Sometimes it takes a small talk with a friend to trigger an event that gave me the courage to write in a blog. So thanks to my Friend. So here is the previour part 5: Lessons from US.
To those who want read from the beginning, here is Part1
It does not make difference who gets the credit as long India and Indians are benefited, of course it is politicacally imperative for sonia Gandhi to give importance to her family. Though I cannot avoid, I have to mention Media is biased and we give proper credit to people who deserve.
There are lot of problems facing India and we need a good leaders to solve them.
1) India's total debt is at 770 bn ( whole of India is 1000 Billion USD loan) somebody is going to pay this bill
2) Becoz of poor power supply and transportation, most of the business is in middle of a city . making properties very costly, Inflating the land prices and out of reach even middle class families. If you compare this with US, US has very low land inflation till 2003 for most regions outside, SFO, LA, NY and Miami City. becoz of good suburban roads.
For every million rupees spent, roads raised 335 people above the poverty line, and R&D 323. Every million rupees spent on education reduced poverty by 109 people, and on irrigation by 67 people. The lowest returns came from subsidies that are the most popular with politicians - subsidies on credit (42 people), power (27 people) and fertilisers (24 people).
3) Development of transportation can develop suburbans and reduce land prices
4) 60-70% of Indians can only be employed in low skill factory jobs. We need massive industrialisation and large factories
5) we need Capital account convertibility, India will be easily able to export its inflation becoz of its size and depth. http://business-standard.com/common/storypage_c.php?leftnm=10&autono=315201
6) Government needs to stick itself to Security, foriegn policy ,law and order, without interfering much in economics.
7) Whenever Inflation increases, it means somebody is missing their food, shelter, so RBI should stick to manage Interest rates and not worry about acccumlating foriegn currency or managing sovereign wealth
8)Whenever fiscal deficit decreases, it leads long time system stability ( no major skew by govt expenditure)
9) Technology is always welcome
10).
Notes:
- Government is always powerful. never mind what freedom you think you have.
- The total Global (world wealth at current technology) GDP is around 50Bn USD and USA is 12Bn USD. There is 300 Million People in US. that is 40,000 USD per US citizen. India has 1.1 Bn, to reach US standard of living of 40k USD, Indian economy has to grow from Current 1 Trillion to 40.4 trillion for current living population. India was 300 Billion in 1991, it took us 16 yrs to treble to 1trillion. At current growth rate it will take us atleast 45 yrs to reach 40 trillion, and in these 45 yrs, India population will be 2bn atleast. so it will take us 100 yrs to reach current US standard of life. ( note: We do not know where US will be in 100 yrs.)
So, India and Indians needs lot of luck just to survive.
Further reading
1)A tale to gladden the heart of economic liberals
2)Battling the babu raj
Saturday, March 08, 2008
Friday, March 07, 2008
Part 5:- As it is in US
Previous Part 4: PC & BJP
in 1992 US economy was $4trillion and when Bill clinton become president, he tightened govt expenditure and reduced its debts to zero, by the end of 2000 US economy was $10 trillions.
It is like your income growing from $100k to 250k in 8 yrs. Not only yours but all of the people, you know. But once the current govt came in 2000 and started spending and deficit increased economy grow from 10 to 13 tns in 8 yrs. Note US can export its inflation becoz of trade is in dollars. Like it can print more dollars and let foreign countries accumlate them. India can do same thing becoz of its size.
The current news ( feb-2008) is US inflation is 7%, it is related to Iraqi surge of 30k troops, who needs additional clothes, food, shelter, equipments and so ..on from the mainland, Note in 2003 ,when the war started , US was in recession and the economy grew out of that stimulated has war created. but in 2006 economy is strong but the politically correct surge, created high inflation. If not for surge, US might have had a soft landing becoz of housing problem.
Next : Part 6 Friendly Conclusion
in 1992 US economy was $4trillion and when Bill clinton become president, he tightened govt expenditure and reduced its debts to zero, by the end of 2000 US economy was $10 trillions.
It is like your income growing from $100k to 250k in 8 yrs. Not only yours but all of the people, you know. But once the current govt came in 2000 and started spending and deficit increased economy grow from 10 to 13 tns in 8 yrs. Note US can export its inflation becoz of trade is in dollars. Like it can print more dollars and let foreign countries accumlate them. India can do same thing becoz of its size.
