysia, Argentina, have all violated global rules, imposed temporary capital controls, depreciated their currencies, effectively defaulting on debts, and followed expansionary fiscal policies at home. The global managers though angry, have not been able to do much. Finally lessons are to be learnt from China, which never incurred foreign debt after becoming free. Despite a severe stock market downturn, China has not faced a crisis of the proportions in the Western hemisphere. 

How do we explain this anomaly? After all, China too had faced austerity, which unlike in Europe, was not an exceptional phenomenon but a general condition of life, Yet, at some point, politics in the post-colonial world as in India has become incomparably richer. One can see that even in the recent resistance to the land acquisition bill, which wants to deploy governmental machinery for complete financialisation and privatisation of land. This is where we have to pose the question of national independence as against the neo-liberal dilution of the public economy. 

No doubt, independence as a political idea is dear to all. But what will this political idea be without economic content? At a time when India is trying to imitate the ways of the neo-liberal financial world and dilute the banking system including the autonomy of the Reserve Bank, it should ponder the history of third world indebtedness. And we should take pride in our long anti-colonial legacy of struggle for popular democracy and national independence. 

The author is Director, Calcutta Research Group