I think all other arguments can be subsumed under these.

MICRO-ECONOMIC
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The total burden of Rs 60,000 crores, spread over a population of 100 crore, equates to Rs 600 per citizen.

Assuming the burden will be passed to the top 10% of the working adult population, it confers a cash outflow of Rs 6,000 per “you & me”.

Spread over a year, it equals Rs 20 a day. Even people at the lowest decile of this earnings bracket will not be hit hard. Perhaps a mosquito prick (& boy do they hurt), but definitely not a cranium cracking thump.

MACRO-ECONOMIC
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It certainly sets a bad example to free market economics, yet how ‘free’ is free market economics? Is Adam Smith’s ‘hand of God’ truly potent enough to ensure a smooth, creaseless honey-coloured economic universe?

Possibly 5 trillion US$ of dubious loans have been gleefully advanced in USA to people I wouldn’t loan my half-mangled chewing gum to. Of these arguably $500 billion are dud. Rubbish. Garbage. In one word, NINJA (No income, no job, no asset).

This now triggers off a speculative boom-boom in the US property market, sliding house prices by 100% in 5 years. Dressing these loans under the term “sub-prime” is just trumpery to hide the fact that they are less potent than the stuff sold by itinerant snake-oil salesmen. And these crap investments are then audaciously packaged and sold on by investment banks to other gullible banks, institutions and individual green-horns, both in the USA & abroad.

Who evaluated these worthless securities? Why credit rating agencies. And who paid these agencies to come up with their ‘objective, independent, trained’ valuation? Surely not the investment banks who are selling these products in the first place!! So no scope for conflict of interest here, missus !!

And do buying banks pause once to even inhale before plunging in block-head-first in to this opaque & murky jamboree? Do they ask if the value of the underlying securities is anything remotely resembling the probable discounted cash flows from such trash? No. The hallowed and almighty credit raters have ranked them as AAA. So all is well in the land of finance. What unbridled conceit. What boundless smugness. What audacious pride.

And after the pride cometh the Armageddon.

I was liquidating my assets (sights on Antepodean zephyrs) when the hurricane struck. I was down Rs 40 lakh on my pre December values. Some very smart and astute day trading, blood-curdling, nerve-racking and diarrhoeaic risk taking have reduced my losses to Rs 8 lakhs yesterday. But that awning deficit still looms my waking state and menaces my nightmares!!

Compared to this catastrophe unleashed by so called free economics that has nearly wiped off my 8 years of slave labour, the release of loans to starving farmers is not a great deal.

Free economics is the best system we’ve got for sustained development. Yet free economics can degenerate in to free-for-all economics, or free-to-abuse economics. It is not a way of life and death; it is a tool, nothing else. Justified exceptions (not abuses) to it can be accommodated with ease, without fear of international or domestic financial retribution. China has broken every single economic rule with brazen and carefully intentioned abandon. Yet the financial coffers of capitalism still coo and court it like dribbling suitors on viagra.

For a country like India, economics should confer the greatest good, to the greatest number of people, for the greatest period of time.

Chidubabu’s action definitely meets the first 2, but what about the third? Will there now be a rush of people to drown themselves in new loans with the express purpose of defaulting? I think not. These are farmers who have toiled all their lives for meager returns. I’d like to think they will be astute enough, at least in the long run, to prefer sustained development over paltry and temporary gratification.

Of course the government needs to send out a clear signal that this is a one-off measure to remove a grinding chunk of misery. It will not be repeated, and is not intended to be a carte blanche for free finance. Measures the government can take include :

(a) Restricting future loans to Rs 20,000 (for e.g) at a time for small plot-holders
(b) Requiring earlier repayment terms
(c) Better monitoring procedures of the effectiveness of loan utilization.

This can be done, especially if it has a commercial benefit. SBI has 100s of thousands of branches dotting the country. Chidambaram’s actions, IMHO at least, do not upset the macro-economic applecart.

POLITICAL
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Yes, the actions are shamelessly political. They fly in the squeaky clean clearasil drenched face of sharp segregation of political steermanship and independent economic stewardship. They expose an even sleazier than normal picture of political machinations by peddling the family silver.

Yet there may be a political backlash as well. If you drug people once, you can be pretty sure they will clamour for another shot very soon, and if they are met by refusal, they may quiusilingise their tenuous political allegiances in a huff and a hoof.

While the afterglow of Chidambaram’s largesse will at best warm the memories of the fickle populace that benefited from it, the flames of wrath of aggrieved parties, whether they missed out on the free lunch or whether they have suffered higher taxes to finance it, will burn brightly. This may cause lost votes.

