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India's economic options: Govt needs to deliver on promises
Among the second producers there are two major ways to grow the GDP: through consumer markets and through exports. India predominantly follows the first model and China the second one.

This is not to suggest that India does not export secondary products to tertiary markets and many times back to primary markets and China does not have consumer markets. But still to date there is a clear demarcation between the two Asian giants.

The consumer markets-based path is better one as there are more numbers of stakeholders involved when compared with exports-oriented path. The numbers of stakeholders for a nation ends the moment a product has reached the port. Now the rest takes place in other nation. Sure, employees get salary, banks get deposits, government gets taxes and foreign currencies and many national companies are benefited because of consumption by consumers and spending by government.

In India, consumption is partly supported by Union and state governments providing subsidies to the needy and even to the middle classes. This is a stark reality. But unsustainable subsidies put a lot of upward pressure on inflation and downward pressure on growth and independence of state and its various otherwise independent classes.

The fact is that a good part of subsidy is provided by printing more mints. This is like spreading inflation because of lack of real and genuine capital. And it is a problematic part beyond a point and brings up the real trouble: Indian growth is derivative and much restricted and constrained.

Past dominated by oppressive social and economic systems still hounds Indian economy and would continue to do for quite some time. But by that time many competing economies would flourish to good extent and Indian economy could be lagging. 

Mind you, Western capital and expertise offer a great opportunity to many nations to make up for skipping of many psychological steps because of various reasons, including because of social history, colonialism and choice of economic models, but then more homogeneous and equal societies would do better as compared to those who are not so. 

Thus there is an argument of color in mathematical sense. I know China is oppressive society from Western perspectives and it is also the biggest beneficiary of Western expansionism but then it is more equal and homogeneous than what India is. 

Coming back to subsidy argument, India cannot lower down the levels of existing subsidies being provided to the needy classes. Not only such measures shall be unpopular but they would destroy the poor as well. Also, the RBI cannot stop printing mints beyond what printing ethics may permit as such could bring government and also governance to standstill.

Thus the best way to manage economy and account for capital shortage is to seek more and more FDI with technical expertise but with proper and effective regulation by both executives and lawmakers at both national and regional levels.

Regulation is a must or else many Indian companies would face unfair predatory competition and many among them could die as a result. Good regulation also provides for level playing fields to all players. However, this is no job of Indian Union government and its various organizations to protect a company or kill other one. It should be fair, neutral, and impartial to all players in the market.

There is not much economic federalism in India as the states do not have the ability to print currency and also to decide about themselves on many economic issues. In the present context they should not be either or else they first evolve into more complex entities. This should be true of all states, almost to the equal extent, but then this could be virtually impossible. As of now Indians just cannot be so complex. Also, regionalism can hurt a possible attempt to introduce economic federalism and economic rationalism.

If tried so in real time, then all the participating states may not have sufficient reasons to continue with Indian Union as its members in totality. India has to be simple and complex simultaneously to hold itself together with binding glue. Thus, as of now while legislative federalism is much required, economic federalism could prove to be divisive or minimally ineffective for most of states, particularly for poor Indian states.

The Modi-government since beginning is keen on attracting investments from foreign players. It has opened up defense, railway, aviation, and infrastructure and is keen on opening up Indian markets to the foreign investments in other fields too.

However, it may not comply with continuing Western pressure on opening up the retail sector so overtly, as it may affect it negatively politically back home. Otherwise Prime Minister Modi is ready to let the dominant ones dominate more.

But then it should be rather careful in its approach towards seeking investments from foreign players, particularly regarding its words given to investors. The foreign investment is not always hassle-free as it puts a lot of constraints on government agencies, including most importantly on their ability to freely and fairly draft legislation.

It also puts a lot of pressure on private players like what their future evolution could possibly be and also about their work ethics. The foreign investment may put some constraints on RBI as well like it putting security and other hedges though overall it is beneficiary. However, the FDI has capital outflow and withdrawal arguments as the biggest constraints associated with it.

The most important thing that this government should remember is that it needs to deliver what it has promised during election campaign in the 2014 general elections. The most important thing that the BJP-led NDA government needs to do is to prove itself as a better alternative than what the INC-led UPA was; to promote a new political culture where all stakeholders are respected and federal structure is upheld barring that economically.

The government should put bright image of India in front of most of those who matter and for that red-tap culture and corruption should be undone to the extent it is possible in India.

Indian government should try to fulfill all the words that are given by any past Indian government if they are legitimate and are in national-interests, as perceived by the incumbents. As capital is not free so is trade. India is signatory to the WTO since its inception and it should honor all commitments made to the member nations without giving up its core national interests.

But then thinking that all Indian interests are above and before any one else and continue seeking investments from all possible players is a wrong strategy. It requires compromises on multiple-fronts on behalf of the Union and state governments.

Indian economists should be assured that consumption-led growth is a better option than export oriented one though the former is slower as compared to the latter. But then consumerism helps all and common people the most.

The future of India lies with the prosperity of many others and it needs to seek symbiosis from all possible players. For that India should have proper foreign-economic policy in place. Most of the time, it should be pro-Western, without India dreaming of splitting the West into more hegemonic parts and rest. In particular, India should consider the US as friendly and the most important nation in its foreign-economic vision.

Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of merinews.com. In case you have a opposing view, please click here to share the same in the comments section.
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