Musings on the 3Is: India, Inflation, and Insurrection
It’s hot these days. Seriously hot. The literal temperature apart, we have things like inflation, economy, and interest rates all waxing hot. People, too, aren’t that far as globally protests, crime, and unrest are all on the rise. PM Modi wasn’t much help either with his Agniveer scheme instigating massive violent demonstrations across the country. In their latest meeting, the FED too fired a bazooka when they raised the interest rate by 0.75. This is the biggest increase since 1994. Oil, too, has been burning off late. Worse of all, there seems to be no end to these fires. No water or fire extinguishers to put these blazes to bed.
Let’s start at home. To be clear, Modi’s Agniveer scheme aims to recruit 45000-50000 people between the ages of 17.5-21 years across the navy, army, and airforce. But, and, here comes the catch, more than 75% of these hirings would be let go at the end of the 4th year of service with no pension benefits. People are not happy with this at all. Modi’s Agniveer scheme has instigated large swaths of the population, especially the youth, to stop their work or studies and come out on the streets to protest this. For argument’s sake, let’s remove the emotion and look at this with clinical objectivity:
The Indian government wants to spur employment and simultaneously enhance the strength of our military operation in light of recent geopolitical vulnerability, something this policy does rather well. We not only give more than 45,000 citizens jobs but also add younger, fitter, and more active soldiers to our armed forces, which, as seen in Ukraine, can be the difference between winning and losing a war.
This, though, comes at a cost to the government as they are now responsible for paying these 45,000+ people. As we analysed last week, the government's financial position is simply not the best. They are swimming in debt, and the pool will only deepen in the near future. This brings with it the additional interest payments that have to be paid out of our already constrained budget, so, yes, to an extent, I do understand their predicament.
But, the people also have a point because this new policy removes any chance of having a military career for most new hires. It introduces an undue pressure to best and better the expectations of their superiors to be a part of the top 25%, which get selected to stay. While this can boost the military's productivity, it will not help the mental health of our officers or aspiring youth.
This is quite a pickle because the government is in no position to support the pensions of an additional 50,000 people every year. Their debt is only rising, and that is gutting their budget more and more. But, since the public's demands are justified, the government will have to listen to them at some point. Ultimately, the government will have to reach a compromise to pacify the protests across the nation. The longer the protests continue, the longer we inflict harm on the economy and the longer we promote a culture of instability.
Further away from home, inflation and interest rates seem to be the only thing on everybody’s mind. Imagine worrying about feeding your family because inflation has made your previously decent income untenable for survival. Imagine worrying about electricity and energy prices that power your homes, your family’s lives, and just about everything you do. Compounding problems are the recessionary bells ringing across the American continent. A recession in America could mean turmoil for the global economy. No country has the purchasing power that America has; the capital they have to invest and dole out; and a stronger currency than the dollar. It makes me puke thinking about the impact an American recession could have on global markets: Nifty, Hang Seng, Nikkei, and almost every other capital market in the world.
China had and still has the ingredients to challenge American supremacy successfully, but their geopolitical authoritarianism robs them of the chance to do so. We cannot mistake the power America has currently. They are the only superpower with sprawling and robust military forces to combat the rising threat of Russia to Europe and China to Taiwan. They are the only country with sway over the EU. They are also making amends to past diplomatic disasters in Asia, which could or could not give them ample clout here as well. Despite all its vices and wrongs, I think America is still the greatest superpower in the world. Despite things not looking rosy in-house, they seem to be doing pretty well beyond their borders.
Yes, the Fed’s policy-making has not been met with a favourable reception, mainly since their failure to correctly assess the inflation threat has led us to where we are today. The current Fed playbook has been increasingly compared to the unsuccessful playbook employed early on during the Great Inflation of the 1970s. History predicts a prolonged recession just like the one in the 1970s because oil inflation, preceding Fed policy missteps, food inflation, and recessionary pressures were present during the 1970s and are today as well. I don’t mean to sound pessimistic, but the times presently invite such pessimism. I hope and pray that things return to normalcy in terms of both COVID-19 and inflation. We need to march forward head strong, but unless these obstacles in our path are removed, such a march would be beset with unwanted troubles. Let’s hope Jay Powell can prevent a recession in America, and PM Modi can course-correct his policy missteps back at home here.
Image Credit: Sky News