Mr Jaitely, Where Will The Money For Public Investment Come From?

Fostering Public Leadership - World Economic Forum - India Economic Summit 2010
On the last page of his magnum opus The General Theory of Employment, Interest and Money, the British economist John Maynard Keynes wrote: “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.”

One of the ideas of Keynes that has never become ‘defunct’ so to say, is that of governments needing to spend more when the economy is in trouble. In The General Theory, Keynes went to the extent of saying: “If the Treasury[i.e. the government] were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again … there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.”

How would this help in reviving the economy during bad times? Raj Patel explains this in The Value of Nothing as follows: “Keynes suggested, rhetorically, that if they lacked the imagination for anything more creative, governments could simply bury bottles of money under tons of trash, and that this would help get the economy going. It may sound bizarre, but it would certainly be worth someone’s while to dig up free money. To find these banknotes would require workers. Those workers would need to pay for food and shelter and everything else they needed to survive while they dug. The grocers who fed them and the landlords who rented to the workers would then have cash to spend, which they would use to buy other goods, and so on. This is called the “multiplier effect,” and it’s the added return that a government gets from spending its money in the economy.”

Keynes’ The General Theory was first published in 1936 and since then politicians all over the world have latched on to the idea of the government having to increase public spending when times are tough.

The finance minister Arun Jaitley is not different on this front. As he recently said: “Public investment has been stepped up in the last year and it will continue to remain stepped up… When you fight a global slowdown, public investment has to lead the way.”

In an environment where corporate balance sheets are stressed and public sector banks are in a mess, this might seem like the best way forward. But that is a very simplistic way of looking at things. The question is where will the money to pay for this public investment come from? And how will the government meet this expenditure and at the same time ensure that the fiscal deficit does not go up? Fiscal deficit is the difference between what a government earns and what it spends.

In the budget speech Jaitley made in February 2015, he had said: “I will complete the journey to a fiscal deficit of 3% in 3 years, rather than the two years envisaged previously.  Thus, for the next three years, my targets are: 3.9%, for 2015-16; 3.5% for 2016-17; and, 3.0% for 2017-18.”

From what it looks like, Jaitley is unlikely to meet the fiscal deficit target of 3.5% of the gross domestic product (GDP) in 2016-2017, the next financial year. In fact, the Mid-Year Economic Analysis released by the ministry of finance in December 2015 has hinted at this very clearly.
As the Economic Analysis points out: “If the government sticks to the path for fiscal consolidation, that would further detract from demand…[Fiscal] consolidation of the magnitude contemplated by the government… could weaken a softening economy”. Fiscal consolidation is essentially the reduction of fiscal deficit, along the lines Jaitley had talked about in his budget speech.

What this clearly tells us is that the government is more serious about public investment than meeting the fiscal deficit target. The question is where will the money to finance public investment come from? As I explain here, the total cost of implementing the recommendations of the Seventh Pay Commission and One Rank One Pension will come close to Rs 1,40,000 crore, if the Railways is not bailed out by the government. Over and above this, food and fertilizer subsidies of more than Rs 1,00,000 crore, continue to remain unpaid. This doesn’t leave much scope for public expenditure, unless the government leaves the subsidy bills unpaid.

Further, there are other things that need to be looked at. Take a look at the following table and the debt servicing ratio of the government.

 

chart

 

Debt servicing is defined as the amount of money a government spends towards repaying the debt as well as paying interest on the outstanding debt. The debt servicing ratio is obtained by dividing the money spent towards debt servicing by the revenue receipts i.e. the income of the government. What the table clearly tells us is that the debt servicing ratio of the government has worsened over the years.

In 2015-2016, the government is expected to spend close to 60% of what it earns in servicing its debt. And this is clearly not healthy. Any further worsening of the fiscal deficit will only mean a greater amount of government revenues going towards servicing its past debt in the years to come. This will leave a lower amount of money for other more important things, in the years to come. Debt servicing is defined as the amount of money a government spends towards repaying the debt as well as paying interest on the outstanding debt. The debt servicing ratio is obtained by dividing the money spent towards debt servicing by the revenue receipts i.e. the income of the government. What the table clearly tells us is that the debt servicing ratio of the government has worsened over the years.

