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February 13, 2011

Page: 4/38

Home > 2011 Issues > February 13, 2011

Thinking Aloud

When push comes to shove Congress leaders will have no place to hide

By Dr Jay Dubashi

There are only four countries in the world which have higher inflation than India - four out of more than a hundred countries with respectable economies. They are Pakistan (obviously), Argentina (whose economy is in a mess), Venezuela, with its economy in a bigger mess, and Egypt, a perennial culprit in such matters. All other countries suffer from a lower consumer inflation than India.

CHICKENS are at last coming home to roost and will soon chase Congressmen who have been looting the country since independence. The loot they have parked in Milan - and, some say, Colombia - is now so vast that it has outgrown the coffers of those countries. The other coffers, namely Zurich and Cayman Islands, are also being tightened up and will soon be forced to cough up their illicit contents. According to some experts, there are at least one million crores of US dollars or ten trillion US dollars locked away in foreign banks and although the Americans are pressing us to unlock the loot, the government here, which means Manmohan Singh & Co, is sitting tight and has no intention to displease its patrons.

This is where inflation comes in. The government says it cannot find any plausible reason for it, as if inflation has fallen from the sky. The government has hundreds of economists on its rolls. It has also a man called Chidambaram who fancies himself as a financial expert. The Prime Minister himself is an expert. But all these economists and all the fancy computers in the government have not been able to explain why prices have been soaring for the last six months and are still shooting up, though all over the world, inflation is actually very low, so low that fears are being expressed that the economy may go into recession.

What is the connection between black money and inflation? We have had black money for years now but nobody linked it with inflation. But now suddenly prices are shooting up for no other reason than there is too much cash sloshing around. The Reserve Bank has hiked interest rates and made it virtually impossible for banks to lend money. But prices refuse to come down.

There are only four countries in the world which have higher inflation than India - four out of more than a hundred countries with respectable economies. They are Pakistan (obviously), Argentina (whose economy is in a mess), Venezuela, with its economy in a bigger mess, and Egypt, a perennial culprit in such matters. All other countries suffer from a lower consumer inflation than India, according to latest figures from the World Bank. Russia and Turkey come very close to India’s figure, but nobody takes their economics seriously. Why is India, which is otherwise praised for its booming economy, in such company where inflation is concerned?

The fact is that some of the politicians and other characters have become so scared of being exposed as looters that they are bringing money home from their tax shelters. There is therefore so much cash around that the markets are inundated with it. You can go to small towns and watch the phenomenon. According to reports, the crops this year were so bad that money is tight in small towns. But that is not what you actually see. On Diwali day, while you and I were shopping for the cheapest sweets and crackers, there was such a big rush in some of the jewellers’ shops that the showrooms had to be closed for the sake of safety. One shop ran out of all its gold ornaments and diamonds before lunch and had only silver left on its shelves. Newspapers were full of stories about how prices of onion and brinjals and cauliflowers were shooting up, but some people were more worried about gold prices than prices of onions!

What is happening is that politicians are bringing home their loot for the first time in large volumes, because of the scare of Americans and agencies like Wikileak’s, who now seem to have access to confidential documents. If Wikileak’s can go about throwing open secret documents from the State Department, and what the Secretary of State said to her officials and what the ambassador in Afghanistan thinks of its President, it can also burrow into the vaults of Swiss and Milanese banks and release the details. It can publish the names of Quattrocchis and their friends and relations in Delhi, with the amounts held by them in Swiss and Milanese banks. I have a feeling that this is going to be Wikileak’s next job and all hell will break loose when it does it, at least in the vicinity of Janpath.

So far, money from tax shelters is coming back in dribbles, for the politicians and businessmen with secret hordes abroad do not want to take chances. But even this small amount has set off waves through the economy. In Mumbai, where there is more black money than in the rest of the towns and cities combined, the cash is going into real estate, as we have already noticed. I am quite sure that the babus and their bosses, the ministers, who purchased their flats in the notorious "Adarsh" building in South Mumbai did so with black money. Plots of land are now changing hands in Mumbai at exorbitant rates unheard of two years ago. One plot of a couple of acres went for Rs 150 crore. The man who purchased it is close to a former Chief Minister of the State who is now a Cabinet Minister at the Center. This man is supposed to be looking after food and agriculture, but he is said to devote more time to real estate than onions and potatoes.

Money is money, black or white, and it impacts the economy the same way. If you spend a few hundred rupees of black money in the market, it has the same effect on white money. And now that there is probably as much black money as white, prices are doubling every few months. This is why onions are costing twice as much as they did a few months ago, and why cricketers are being bought and sold of twice the prices they used to be traded a year ago. Bulk of the money in cricket is black, which is why you have so many Congress and other politicians sticking to it like limpets. They want to bring back their loot before Wikileak’s and others shine their torchlight on it, which, I am sure, they will do before long. For the first time, there is panic in Milan, Switzerland and Cayman Islands, who have made small fortunes on Indian loot, and it is also why our government says it is helpless and does not know how to deal with inflation!

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