The Indian Budget
The Indian Union Finance Minister in his budget speech said that the budget aims to create India as a manufacturing hub in the world, and this in turn will result in creating millions of jobs in India for the youth.
There is a fundamental fallacy here, which is usually overlooked.
As I have repeatedly been saying, the problem in India is not how to increase production, the problem is how to raise the purchasing power of the masses, so that the goods manufactured are sold.
The India of today is not the India of 1947. In 1947 we had very few industries, and very few engineers. Our British rulers had a policy of keeping India broadly unindustrialized, because if a large industry grew up in India it would become a rival for British industry. So the British permitted setting up in India only of some textile and plantation industries, which too were initially in British hands. They did not permit setting up of heavy industries ( except a small Tata steel plant ).
This situation has since then drastically changed. Thanks to the vision of Pt. Nehru and his modern minded colleagues, after Independence a heavy industrial base was set up in India, and a large number of engineering and technical training institutes were also set up,some of them like I.I.T.s of a very high standard .
Consequently, the position in India today is that we have thousands of big, medium and small industries and thousands of bright engineers, technicians, managers and scientists.
Coupled with the immense natural resources available in India ( India is not a small country like England, France, Germany or Japan, but is a sub continent ), this huge pool of technical skills enables us to increase production several times, which will of course result in creating a large number of jobs.
The problem, however, is very different : how will the goods manufactured be sold ? After all, if goods are manufactured, they have also to be sold. Where is the purchasing power in the Indian people ? 75% of our 1250 million people are too poor to buy these goods, as they are already at the subsistence level. They hardly have money to buy food, how can they buy motor cars and other industrial products ? Yes, there is a middle class in India consisting of 15-20% of our population ( which amounts to 200 million people ) which had some purchasing power, but in view of the skyrocketing inflation ( foodstuffs etc are very expensive in India today ) even their purchasing power has been largely eroded.
Some people say that we should manufacture for exports. There are 3 things to be said here (1) foreign consumer markets are already saturated with Chinese goods (2) there has been a recession going on for several years in the Western countries. From time to time it is claimed that there is a recovery in the economy, but such recoveries are not genuine recoveries (3) to be stable India must basically depend on its domestic market. Over dependence on foreign markets is very precarious, as that market may be captured by some other country, or there may be a recession in that foreign country, etc and then our factories will have to close down.
So the problem really boils down to how to raise the purchasing power of our masses, because without doing that it is meaningless to talk of making India ' a manufacturing hub in the world '.
http://timesofindia.indiatimes.com/budget-2015/union-budget-2015/Union-Budget-2015-Govt-to-emphasize-on-job-creation-to-create-millions-of-jobs/articleshow/46411083.cms
The Indian Union Finance Minister in his budget speech said that the budget aims to create India as a manufacturing hub in the world, and this in turn will result in creating millions of jobs in India for the youth.
There is a fundamental fallacy here, which is usually overlooked.
As I have repeatedly been saying, the problem in India is not how to increase production, the problem is how to raise the purchasing power of the masses, so that the goods manufactured are sold.
The India of today is not the India of 1947. In 1947 we had very few industries, and very few engineers. Our British rulers had a policy of keeping India broadly unindustrialized, because if a large industry grew up in India it would become a rival for British industry. So the British permitted setting up in India only of some textile and plantation industries, which too were initially in British hands. They did not permit setting up of heavy industries ( except a small Tata steel plant ).
This situation has since then drastically changed. Thanks to the vision of Pt. Nehru and his modern minded colleagues, after Independence a heavy industrial base was set up in India, and a large number of engineering and technical training institutes were also set up,some of them like I.I.T.s of a very high standard .
Consequently, the position in India today is that we have thousands of big, medium and small industries and thousands of bright engineers, technicians, managers and scientists.
Coupled with the immense natural resources available in India ( India is not a small country like England, France, Germany or Japan, but is a sub continent ), this huge pool of technical skills enables us to increase production several times, which will of course result in creating a large number of jobs.
The problem, however, is very different : how will the goods manufactured be sold ? After all, if goods are manufactured, they have also to be sold. Where is the purchasing power in the Indian people ? 75% of our 1250 million people are too poor to buy these goods, as they are already at the subsistence level. They hardly have money to buy food, how can they buy motor cars and other industrial products ? Yes, there is a middle class in India consisting of 15-20% of our population ( which amounts to 200 million people ) which had some purchasing power, but in view of the skyrocketing inflation ( foodstuffs etc are very expensive in India today ) even their purchasing power has been largely eroded.