Also, most analysts and experts tend to just look at the fiscal deficit of the central government, without taking into account the fiscal deficits of the state governments as well. As economist M Govinda Rao wrote in a recent column in The Financial Express: “This year, the Union government’s deficit is set at 3.9%, and with the states together having a deficit of about 2.2%, the aggregate fiscal deficit of the government works out to 6.1%. It is reported that 21 distribution companies are likely to join the UDAY scheme and the deficit on that account could be about 1%.”

If we were to add all this the real fiscal deficit of the government would come at 7.1% of the GDP. The household financial savings in 2014-2015 stood at 7.5% of GDP. What this tells us very clearly is that the government captures most of the household financial savings. Any further increase in fiscal deficit leading to increased borrowing by the government will only push up interest rates. Also, Rao estimates that public sector enterprises claim around 2% of the GDP. Hence, as he asks “where can financial institutions find the money to lend for private investment?”

Over and above all these numbers the credibility of Arun Jaitley is at stake as well. In his maiden budget speech in July 2014 he had said: “We need to introduce fiscal prudence that will lead to fiscal consolidation and discipline. Fiscal prudence to me is of paramount importance because of considerations of inter-generational equity. We cannot leave behind a legacy of debt for our future generations. We cannot go on spending today which would be financed by taxation at a future date.”

In his February 2015 speech Jaitley went against what he had said earlier and loosened the fiscal strings a little. If he does that again this year, how much credibility would what he says, continue to have? Also, is Jaitley still worried about inter-generational equity? Or was what he said in July 2014 innocent murmurs of a new finance minister, which should not have been taken seriously?

Further, there has been very little effort on part of the government to take tough decisions on the expenditure front. It continues to fund loss making entities like MTNL, Air India etc. The finance ministry had set up the Expenditure Management Commission in 2014. The reports of the Commission have not been made public up until today. This clearly tells us how serious the government is about cutting wasteful expenditure.

Also, there has been very little new thinking on part of the government in order to increase its income. Even low hanging fruit like the stake the government holds in companies like ITC, L&T and Axis Bank, through the Specified Undertaking of Unit Trust of India (SUUTI)., hasn’t been cashed in on. All the government seems to be doing to increase its revenue is to increase the excise duty on petrol and diesel.

It is also worth asking why does the fastest going large economy in the world need a fiscal stimulus from the government?

To conclude, since I started this column with Keynes it is only fair that I end it with him as well. One of the misconceptions that people have is that Keynes was an advocate of the government running high fiscal deficits all the time. It needs to be clarified that his stated position was far from that.

Keynes believed that, on an average, the government budget should be balanced. This meant that during years of prosperity, governments should run budget surpluses. But when the economic environment is weak, governments should spend more than what they earn, and even run high fiscal deficits.

But over the decades, politicians have only taken one part of Keynes’ argument and run with it. The idea of running deficits during bad times has become permanently etched in their minds. However, they have forgotten that Keynes had also wanted them to run surpluses during good times as well.

Jaitley is a politician, he is no different from others of his ilk.

(The column originally appeared on SwarajyaMag on January 7, 2016)

If we go by what Keynes said, the world is currently going through a depression

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In a few weeks, it will be the seventh anniversary of the start of the current financial crisis. The fourth largest investment bank on Wall Street, Lehman Brothers, filed for bankruptcy on September 15, 2008. A day later, AIG, the largest insurance company in the world, was nationalized by the United States government.

A week earlier two governments sponsored enterprises Fannie Mae and Freddie Mac had also been nationalized by the United States government. In the months to come many financial institutions across the United States and Europe were saved and resurrected by governments all across the developed world. Some of them were nationalized as well.

