Whose legacy is it?

When historians look back at the woeful economic mismanagement of the last 10 years will they blame ' dynastic politics ', which means the handouts of trillions of rupees initiated by Ms Sonia Gandhi, or will they blame the Prime Minister who has a PhD in Economics and long experience in government? The Congress shrugs off all criticism by blaming foreign forces and points to an average growth rate of 7.6% in the 10 years of its rule as opposed to an average of 5.9% under the previous BJP government. The IMF does not agree, blaming lack of investment in infrastructure and inflation, leading to the high cost of borrowing, as responsible for the slowdown. Besides, benefits of economic reforms are apparent after a lag period and the growth in the first 5 years was the result of the efforts of the previous BJP government along with an explosion of debt because of low interest rates. The results will be with the next government for years to come as gross Non Performing Assets of banks have climbed to 12.3% from 7.8%. The scary thing is that gross lending of Public Sector banks has risen from Rs 2.85 trillion in 1998 to Rs 35 trillion in March 2012, which is 75% of the total lending of Rs 46.7 trillion by public and private sector banks. The reason why public sector banks are nearly bankrupt is because of the waiver of Rs 760 billion of loans given to farmers in 2008. Not only were the banks forced to bear this amount but farmers were encouraged to default on their loans in the expectation of being forgiven again before elections the next time. Pratip Chaudhuri, Chairman of the State Bank of India said recently," Agriculture is a bit of an issue. That is because of the moral hazard that was created in 2008 when there was a write off of large agricultural loans." A study by researchers of the World Bank, Xavier Gine and Martin Kranz found that loan delinquencies rose after the waivers, not because banks were lending more aggressively but because the program " gave rise to to severe ex-post moral hazard problems, concentrated among borrowers that had previously been in good standing, and who did not benefit from the bailout." After a freak hailstorm recently 73 farmers in Maharashtra committed suicide when their crops were destroyed. Instead of giving handouts to win elections the Congress could have used the money to set up a fund for crop insurance to which farmers would contribute in good times and would receive compensation when times are bad. With El Nino expected this year expect more suicides. Handouts kill.