Some people say that we should manufacture for exports. There are 3 things to be said here (1) foreign consumer markets are already saturated with Chinese goods (2) there has been a recession going on for several years in the Western countries. From time to time it is claimed that there is a recovery in the economy, but such recoveries are not genuine recoveries (3) to be stable India must basically depend on its domestic market. Over dependence on foreign markets is very precarious, as that market may be captured by some other country, or there may be a recession in that foreign country, etc and then our factories will have to close down.
So the problem really boils down to how to raise the purchasing power of our masses, because without doing that it is meaningless to talk of making India ' a manufacturing hub in the world '.
http://timesofindia.indiatimes.com/budget-2015/union-budget-2015/Union-Budget-2015-Govt-to-emphasize-on-job-creation-to-create-millions-of-jobs/articleshow/46411083.cms
I am a fan of you, but here I want to criticise you constructively or you can say aggressively because for most of your post I agreed somehow to what you said. Here I disagree 100%.
ReplyDeleteYou say we need to increase purchasing power of common men in India. How would we do that? Do you have roadmap or any idea or vision that you can share in this domain.
India was agricultural intensive country which opened up its economy in 1990's under the leadership of Narsimha Rao which saw brief period of industrialization/manufacturing boost in India but because of super corrupt system, nehruvian socialist system of license raj of looting public it never prospered. Then we saw IT boom. But IT service and hardware accounts to 2% of GDP, Indias manufacturing stands at 23%. How can youth educated and skilled all make India powerful or rich by just service. Service requires skillful, educated and english speaking person a skill which may lack in majority Indians. Manufacturing is only industry which can provide jobs to skilled, semi skilled, labour, high skilled, semi labor category people.
From world war era, no country has become powerful without seeing industrial revolution. A hallmark of large state like India lies in manufacturing which can produce mass production and mass employment.
Problem with India is corruption, ease of doing business in India and its judicial system of protection of property rights.. If India can correct these issues, and make it business friendly we may get investment from abroad in manufacturing since India has cheap labour. For that we needs roads, electrification, water, power, infrastructure and transport to operate.
For you manufacturing is only state capitalism, it can come via FDI or private players.
Second wth CHINa Becominfg pushy world would wANT india to prosper and would enable india to get projects.. Its balance of power and plus china is getting edgy in world with its governance where it is not following international governance like creating duplicate product with no copyright protection in its country.
We can produce those products which can be exclusively make in india. We can create mass employment by selling those to world, and within.
But government must make sure we create top infrastructure , eradicate corruption and create ease of doing business in india.
saya ibu irma seorang TKI DI SINGAPURA
Deletepengen pulang ke indo tapi gak ada ongkos
sempat saya putus asah apalagi dengan keadaan susah
gaji suami itupun buat makan sedangkan hutang banyak
kebetulan suami saya buka-bukan internet mendapatkan
nomor MBAH SERO katanya bisa bantu orang melunasi hutang
melalui jalan TOGEL dengan keadaan susah terpaksa saya
hubungi dan minta angka bocoran SINGAPURA
angka yang di berikan 4D yaitu 1525 TGL 17-01-2015
ternyata betul-betul tembus 100% alhamdulillah dapat 100.jt
bagi saudarah-saudara di indo mau di luar negri
apabila punya masalah hutang sudah lama belum lunas
jangan putus asah beliau bisa membantu meringankan masalah
ini nomor hp -> (-082-321-062-999-) MBAH SERO
demikian kisah nyata dari saya tampah rekayasa
atau silahkan buktikan sendiri..
you always read from french revolution or german pre independence period or mughal rule about few kings and rulers and cite example we are in transition period and we need rulers like french ruler or king. This again sometimes shows your little ignorance.
ReplyDeleteIn a highly globalized world where world trade, relationship on diplomatic level is changing, you give example of those old french kings or public figure. Even since post world war era, two people were credited by almost all political analyst as true nation builders one was Kemal Ataturk of Turkey and other Lee Kuan Yew of Singapore. FYI, Lee Kuan currently in on death bed counting his last days. How come you missed reading a real legend who operated in such competitive and modern world . Remember Lee Kuan is credicted for building Singapore from a malarial island to an economic boom. He defied each and every challenge to take Singapore from poor tiny, backward, island to Asian tiger.
This is what Lee said India can be transformed...