The current news ( feb-2008) is US inflation is 7%, it is related to Iraqi surge of 30k troops, who needs additional clothes, food, shelter, equipments and so ..on from the mainland, Note in 2003 ,when the war started , US was in recession and the economy grew out of that stimulated has war created. but in 2006 economy is strong but the politically correct surge, created high inflation. If not for surge, US might have had a soft landing becoz of housing problem.
Next : Part 6 Friendly Conclusion
Thursday, March 06, 2008
Part 4: P Chidambaram and BJP
in 1997 PC did what is called a dream budget, what he did is simple but profound
1) he reduced government expenditures
2) he reduced Government revenue
by cutting taxes across the board and led a tight government for next 2 yrs
Luckily for India, BJP govt for next 6 yrs did the same thing, no populist measures.Yashwant Sinha under Chandrasekhar govt was the original architect of fiscal discpline. During the same period from 1997-2002, the GDP growth was only 4% , it is becoz Indian government was always mover/spender in economy but here government is cutting itself down. Poverty also fell faster becoz inflation was also very low around 3-6% during these last 12 yrs. it proves that low inflation in western countries like 1-2% is also the reason for their very low steady poverty. (Assuming Population growth is also below 2-3%. During 1950-1962, India experienced similar growth)
In 2003, Poverty rate touched like 25% way down from 50-60% seen in 80's. Jaswant Singh Introduced two important laws one for tough laws for capturing non-performing loans of banks and two to refinance the state governments old debts, low inflation rate led to low interest rates, indeed some of the state government borrowed "hundred" crores in 1970's at 30-40% interest rate and it was still paying for in 2001. Govt in 2001 introduced $5bn USD bond and cut interest payments and freed additional funds of state governments by 60-80%.
This led to more funds for state governments, so govts borrowed even less and that means banks had more money from both loan recovery and less govt borrowing. Banks also did VRS , which improved their productivity. this led to robust growth rate of 8% from 2003, this is driven by people taking loans from banks to finance homes, cellphones, cars ...etc. thereby creating more employment and low inflation.
NEXT As it is in US government
Wednesday, March 05, 2008
Part3 :101 Basic current economies
Part2: Why I disagreed with my friends
Before I can go to next 3 articles, I need to mention Basic economies on which India, and USA and most of the world is operating and what they mean. They are 4 important pillars in a free market economy
1st one is of course government, do you know what is your biggest monthly expenditure? It is financing the government thru income tax and all other taxes you buy when you eat, shop, see movies. Government is the richest and is the Emperor of the village. US govt is the Monarch of all these emperors
2nd most important is Inflation. there are lot of concepts of Inflation, but when you hear the word inflation ,it always means two things
- Government is spending more than others ( this is the true meaning of inflation)
- price are not stables, that means people who live on the borders, have to provide more for food or shelter , that means people are going to become poor.
Indeed it can proven mathematical at stable price and stable price increase ( say 1%) , poverty rate falls faster.
Tools to control inflation are a) interest rates, govt squeezes peoples spending b) capitail convertability or floating the currency, you export your inflation like US is doing to gulf countries/Indian Outsourcing firms/China
3rd most important is called fiscal deficit in India or balanced budget in USA/most other countries
- When Government borrows, as it is soveriegn , it gets the most money and it skews the whole systems
and when government spends , it skews the systems , for eg if government decides to buy a mobile phone, it buys them in millions (and not one or two like in a family ) that means a million "similar" lcd display, million "similar" keys, million "similar" sim cards and are all going to be required over night, that is going to create a major shortage and short term price hike or inflation in that particular product lines. compare it to million or even 1000 of people/organizations, it will all be different. Some go for style , some for features, some for price, increasing depth of the market.
4th most effective tool in current economic situation to remove poverty as been technology, indeed technology has played the greatest leveling factor in poverty allevation across centuring. Technology has been often replaced by words like education and militrary power,
But Government is always poor follower of technology, Being a behemoth , it is never nimble to advance/exploit technology. Technology is best exploited by risk takers, individuals, private enterprise. As you can see, In Regimes of less freedom, generally dictators pay the price for poor technology.
like USSR failed to convert their technology and had high poverty
while Saudi arabia,Iran has no new technology and has high poverty , unemployment inspite of record exports
while the reverse is true in korea, singapore, australia
Even china is no front runner in exploiting new technology nowadays.
