INTERNAL DEBT and ECONOMIC DEVELOPMENT

EXTRACTS FROM MANUSCRIPT, “WHAT AILS INDIAN ECONOMY”

While India has incurred more foreign debt than is required, it has contracted less domestic debt than is required to meet the legitimate development needs. According to the Reference Manual, “India 1998”, the total domestic debt in 1997 is Rs. 334914 crores which works out to about Rs.3500/- per person. (per capita foreign debt is Rs.4300/-)

Most of the developed countries have much larger per capita domestic loan than India whereas in India, external debt is higher than internal debt…….

……thee is absolutely no valid reason for not incurring more debt to Reserve Bank of India ( this is same as printing currency notes) to meet the developmental needs. The total, both domestic and foreign debt per capita comes to only about Rs.8000/-. The total debt of USA is over $ 5 trillian( $500000crores or Rs.22000000crores)(in 2004 over US$ 11 trillion) and the per capita debt is over $20000 or Rs.860000(approximate) which is about 100 times that of India. Japaese Government’s debt is US$4 trillion-$400000 crores or Rs.17500000 crore. The per capita debt is Rs.15,00,000 which is about 180 times that of India. In the case of most of the developed countries the per capita debt is much higher than in India. The countries could develop only because of the high debt and the fact that they wanted to rely on themselves……….. since Nehru’s time…the elite, intellectuals, economists, administrators etc. justify their inaction/indiffdrnce to the needs of the people, by saying that India does not have resources to undertake large projects and hence the problems of the people could not be solved.

One of the two major reasons for the economic backwardness of the country is the theory…….that India did not have resources.(the other one was that India was over populated…..these leaders did not understand that manpower is the main resource. Instead of utilizing the manpower they went about taking of reducing population growth by introducing family planning programme even as early as 1950s when the density of the population was even lower than that of many European countries.

The secod resource is land. India has sufficient cultivable land even today-i.e. even when the population has increased and the government had encroached upon fertile land for non-productive purposes..

The third resource is money. The leaders did not understand that money at that time was coins and currency notes.(In 2000s it is cheques, credit cards besides currency notes.) While coins are expensive to mint,currency notes could be printed easily by the Reserve Bank of india and the government could have borrowed from the Reserve Bank…….

Even after more than 50 years of independence,there are villages which do not have lakes and which they need and where there is possibility for lakes. Even in the 1990s/2000s, there is need and of course, scope , for thousands of canals of hundreds of kilometres etc. For these works,what is required is just simple tools which the village artisans can make,man power and cattle energy,which the country has in abundance and also local-Indian currency to which the government has unlimited access. There is no need for the government to sign Memorandum of Understanding with Reserve Bank of India on limiting deficit financing. The monetary and other policies of the government are to be decided by the elected representatives of the people and not by officials of Reserve Bank of Indian who are not answerable to the people.

India’s role in world affairs

India is at present the second largest country in the world with every sixth person in the world being an Indian.In the next 10-15 years India will be the largest country with over 20% of the world i.e every fifth person in the world will be an Indian. At present India’s contribution to the world GDP is about 6-7%,being the third largest economy in the world. In the next 10-15 years,India’s share in the world GDP may go upto 10-12%, though it may continue to be the third largest economy. In this position,India should not contiue to take the stand that it does not want to interfere in the internal affirs of other counries. It should take active interest and major role in ensuring peace in the world and in helping poor countries not with materials but by giving consultation, technology, and if necessary loans.In particular, in consultation and cooperation with large countries like China,USA,Indonesia, Brazil etc India should strive for:

i.dissuading counries like Iran, Israel and North Korea to give up plans even for developing nuclear technology even for peaceful purposes,as this is the first step in the efforts for nuclear weapons

ii.persuading countries to take full responsibility for dismantling terror outfits and eliminating terror from the world. Terrorism has been one of the causes for world economic recession, as a lot of manpower is wasted in trying to preven terrorist activities

iii. being the largest country,it has to take responsibity to contribute to the health of the world population. towards this,India has to spend more, on medical research and spend more on establishing super speciality hospitals,so that small countries which cannot afford to establish the same can utulise the facilities in India

iv.India should increase its food production by 200-300% so that countries affected by natural calamities like floods, drought, earth quakes etc. can be assisted.

v.India should take initiative in brokering peace between warring countries or groups of coutries

vi.India should be the one which tables a large number of resolutions in UN organs like General Assembly, Security Council, specialised agencies etc.(It is taken for granted that by that time India would be a permanent member of the UN)

vii.India should spend much more on and expand its aciviies in the space, nuclear, ocean,heavy materials, renewable sources of energy, nano and emerging sciences as small countries will not be able to spend manpower and money on large projects and allow other countries to benefit from its activities in these spheres.

