Lessons From Greece For India

It's official — Greece will not be paying IMF the 1.6 billion Euros it owes, giving Europe a jitter it hasn't ever confronted before. Undoubtedly, Greek leaders believe Europe will eventually rescue it, and the referendum planned for Sunday will, willy-nilly, keep them within the Eurozone. Market watchers have forewarned a tumble in markets should Greece decline payment, as it has, and they predict more of a fall should Greece exit the European Union, but chances are the latter might not happen. The referendum in Greece on Sunday may yet see people pick the Euro over an independent currency. 
The question is — can a similar situation happen to India one day? 

The Genesis:

This crisis was brewing since 2008, when it became clear that Greece had, to paraphrase international finance jargon, "living beyond its means'. Those heady days were funded largely by German and French banks. Then in 2009, after the global financial crisis, a new government took over in Greece, which confessed that its indebtedness was much higher than the previous government had let known. 

That's when the IMF stepped in with its first bailout package in 2010. That money went, mostly, to repay the German and French banks. Since then other European countries have chipped in to assist Greece. By and by, it became clear that the strict terms of IMF would be tough for Greece. It had to raise around 50 billion Euros, for instance, from privatisation, but could scrabble together barely 3 billion Euro. The privatisation effort never took off, and perhaps was never considered a good step by Greece's current (to put it mildly) Left-leaning party headed by Prime Minister Alexis Tsipras.

The IMF loans, supplemented by the EU thereafter, became increasingly difficult for European leaders to defend before their own taxpayers. The situation was politically untenable in the rest of Europe, which has Portugal and Spain in equally dire straits as Greece.

India similar yet different: 

India operates in much the same way—richer states give money to poorer states year after year. The difference is, usually, no questions are raised over this because all states see themselves—and are—part of one country. The states take for granted that they will help each other. The Greeks, on the other hand, have a slightly different situation. In the thick of messy loan negotiations, for instance, sections of the Greek media spoke about Germany as a war criminal who must pay reparations. Germany responded that it has already paid reparations for over two generations. Greek papers nevertheless carried caricatures of the German finance minister Wolfgang Schauble, the face of negotiations from that side, and other leaders, in…Nazi uniform. 

India largely borrows from Indians: 

For the still anxious, India's case is different. Luckily we don't even borrow money on commercial terms from other countries to fund regular needs, like the Greek do. Some outfits like the Railways Finance Corporation occasionally borrow from abroad, but those are minuscule loans. India has an alternative route to finance itself, which many may regard as a smart move in retrospect—the coffers of its own public sector banks. In India the government borrows from its own citizens as all Indian banks, by mandate, have to set aside 22 per cent of what they lend to Indian government bonds.

IMF hands quite tied:

On the other hand, Greece's default will, in a way, force the IMF to not want to extend it another olive branch. They will have to inform the Board that Greece is "in arrear", technically, sealing its fate as the only defaulting country from the First World. That means other European institutions will also not give Greece fresh loans. What Greece has gotten itself into is essentially a high stakes gamble. 

As economists and financial experts have pointed out, Greek leaders are confident that Europe will not let them down. This is a sound argument, but still incomplete. For the same experts also point out that Europe does not have a problem bailing out Greece—there is enough money for that. What it cannot afford is to bail out Italy, or Italy, Portugal and Spain as well. If, sooner or later, all of them will want the same deal, there won't be enough to go around. 

This, again, is a question you will not ask in India. Gujarat, Maharashtra, Tamil Nadu and the erstwhile Andhra Pradesh region, and to an extent Karnataka and the National Capital Region, generate a bulk of the surplus, but nobody will ask why Manipur or Jharkhand should get a share. This is seen as a normal.