Indian central budget 2017-18-expenditure should be much more than budgeted

05/02/2017

According to the Budget Estimate for 2017-18, total expenditure during 2017-18 is Rs . 21 46 735 crores which higher than the Revised Estimates for 2016-17 of Rs.20 14 407 crores only by about 6%. The inflation in a year will be about 10%. This means that in real terms the expenditure next year will be less than the current year. This will result in contraction of the economy instead of growth. If the rains are favourable and agriculture registers higher production and the private sector does well, the contraction of the economy can be avoided and even growth can be registered. For this the government should be proactive, reaching out to private sector and offer incentives. The regulatory role of the government should be reduced and developmental role should be concentrated upon. For example in the matter of pollution control, the authorities should not impose elaborate regulations on industries and punish those who violate the regulations but should come forward to establish pollution treatment plants and charge the industries for the same as service charges on a monthly basis just like electricity, water etc. charges. This could be done easily if the factory comes up in a cluster. If the industry is polluting one, government should encourage clusters so that it is cheaper to treat the pollutants.

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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.


Inflation

07/10/2014

Excerpts from “Simple Alternate Development Strategy”

. A large amount of foreign and international aid is received in India. The aid comes in the form of foreign exchange (cash) in most cases ( only in a few cases it comes in kind) and equivalent Indian currency is released in circulation in the country (or is used to import things). This means that the currency in circulation increases to this extent. India receives financial assistance from World Bank, International Monetary Fund, Asian Development Bank, foreign governments , their agencies like the Swedish International Development Authority(SIDA), , Overseas Economic Cooperation Fund of Japan, Danish International Development Agency (DANIDA), European Economic Community Overseas Development Agency, UN Fund for Population activities (UNFPA), UNDP, UNICEF, FAO etc. All this means increase in money circulation in the country. According to the authentic statistics published in newspapers, from February 94 to February 95, money in circulation increased by about Rs. 80000/- crores or by about 18% from Rs. 426,000 crores to Rs. 504,000 crores. The inflation was stated to be only 10% – 11%. The inflation would have been nil or much less, if production has increased correspondingly. Foreign aid is also received also for works which could be carried out without foreign assistance. For example buildings are built with foreign aid. Transport vehicles are financed from foreign aid. As stated, foreign aid in cash in effect, means increase in circulation of rupees in India. Inflation will be there whether currency notes are printed for conversion of foreign currency or for meeting developmental needs. But when increase in circulation of money leads to higher production, the inflation will come down to the extent of increase in production. If the value of production is more than the currency printed, there would be deflation i.e. prices would come down.

The foreign currency would be useful to facilitate imports, but why
should there be imports ? In the recent past, it is noticed that because of comfortable foreign exchange position, non-essential and luxury goods have been allowed to be imported. .(There are suggestions for liberalising imports of capital goods and other goods just to liquidate the foreign currency accumulations.) This has not in any way contributed to the country’s development. On the other hand, unrestricted imports of certain items have damaged the local industry, though for argument sake, it can be said that the imports provide competition to local producers to improve their performance. The competition could be provided by setting up more factories in the country. This may take some time but in the country’s life, one has to think of longer term strategies. If an industry’s performance has not been good for 40 years, or 50 years, it can remain so for another 2 or 3 years or 5 years, till new factories are set up in the country itself. The large scale imports recently of granite industry machinery prevented the development of local granite machinery industry in the country. India now has quite a large granite industry, but does not have technology for making machinery. By the large scale import of granite machinery, India has only helped Italy and other granite machinery exporting countries to not only increasing their production but also improving the technology. The same is the case, to a lesser extent of leather industry machinery.
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78. In early 1995 about Rs. 70,000 crores in foreign exchange reserves were there. For part of this money, currency notes have been printed. For instance, when a foreign company participates in the equity capital of a local company with cash contribution, or when Indian companies raise loans in foreign countries, the equivalent of the foreign currency is to be paid to the Indian company by the banks/ Reserve Bank of India. This definitely increases money in circulation.

An amount of over Rs.200,000 crore (Rs.2000 billion) is said to be unaccounted ( black) money with the people i.e. the money on the earning of which tax has not been paid. Only a negligible part of this money is in circulation. There is a suggestion for bringing this money into circulation after the owners of the money have paid tax. If the entire money comes into circulation, will it not lead to inflation ? The effect would be the same as printing this much of money and bringing the same into circulation. There cannot be anything different. ( There can however be a marginal variation in that , already a very small part of this money is in circulation but then lot of unproductive work is involved in calculating and collecting tax.)

