Strong economy’s impact on culture of other countries


Excerpts from “Simple Alternative Development Strategy”




Food Security-production of food grains should increase


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.

Bihar under Mr. Nitish Kumar’s rule has not changed.


When Mr. Nitish Kumar assumed office of the Chief Minister of Bihar in 2005 (earlier he was CM for a few days in 2000) there were great expectations. Under his leadership, Bihar was expected to improve in the law and order situation, infrastructure and the economy. At that time Bihar had the lowest per capita net state domestic product(NSDP). Now after years of his rule Bihar still has the lowest NSDP of Rs.20,000 (2010-11) Haryana’s NSDP is over Rs.92000. There is no significant improvement in the law and order situation or in infrastructure.

In spite of his best intentions and efforts the CM could not effect much improvement because it seems that the people are not in a mood to work hard and honestly. It is time to urge people to put in hard work and be honest and committed in work. The other reason is that the state is too large to govern effectively. It has a population of over 10 crores (of course UP and Maharashtra are bigger). Bihar is bigger than about 180 countries out of about 193 countries in the world. For administrative convenience and faster economic development and social improvement, Bihar should be divided into two states. Even with less efficient administrations, both the new states will develop much faster than now.

Tamilnadu population 2011-natural growth and immigration





Coalition Government in India


There is a view that for the economic development of India, the central government should be strong, meaning that the central government should have full majority and should have more powers than it has now. The growth rate of the economy during the first 30 years of independence when the central government was very strong under the leadership of Jawaharlal Nehru and Indira Gandhi, was less than 5%. However, when the central government was run by coalition parties in the recent past, i.e. when the central government was supposed to be weak, the growth rate of the economy has been very high – about 7% and in some years touching 9%. This growth was achieved from an even higher base than what it was during the rule of Nehru and Indira Gandhi.

It appears that in the coalition governments, all the ministers in the cabinet are motivated to work hard and deliver progress. This is logical because their reputation and future electability is at stake.

For a large and heterogeneous country like India, a two-party system is not at all good for the country. There are no two parties that can faithfully reflect the interests and aspirations of the diverse sections of the society and regions of the country.

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.

What goes around, comes around


During the past few years till 2007, the economy of almost every country has witnessed significant growth. According to data from the International Monetary Fund, global GDP grew from around US$51 trillion in 2004 to around US$65 trillion in 2007 – more than 25% in 3 years. The GDP growth rate in 2007 was 5%, which is considered to be a good rate. The economies of developed countries, such as tthe US, Japan and those  of the European Union, grew by 2- 3% in 2007. This is solid given the large base of these countries. In the case of developing countries, such as India and China, growth rates of 7-10% are considered solid given their low base. These  countries have registered such growth rates over the past 4-5 years.

GDP growth rates peaked in most countries during 2007 and since then there has been slower growth. It is important to note that most countries are witnessing a decline in growth rate, not negative growth. The decline is expected to last for the next 2-3 years before the trend is reversed. The Indian economy registered a growth rate of over 9% in 2007 and despite news of an economic crisis,  the economy is expected to grow at around 7% in 2008. The US economy grew 2.2% in 2007 is expected to decelerate to less than 2% in 2008. In 2009, even if the growth rate is less than that in 2008, it should not be cause for alarm. For a large , developed economy, even a 1% growth rate is positive considering population growth is less than 1%. So in this perspective, the current economic situation is less of a crisis and more a slowdown. The sensational news stories of  economic meltdown are exactly that, sensational. The actual concern should be on the future and how growth rates develop over the next few years.

The stock market situation is somewhat similar in its lack of fundamental change. Take for example the Bombay Stock Exchange in India; its Sensex benchmark rose from around 10,000 in early 2006 to over 20,000 in early 2008, doubling in 2 years. Naturally, such an increase motivates initial investors to take profit by selling their shares. The Sensex is again around the 10,000 level. I expect investors, both new and old, to start entering the market at this level. We have to remember that since 1978-79 when the Sensex  was at 100, the index has reached to 10,000 in 2008, a 100-fold increase in 30 years. The price of gold has increased only by 20 times in the same period.

I believe that both the global economy and stock markets will face pressure in the short term, with industry being hit. However, with prudent intervention, I believe long term trends are positive.