Economic Growth

04/06/2016

Indian economy is reported to have grown by over 7% during 2015-16. This statistics should be correct. But on the ground one does not see the growth. The unemployment continues to be as before. Government’s  Employment guarantee scheme continues. If economy grows, employment opportunities are created,  and therefore there should less dependence on government guarantee scheme.  On the other hand unemployment situation appears to have deteriorated  so that the government has increased the number of days the  people are employed in a year.Unemployment among educated people is growing. Many people depend on government grants and subsidies to survive instead of on working and earning. This is an indication of poor management of the economy. The media mostly carries news of governments’ schemes to assist people to acquire amenities rather than establishment of factories,  research institutes,undertaking infrastructure works etc.for  generation of employment so that the people will work and earn for their survival. Government should also not depend solely on foreign investment. It should assist local entrepreneurs with liberal policies to establish factories and undertake infrastructure works.

 

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Debt to GDP ratio and Economic Growth

02/10/2010

There have been some studies and conclusions therefrom about Debt to GDP ratio of a country and the econonomic growth rate. Some of the conclusions are:

1.once the debt to gdp ratio exceeds 77%, the growth rate will fall

2.for every 10 percentage points fall in debt to gdp ratio, growth rate will go up by 1.4%

These conclusions do not hold good in all situations and for all countries. Further fall or growth in growth rate depends also on the type or purpose for which the debt is incurred.
Generally,

i.if the debt is maily for purposes of undertaking short gestation project like dams, irrigation canals, linking rivers with one another and with lakes etc. the growth rate will go up even if the debt to gdp ratio exceeds 100% or even 150%.

ii.if the debt is incurred for productive purposes like generation and distribution of electricity, import of technology, capital goods, raw materials etc. there will be no fall in growth rate even if the debt to gdp ratio is very high

iii. if the debt is incurred for unproductive purposes like increase in wages without increase in productivity, welfare measures, sports, entertainment etc. growth rate may fall with increase in debt, though in some cases, increase in spending power of the people may lead to increase in demand and consequently production.

iv. irrespecive of the debt-gdp ratio, economy would witness growth, if all able-bodied persons work and they put in their maximum possible ability, time, energy, attention etc to the work

v. the amount required for servicing the debt depends not only on the quantum of debt but also on interest rate. If the interest rate is low or nil, and the repayment period is long, serving debt may not be a big problem.