It is quite clear thus, that bringing foreign money into the country or black money in circulation in India has the same effect as printing currency notes.

Some people may argue that for printing currency notes, we should have adequate gold reserves. There is absolutely no need for this. Gold is one of the several metals. It is valuable now, because people give importance to it. It sells between US$ 300- 400/- per ounce. Tomorrow, if people of India decide not to wear jewels, and do not buy gold, the price of gold will come down to less than US$ 300 per ounce. If the people of other countries like China , Pakistan, Bangaladesh etc. also decide not to buy gold, the price of the same will come down to less than even US$ 50/- per ounce. It is therefore clear that printing of currency notes should have no relation to the gold reserve.


Indian Projects- no need for foreign loans

03/01/2014

There is news that India will get a loan of $160 million from World Bank for modernizing roads in Rajasthan. When the money is received by India, the equivalent amount of Rs.996 crores will be brought into circulation in India. It may come from the reserves and /or from printing currency notes. Roads can be modernized without importing any material from abroad or in other words there is no need for foreign exchange for the project. Only Indian Rupees is needed and this is available in India or can be printed. Inflation will be there whether loan is taken from World Bank or the Indian currency is released into circulation without taking loan in foreign currency from abroad. So in cases where imports are not required for projects loans should not be taken from abroad and the required amount should be loaned by Reserve Bank of India.


Money, Printing of Currency Notes, Inflation (contd)

30/06/2010

Excerpt from the manuscript “What Ails Indian Economy?”

Coinage is said to have been invented by the Chinese only around 700 BC. Paper currency is believed to have been invented, again, by the Chinese only around the 11thcentury AD. For trade between countries, even as late as 16th century AD, barter system was used.

At present Indian currency notes are issued by the Reserve Bank of India (RBI)/Ministry of Finance (central government). If more money is required more currency notes could be issued by the RBI and the government could borrow from them. Under the heading INTERNAL DEBT, it was seen that the per capita debt of the government is only Rs.8000 in India, while it is Rs.860, 000 in USA and Rs.1500 000 in Japan. To start with, Government could borrow an additional amount of Rs.100, 000 per head. The total per capita debt would go up to only Rs.108,000 which is just about 12% of per capita debt in USA and about 7% of per capita debt in Japan. By the additional borrowing, the government can mobilize capital of Rs. 1,00,00,000 crores. At an average wage rate of Rs.70 per head in rural areas,( the wage rate per day for a male worker is Rs.50- 70 and for female worker, it isRs.25-30 and for a supervisor around Rs.100 in states like Tamilnadu), this amount will be sufficient to pay wages for about 140000 crores man days. But under the heading EXCESS POPULATION/ LABOUR, for the massive works, the estimated man-days of labour required is only 5165 crores (51650 million). After meeting expenses on wages, there will be large amount of money which can be used for purchase of all the required materials, tools, etc, as also for undertaking other works.

If Japan and USA can manage with large internal debt, there is no reason why India cannot mange with much lower internal debt of Rs.108000 per head. All consequences of inflation etc. have to be tackled as and when they rise, but in anticipation and fear of inflation, internal borrowings need not be limited to the abysmally low figure, thereby depriving the people of work and means of livelihood. Fear of inflation should also not lead to the country’s GDP remaining at a very low level- among the lowest in the world.

From the above it is clear that there is no real shortage of capital and money in the country for undertaking huge projects and for providing buying power to the people

(written about 10 years ago)

(to be continued.)


Employment generation is easier in developing countries

21/03/2010

There is a lot of scope in developing countries for creation of employment avenues. In developed countries, the scope for laying new roads is limited as they already have sufficient roads. Similarly, there is very limited scope for laying railway lines, drawing electricity and telecommunication lines, in building houses, in building lakes and digging canals, laying sewerage, expanding supply of piped gas etc., as saturation point has already reached. But in developing countries, the scope is unlimited. In other words, while it is difficult to generate employment in advanced countries, it is very easy to do so in developing countries.

All the works mentioned above, will not only eliminate unemployment, but would lead to labour shortage. However, priority should be established for undertaking the different works. Irrigation and agriculture should get the top priority. After digging lakes and irrigation wells around the lakes, it takes only about 4-5 months to get additional production of food grains. The second priority should be to set up cotton ginning, spinning and weaving mills and ready made garment units.

Funds should not be a problem as currency notes can be printed. This will not lead to long term inflation as with the digging of lakes, wells and canals, the production of food grains and other agricultural produce will increase which will lead to decrease in prices. Inflation would be there only for a short time, between the start of the work for digging lakes etc and the harvesting of the agricultural produce.