Economic growth crashed in the aftermath of the financial crisis. Central banks and governments reacted to this by unleashing a huge easy money programme, where a humongous amount of money was printed(or rather created digitally) in order to drive down interest rates, in the hope that people would borrow and spend, companies would borrow and spend, and economic growth would return again.

And how are we placed seven years later? It would be safe to say that despite all that governments and central banks have done in the last seven years, the world hasn’t returned to its pre-crisis level of economic growth.

In fact, if we go by what the greatest economist of the twentieth century, John Maynard Keynes, wrote in his tour de force, The General Theory of Employment, Interest and Money, a large part of the developed world is currently going through a “depression”.

Keynes, defined a depression as “a chronic condition of sub-normal activity for a considerable period without any marked tendency towards recovery or towards complete collapse.”

This is something that the economists tend to ignore. As James Rickards writes in The Big Drop—How to Grow Your Wealth During the Coming Collapse: “Mainstream economists and TV talking heads never refer to a depression. Economists don’t like the word depression because it does not have an exact mathematical definition. For economists, anything that cannot be quantified does not exist.”

Hence, if we go as per what Keynes said, depression is a scenario where economic growth is below the long-term trend growth. And that is precisely how large parts of the global world have evolved in the aftermath of the financial crisis. As Rickards writes: “The long-term growth trend for U.S. GDP is about 3%.

Higher growth is possible for short periods of time. It could be caused by new technology that improves worker productivity. Or, it could be due to new entrants into the workforce…Growth in the United States from 2007 through 2013 averaged 1% per year. Growth in the first half of 2014 was worse, averaging just 0.95%.”

The current year hasn’t been any better either. The economic growth between January and March 2015 stood at 0.6%. Between April and June 2015, it was a little better at 2.3%.  As Rickards puts it: “That is the meaning of depression. It is not negative growth, but it is below-trend growth. The past seven-years of 1% growth when the historical growth is 3% is a depression as Keynes defined it.”

The United States economy accounts for nearly one-fourth of the global economy and if it grows slowly that has an impact on many other economies as well.
China, another big economy, has also been growing below its long term growth rate. Between 2003 and 2007, the Chinese economy grew by greater than 10% in each of the years. It slowed down in 2008 and 2009 as the financial crisis hit, and grew by only 9.6% and 9.2% respectively. In 2010, the economic growth crossed 10% again with the economy growing by 10.6%. This was after the Chinese government forced the banks to unleash a huge lending programme.

Nevertheless, growth fell below 10% again and since then the Chinese economy has been growing at below 10%. In fact, in the recent past, the economy has grown at only 7%, which is very low compared to its rapid rate of growths in the past.

Interestingly, people who observe China closely, are sceptical of even this 7% rate of economic growth. As Ruchir Sharma, Head of Global Macro and Emerging Markets at Morgan Stanley wrote in a recent column for the Wall Street Journal: “Chinese policy makers seem unwilling to accept that downturns are perfectly normal even for economic superpowers…But Beijing has little tolerance for business cycles and is now reviving efforts to stimulate sectors that it had otherwise wanted to see fade in importance, from property to infrastructure to exports….While China reported that its GDP grew exactly in line with its growth target of 7% in the first and second quarters this year, all other independent data, from electricity production to car sales, indicate the economy is growing closer to 5%.”

The moral of the story being that China is growing much slower than it was in the past. What this means is that countries like Brazil and Australia, which are close trading partners of China, will also feel the heat. Over and above this, much of Europe continues to remain in a mess. As Rickards puts it: “Keynes did not refer to declining GDP; he talked about “sub-normal” activity. In other words, it is entirely possible to have growth in a depression. The problem is that the growth is below trend. It is weak growth that does not do the job of providing enough jobs or staying ahead of national debt.”

In fact, much of the economic growth that has been achieved through large parts of the developed world has been on the basis of more lending carried out at very low interest rates. Data from the latest annual report of the Bank of International Settlements based out of Basel in Switzerland, suggests, that the total global debt has touched around 260% of the global gross domestic product (GDP). In 2008, it was around 230% of the global GDP.

