A Worst-case Scenario for India and Some Thoughts on How to Reduce its Impact

While participating in a debate on growthmadness.org, I was struck by the fact that many among us are actually hoping to find a way out of our current predicament WITHOUT CHAOS and major social-economic-political disruptions... or what pokerfaced economists call Discontinuities.

I think that's unlikely. We are jolly well going to have some 'discontinuities' on this planet, regardless of whether we act positively or just drift happily along seeking economic growth.

The likelihood of populations coming crashing in a series of major calamities is high and getting higher. And please note: this is irrespective of any Global Warming events like ocean levels rising, more powerful hurricanes etc. etc.

Because our economies are growing in a pretty centralized way that is POTENTIALLY UNSTABLE. The globalized economy is like a tower built by kids balancing blocks and books one on top of another; at some point, it all becomes shaky.

Our own civilization is built around central infrastructures that invisibly enable massive human populations (and their massive consumptions) to be maintained, especially in urban areas: power-supply, water-supply, residential and office buildings, highways, railways, food-supply, industries, banking system, stock markets... The degree of reliance on these infrastructures grows exponentially year from year, especially in a place like Mumbai, India, where I live.

For instance, all around me, I see high-rise apartments built to accommodate the burgeoning consumer-class. A lot of these folks are making their money thanks to outsourcing from the US. Without lifts and piped water-supply, high-rises would become uninhabitable.

Now let me project a worst-case scenario for Indian metropolises that could very easily turn into reality.

[Responding to the early comments, let me add a caveat here: Remember, what I've projected here is a WORST-case scenario, not a BAD-case scenario. Reality, as it plays out, doesn't usually follow the worst-case scenario projections... it stops at being merely bad. Usually, NOT ALL THE DOMINOS FALL DOWN... a few remain half-fallen, preventing the rest from toppling.]


THE SCENARIO

The projected US recession in 2008 is deeper than expected. A huge ball of bad debts concealed in the US banking system starts to unravel, causing a tightening of debts and an economic slowdown. In a desperate attempt to create more jobs in the US Economy, the Congress passes laws that ban outsourcing to India.

And this move is emulated by EU Nations who aren't doing too well either.

As the outsourced work dries up, BPOs downsize their workforce and many shut down after struggling along for some months. Millions of apartment-dwellers in Mumbai are rendered jobless. These are currently big spenders running up credit-card debts and supporting the Indian economy with their extravagant purchases.

As these millions of unemployed folks struggle to subsist in the changed scenario, they set off a domino effect that plays out over a two-year period:

Domino 1: They default on credit-card repayments, car loans, housing loans and stop paying their electricity bills. The banking sector takes a hit at first as bad debts mount, and then begins a spate of repossessed houses and cars. Power supply companies, which are now in the private sector, cut off their supply, rendering their apartments unlivable.

Domino 2: As these guys flood the job market, salaries in other sectors of the economy drop precipitously, making more people unable to support their existing bank loans that were taken under the belief that the economy was rock-solid. More repossessions, real estate prices drop, consumer goods companies (durables as well as fast-moving stuff like biscuits and ketchups) start suffering losses. Sales of new automobile drop off as secondhand cars flood the market at distress prices. Mobile phone usage starts dropping off as unpaid bills mount.

Domino 3: Stock markets start tripping and falling, multi-billionaires with their fortunes riding on these high-return instruments realize that these are high-risk too. They start pulling out, close on the heels of foreign investors (including US Provident Funds), and the markets collapse in ruins on the heads of millions of middle-class investors spread all over the country -- in cities big and small.

Domino 4: A number of banks collapse due to large amounts of unrecoverable debts. Very large numbers of middleclass and poor depositors are hit, reduced to rags. The assumptions on which banking rates of returns are calculated are all up in the air. Confidence in banking vanishes. Confidence in markets turns bitter. Confidence in government and administration crumbles. The Finance Minister stops trying to reassure the public and maintains a descreet silence.

Domino 5: Hitherto rich people living and working in high-rises turn paupers, and power-supply to many buildings is cut off and electricity bills go unpaid. No lifts, no water-supply... a large part of the city of Mumbai ceases to be inhabitable. These apartments have no market value, and so they are deserted by their owners. The real estate market crumbles.

