Indian Economy

04/10/2011

Indian economy is quite sound as can be judege from the following:

i. there is no unemployment or the unemployment is very low now, compared to what it was in the past. In fact there is shortage of labour in every sector of the economy- in agriculture, industry, plantations, transport etc. Shortage of labour is seen both in the urban and in rural areas.
ii. production is increasing as can be seen from the increasing number of trucks moving goods across the country
iii. industry has no problem in getting finance, either by way of equity or loan from banks or other financial organizations-postponement of initial offerings by companies does not mean that the public are not interested in buying equity shares. It only shows that the prices of the offerings have been placed high.
iv. there is no dearth of loan facilities for agriculture
v. finance for acquiring vehicles is available from a large number of organizations
vi. there is no problem in selling products/commodities, (though sales promotions are required. ) This is because of higher purchasing power of people in general.
vii. the expenditure on food as a percentage of total expenditure f the households is continuously decreasing showing an increasing number of products being used by the people. This shows higher standard of the living of the people.
viii. prices are going up, but wages have already gone up and still are going up. Thus,price increases is not a major problem. For example, between 2006 and 2010 wages have gone up by about three times in most l cases. On the other hand, prices have gone up by 50%- 100% (which has resulted in higher standard of living of the people).
ix. people no longer walk even short distances. They use mopeds,motorbikes and cars. Very few people use bicycles. People are in a position to afford these luxuries now. They even travel by motorbikes for even the currently “low” paid jobs.
x. there is no communication problem now. Most of the people have cell phones.
xi. the markets are full of things –food items as well as industrial products.
xii. stock markets are volatile. Price of gold and silver is increasing,but this cannot be called economic crisis,but can only be called speculative activity. If FIIs are banned ,institutional investors are restricted in the secondary market, the markets will be steady.
xiii. however, there is a lot of scope to increase productivity, increase consumption and thus, expand production and GDP.
xiv. interest rates have gone up leading to higher cost of production, but the prices of all products have also gone up .Thus,the purchasing power of the interest amount from the deposits in banks,etc. Would have become lower, if interest rates are not raised. In other words, depositors would have suffered badly.
xv. there is shortage of labour. This can be solved by increasing mechanisation. In agriculture for example, mainly ploughing has been mechanised. There is scope of mechanisation in planting, weeding, harvesting,thrashing,etc. In industry also, there is a lot of scope for further mechanisation. This is how industrial revolution took place in Europe a few centuries ago.
Xvi. The problem of pollution should be tackled with proactive participation of the government.
xvi. Global warming is talked about but we are witnessing coldest winters and hottest summers which can rightly be called weather extremes rather than global warming.
xvii. higher public/government debt in itself cannot be an economic crisis if the debt has been incurred for productive purposes and the labour productivity remains high. after all, money can always be created by the government monetising debt.
As the fundamentals are strong in Indian economy, external happenings should not affect it. However, it does affect because of speculative activities. It would good to control speculations.

Advertisements

Money, Printing of Currency Notes, Inflation (continued)

30/06/2010

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)