As the BIS annual report for the financial year ending March 31, 2015 points out: “very low interest rates that have prevailed for so long may not be “equilibrium” ones, which would be conducive to sustainable and balanced global expansion. Rather than just reflecting the current weakness, low rates may in part have contributed to it by fuelling costly financial booms and busts. The result is too much debt, too little growth and excessively low interest rates.”

The tragedy is that there seems to have been no change in the thought process of those who are in decision making positions.

The column originally appeared on Firstpost on Aug 20, 2015

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

Grexit: Why Amartya Sen and Thomas Piketty are right about Germany

thomas piketty
The French economist Thomas Piketty whose bestselling book Capital in the Twenty First Century was published last year, in an interview to the German newspaper Die Zeit recently said: “What struck me while I was writing is that Germany is really the single best example of a country that, throughout its history, has never repaid its external debt. Neither after the First nor the Second World War.”

In the recent past, Germany has been insistent that Greece repay the money that it owes to the economic troika of the European Central Bank, the European Commission and the International Monetary Fund. As Piketty remarked: “When I hear the Germans say that they maintain a very moral stance about debt and strongly believe that debts must be repaid, then I think: what a huge joke! Germany is the country that has never repaid its debts. It has no standing to lecture other nations.”

In order to understand what Piketty meant we will have to go back nearly 100 years. At the end of the First World War in 1918, Germany had to compensate the victorious Allies (read Britain, France, and America primarily) for the losses it had inflicted on them.

At the reparations commission, the British delegation wanted Germany to pay $55 billion as compensation to the Allies. This was a huge number, given that the German gross domestic product (GDP) at that point of time stood at around $12 billion.

The Americans were fine with anything in the range of $10 to $12 billion and did not want anything more than $24 billion. The French did not put out a number of what they were expecting but they wanted a large reparation from Germany.

This was primarily because when the French had been in a similar situation in 1870 they had paid up Germany. After France had lost the Franco-Prussian War, Germany had asked France to pay 5 billion francs to make good the losses that it had faced during the course of the war. The French had rallied together and paid this money in a period of just two years.

Given this historical back­ground, they saw no reason why Germany should not be made to pay for the losses that France had suffered. The French assumed that like they had paid the Germans 50 years back, the Germans would also pay up. As Piketty put it in the interview: “However, it has frequently made other nations pay up, such as after the Franco-Prussian War of 1870, when it demanded massive reparations from France and indeed received them.”
In May 1919, it was decided that Germany would pay the Allies an initial amount of $5 billion by May 1, 1921. The final reparation amount to be paid would be decided by a new Reparations Com­mission.

Finally, the total reparations amount that Germany would have to pay the allies was set at $12.5 billion, which was equal to the pre-war GDP of Germany. To repay this amount, Germany would have had to pay around $600–$800 million every year.

Germany was in a bad state financially and at the end of the war had a budget deficit that ran into 11,300 million marks (the German currency at that point of time). As the government did not earn enough revenue to meet its expenditure due to the high-reparation payments, it started to print money to finance pretty much everything else.

This finally led to the German hyperinflation of 1923. Inflation in Germany at its peak touched a 1,000 million per­cent. Interestingly, one view prevalent among economic histori­ans is that Germany engineered this hyperinflation to ensure that it did not have to pay the reparation amounts. The hope was that, with inflation at such high levels, the Allied countries would deal with Germany sympathetically when it came to deciding on repa­ration payments. And this is precisely what happened.

By the time the hyperinflation came to an end, the economy was in such a big mess that the repa­ration payments had slowed down to a trickle. And it so turned out that over the next few years more was paid to Germany in the form of various loans than it paid the Allies in reparations. After this, Germany regularly continued to default on the pay­ments and finally when Hitler came to power in 1933, he stopped these payments totally.
As mentioned earlier, after the hyperinflation of 1923, money had started to pour in from other nations into Germany. A substantial part of the preparation for the Second World War was financed through this money.

