Huh... Finally the week long wait that started on 26th November is over. This watch that I wear is showing me a wrong date. Probably, it's time I should change its batteries. Ohh.. let me see.. it is a solar battery one. How can it behave like this then? And it's CASIO. My fx-991-MS has been loyal to me since the last 8 years.

This piece is something that becomes a bohany for my new (customary) new year resolution (yes! I am at it again). I have resolved to write on worldly topics like ECONOMICS, TRADE & POLITICS. NO! Not because it is all meaningful and all. But, because it is easy. Throw in a few articles, a few verbs & nouns like Global, sustainability, market, fiscal, its deficit, etc. and there you are.. ready with a really really creative piece of what-ever-you-like-to-call-it.

Ok, now get a bit serious. And read.

Economy at the point of Inflection

The word ‘Economy’ has been delineated a million times since eons & our economists, undeterred with what the consequences their ‘stately’ statements can cause & affect the lives of a billion citizens, continue to plunge themselves in the ‘economic’ hot water. We are living in the times when the economic order is as volatile as it ever can be, if not more.

The Indian economy is undergoing a state of rapid fluctuations from being, on the one hand, the second most prosperity capable economy to, on the other hand, being an eternal potential threat (the one it always has been since the dawn of this century) and following its principle to remain just that, ever, and as always.  The economy has been, as is the case with the world economy, forced into the vicious circle, or the chakravyuh, of demand fluctuations caused by the uncertainty in the US market and the gloomy Euro security. The question is whether we keep sulking about these uncertainty issues or dunk the economy in the cleaning solution containing the first traces of prosperity since independence. I think the latter looks to be a good option, though it is true that we haven’t really tried our level best towards this new prosperity order; or we haven’t really shed our birthright inertial indianness towards solving problems.

The vicious circle I mentioned about is the demand-supply-policy circle. Policies change as per the demand-supply pattern. Unprecedentedly. The Indian Rupee has completed its first annual loss since 2008. The 1.78 trillion dollar elephant is struggling to achieve a growth rate of 7.6%. The borrowing is expected to go to 4.7 trillion rupees. In such times, it is essential to embark upon a new change, a revolution, a movement to elevate India from the seeming abyss that the current world order is.

By announcing subsidies, the government thinks it elevates the infliction caused by inflation & poor revenues to the government. That is where the government is failing miserably. The US and, because of the US, the entire world is bearing the burden of high fiscal deficit. When the demand exceeds supply, the prices of commodities go up. The RBI will then raise the interest rates to curb the inflation. The money in circulation will be less then. Thus, the demand for commodities will go down. As such, the economy shall shrink, which isn’t a good sign. From viewpoint of the business people, in such circumstances, they will ask for less money and curb their instincts of expanding their businesses. This is a multiplier effect leading to further economic slowdown. Again the government revenues fall. To recover the lost ground (and from the election point of view), the government will declare subsidies. This leads to greater governmental expenses. To make those expenses, the government borrows. It has to pay interests on the borrowed sum, leading to more deficits.

The most favored option to bail out the economy from the deficits is by printing more currency. So, more money is available with the citizens to spend. A large chunk of the money is stashed into the bank lockers or is used to buy gold. The cash, liquid in system, is quite less then. There will be high inflation due to more money with the people, leading to high food prices. There will be more hunger. The government will go for issuing more subsidies. This process goes on and on.

The solution to the economic turmoil is to understand where the problem lies. Curbing the demand is not the way to bail out the economy. It will only lead to the slowdown of it. Rather, increasing the supplies via development, technology diffusion & training of personnel is the way about prosperity.

Recent CII 10^th Manufacturing Summit 2011 propagated exactly this. The National Manufacturing Policy, designed with the backing of DIPP & NMCC, has strong credentials to support this. It aims at increasing the supplies & overall industrial output by multifold numbers. Accelerated development, industrial growth, employment to 100 million people by 2022 & increase in the contribution of manufacturing to GDP from 16% to 25% by 2022 are some of the points the NMP stresses on. The idea of creation of National Investment & Manufacturing Zones (NIMZ) is encouraging as well. Creation of vocational training & education opportunities will help increase the supplies needed to cater the ever increasing demand. Service & manufacturing sectors show strong potential to create a lot of growth opportunities in India. The support of the oil pricing strategies, defense sector & energy management will hold the key.

The Indian economy is at the point of inflection. Foreign investment in the form of FDI & FII and Goods & Services Tax (GST) can take the economy to a high level of flourish. It is not just we, the Indians, but the whole Asia and the world, which remain poised to what the course of the game shall be in the coming future.

LATER.

Ta-da..