dna: Part 5: Manmohan Singh's role in India's economic ruination

aug 22nd, 2011 CE

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From: Arvind Kumar
Date: Mon, Aug 22, 2011 at 8:39 AM
Subject: Part 5: Manmohan Singh's role in India's economic ruination
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Headline in print edition: When Binge Spending led to Ruination

http://www.dnaindia.com/analysis/column_manmohan-singh-s-role-in-india-s-economic-ruination_1578355

Manmohan Singh's role in India's economic ruination Arvind Kumar & Arun Narendhranath | Monday, August 22, 2011

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In the fifth of their eight-part series on the contemporary history of the Indian economy, the authors focus on the excessive spending of the 1980s that eventually led to a balance of payment crisis. By the 1980s, the Indian government had become dependent on foreign aid and loans. If it was not the US, UK or the former USSR that the government approached, it was the World Bank or the International Monetary Fund. These loans made it worse for the economy as the Bretton Woods system had set up the World Bank and the IMF in such a manner that the former colonial powers would benefit from the resources of the developing countries.

Aid was always “tied aid” and was contingent upon purchasing goods and services at arbitrarily high prices from specific American and European corporations and non-profit groups. Many times, these goods and services were of little use and even frivolous in nature. Thus the corporations and non-profit groups in the West received the money from aid programmes while the recipient nations received only goods and services. However, the recipient nations had to repay these loans in cash to the IMF despite IMF not being the source of the money. This was an onerous task since the nation never received any money that could be used to invest and grow the economy. In addition, the IMF always violated the principles of the free-market system and forced the recipient nations to hold their interest rates and exchange rates at artificial levels that stifled economic growth but ensured that the interest paid to the IMF had a high value. The conditions removed all risks for the corporations benefiting from the programmes and at times even forced the recipient government to use public funds to guarantee profits for the corporations. These measures typically devastated the economies of the countries that received IMF loans. ... deleted