Food security requires higher foodgrain prices

There was a time when India had acute shortage of sugar. Then the government increased the procurement price of sugarcane and continues to increase the procurement price periodically. This has led to India becoming not only self sufficiet but also surplus in sugar.Not only this, sugarcane is one of the only 2 or 3 crops in which India’s yield is higher than world and Asian average yield.

If countries which are deficit in cereals increase procurement prices substantially,the farmers will find ways to increase the yield and production. These countries should also impose import duties on cereals to such an extent that the local produce becomes cheaper. The deficit in food grains can easily be wiped out in most of the deficit countries.

The question will arise as to how poor people who are malnourished for want of money to buy food gains shall buy at higher prices. The people do not have buying power because they do not have enough work. The govenments there should undertake massive works like digging lakes, canals, wells,laying roads, railway lines, power transmitters and lines solar power stations, hydro-electric power stations etc. Most of the west and east African countries receive over 1000 mm rainfall every year and hence increasing food grain production may not be a big problem at all.

World Food Situation- No need for alarm

Food situation in the world in general and in Africa in particular is not as alarming as the protests against food grain prices in several countries, as also the warnings by FAO economists suggest. Low production is a very serious matter which defies solutions but price increase is not impossible to be tackled by increasing/extending subsidies, loans etc. While main food grain producing countries have witnessed slight decline of less than 1.5% in production,(less than 10% of carry forward stock) most of the African countries like Ethiopia, Eritrea, Kenya, Malawi, Niger, Somalia, Uganda, Zimbabwe etc. have recorded higher production in 2010 than in the previous year. Higher prices in 2010 for food grains are likely to lead to a higher production in 2011, as farmers will be encouraged to try to produce more, by higher income. The lower production of food grains in main producing countries will only mean lower stocks being carried forward to the next year and not non-availability of food grains.

It is also heartening to note that wages in most of the African countries have increased during the last few years and thus people have more money to meet the higher food grain prices. It is also pleasing to note that among the 20 fastest growing economies in the world, as many as 11 are in Africa. In other world, out of 53 African countries, 11 are witnessing very high economic growth rates. (Among the 140 non-African countries, only 9 are witnessing high growth rates.). Thus, the people will be able to absorb the higher prices without much difficulty.

From the long term view also, India alone has the potential to double its production of food grains from about 225 million tonnes to 450 million tonnes. If India achieves just 50% of its additional food grain production potential, the world will not have food insecurity at all. Even without bringing in additional land under cultivation, Africa has the potential to double its production, as its yield is very low. What is required is substantial investment in irrigation projects.

Money, Printing of Currency Notes, Inflation (continued)

Excerpt from the manuscript “What Ails Indian Economy?”

“In fact, any product, commodity or service acquires value because of the demand. Today, a music system may cost about Rs.50,000. If tomorrow, people are no longer interested in music or there are other ways of listening to music, the music system loses its value. The value of any product or commodity is based on the importance people attach to it, particularly if it is not an essential item like food, clothing and shelter. …..

To understand better, what money is, it would be useful to have some background information. Direct barter system was used in the olden days. It was possible then, as the requirements of the people were limited to, may be food, clothing and shelter. It would not have been very difficult for a person, to locate….. For example in the olden days a person would have grown cereals on his land. The other person would have grown vegetables and a third person would have grown fruits etc. all in the same locality. People knew each other well and the person who wanted to exchange his cereals with vegetables would not have had any difficulty in locating the person who had vegetables to dispose of and at the same time needed cereals.

Sometimes, people had products to dispose of, but they did not need to buy anything at that time. They therefore needed to keep something in exchange for their products. This something has come to be called the money. People used to keep their money in the form of land, cattle, grains and later in gold, silver, copper etc.

In order that goods and services are disposed of and acquired without much discussions, there is need to express their values. Earlier people might have expressed the value in terms of land, grains or cattle or other domesticated animals. People would have talked of wages of a worker in terms of units (weight or volume) of grain. They would have talked of value of some area of land in terms of cattle-10 cows or 20 cows etc. But now the value of goods and services are talked of in terms of currency -rupees or pounds or dollars or euros etc.

People are willing to exchange valuable goods and services for printed small sheets of paper- currency notes, because they know that other people would accept these papers in exchange for their goods. The currency notes thus acquire value. The same is true of gold…….

 (to be continued)

Money, Printing of Currency Notes

 

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)

Kurals contd.

For social service men of good birth
Need no shield or fame even though worth

Those who desire working hard to earn and live
Covet not others’ money but desire to give