Utilisation of foreign exchange reserves

Foreign Exchange Reserves of India has recently been raising and has reached nearly US$ 600/- billion. This is deposited by Reserve Bank of India in foreign Central Banks, used in buying foreign government bonds, for buying gold etc. The return on these investments is very low at 1-2 % per year.

India;s imports of goods and services is around US$600/- billion, Generally, it would be sufficient if the foreign exchange reserve covers 3 months imports.

India’s external debt is mostly by private sector and the foreign exchange required to service the debt is also not much.

Indian Overseas investment is also considerable.

It appears that , to start with an amount of US$100 /= billion out of US$600/ billion can be withdrawn by RBI and lent to Government for undertaking large infrastructural projects which will eliminate unemployment and enlarge GDP.

reducing/eliminating unemployment

Indian political parties seem to think that government can do everything including creation of of jobs on its own. But this is not possible. Government should involve the rich people who can invest their money in establishing factories, business establishments, service establishments etc which can provide jobs to the people, produce goods and services and thus increase the GDP of the country.If the country is to develop, there is need for capital which rich people can provide, there is need for workers who can work, there is need for services like transport, electricity, trade etc.which service establishments can provide. Therefore it is necessary to have harmonious relationship between different contributors and effective coordination. The government’s contribution in economic development should be indirect in the form of facilitation, concessions, infrastructure development. Government’s priority should be improvement in law and order situation, provision of social security and similar things.

Unemployment and crime

Most of the crimes which are committed for money are committed by the unemployed people. Hence with increased employment opportunities, crime will come down. Creating jobs is one way of curtailing crime rate, making life safer and happier for the people.Governments can give grants to the industrialists and businessmen who create regular jobs with a view to encourage them. Governments can undertake infrastructural and irrigation projects, set up research institutes-scientific, industrial, social,economics.

Economic Growth

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.

 

Mr.P.V.Narasimha Rao, the most efficient Prime Minister of India

It is unfortunate that the people of India do not talk much of the Prime Minister of India during the period June 1991- May 1996, Mr.P.V.Narasimha Rao, who was responsible for bringing in economic reforms. Implementation of these economic reforms lead India to be the 3rd largest economy in the world after USA and China. To attain this position, India has overtaken Japan, Germany,France, UK, Italy, Russia and Brazil.In 1991, when Mr.Rao became Prime Minister the foreign exchange reserves were only about US$ 1/-billion and now it is around US$ 300 billion. When Mr. Rao assumed Office, the gold reserves of the country had been pledged to raise loan. Now the country is importing hundreds of tonnes of gold for its reserve. India has also emerged as an investor in foreign countries.Even developed countries are inviting Indian industrialists to invest in their countries. In 1991 Foreign authorities were tightening their visa restrictions for Indian nationals but now they are liberalizing their visa regulations for Indians to attract Indian tourists. In 1991 there was huge unemployment but now there is acute shortage of labour in every sector of the economy.

(Of course there is a long way to go to reach the per capita income level of developed countries. Agricultural production is still very low.Infrastructure is grossly inadequate in spite of the initiatives taken by Mr.Rao.)

Considering the impact of his policies and initiatives on Indian economy,India should honour Mr.Narasimha Rao in an appropriate manner- naming his birthday as national economic liberalization day, issuing commemorative stamps etc.

Indian Economy

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.

Changes in Tunisia in Jan. 2011-How far are welcome?

Following large scale demonstrations over rise in prices of food grains, unemployment, corruption, authoritarian rule etc. President Zine-al-Abidine Ben Ali of Tunisia fled the country to Saudi Arabia with his family and Parliament Speaker Fouad Mebazza has taken over as Interim President. Several countries have welcomed the changes. But how far the change is turned good for Tunisia and the world?

Today, terrorism particularly that based on religious extremism is the most dreaded problem in the world. It appears that former President Ben Ali repressed the human rights/freedom of religious extremists to ensure the human right to profess religion of choice, to religious minorities viz Jews and Christians. He is also reported to have curtailed the freedom of the people by blocking access to visit jihadi blogs /websites. He also is credited to have maintained mosques as places only for prayers and not for propagation of any particular view by the Imams. He is also said to have promoted the women’s rights.

Corruption cannot be condoned on any account. Increase in prices of food grains is a universal phenomenon but efforts should have been made to subsidize food items to see that the people are not affected badly. Unemployment could also have been tackled perhaps, easily by undertaking large developmental and infrastructural projects.
Human rights are good, but it should be of all the people including minorities. Repression is bad, but anti-social elements as also terrorists of all sorts, should be dealt with strongly. Democracy is good but it should be ensured that it is not exploited by anti-social elements and religious extremists to impose their will.

Let us hope that the new regime ensures human rights and freedom of all the people including minorities, tackles religious extremism by dialogue rather than oppression and moves towards increased production of goods and services at a faster rate.

Stimulating the economy

There is economic slow down in most of the countries currently i.e. early 2009. These countries try to stimulate the economy by

• Lowering interest rates
• Giving tax benefits
• Offering incentives to industries

By lowering interest rates for housing loans, vehicle loans etc. the governments try to encourage people to avail of the loans which in turn leads to construction of  houses, production of vehicles etc, thus reducing unemployment. But at the same time, people who deposit their money in the banks receive lower interest and thus the disposable income with them comes down leading lower consumption expenditure- lower retail sales, low demand and low production.

Giving tax benefits would make the companies and individuals to have additional money, but the governments would lose tax revenue and thus will not be able to undertake large infrastructural work.  Instead of reducing taxes, the governments can undertake infrastructural work and generate employment and additional spending.

Offering incentives would again reduce the government funds. It is likely that many of the industries would reduce the ex-factory prices of their products.  They would however result in lower cash balance with the governments and  lower government spending which is not good for the economy.

Cost of the production should be reduced by increasing the productivity of the employees. This could be done by requiring employees including the top managements in all the establishments in the country as well as self employed persons to work for additional one hour a day without any increase in salary.