NEXT :part 4 PC and BJP
Before I can go to next 3 articles, I need to mention Basic economies on which India, and USA and most of the world is operating and what they mean. They are 4 important pillars in a free market economy
1st one is of course government, do you know what is your biggest monthly expenditure? It is financing the government thru income tax and all other taxes you buy when you eat, shop, see movies. Government is the richest and is the Emperor of the village. US govt is the Monarch of all these emperors
2nd most important is Inflation. there are lot of concepts of Inflation, but when you hear the word inflation ,it always means two things
- Government is spending more than others ( this is the true meaning of inflation)
- price are not stables, that means people who live on the borders, have to provide more for food or shelter , that means people are going to become poor.
Indeed it can proven mathematical at stable price and stable price increase ( say 1%) , poverty rate falls faster.
Tools to control inflation are a) interest rates, govt squeezes peoples spending b) capitail convertability or floating the currency, you export your inflation like US is doing to gulf countries/Indian Outsourcing firms/China
3rd most important is called fiscal deficit in India or balanced budget in USA/most other countries
- When Government borrows, as it is soveriegn , it gets the most money and it skews the whole systems
and when government spends , it skews the systems , for eg if government decides to buy a mobile phone, it buys them in millions (and not one or two like in a family ) that means a million "similar" lcd display, million "similar" keys, million "similar" sim cards and are all going to be required over night, that is going to create a major shortage and short term price hike or inflation in that particular product lines. compare it to million or even 1000 of people/organizations, it will all be different. Some go for style , some for features, some for price, increasing depth of the market.
4th most effective tool in current economic situation to remove poverty as been technology, indeed technology has played the greatest leveling factor in poverty allevation across centuring. Technology has been often replaced by words like education and militrary power,
But Government is always poor follower of technology, Being a behemoth , it is never nimble to advance/exploit technology. Technology is best exploited by risk takers, individuals, private enterprise. As you can see, In Regimes of less freedom, generally dictators pay the price for poor technology.
like USSR failed to convert their technology and had high poverty
while Saudi arabia,Iran has no new technology and has high poverty , unemployment inspite of record exports
while the reverse is true in korea, singapore, australia
Even china is no front runner in exploiting new technology nowadays.
NEXT :part 4 PC and BJP
Tuesday, March 04, 2008
Part2 : Why I disagreed with My Friend
Part 1: Angst With a close friend
Manmohan singh is through professional. being economist in Government , most of his reforms was in government Economics.
During 1991-96 period ,
- opening of India to FDI and FII and more importantly NRI accounts Foreign Currency relaxed( individual can have 7 yrs foreign currency account w/o tax)
and current account convertibility ( an individual who stayed abroad for 6 mnths can convert his foriegn currency to any other foriegn currency or use it to buy any foreign property)
- Export & Import control relaxed and customs duty relaxed
- complete removal of license raj, industrial laws
- Monopolies Restrications (MRTPC) was changed to allow to companies to consolidate ( in the case of HLL, India become of the export hub employing many many more people in multiple shifts)
- Major slashes in Income tax, corporate tax, excise and customs duties.
Major achievements was
- GDP growth picked up 6%
- Foreign currecny reserve crossed $30Bns
- exports/imports increased
- IT sector started growing
- Disinvestment in public sector to make up for loss in above taxes
Major failures
- High inflation around 15%
- poverty rate was still around 50%
- no reforms in non-economic arena like industries,land laws, agricultural,transportation, labor laws, judicial laws, election reforms
As a footnote, ManMohan singh after his term as a Governor of RBI, took charge of finance adviser for BARC and DRDO before he become the finance minister, it is that experience that helped garb the INDO-US nuclear deal. and he knows that he is doing a historic accord.
Part3:-Next 101 Basic current economies
Manmohan singh is through professional. being economist in Government , most of his reforms was in government Economics.
During 1991-96 period ,
- opening of India to FDI and FII and more importantly NRI accounts Foreign Currency relaxed( individual can have 7 yrs foreign currency account w/o tax)
and current account convertibility ( an individual who stayed abroad for 6 mnths can convert his foriegn currency to any other foriegn currency or use it to buy any foreign property)
- Export & Import control relaxed and customs duty relaxed
- complete removal of license raj, industrial laws
- Monopolies Restrications (MRTPC) was changed to allow to companies to consolidate ( in the case of HLL, India become of the export hub employing many many more people in multiple shifts)
- Major slashes in Income tax, corporate tax, excise and customs duties.
