Tuesday, March 25, 2008

The Art of Consuming and Looking Eastwards

In an earlier post (Krishna Prashanth: An Illusion called 9%), I had compared the GDP growth figures of some developing nations with that of India and had stressed the need for focusing more on growth of consumption than merely GDP growth. This is important if we are to delink our growth more effectively from global catastrophes. With the centre of economic gravity shifting from the Atlantic to the Pacific, it is all the more important that we start looking more eastward and less westward to continue our dream of one day becoming a superpower.

In this post I want to talk about some interesting methods we can do to achieve these two objectives, namely, Increase levels of consumption and starting to look Eastwards.

First things first. Henry Ford, after the Great recession of 1929, increased jobs by largely recruiting people for his great car conglomerate, in turn increased consumption. We can try this novel approach. What India now needs is infrastructure. Roads, houses, and electricity. The government can offer jobs (irrespective of cast , minority status ) to the unemployed by way of creating jobs that will boost our infrastructure. When I refer to infrastructure, I mean better roads, more houses, and better access to uninterrupted power!

Now take a look at our Unemployment rate. It stands at a staggering 9% at the end of 2008. With a population of 1.2 billion, 9% is approximately 120 Million unemployed individuals. Even if you take 50% of that population to be employable (I guess the percentage could be higher in India) , we are talking about 60 Million , or 6 crore work force. Lets say in the first year we talk of targeting 15% of that population we have a work force of 1 crore. Even with a salary of Rs 50 per day (a lot higher than our current annual consumption rate of a little over Rs 20 a day!), we are talking about a total labor cost of 15000 Crores only! (Just 25% of the amount allocated for loan waiver for inefficient farmers) . Put in another 15000 Crores for basic skill training of this work force (irrespective of their level of education!) , and voila we have just created a consumption of 15000 Crores annually. Besides we have brought the unemployment rate down by 7.5% of its existing value. I guess a work force of 1 crore can create wonders.

This may not be sufficient to create better infrastructure, that’s when we open our markets for global power companies to generate more efficient power. Sign the nuclear deal with the US, and create cheaper efficient nuclear power. Privatize distribution and allow even global companies (even Japanese and Chinese ) to distribute power more efficiently. We should target to double our generation capacity in the next 5 years, and quadruple it in 7.

In the manufacturing sector, reduce the aids to EOUs (Export oriented units)and subsidize people willing to manufacture for local consumption. Allow more competitive products in the country from volume manufacturers like the Chinese! Encourage bulk manufacturing and make products cheaper for the masses to consume! Thus the domestic consumption can increase.

Looking Eastwards:
India should sign trade treaties with Pakistan, China, Taiwan, Malaysia, Sri Lanka and Japan and allow for foreign investments from these countries. That could be the beginning of our looking to the east. India can allow Japanese agriculturists to grow in India, if they can make cheaper commodities with better technology that is monsoon proof! Don't worry about the Indian Farmer's future. Identify farmers incapable of competing against the Japanese! Offer him jobs elsewhere! His sons will get employed with Rs 50 per day as against the Rs 20 per day that the farmer anyway makes today!

This recession, by the time it is over would leave behind the real winners. Not the ones who can bask about the growth of the past, but the ones who would have delinked their economies from the global catastrophes!


Hari said...

Nice post. I would like to add one more point. BASIC EDUCATION in the infrastructure (not one of today).This is aware of what is happing around us. Give us opportunity to think. It will allow us stand of our own, will definitely contribute to our growth .

Sita said...

I agree to your idea of providing employment opportunities to the so called "can be employed" category of people.

However, I do not somehow feel that looking towards east will be a right solution for us to become a super power. I really doubt if it will be safe to allow the Japanese or Chinese to capture our market. Should we not think about promoting our own indigenous products and services?? Are we lagging behind so much in technology when compared to them???

We have proven our expertise in many fields . So, do we really need to imitate the east when we ourselves have the potential of being an example for others???

We should concentrate more on local production and consumption. Let us not bring in the Chinese type of products as Chinese products are not well accepted in the market due to poor quality. We should start giving subsidies to those people who produce indigenous goods. Import duties should be increased and export duties should be slashed. We have to bring in an era when indian products and services become far more superior when compared to the products of the west or the east. We have the technology, we have the brains. All we need is a good market and the right support. If we do not create a market for our products in our own country, then, we cannot even think of a creating a market elsewhere.

Crop failures are not only attributed to bad technology. A major factor to determine a good crop in our country is the climate and rains. I do not suppose that the Chinese or Japanese farmers can come here and beat the rains and make a nice crop. Recently the rains in Chennai had destroyed the crops of many farmers. I do not think any technology could have saved that.

Finally, what I want to say is that, we should neither ape the west or the east. We can learn from them,no doubt.We have our own strengths. We have to live with that and improve on that