Loo seats and asparagus

Looking at China’s experience can give us clues about what India should produce in the future

It’s interesting that the more I think about India, the more I find myself reading about China. Bharatiyata! is supposed to be comparative in spirit, so I guess it is natural for me to compare; it certainly provokes many thoughts.

In fact a very thoughtful piece over at Andrew Batson’s China blog concerns itself with the mystery that, for all its export volume, over the years China hasn’t really specialised in any area but continues to make and sell everything to everyone. Why? Or why not?

Most countries specialise by choice or necessity to partake of what economists call ‘comparative advantage’. It means that you can make or do something more efficiently than somebody else or some other country. (Batson quotes Carsten Holz who refers to Taiwan speedily adapting to supply niche markets globally, and South Korea, which aimed for a broad industrial base but quickly specialised). By each party concentrating on what it does best, everybody makes more money.

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Budget – second helping

Aiming to get consumption up and savings down is a step in the right direction

Perhaps more of a footnote, or a doggy-bag.

Spending is up on infrastructure, farms and rural sector. Irrigation – Modi’s big innovation in Gujarat and the thing that, tied to electrification, transformed the state’s economic fortunes, is now a major element of the national Big Plan. Good.

The income of farmers is supposed to double over the next five years, providing a feel-good factor into the next general election, but more importantly giving more of the economic pie to households – increasing consumption at the expense of savings. This is also good and needs to happen because India has too many poor people, and at the same time absolutely massive potential internal markets. If spending goes up then India can become rich; that’s not going to happen if the mass of people has no money to spend.

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Indian budget takeaway

Rajan knows that all accelerated growth always leads to dangerous economic imbalances.

Revealing a despair that I shared, Elaine Meinel Supkis wrote in 2007 that,

‘There are very, very few fiscal conservatives around. We like reduced debts, sober analysis of economic facts and building for the future coupled with real capitalism, not predatory, debt-fueled speculation.’

Debt-fuelled speculation, aided by the venality of bad-faith politicians and academic central bankers, has ruined the economies of the West. We live in hope that India will resist mammon-obsessed financial quants, and follow a line of genuine value creation, unleashing prosperity across society and nurturing aggregate demand not asset-price bubbles, generating healthy rather than piratical profits. As Hyman Minsky eloquently put it , ‘The primary aim is a humane economy as a first step toward a humane society.’

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Development dangers for India

India needs to be careful not to take on too much foreign debt

These days which country would not relish minimum 7% annual growth and a central bank lending rate of 6.75%? Apart from being an attractive investing environment, it means a whole range of monetary policy options can be deployed in response to changing economic conditions, especially adverse ones. This happy situation stands in contrast to those countries where zero, near zero or even negative interest rates mean that governments and reserve banks have nowhere left to go except competitive currency destruction, which ultimately means the impoverishment of their citizens.

India, despite its relatively benign position compared with the USA and China – to name only two out of dozens of troubled economies – remains oddly unloved in terms of the inflow of foreign capital and the tenor of opinion surrounding its prospects.

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