Inflation and economic Development  

19/01/2015

It is important to create demand for goods and services before the products are made in India and services sector is established. How do we create demand? By putting money into the hands of as many people as possible. If we take various sectors of the economy, agriculture sector is the one where more than 50% (nearly 65%) of the people are engaged. If those in the agricultural sector are to have surplus money to purchase additionally produced goods and services, the prices for the agricultural products should be increased for farmers and the wages of agricultural labourers should be increased. This will mean:

  1. When prices of onions, tomatoes, rice, wheat etc go up, there should be no agitations against the price rise
  2. There should be no ban on exports of these items
  • There should be no permission for imports of these items
  1. There should appropriate storage facilities  to store surplus production and there is no distress selling
  2. Farmers should be employed full time i.e. at least for 8 hours a day. This will require farmers to take up allied work like dairy farming, poultry farming, goat and sheep rearing, honey  making, rope  making etc. or intensive farming like multiple crops, good irrigation, etc.

People not engaged in agricultural sector will suffer with increased prices. To remove their sufferings their wages should also be increased. Their wages otherwise  also will go up with large scale demand from farmers and farm workers for the manufactured goods leading to higher profits for factories which in turn will lead to higher wages.


how to attract foreign investment

30/09/2013

If any country is interested in attracting foreign investment, it should do the following.

1. to clearly identify the areas in which foreign investment is required

2. decide the incentives that will be available for investing in the country

3. indicate the infrastructure available

4. formulate the advantages in investing in the country

5. work out the approximate cost of production of goods and services in the country

6. estimate the size of the market

7. write the success stories of 2-3 foreign investors in the country in the same area or similar areas

Pamphlets should be printed including the above points and sent to the countries’ Embassies/High Commissions abroad. The Embassies/High Commissions should send these pamphlets with a covering letter to the concerned companies. For example if investment is required in telecom sector, pamphlets should be sent to all (big or small) telecom companies in the country of their accreditation.

The pamphlets should also be sent to general investing companies- venture capital companies, institutional investors, fund managers etc.

The responses from them should be complied and sent to concerned department in the home country. Thereafter only the department officers/minister should visit the foreign country to meet the potential investors who should be invited to visit home country for further discussions, to visit to places etc.

This way it will be easy to attract foreign investment.


Food Security-production of food grains should increase

26/08/2013

Food Security is wrongly understood by planners. Food security means keeping adequate stock of food grains in the market. While countries where climatic and other conditions are not favourable for agriculture, the governments should ensure adequate stock in the market by facilitating or directly importing food grains. In countries like India food security means facilitating production of adequate food grains by making farming a profitable profession i.e. by ensuring fair prices for agricultural produce. At the same time government should ensure work with fair wages for all adult people. Even the disabled should do jobs according to their ability. The only fields where government should provide services free of cost or at subsidized rates are health and education. This is because, these services at times can become unaffordable for people.Food grains need not be supplied at subsidised rates.

Economy can grow only when the production of goods and services grow. This can happen only when all adults work.


Overvalued and undervalued currencies

15/04/2012

In India Rs.25 can get one kilogram of good quality rice. In United States of America US$ 1 can buy one kg of comparable quality of rice. The rice being same in both cases, US$1 should be equal to Rs.25. But one can get in the banks or elsewhere about Rs.50 for 1 US$. This means that Indian Rupee is undervalued by 2 times. In some other cases 1 US$ may be equal to Rs.50 or Rs.20 or so. When we take the value of the total production of goods and services, i.e. GDP.we get an idea of how much the currency of a country is undervalued or overvalued. International Financial organisations like IMF, compute the GDP of a country both in nominal terms ie. on the basis of rates of exchange and on Purchasing Power Parity (PPP) terms. From these figures we find that while currencies of most of the developed countries are overvalued, the currencies of the developing countries are generally undervalued.

The major countries whose currencies are undervalued are:

1.India by 2.8 times
2.Iran by 2.2 times
3.Taiwan by 2.2 times
4.China by 1.9 times
5.Mexico by 1.7 times
6.Russia by 1.6 times
7.South Korea by 1.6 times
8.Poland by 1.6 times
9.Turkey by 1.6 times
10.Indonesia by 1.6times

The overvalued major currencies are those of:

1.Australis 1.4 times
2.Canada 1.2 times
3.Japan 1.2 times
4.Italy 1.2 times
5.France 1.2 times

In the past Indian Rupee was undervalued by 3-4 times. As the economy expands,the currency becomes stronger. May be in the coming years, as the economy expands,Indian Rupee may not be so much undervalued as now. This will mean that the imported goods may not be so much costly as now.


Money, Printing of Currency Notes

26/06/2010

 

Excerpt from the manuscript “What Ails Indian Economy”

“Now the question arises as to from where the country will get money to undertake the works mentioned earlier. (large infrastructural projects of roads, railway lines, electricity generation and transmission, telecommunications, sanitation, housing). To answer this question, it is necessary to understand what money is. We now buy goods and services with currency notes and coins. These currency notes and coins are called money. W can also buy goods and services with Bank cheques and hence these bank cheques are also money. Of late, credit/debit cards are increasingly used to buy things. Hence these cards also qualify to be called money. Already, in many countries coins are not in circulation. After a few years, even currency notes may become rare and in next few years/decades even cheques would become rare and the credit/debit cards would be the main form of money. There may be new instruments in future which one is unable to guess now.

 What is said above means that money is not a product or commodity. It is a concept only. As of now, it is mostly just sheets of paper (currency notes) which are accepted by the people on certain guarantees of the government of the country or issuing bank as a medium of exchange. Thus for a Government, money can never be short s it can print as much currency notes as required.

There will be a lot of arguments against printing of currency notes. Some may talk of stock of gold against which currency notes are to be printed. These people may that gold has value as metal/product. But this is not correct. If people do not attach importance, gold will have no value. For example, if tomorrow the ladies prefer to have ornaments in plastic, instead of in gold, or if thy do not want to wear any jewelry at all, gold loses its value. If the governments do not want to hold it as stock, it loses its value. When the British government was no longer interested to keep large reserve of gold and sold some quantity, the value/price of gold came down.. (to be continued)