Friday, June 19, 2015

Irony of middle child - II

"I hold it to be the inalienable right of anybody to go to hell in his own way. "
-          Robert Frost (American, 1874-1963)
Word for the day
Lackadaisical (n)
Without interest, vigor, or determination; listless; lethargic.
(Source: Dictionary.com)
Malice towards none
Wonder, when non-congress parties will stop citing non-performance of Congress in last 60yrs as a defense for their non-performance!

Irony of middle child - II

The decision of CCEA to hike interest subvention for EWS and LIG housing is a most welcome. I am happy to see that the government is thinking on the lines which I truly believe to be correct.
Now continuing from yesterday (see here), I believe that the focus of policy should be on providing escape velocity to the middle and lower middle class households. Moving this tremendous mass of people to a higher economic strata will provide Indian economy the critical demand base that is necessary for higher growth on sustainable basis.
Once this mass enters the virtuous cycle of "more income-more saving-more consumption-more investment-more income", the potency to address the upliftment of the bottom of the pyramid may increase exponentially.
In post independence period the policy focus has always been away from this most potent section of the society. Both monetary and fiscal policies have focused either on the:
(a)   miniscule top end of the spectrum that has led to perilous widening of socio-economic inequalities and added little to the sustainability of economic growth. In each business and economic cycle we see this section coming under stress rather easily, seek even more assistance from the government, and bring the financial system to the brink; or
(b)   the large, vulnerable and politically relevant bottom of the spectrum. Historically, most of this effort has occurred without building robust delivery mechanism; has been based on ad hoc policies driven by electoral considerations; and has led to dissipation of scarce resources. In recent times, efforts have been made to improve delivery mechanism through financial inclusion and use of technology (UID) etc. This effort will certainly bear fruit in future. But if adhocism and electoral consideration continue to dominate, the results may still not be optimal.
The consequences are for everyone to see. None of the segments is satisfied.
The question is what is the way out. In my view, a combination of the following could work:
(a)   Minimize capital controls. Allow foreign capital to move freely in all sectors. Make policies stable, predictable and friendly. Support competitive domestic businesses to grow and let the uncompetitive domestic businesses to fail.
(b)   Provide necessary escape velocity to the middle and lower middle class households by leaving more cash in their hands for consumption and investment. High quality public health, education and transportation would help in a big way. Subsidized housing and lower taxes are must.
(c)    Make a comprehensive long term sustainable support system for the bottom of the pyramid. Improving delivery mechanism, and targeting subsidies is quintessential. Make a legislation that prevents a political party claiming exclusive credit for whatever it has done with the public money. Let them claim credit for what they have achieved through spending from party funds. This may take electoral consideration out of fiscal policies.

No comments:

Post a Comment