The Second World War started in 1939 and ended in 1945. Given the fact that Hitler had used foreign money to get the Second World War started, the directive at the end of the Second World was that nothing should be done to restore the German economy above the minimum lev­el required to ensure that there was no disease or unrest, which might endanger the lives of the occupying forces.

Eventually, the realization set in that an economic recovery in Europe was not possible without an economic recovery in Germany, the largest economy in Europe. The American Secretary of State, George C. Marshall, after having returned from Moscow in April 1947, was convinced that Europe was in a bad shape and needed help. This eventually led to the Marshall Plan. From 1948 to 1954, the United States gave $17 billion to 16 countries in Western Europe, including Germany, as a part of the Marshall Plan.

So what does all this history tell us? One is that Germany did not repay the debt that it owed to the Allied nations and hence, as Piketty said: “Germany is the country that has never repaid its debts. It has no standing to lecture other nations.”
But there is a bigger lesson here—that demanding austerity from Greece in order to be able to repay the debt isn’t exactly the answer. The German experience after the First World War precisely proves that.

The Nobel Prize winning economist Amartya Sen, writes about the German experience after the First World War, in a recent column. As he writes: “Germany had lost the battle already, and the treaty was about what the defeated enemy would be required to do, including what it should have to pay to the victors. The terms…as Keynes saw it…included the imposition of an unrealistically huge burden of reparation on Germany – a task that Germany could not carry out without ruining its economy.”

And this is precisely what has happened in Greece over the last few years. The country now owes close to 240 billion euros to the economic troika. The austerity measures have had a highly negative impact on the Greek economy. As Nobel Prize winning economist Joseph Stiglitz recently wrote: “Of course, the economics behind the programme that the “troika” foisted on Greece five years ago has been abysmal resulting in a 25% decline in the country’s GDP. I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences: Greece’s rate of youth unemployment, for example, now exceeds 60%.”
Amartya_Sen_NIH
This has essentially led to a situation where the total amount of debt with respect to the Greek gross domestic product (GDP) went up instead of going down. Currently the total debt to GDP ratio of Greece stands at a whopping 175%. And this number is likely to go up further in the days to come. In comparison the number was at 129% in 2009.

The only way Greece can perhaps be able to repay some of its external debt is if economic growth comes back. And that is not going to happen through more austerity. As Sen puts it: “Keynes ushered in the basic understanding that demand is important as a determinant of economic activity, and that expanding rather than cutting public expenditure may do a much better job of expanding employment and activity in an economy with unused capacity and idle labour. Austerity could do little, since a reduction of public expenditure adds to the inadequacy of private incomes and market demands, thereby tending to put even more people out of work.”

As economic history has shown more than once, whenever people in decision making positions forget what Keynes said, the world usually ends up in a bigger mess.

The article originally appeared on Firstpost on July 7, 2015

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

Why politicians love paper money

3D chrome Dollar symbolMoney makes money, and the more money that money makes, makes more money—Benjamin Franklin


