Economic Humbug

 Some people say  that the Indian economy is growing, as shown by the fact that the stock market is booming, the IMF has projected that the Indian economy is poised to become the world's fastest growing economy in 2 years, an economist from MIT and another from Harvard Business School have predicted that India would overtake China, etc.

All this is humbug.

Firstly, I am not at all impressed by economists, whether they come from MIT, Harvard Business School or the London School of Economics. A lot of nonsense is taught in these institutions, instead of treating Economics as a science, and a lot of people from these institutions are arrogant fools instead of genuine scholars. What is important is what one has in his head, instead of displaying degrees from Harvard, Oxford, Cambridge, etc. I am least impressed by such degrees in Economics, which is a science which has been perverted by hirelings of the establishment posing to be scholars.

Secondly, I have repeatedly said that the basic problem of the Indian economy is not how to increase production but how to raise the purchasing power of the masses.

  We can increase production of any commodity any number of times because we have thousands of bright engineers, technicians, managers scientists etc, and we have immense natural resources. The problem, however, is that 75% of our people are so poor that they have no purchasing power. And even the 15-20% Indian middle class is having its purchasing power rapidly eroded by skyrocketing prices of foodstuffs, etc Foreign markets are saturated with Chinese consumer goods, and the Chinese have even penetrated a section of our markets. So how will the goods produced by this ' growing ' economy be sold ?

Thirdly, it is not enough that there is economic growth. The further question to ask is : who is getting the fruits of this growth ? Is it only a handful of big businessmen, or the Indian masses ?

What is to be done?

The test of every system, whatever it may be called, is one and only one : does it raise the standard of living of the masses ?

In other words, does it provide employment to the masses with adequate incomes and abolish unemployment, does it provide good eduacation, good healthcare and housing for the masses, etc ?

Now to raise the standard of living of the masses requires a massive, highly developed and modern industry, for that alone can generate the wealth necessary for this purpose. Agriculture alone cannot do this. in fact modern agriculture requires a highly developed industry to supply it tractors, combines, pesticides, fertilizers, etc.

Money does not fall from the sky, it can only come from a highly developed industry on a large scale. Even for setting up one primary school requires a great deal of money, to buy land, build schoolrooms, pay salaries to teachers and other staff, etc. We have to build tens of thousands of primary schools, high schools, colleges, Universities, scientific institutes, Medical colleges, Engineering Colleges, hospitals, etc. Where will the money for all this come from ? It can only come from a highly developed industry.

But to have a large, modern industry we must have a large market, because the goods which are manufactured must be sold. That is why we must remain united as a country, otherwise we will not have a large domestic market.

Over dependence on foreign markets is very precarious, because that foreign market may be captured by some other countries goods,or there may be a recession in that foreign country due to which it may not be able to buy our goods, and then our export industries will close down. So for stability we must mainly depend on our domestic market.

But if our people are largely poor they will not have the purchasing power to buy the goods which our domestic industry produces. That is why we must raise the purchasing power of our masses by raising their real incomes, that is, incomes relative to the price index, so that the goods manufactured can be sold.

The problem is therefore not how to increase production. There is no difficulty in increasing production, for the position today is very different from what it was in 1947. In 1947 there were few industries ( the British policy was to keep India largely unindustrialized so that our industries do not become a rival to British industries ),and few engineers and managers as compared to today. Today, however we have thousands of bright engineers and managers, and industry has grown compared to 1947. We can at any time increase steel production, or chemicals production, or production of anything with the help of our engineers and managers, many of whom are brilliant ( the Silicon Valley in U.S.A. has thousands of bright Indian engineers). We have also huge natural wealth which can give us all the raw materials we require, because India is huge in size.

But the point is that the goods manufactured have to be sold, and how can they be sold if the people are poor and do not have the purchasing power to buy them ? That is why the problem is not how to increase production ( for that can easily be done ) but how to increase the purchasing power of the masses, which will automatically raise their standard of living and give them decent lives, and also ensure that the goods manufactured are sold.

It is here that our genuine and patriotic intellectuals must apply their minds.

Wake Up, India's Bourbons

It’s time for our Bourbons to wake up and sense the anger of the public

Rau mein hai rakhsh-e-umr kahaan dekhiye thame

Nai haath baag par hai, na paa hai rakaab mein

Mirza Ghalib’s couplet quintessentially reflects the historical situation in India today.

“Rau” means speed, “rakhsh” means horse, “umr” means time (it also means life, but here it means time or era), “bag” means “reins” (of a horse), and “rakaab” means stirrup.

Hence the sher means: “The horse of the times is on the gallop, Let us see where it stops/The rider has neither the reins in his hands, nor his feet in the stirrup.”

Ghalib was probably writing of the happenings at the time of the Great Mutiny of 1857, when events took place at a galloping pace. But the beauty of Ghalib’s poetry (as also of much of Urdu poetry) is that it is often universal in time and place.

Today in India, the pace of history has speeded up. Events are taking place even more rapidly than earlier, and one wonders where all this will end.

In the media, one scam after another is reported, often involving politicians who swear by the poor and disadvantaged sections of society.

Talleyrand said of the Bourbons that they “saw nothing, remembered nothing, and forgot nothing.” Most Indian politicians today remind one of the Bourbons. They do not see the public anger rising against them and reaching boiling point. They do not remember the fate of the Bourbons, the Hapsburgs, and the Romanovs (if they have even heard of them). And they do not forget their power and pelf, thinking these will continue forever, as did the ill-fated dynasties mentioned above.

The decisive factor is the economy. The Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, said recently that deceleration in the Indian GDP growth has bottomed out at 5.5 per cent. This rosy picture is in sharp contrast to Standard & Poor’s warning that the Indian economy’s sovereign credit rating could be downgraded to “junk status” in 24 months.

What economists like Dr. Ahluwalia do not see is that the problem in India is not how to increase production (that can easily be increased considering the large number of engineers and technicians, and immense natural resources) but how to raise the purchasing power of the Indian masses. After all, what is produced has to be sold, but how can it be sold when 75-80 per cent of our people are poor, living on about Rs.25 per day?

Moreover, if GDP growth benefits only a handful of rich people by making them richer while the poor become poorer because of inflation, it follows that the goods manufactured cannot be sold because the masses will have no purchasing power.

In recent months there has been a manufacturing decline in India, and export-oriented industries have been particularly hard hit because of the recession in western countries.

India’s relative stability was based on the 15-20 per cent middle class, which, considering our huge population of 1,200 million, would be about 200-250 million. This provided a market for our goods and services. This middle class is fast losing its purchasing power due to skyrocketing prices, and this in turn is fast eroding India’s stability, as can be seen from the popular agitations lately.

Massive poverty, huge unemployment, skyrocketing prices, absence of health care for the poor people, farmers’ suicides, child malnutrition, etc, are all an explosive mixture. If the Bourbons do not wake up now (of which I see little likelihood at present), a prolonged period of chaos and anarchy seems inevitable in India in the near, not distant, future.

Published in The Hindu on November 7, 2012