Monday, December 12, 2011

ECONOMICS, GOVERNANCE AND INFLATION IN INDIA

India perhaps is the only country in the world which boasts of economists of international repute at the topmost levels of governance. All the efforts and solutions on the part of government are not yielding the desired results on inflation in India. At the same time they have resulted in considerable deceleration of economic growth. Why?
  • These economists have failed to keep in mind the basic principle of "Demand and Supply of goods". They are concentrating only on demand and supply of money which is not working to the nation's expectations.
  • The small decrease  in the rate of inflation is only a mirage, for it appears to be a result of high base effect and glut of farm produce and vegetables that is witnessed in winter months.
In Indian economy in present context, there is little scope of controlling the money supply in the hands of consumers.
  • Firstly, because it is a result of NREGA disbursements to the poor workers and leakage of funds to the on ground managers of the scheme.
  • Secondly, per capita income increase in the country as a result of GDP growth.
  • And lastly, the graft and bribe money in the hands of government officials and additional illegal beneficiaries of much talked about Inclusive growth as well as Social, Political and Economic empowerment planks.
Out of these money supply resulting from graft, bribes and corruption is the only one which can be minimised through good governance, whereas the other two are desirable to meet India's goals to become a prosperous nation in a decade or so. Therefore the right approach to fight inflation lies only in increasing productivity and more supply of goods in the market. The actions required to do the same need no elaboration as they are well known to government and its functionaries.
A few reminders to the government of super economists.
Good Economics and Good Governance is Ideal
Bad Economics and Good Governance is A Compromise
Good Economics and Bad Governance is Undesirable
Bad Economics and Bad/Corrupt Governance is A Disaster
Also all experts of a field must remember the importance of non expert opinions for arriving at the correct and ideal solution to problems for they are totally engrossed in higher sciences and tend to ignore/overlook common sense solutions if available.This is amply demonstrated in the following:

  • In all work study teams presence of a non expert is mandatory along with the experts to enable them to consider common sense approaches also to arrive at best possible solution.
  • Albert Einstein, a noted physicist had to be reminded that his small cat could also get in and out of the cage through the big door provided for the big cat and did not need a separate additional small door.
  • Henry Ford assembled his first prototype car in a room with a small door which along with the wall had to be broken to get the car out for its first trial run. After parking the car in the same room after the successful trial he assured the owner that he will get the room repaired to its original state, little realising that he will need to take the car out again and again for subsequent test runs.