John Maynard Keynes was the most influential economist of the twentieth century. Keynes really came into his own in 1936, when his magnum opus The General Theory of Employment, Interest and Money was published.
One of the core points of the book was that when it came to thrift or saving, the economics of the individual differed from the economics of the entire system. For an individual to save by cutting down on expenditure made tremendous sense. But when a society, as a whole, began to save more, there was a problem.
This was because the expenditure of one person was the income for another. Hence, when expenditure began to go down, incomes would fall too, leading to a further reduction in expenditure. And so the cycle would continue. The aggregate demand of a society as a whole would fall in the end, leading to either lower prices or lower production or both, thus impeding economic growth and causing economic contraction.
As per Keynes, the way out of this situation was for someone to spend more. Citizens and businesses were not willing to spend more, given the state of the economy. So, the only way out of this situation was for the government to spend more on public works and other programs. This would act as a stimulus and thus cure the recession.
This has been standard prescription given by economists when countries are not doing well. Having said that the basic idea put forward by Keynes had been known for a very long time. Even Roman kings had practised it.
As Kabir Sehgal writes in Coined—The Rich Life of Money and How Its History Has Shaped Us: “Julius Caesar left his stamp on Roman monetary history by using the gold treasure he pillaged from Gaul to increase the quantity of the aureus in circulation…These new coins helped Rome cope with a financial crisis of 49BC.” So, even Julius Caesar had used Keynes’ prescription of increasing government spending during recessionary times and thus helped revive the economy.
Caesar’s successor Augustus followed the same prescription in order to revive the Roman economy when it was suffering from a depression, during the course of his rule. As Sehgal writes: “Augustus used loot captured from Egypt to spend lavishly on civil projects and enhanced welfare programs…In time…the economy recovered.”
Interestingly, the rulers that followed Julius and Augustus, followed their model. One such ruler was Nero who ruled Rome between AD 54 and AD 68 and had to face a depression in AD 62. In AD 64, a fire blazed through Rome and this created further problems. But Nero got through this by increasing “food subsidies for the public” and “spending on civil projects like canals”.
But along with following the Keynesian model, Nero did something else as well. He started reducing the quantity of metal in the Roman coins. Nero reduced the silver content of denarius (a silver coin) by 10%. He also reduced the gold content of the aureus by 10 percent in AD 64. By reducing the metal content in coins Nero was able to produce more coins. In the modern sense, he was thus able to increase money supply by around 7%.
What was the idea behind this debasement of metallic money? “The story goes that with more money flowing through the economy, prices will rise to reflect the reduced value of the currency, which will spur individuals and businesses to spend now rather than later, leading to a bump in economic activity,” writes Sehgal.
Nero was the not the first ruler to practice this strategy. Neither was he the last one. This is a practise that has been regularly resorted to by kings, queens, dictators, general secretaries, and politicians ever since.
In fact, Nero couldn’t have gone about it as well as politicians and central bankers do, in this day and age. The reason for this lies in the fact that during Nero’s time Rome used gold and silver coins as money. As Sehgal writes: “Nero was unable to affect uniformly his entire currency at once. When he issued a new batch of debased coins[i.e. coins with lower metal content] there were still high-grade coins{i.e. the coins that had been issued earlier and had a higher amount of metal content in them] in circulation. The value of these high-grade coins would appreciate, yet it would take time for them to be hoarded and removed from circulation.” They would be hoarded because they had more metal in them than the new coins.
But with paper money there are no such problems. When a central bank issues more paper money it “adjusts the overall money supply” and “affects the value of all notes simultaneously”. “Today it’s still common practice for central banks to adjust the supply of money to abet political goals,” writes Sehgal.
Take the case of Bank of Japan—the Japanese central bank is mandated to print 80 trillion yen annually so that it can create some inflation in Japan and get people to spend money (as explained above) and in the process create some economic growth. The idea also is to drive down the value of the yen against other currencies so that Japanese exports pick up. A paper money system gives the government and the central bank this kind of flexibility. This is something that would not be easily possible in a metallic based system. In order to flood the financial system with more gold or more silver, more gold or silver would be required. Unlike paper money, metallic money cannot be created out of thin air.
Also, history has shown that debasement of currency leads to inflation as more and more money chases the same amount of goods and services. And inflation benefits borrowers as they repay money they had borrowed with money that is less valuable than it was before. Further, governments run by politicians are themselves big borrowers. Hence, inflation ends up benefiting governments as well.
It is much easier to create inflation with a paper money system than with metal based currencies. In fact, a few years back I spoke to Russell Napier of CLSA who made a very interesting point: “The history of the paper currency system, or the fiat currency system is really the history of democracy… Within the metal currency, there was very limited ability for elected governments to manipulate that currency. And I know this is why people with savings and people with money like the gold standard. They like it because it reduces the ability of politicians to play around with the quantity of money. But we have to remember that most people don’t have savings. They don’t have capital. And that’s why we got the paper currency in the first place. It was to allow the democracies. Democracy will always turn toward paper currency and unless you see the destruction of democracy in the developed world, and I do not see that, we will stay with paper currencies and not return to metallic currencies or metallic based currencies.”
And this best explains why politicians love paper money.