China has invested heavily in infrastructure. India’s underinvested infrastructure is woefully inadequate. - Lee Kuan Yew also quoted you in his speech below.
India has stronger institutions, in particular, a well developed legal system which should provide a better environment for the creation and protection of Intellectual Property. But a judicial backlog of an estimated 26 million cases drags down the system. One former Indian Chief Justice of India’s Supreme Court has given a legal opinion in a foreign court that India’s judicial system was practically non-functional in settling commercial disputes. -Do you know Lee must have read your statement and said this above.
nfrastructure and education. Actually, education is also part of the infrastructure—the supporting foundation upon which one can build an economy. Neglect of primary education rivals the neglect of other infrastructure such as roads, ports, power generation, railways, etc. Many decades have passed since India’s constitution was adopted in which primary education was given priority. Like pretty speeches, it is a non-starter. A very large percentage of Indians cannot read the constitution of India.
Yet—and this is the most baffling puzzle to me—I hear the claim that India is an information superpower endlessly touted by journalists, writers, and even the President of India. Cognitive dissonance on a social level or is it just plain stupidity?
He noted that some have argued that India can focus on IT, grow rapidly in services, skip industrialization, and yet transform itself from a primarily rural and agricultural country into a modern economy. He dismissed such ideas as “hopelessly flawed” and “far-fetched”.
IT is less than 2% of India’s GDP. While services have grown rapidly, the bulk of the growth is from service sectors where wages and productivity are low. Business services, which include software and IT-enabled services, account for only 0.3% of GDP. Only manufacturing can mop up India’s vast pool of unemployed, narrow the urban-rural divide and reduce poverty.
To create jobs the main thrust of reforms must be in manufacturing. That requires a change in labour laws to allow employers to retrench workers when business demand is down , streamlining the judicial processes, reducing the fiscal deficit, loosening up the bureaucracy, and most of all improving infrastructure. Let me focus on the last two as I believe they are crucial and inter-connected.
India needs reform in various areas. The most critical area is the bureaucracy. Why India got saddled with a dysfunctional bureaucracy is easy to understand: the British were in India to exploit and extract wealth and created the bureaucracy with that objective. When the British left, the bureaucratic infrastructure was not jettisoned because it was the perfect tool for the “command control license permit quota” Raj which began with Nehru and still impedes India’s progress.The Government would like to liberalise many sectors, and there are plenty of announcements of new initiatives to do so. But when push comes to shove, bureaucratic inertia has been extremely difficult to overcome.
ReplyDeleteWhy do I think that India’s policy makers are incompetent? Because it should be clear to the meanest intelligence that industrialization depends on infrastructure and that that should be a priority. Which part of this simple statement don’t they understand. And if they do, why are they preventing the building of infrastructure? No money to finance the infrastructure? LKY says let the private sector do it.
Where did China do better? Manufacturing. That is where the foundation of a large economy lies. That is where it makes sense to distinguish between a small state like Singapore and a large ones such as India or China. A small economy of only a few million people can get by with only a services sector. But a large country with a billion people needs to have a correspondingly large manufacturing sector. When I say large, I do not mean that it should employ a large percentage of the people. I mean that the value of the production of the sector should be large. Why? Because manufacturing produces goods and it is the availability of goods that make people non-poor.
Compared to the dismal performance of the Nehruvian socialistic system, anything would look good. But that is not enough. LKY warns that today’s India should stop comparing itself to Nehru’s India. LKY put it thus:
India should benchmark itself not just against its own past, but against the best in Asia. And India can take heart from the achievements and performance of Non-Resident Indians (NRI) in free market economies such as the US, UK and even Singapore, where large numbers of NRIs have assumed high corporate positions in multi-national corporations.
Based on Nehru’s policy prescriptions, the Indian economy grew at a sorry 2 or 3 percent a year—the aptly named “Nehru rate of growth.” Per capita figures were even more dismal than that because the population grew rapidly. The Nehru dynasty continued to favor policies that kept India locked into the Nehru rate of growth until about 1991. Then economy grew at a more respectable rate but only compared to the Nehru rate of growth. In absolute terms, the “post-reform” growth rate was nothing to write home about. China had been growing for over a decade and at a much faster rate.
ReplyDeleteBut India cannot grow into a major economy on services alone . Since the industrial revolution, no country has become a major economy without becoming an industrial power.
Just as China is learning from India to improve its performance in the IT sector, so India must emulate China’s success in attracting FDIs and the jobs they create in manufacturing. It can do this by building infrastructure and educating and raising the skill levels of its workers.