Major achievements was
- GDP growth picked up 6%
- Foreign currecny reserve crossed $30Bns
- exports/imports increased
- IT sector started growing
- Disinvestment in public sector to make up for loss in above taxes
Major failures
- High inflation around 15%
- poverty rate was still around 50%
- no reforms in non-economic arena like industries,land laws, agricultural,transportation, labor laws, judicial laws, election reforms
As a footnote, ManMohan singh after his term as a Governor of RBI, took charge of finance adviser for BARC and DRDO before he become the finance minister, it is that experience that helped garb the INDO-US nuclear deal. and he knows that he is doing a historic accord.
Part3:-Next 101 Basic current economies
Monday, March 03, 2008
Part1: Angst with a close friend
Recently on a dinner outage with a close friend, he mentioned that it is Rajiv Gandhi government which introduced economic refroms in India (I thought he really sounded like Sonia Gandhi ). it was a such a shock for me as he is from India and he lived in India as a teenager under Rajiv's rule and he has in college during Manmohan-Narasimha Rao stewardship. Unfortunately he is not only guy who said such things about India govts before 1991 , I heard things like that when Indira Gandhi nationalised banks, it helped poor people. ( joke is less than 35% of todays Indians have banks accounts and even in those nationalised banks, private sector IT employees had difficulties openings bank accounts 10 yrs back. Indira Gandhi nationalised banks and Insurance becoz it allowed govt borrow money at their low interest rates). My friends and others comment made think that I atleast attempt to correct this wrong so I decided to write about 6 part article on economics
Before 1991 reforms , following is the economic conditions in India
- Foreign Currency control ( all persons have to surrender foreign currency on landing in India) and that also means no FDI and FII investments
- there is passport and visa restrications/advanced permissions requirements for foreign travel
- Export control ( nothing can be exported without Govt permission)
- Import control ( nothing can be Imported without Govt permission)
- Production control ( govt thru excise duty controls how much product is produced like there is always a shortage of RIN, surf or kwality/Arun ice creams before 1990, like for eg. no more than 100 bars of RIN can be produced per day per factory)
- Monopolies Restrications (MRTPC) for example HLL owned RIN,SURF, lakme, fair and lovely they are different companies, leading to low hourly wages, poor distribution of managerial skills and so on
- Most of the jobs were in Govt and public sector
- tought labor laws mean very few recruitments and also layoffs
- License raj, govt permission required to start any business
- Small scale industries reservations, many products were reserved for small scale industries.
- Banks hardly lend to public, people bought houses on their savings or thru employee thrift funds
- Money lenders profited
- restrications of export mean among others gold, foriegn currency were smuggled illegally and it led to the development of Mafia in Bombay thru the Gulf-singapore route
-Ration shops thru Food corp of India bougth most of the rice and wheat meant that 80% of India which "still" has no ration shops faced food shortage and increased poverty. (Govt created poverty and food shortages thru ration shops)
- Inflation was 15% during Rajiv Gandhi period ( slighlty better than 20% during post-1962 period)
- GDP Growth was 8% ( but average for 1950-1991 is still 3%)
- Income tax was very high around 55%
- Poverty rate was close to 60%
- Foriegn Debt went from 15Bn USD to 75 bn USD ( that eventually led to 1990/1 foriegn current crisis on account of US invasion of Iraq)
and so on it is such a pain to even write about all these. None of these changed till Manmohan singh was appointed as Finance Minister
What Rajiv Gandhi really did are and succeeded
- New Education policy - which led to private colleges and good quality Navodaya schools
- Telecom policy - Govt relaxed export of electronic goods , which allowed BSNL and MTNL to export routers, switches and fiber cables, which led to a dawn of digital telephone in India
- Computerization of Government, his government favored computerization of government ( note there is no support for private sector)
- Panchayati Raj introduction
- Consumer act law
- His government prepared papers of election reforms, judicial reforms, education reforms, Labor reforms, liberalsation reforms, privatisation reforms, globalization reforms.( BUT he IMPLEMENTED NONE in spite of having 400 MPS in Lok sabha)
Where Rajiv Gandhi really failed
- He and his govt slept thru collapse of communism ( compare to Nehru or even Indira)
- Bofors - his failure is not in bofors corruption, but after exporting bofors guns, he cancelled all business deal with bofors, resulting in those guns having no bombs, those guns one of the best in mountain terrains like kashmir lived empty for over 13 yrs before kargil forced the govt to buy the bombs from Israel for emergency and then from Bofors
- HDW submarine, HDW is a West Germany company which was building submarines in bombay with transfer of technology to India, but becoz of bofors and another round of corruption accustions, Govt cancelled the contract. HDW packed up. The end result even after 23 yrs, India has no capability to build submarine even today.