The column originally appeared on The Daily Reckoning on April 16, 2015

Pahlaj Nihalani : Living in glass houses and throwing stones at others

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Pahlaj Nihalani, the censor board chief, has aspirations of becoming the conscience keeper of the nation. The former film producer has issued a list of Hindi and English cuss
words that will be banned from films.
Earlier this year Nihalani had told
The Times of India that “there is too much nudity on television and internet and it should be controlled,” going beyond his brief as the censor chief. He had followed this with an interview to The Hindu in late January where he had said that he did not “mind being called conservative” if it was “in national interest”. “The censor board is very liberal. But what is the modern generation watching? We are giving them the license to see anything. How is this projecting our culture?” Nihalani had added in the interview.
The irony is that all this comes from a man who gave Hindi cinema some of its crassest songs. Nihalani produced a film called
Andaz in 1994, which was directed by David Dhawan. The movie had songs with lines like khada hai khada hai khada hai, roz karenge hum ku ku and main maal gaadi tu dhakka laga (later changed to ye maal gaadi tu dhakka laga). Any one who understands a little bit of Hindi will know what exactly these songs are trying to suggest. They clearly were not in national interest.
Before
Andaz, Nihalani had produced Aankhen which released in 1992. This movie had a song with the line “khet gayil baba bazaar gayil ma, akeli hu ghar ma tu aaja balma”. The song starts with the heroine Shilpa Shirodkar lifting her ghagra to reveal her thigh. It is followed by the heroine and a string of women extras gyrating their chests and doing other suggestive movements.
Aankhen also had another superhit song called O Lal Dupatte Waali Tera Naam to Bata. This song had the heroes Govinda and Chunky Pandey chasing the heroines Ritu Shivpuri and Raageshwari. Somewhere midway through the song the heroines sing the line “har ajnabi ke liye ye khidki nahi khulti” and in a very suggestive way slightly raise the hemline of their white mini skirts. This clearly wasn’t a good projection of Indian culture that Nihalani now seems to be so passionate about now. Nihalani might defend himself by saying that these songs were a part of a phase in Hindi cinema where double meaning songs ruled. Subhash Ghai’s Khalnayak had the superhit choli ke peeche kya hai. Sawan Kumar Tak’s Khalnayika went a step further and had a song called choli ke andar kya hai. Prakash Mehra’s Dalal had chadh gaya upar re aatariya par lautan kabootar re. So, Nihalani in a sense was doing what everyone else was doing during that era.
But all these years later he has changed, he might tell us. As a line attributed to the British economist John Maynard Keynes goes: “When the facts change, I change my mind. What do you do, sir?”
Nihalani might have changed his mind but he needs to do a few things to change the facts, so that we can believe him. He should re-censor the films he produced and drop the songs which go against Indian culture and national interest, to start with. Further, in this era of remakes, if he ever chooses to remake or sell the rights of his biggest hit
Aankhen, he should insist that the remake won’t have the khet gayil baba bazar gayil ma song. This should set an excellent precedent. Nihalani would be then putting his money where his mouth is.
Until he does that, it is worth remembering a dialogue written by Akhtar-Ul-Iman and spoken by Raj Kumar in the 1965 superhit
Waqt, which goes like this: “Chinoi Seth…jinke apne ghar sheeshe ke hon, wo dusron par pathar nahi feka karte(Chinoi Seth…those who live in glass houses don’t throw stones at others).” Nihalani, being a film producer, would have hopefully heard of this.

(Vivek Kaul is the author of the Easy Money trilogy. He can be reached at [email protected])
The column originally appeared in the Daily News and Analysis(DNA) on Feb 17, 2015