Domino 6: Law & Order problems abound -- theft, robberies, murders, suicides, forgery, defaults on debts. Movement of essential goods along road and rail corridors becomes a high-risk business. A state of emergency is declared and the world's largest democracy becomes a police-state.

Domino 7: As medical and surgical supplies drop off and health issues are aggraved by stress, water-shortages, poor hygiene etc, mortality rates surge. Air quality deteriorates as wooden doors, windows and furniture is burnt as cooking fuel. The medical infrastructure becomes overloaded and then collapses. Hospitals become places where sick people go to die rather than to recover.

Domino 8: As death rates spiral upwards, safe disposal of the dead becomes a major economic and administrative issue. Rotting bodies lie uncremated, unburied in deserted high-rise apartments. Friendly neighbourhood stray dogs respond to the abundance of sheltering darkness and human flesh by turning feral, hunting in packs. They revert to being like the wolves and wild dogs that they have descended from. Children and the infirm are now no longer safe.

Domino 9: Deprived of food supplies, city folks -- those who are fit and capable of manual work -- migrate towards rural areas and start invading rural populations. Pitched battles for territory ensue. Communal and caste feuds, never really forgotten, rear their ugly heads. Bloodbaths follow.

Domino 10: National boundaries are now difficult to defend as the overloaded administration crumbles. Many in the administration and in security forces have not received salaries for months; they have few loyalties left. State and Central government offices, municipal offices, panchayat offices, army barracks... all lie deserted. There is no government; it is every man for himself.

In December 2009, a free-for-all state of anarchy prevails over a once-proud economy that boasted of 9.5% GDP growth.

India Shining, R.I.P.

THE END


Variations of this scenario would apply to many nations in the world that are on the economic fast-track. In such instances, how long would it take for national populations to crash to, say, one-sixth of their current strengths? A decade? Or even less maybe?

Hate to say this, but I think each passing year of economic growth increases the odds of a catastrophe of such magnitude. The tower of blocks will definitely fall within the next couple of decades.

The challenge before us is really to anticipate it, awaken the administration to such risks and build safety-valves into the system while bringing down the size of this tower of insecurities.

And this, let me stress, holds true irrespective of whether climate change is happening or not. Even in a world devoid of global warming, the current paradigm of economic growth is a dead-end street.

So let us stop debating about global warming, alternative sources of energy etc. and start bearing down on the brakes of the economy, folks. Slow down economic growth, let the foam and fizz of bullish expectations settle down to a realistic level...

And then let us, with due urgency, try to enter into a phase of consolidating the economy -- redistributing the gains of growth in more socially and ecologically equitable ways. This will help us avoid the brunt of 'discontinuities' when they occur.


A few ideas on how to slow down economic growth

1) Individual consumers need to consciously consume less of whatever it is that they consume. The government or NGOs should incentivate families to benchmark their current levels of consumption on various fronts, then reduce them.

2) Advertising aimed at making people buy more should be tapered off. Only adverts giving information should be allowed.

3) Roadside advertising hoardings should be reduced by 50%, and they should not be illuminated, as they use up precious energy for a relatively non-productive purpose.

4) Stop adding power generation capacities, whether thermal or otherwise. Freeze them at existing capacities and merely replace thermal capacities with wind-energy and solar generation capacities.

5) Stop registering new private vehicles. NGOs or government should incentivate people to give up private transport (for instance by giving them free passes on public transport with 10-year validity.)

6) Each year, taper off the numbers of private transport wheels by 10% or more, and enhance the capacity of public transport by 20%. This will result in a net improvement in the quality of transportation and reduced congestion each year.

7) Enforce a one-child policy with both carrot and stick. This means that within the span of 60-70 years, population would go down by about 50%.

8) Build infrastructure for localised means of recreation such as playgrounds and stadiums, both indoor and outdoor. Encourage greater participation in physical and mental sporting activities by organizing competitions etc.

8) Civic and governmental efforts to improve quality of life are crucial to wean off people from the rat-race.

PS: This is not saying that we shall have no more problems, and shall live happily ever after. Every situation inevitably has its own set of problems... and we shall have to be alert and aware to deal with them as they arise.