The license quota permit control regime was instituted with the express purpose of making sure that essential goods and services were affordable and available to the people and thus was the sole prerogative of the government. An admirable socialist goal of reaching the commanding heights of the economy. The outcome should not come as a surprise: shoddy goods and services, affordable and available to only those who had the clout and could bribe the officials. Bajaj scooters had a waiting time of 7 to 10 years! They were prized as dowry; want your homely daughter married soon, promise a scooter to sweeten the deal.
While the Indian economy has done better since the government has started relaxing its chokehold on it, there is much that is left undone. Until the bureaucrats and the politicians let go entirely, the Indian economy has a hard row to hoe. It is imperative that we ask and clearly understand what motivated the policy-makers to hobble the economy for so many decades. Without that frank enquiry, we may never fully understand which mistakes were made and therefore continue to stumble into the same traps.
By now, even the minimally awake observer may conclude that the private sector can do business better than the public sector can. For instance, India’s private sector uses capital very efficiently. Lee Kuan Yew points it out in his lecture (see part 1 here and part 2 here of my commentary):
A factor worth noting: India gets a much better economic return for the investment it makes in its economy because India’s private sector capital efficiency is high. If India opens up fully to FDIs, the results will be profitable for the investor and add considerable employment and added GDP growth for India. With jobs there will be a trickle down of wealth to millions of Indian workers, as there has been in East Asia.
He also rejects the notion that because India is a “democracy,” it is slow.
Politics is a fact of life in any country. And coalition politics is a fact of Indian political life.
It has been suggested that India’s slow growth is the consequence of its democratic system of government. Almost 40 years ago, Professor Jagdish Bhagwati wrote that India may face a “cruel choice between rapid expansion and democratic processes”.
But democracy should not be made an alibi for inertia. There are many examples of authoritarian governments whose economies have failed. There are as many examples of democratic governments who have achieved superior economic performance. The real issue is whether any country’s political system, irrespective of whether it is democratic or authoritarian, can forge a consensus on the policies needed for the economy to grow and create jobs for all, and can ensure that these basic policies are implemented consistently without large leakage. India’s elite in politics, the media, the academia and think tanks can re-define the issues and recast the political debate. They should, for instance, insist on the provision of a much higher standard of municipal services.
ReplyDeleteHe concludes this part of his talk with a wonderful example of the mendacity of the communists. West Bengal, once upon a time the most valuable jewel in the Crown, is a basket case, now more known around the world as the “Gutter” (thanks to the tireless working of the “Saint of the Gutters” who enriched her own organization by show-casing the poverty of Bengal). How did this remarkably sorry transformation take place, you may ask. The secret sauce: communists.
A few months ago, in August, the communist Chief Minister of West Bengal Mamta Banerjee was in Singapore to drum up investments for his state offering market incentives to attract investors. He said: “The lesson from the collapse of the Soviet Union and from China is that [India] must reform, perform or perish.” That very same month, members of his own party in Lok Sabha in New Delhi forced a retreat on India’s privatisation programme. This is India’s party politics.
saya ibu irma seorang TKI DI SINGAPURA
ReplyDeletepengen pulang ke indo tapi gak ada ongkos
sempat saya putus asah apalagi dengan keadaan susah
gaji suami itupun buat makan sedangkan hutang banyak
kebetulan suami saya buka-bukan internet mendapatkan
nomor MBAH SERO katanya bisa bantu orang melunasi hutang
melalui jalan TOGEL dengan keadaan susah terpaksa saya
hubungi dan minta angka bocoran SINGAPURA
angka yang di berikan 4D yaitu 1525 TGL 17-01-2015
ternyata betul-betul tembus 100% alhamdulillah dapat 100.jt
bagi saudarah-saudara di indo mau di luar negri
apabila punya masalah hutang sudah lama belum lunas
jangan putus asah beliau bisa membantu meringankan masalah
ini nomor hp -> (-082-321-062-999-) MBAH SERO
demikian kisah nyata dari saya tampah rekayasa
atau silahkan buktikan sendiri..
Your post shows clearly your ignorance and poor knowledge of economics , that you have got into an egg or chicken first situation. All I can share with you is that the whole exercise of the budgets (this year budget included) has been to see how to increase the purchasing power of Indians, apart from alleviating poverty. Creating jobs is possible only when industrial houses ,small and big,run profitably for which the budget must create a conducive atmosphere through proper tax regime, infrastructure and administrative support.
ReplyDelete