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Getting out of the ‘guns, germs and steel’ crisis

Topics Covered: Internal security related issues.

Getting out of the ‘guns, germs and steel’ crisis

Context:

India is said to be going through the ‘guns, germs and steel’ crisis.

(The name is borrowed from the title of Jared Diamond’s classic book on the evolution of societies and nations, Guns, Germs, and Steel: The Fates of Human Societies).

What it represents?

  1. Chinese “guns” on the borders.
  2. Coronavirus “germs” in our bodies.
  3. Steel” makers and other businesses on the verge of bankruptcy.

Why this is worrisome for India?

This is the gravest confluence of military, health and economic crises threatening our nation in more than a generation.

Each of these would qualify as an independent, large crisis by itself, warranting a specific resolution.

  1. The Chinese military threat calls for immediate and strategic action by our defence and foreign affairs establishments.
  2. The COVID-19 health epidemic is here to stay and needs constant monitoring by the Health Ministry and local administration.
  3. The economic collapse is an enormous challenge that needs to be overcome with prudent policy.

Need of the hour:

The common thread across these is that its resolution requires significant financial resources.

Standing up to a military threat by a superpower neighbour will pose an inevitable drain on the finances of the government (Kargil war has proven this).

To face the COVID-19 epidemic, the central government will need additional funds of the equivalent of at least one percentage point of GDP to continue the fight against COVID-19.

The lockdown has affected all the four major drivers of our economy- people’s spending on consumption, government spending, investment and external trade.

What needs to be done now?

The government needs to spend an additional eight percentage points of GDP while revenues will be lower by two percentage points of GDP, a combined gap of 10% of GDP.

Potential new sources of revenue such as a wealth tax or a large capital gains tax are ideas worth exploring for the medium term but will not be of much immediate help.

This will pose a new challenge- junk crisis:

To fulfil its obligation, the government needs is to borrow copiously.

This will lead to a fourth dimension to the “guns, germs and steel crisis”; a “junk” crisis. 

With rising debt levels, international ratings agencies will likely downgrade India’s investment rating to “junk”, which will then trigger panic among foreign investors.

Conclusion:

India thus faces a tough “Dasharatha” dilemma — save the country’s borders, citizens and economy or prevent a “junk” rating.

The government’s choices are either to be bold and embark on a rescue mission, or do nothing and hope the situation resolves itself.

On balance, it seems that the best course of action is to borrow unabashedly to pull India out of the “guns, germs and steel” crisis and deal with the consequences of a potential “junk” nation label.

Sources: the Hindu.