Thought for the day
“To be yourself in a world that is constantly trying to
make you something else is the greatest accomplishment.”
-
R. W. Emerson (American, 1803-1882)
Word for the day
Litigious (adj)
Inclined to dispute or disagree;
argumentative.
(Source: Dictionary.com)
Teaser for the day
After publically saying that no sitting MLA will be given Lok
Sabha ticket, Arvind Kejriwal says he will contest Lok Sabha election if Party
tells him to do so!
Does someone recall Idi Amin?
‘The great India story’ – revisiting the fable
Conventional economists have long argued that monetary and the
real economies interact in a limited way through the determination of nominal
quantities such as prices, wages, exchange rates and so forth. Therefore
although a change in the quantity of money may create short term disruptions,
the real economy would eventually settle at the same long term equilibrium as
before. Implying that at 'normal' levels of money, a change in the money supply
will not alter the long term economic equilibrium.
In short, additional money made available to people, without any
additional productive capacities made available, makes no difference to real
economy. It just increases the price of existing goods in the same proportion
as the additional money available.
The problem however occurs when the supply of additional money
becomes a constant and that too in an abnormal proportion. This not only
disrupts the short term equilibrium but alters the structure of long-term
equilibrium too. This is precisely what is happening in the case of economies
that have followed excessively loose monetary policies for an extended period
of time. In fact, this has impacted the emerging economies which fell prey to
this slush of excess money and let their medium to long term equilibrium
altered, believing that this excess money is ‘normal’ and would remain a
constant.
India unfortunately is one such economy that has allowed the
structure of its real economy tempered, though still not irretrievably, by easy
money in past 15years. For example, consider the following:
The excess money or credit that got created out of thin air has
not flown equally to all. It rather has got concentrated in few hands. However,
the illusion of growth and prosperity has engulfed all. The aggregate numbers
have become gigantic; and it has led to ballooning of the aspirations of the
underprivileged to unsustainable levels.
Given that we are democracy that works on “relative majoritism”
feeding these aspirations has become a central subject of competitive politics.
The state finances are therefore in a structural long term pressure with no
exit in sight.
The rush to accumulate cheap credit has lead to excessive debt
both at government as well as corporate level in past 7years. This has brought
a lot of unmanageable demand forward in time. For example, over 50GW power
projects were initiated and fertilizer policy was made when the feed stock
supply chain to fuel the power and fertilizer plants was far from ready. The
capacity to pay unaffordable toll was not there when over 5000km of toll roads
were commissioned. Many of these power plants are lying idle and so are
numerous industrial projects conceived based on supply assumptions from these
plants. Many toll roads have become unviable or are lying uncompleted.
If we believe that this misallocated capital and unmanageable
changes in consumption patterns are short term phenomenon, the correction is
sure going to be extremely painful- prepare for it.
And if we think that these are long term changes – there is no
“great India story” as essayed by numerous analysts and strategists.
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