MORAL
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I have heard the unrequited wails of dying farmers for over a decade. I have witnessed their tears disappear in to the heartless sands. While the BJP wallowed in its egregious self-congratulating India Shining trumpery, farmers were committing suicide in hordes in Andhra Pradesh. This is a modern day tragedy of epic proportions. The fact that the pain is not garish enough to grab front page headlines makes the misery even more unbearable.

WHAT CAN BE MORE TRAGIC THAN OUR COUNTRY-MEN SLITTIGN THEIR WRISTS TO ESCAPE THE SHACKLES OF DEBT? Come on guys’n’gals. These are our flesh and blood, or brothers and sisters. If we do not protect them, who will?

A more localized solution could have been misconstrued of pampering to farmers in UPA states. It takes a long time to implement, and is open to far more abuse from middlemen (assessing regulators) than a blanket and direct supplier to buyer measure.

Those who know me, know that the Congress (Con & ‘graash’) party is not exactly high up on my Durga pujo invitation list. Yet even so I believe IMHO that though Chidambaram has certainly done it for the wrong reasons, he has done the right thing.

While we have a big coverage on the cost of this loan waiver to the govt, Sainath informs of thus.

Is the waiver ‘unprecedented’? Each year, nationalised banks write off thousands of crores of rupees as bad debt. Mostly money owed by small numbers of rich businessmen. And theirs is not a ‘one-time waiver.’ It is a write-off that recurs every year

Between 2000-04, banks wrote off over Rs. 44,000 crores. Mostly, this favoured a tiny number of wealthy people. One ‘beneficiary’ was a Ketan Parekh group company that saw Rs. 60 crore knocked off. (The Indian Express, May 12, 2005). However, those ‘waivers’ are done quietly. In 2004, last year of the NDA, such write-offs went up by 16 per cent. Such ‘waivers’ have not slowed down since 2004

One more thing that they can do is insurance for the farmers and look at agriculture as an industry

Actually no. The medic, being trained to handle emergencies, can put a temporary sling or perhaps even a cast (which is not sophisticated orthopaedic work) by taking the accident victim to the medic van. But he does not do so.

Later he goes to his supervisor (in our case the electorate) who proceeds to ask him “Did you dispense aid?” He says “Yes”. The medic has not lied. He has simply spent the minimum amount of time that is needed for him give the “Yes” answer without being proven to be a liar. Most importantly, he has not solved the problem of the patient who is still,as we speak, writhing in pain.

I think that anyone that who has some basic understanding of what exactly a free market is will not support SEZs in principle, and even if they do, at least give some caveats. And they certainly will not support subsidized petrol/diesel in any situation.

For the most part, taxes and beareaucratic rules/regulations have always stifled entrepreneurship and economic growth. It led to a situation were something just needed to be done to stave of even more massive unemployment. One of the actions taken? The creation of SEZs that were nothing more than a certain geographic area for which certain rules were relaxed. This is what it sounds like to me “The high taxes and other policies we had in place really sucked, but we dont want to fully reform those just now. However, we’ll create SEZs where we relax those rules since we desparately want economic growth to take place at least in some pockets”. This is not really a free market policy. A proper free market would have the same rules for the whole country. Now, SEZs may still be tolerable if only for the reason that if they prosper amidst the ruins, then it might lead to more pro-free market reform for the whole country.

I wouldn’t exactly call SEZs crony capitalism (since its not a particular individual, business group, or company that benefits but rather a geographic area and domain (e.g. software companies). The special favors for Tata to build a factory in Bengal would be close to crony capitalism, and I was opposed to that as I had said in my comments to that (although I was focussing more on property rights there). I recall that you were in agreement with me there.

Apparently, govt forcibly taking away farmers’ land at some arbitrary price is not ok with you. But the govt taking away other people’s money, giving it to farmers as loans, and then waving the loan (in effect, forcibly transferring the money from those people to the farmer) is not only ok with you, but meets with your enthusiastic approval.

It has been no one’s case that human beings are perfect. From that it follows that people who would participate in markets would be as prone to manipulation as government servants or people like you and me. That is given.

What is required is faith in processes and not people. So for example, if the interest rates are being manipulated, the government has two courses left to it : a) encourage more competition; the RBI regulations make it hard for foreign banks to open offices or even for private Indian banks to expand. b) Take strong regulatory steps to check manipulation. R.B.I is supposed to do that job.

(Btw, considering the largest banks are almost all state owned, are you suggesting that government has been manipulating interests?)

However, this process does not include the finance minister appealing to the banks. Maybe that appeal was in recognition that interest rates were true reflection of demand and supply. No?

As far as worshipping at the markets are concerned, I would submit it is better than extolling the virtues of the mai baap sarkar.