Pranab Dada’s poker faced eloquence highlighting the need for austerity to overcome impending economic crisis threatening to plunge the nation into chaos was long overdue. If economic security is threatened, a distinct prospect, then national security is threatened.

Commonsense it is that austerity means living within means. Any individual, organization or nation living beyond means - overstretch - cannot survive for long. Rising money to pay back debts, some view like Germany, is suicidal. Ipso facto, India has been living beyond its known means since long.

Two individuals hailed as economic geniuses – Dr. Manmohan Singh and Pranab Mukherjee – assisted by Dr. Montek Singh Ahluwalia are squarely responsible for the current economic crisis. More cash flows into market increases spending which, in turn, promotes growth is the mantra. Not to be left behind also is the National Advisory Council with its single minded focus on social welfare programs. Even after three economic stimulus packages between 2008-2009, they failed to pre-empt economic crisis.
Laying the blame on international economic downturn and compulsions of coalition politics are lame excuses. Long ago, they missed opportunities to act in bold and timely manner. Never ever, they thought of financial profligacy by the State in the way of automatic wage increases, ostentatious expenditure by dignitaries and imports far exceeding exports claiming to be emerging economic power.

They announced three stimulus packages in 2008 and 2009 to shield economy from recession and claimed credit. RBI reduced interest rates. Incentive schemes have been allocated to boost exports of labor intensive commodities like textiles and handicrafts. Medium and small businesses were provided tax exemptions and tax holidays. Value added tax has been cut to increase spending. Central Value Added Tax (CENVAT) reduced by 4%.. CENVAT on non-petroleum products reduced by 10%. Customs duty on naphtha completely revoked. To provide an impetus to export, duty on export of iron ore fines have been removed and levy on iron lump exports has been cut from 15% to 5%. The tax concessions entailed revenue sacrifice of about Rs 30,000 crore,

Basic data on the state of economy includes: Public debt 67.57% of GDP; Budget deficit over 6.7% of GDP; Revenues $218.7 billion (2011 est.), Expenses $311.2 billion (2011 est.); Gross external debt $267.1 billion (31 December 2011 est.); Public finances - Credit rating BBB, Outlook: Negative.

Public debt or loans for development purposes is universally accepted provided it yields acceptable net returns over investments in fixed time frames. India’s debt is at 67.57% of its GDP closely followed by the Brazilian government debt at 65.09%. On the other hand, debt levels in Russia and China are comfortably poised at 8.37% and 22.03% respectively. One can take solace that US fiscal deficit has crossed a $1 trillion mark - almost 9 per cent of GDP - with public debt at $16 trillion - 100 per cent of its GDP. Unless India sustains above 10% GDP growth rate, its debt repayment capacity will be low.

Our debt levels, both Central and State levels, have reached almost the point of no return. Either we seek more loans to repay interests and sustain ourselves or beg for a “freeze on loan repayments” or moratorium on interest payments which is a step towards insolvency.

The current budget deficit is over 6%. In contrast, China’s budget deficit is only 1.5% Hiking taxes, increasing fuel prices, issuing bonds, selling government properties, disinvesting profit making PSUs, drawing loans from international financial institutions, attempting to attract foreign direct investments to mobilise revenues, failing which resort to deficit financing to make up for budget shortfalls cannot continue forever.

Thus, the dire need for belt tightening - fiscal discipline - in the form of extreme cutbacks in government spending, subsidies and welfare programs to restore balance in economy.

Suspend importing cost prohibitive security forces related weapons and equipment by encouraging indigenous production. Cut extravagant expenditure on account of ceremonials and award functions. Ban compound walls in spaces earmarked for expansion of roads. Suspend purchases of “Dreamliners” for Air India at least temporarily. Stop using ACs throughout the year; and, illuminating roads during moon lit conditions. Take the cue from Japan located in cold region, which has levied embargo on AC usage due to shut down of nuclear industry.

Critics view austerity as more of a threat than an actual solution. They argue that World Bank and IMF conditionality’s tend to depress economic growth, which ultimately causes governments to lose more money in tax revenues. They engender deflation which inflates existing debt. This can also cause the country to fall into a liquidity trap, causing credit markets to freeze up and unemployment to increase.

They also believe that the working class and the poor bear the brunt of government cutbacks in spending. Critics cite examples of Ireland and Spain in which austerity measures instituted in response to financial crises in 2009 proved ineffective in combating public debt, and placing those countries at risk of defaulting in late 2010. Now, politicians are worried about political backlash or civil unrest.

After all, workers and students in Greece and other European countries have been demonstrating against cuts to pensions, public services and education spending. The latest is the rejection of political parties insisting on austerity in Greece and France.
But, the idea of austerity is to tighten government spending for a short period until country's debts get largely repaid. Surely, those privileged few enjoying unbridled perks and privileges can afford to sacrifice their luxuries temporarily or pay for them at higher rates.