- Having huge majority in parliament , he did not go ahead with 33% women reservation nor he allowed pachayats to raise their own tax.
MY next article will be " Part 2:- Why I disagreed with My Friend" It will be in general in What Manmohan singh did and did not achieve during 1991-96
Before 1991 reforms , following is the economic conditions in India
- Foreign Currency control ( all persons have to surrender foreign currency on landing in India) and that also means no FDI and FII investments
- there is passport and visa restrications/advanced permissions requirements for foreign travel
- Export control ( nothing can be exported without Govt permission)
- Import control ( nothing can be Imported without Govt permission)
- Production control ( govt thru excise duty controls how much product is produced like there is always a shortage of RIN, surf or kwality/Arun ice creams before 1990, like for eg. no more than 100 bars of RIN can be produced per day per factory)
- Monopolies Restrications (MRTPC) for example HLL owned RIN,SURF, lakme, fair and lovely they are different companies, leading to low hourly wages, poor distribution of managerial skills and so on
- Most of the jobs were in Govt and public sector
- tought labor laws mean very few recruitments and also layoffs
- License raj, govt permission required to start any business
- Small scale industries reservations, many products were reserved for small scale industries.
- Banks hardly lend to public, people bought houses on their savings or thru employee thrift funds
- Money lenders profited
- restrications of export mean among others gold, foriegn currency were smuggled illegally and it led to the development of Mafia in Bombay thru the Gulf-singapore route
-Ration shops thru Food corp of India bougth most of the rice and wheat meant that 80% of India which "still" has no ration shops faced food shortage and increased poverty. (Govt created poverty and food shortages thru ration shops)
- Inflation was 15% during Rajiv Gandhi period ( slighlty better than 20% during post-1962 period)
- GDP Growth was 8% ( but average for 1950-1991 is still 3%)
- Income tax was very high around 55%
- Poverty rate was close to 60%
- Foriegn Debt went from 15Bn USD to 75 bn USD ( that eventually led to 1990/1 foriegn current crisis on account of US invasion of Iraq)
and so on it is such a pain to even write about all these. None of these changed till Manmohan singh was appointed as Finance Minister
What Rajiv Gandhi really did are and succeeded
- New Education policy - which led to private colleges and good quality Navodaya schools
- Telecom policy - Govt relaxed export of electronic goods , which allowed BSNL and MTNL to export routers, switches and fiber cables, which led to a dawn of digital telephone in India
- Computerization of Government, his government favored computerization of government ( note there is no support for private sector)
- Panchayati Raj introduction
- Consumer act law
- His government prepared papers of election reforms, judicial reforms, education reforms, Labor reforms, liberalsation reforms, privatisation reforms, globalization reforms.( BUT he IMPLEMENTED NONE in spite of having 400 MPS in Lok sabha)
Where Rajiv Gandhi really failed
- He and his govt slept thru collapse of communism ( compare to Nehru or even Indira)
- Bofors - his failure is not in bofors corruption, but after exporting bofors guns, he cancelled all business deal with bofors, resulting in those guns having no bombs, those guns one of the best in mountain terrains like kashmir lived empty for over 13 yrs before kargil forced the govt to buy the bombs from Israel for emergency and then from Bofors
- HDW submarine, HDW is a West Germany company which was building submarines in bombay with transfer of technology to India, but becoz of bofors and another round of corruption accustions, Govt cancelled the contract. HDW packed up. The end result even after 23 yrs, India has no capability to build submarine even today.
- Having huge majority in parliament , he did not go ahead with 33% women reservation nor he allowed pachayats to raise their own tax.
MY next article will be " Part 2:- Why I disagreed with My Friend" It will be in general in What Manmohan singh did and did not achieve during 1991-96
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