In our country, no need to do research to find where and how public money gets squandered. Media is exposing on daily basis. Look around and one can experience financial profligacy everywhere. At the top is the ostentatious expenditure of the President of India – 22 foreign tours accompanied by jumbo sized family retinue. Add expenditure on account of President’s internal tours. Next, Rs.86 crores expenditure by Mayawati, former Chief Minister of UP, for installing her party symbols along with her mentors and her statues. Jayalalitha follows closely behind with her Rs.26 crores front page advertisement in the knowledge of debt burden of Rs one lakh crores. Parliament/legislatures are fine examples.

None is concerned with expenditure on account of foreign tours of Cabinet Ministers and their henchmen, bureaucrats, MPs/MLAs knowing full well that the lessons of developed nations like either USA or even Israel cannot be replicated. One Minister is on record of making 17 trips within a very short period. The joke in Andhra Pradesh is unending tours by Ministers accompanied by family members and bureaucrats in the name of attracting foreign investments. Their returns are any ones guess – may be zero. More cash outflows rather than cash inflows. Where is the need for sending legislators and bureaucrats for studies in foreign countries at public cost? Also, hold seminars and Guest lectures at various institutes. Surely, video conferencing facility is available to exchange views and reach conclusions.

I have nothing against VIPs spreading awe around with speeding fleets of escort vehicles accompanying them in the name of security. But, foreign exchange is needed for import of fuel wastefully squandered away. Both the ‘Green Book” and VIP security manuals need revision. Look around in shopping malls during office hours, one can find families using government staff cars on domestic errands. Shamelessly, they draw fuel allowances.

Similarly, I have nothing against the life styles of elected representatives living in spacious 24x365 days centrally AC bungalows illuminated by dozens of security lights if they can provide free power, subsidized diesel and fertilisers to farmers – hailed as “Annadatas”.

Even I have no problem with enhancement of wages at Class 2, 3 and 4 levels. But, I certainly express anguish at the nearly 300% rise of pay, allowances, perks and privileges to the President, Prime Minister, Cabinet Ministers and MPs or their counterparts at State level. The Sixth Pay Commission bonanza for the central government employees, particularly at Class 1 level is a matter of serious concern. Wage increases automatically got extended to even loss making PSUs.

The clamour for parity with those in private industry, sans accountability, is unjustified. Look at the current financial mess in Air India due to organized group of pilots holding the nation to ransom. Why not handover the national airline to the Indian Air Force to function based on reduced packages of perks?

Most disturbing, but true it is, that quite a few officials make weekly tours all over the nation when video-conferencing facility is available to them. Surely, there is a need for imposing a ban on officials using tours to increase their fast flying return mileage points.

Such irresponsible spending of public funds - living today as if there were no tomorrow - has led quite a few nations to collapse.

From economic theory point of view, additional cash inflows into internal economy regenerates economic growth are sound. Reduce interest rates, print paper money and issue of government bonds are time tested measures which have failed the nation. Such measures, per se, cannot alone save the nation from the economic crisis. Provided mobilised funds by whatever means are judiciously used for development instead of pampering bludgeoning babudom or if it encourages capital flight into foreign banks.

Of course, the World Bank and the IMF are insisting drastic spending cuts through downsizing government machinery, tax rises, significantly cut public investment, lower wages and pension reforms to restore financial sanity. Other country's creditors including MNCs may also demand implementation of austerity program before credit can be restored.
India needs to take lessons from others. One of Merkel’s top economic advisers carries his papers in a simple student’s book bag instead of a briefcase.

And the chancellor herself still lives in a modest apartment. Wages have been stagnant for the past decade, part of a deliberate strategy to make Germany more competitive. That wage restraint has helped fuel the export boom, but it has also made ordinary workers vulnerable to inflation and kept domestic consumer spending anemic. Cyprus too offers lessons - announced bold measures like a massive cut in state spending and also a 3 per cent salary cut for public sector workers.

Pranab Dada may highlight the need for bold measures, but cannot even think of them with 2014 elections ahead. Speculations making rounds concern hike in taxes and excise duties and reduce subsidy burden to shore up revenue collection. Opposition parties will cry foul at any such moves.

Thus, the ruling UPA alliance is caught in a self inflicted economic quagmire. They cannot do away with subsidies, lower wages and social welfare programs with 2014 elections just around. So also, they cannot rise fuel prices and hike taxes which are bound to increase inflation. The only way for Pranab Dada is to invoke a blanket 10-15% cut in budget allocations with severe restrictions on foreign and internal tours, deputations and lowering expenditure on account of perks and privileges. For him, TINA (There is no other alternative) is an imperative.
Pranab Dada may also like to change self admission on the need to ‘bite the bullet’. He may like to refine the metaphor – “eat the grass or taste the dust”.

For everyone, the biggest challenge is to balance politics and economics.