When economies start slowing down and economic sentiment becomes bleak, Governments have the habit of creating spending so that there is multiplier effect and there a revival in the economy. This has been referred to as a Economic stimulus. This was a habit developed after the lessons of the Great Depression in the 1930s. This idea is debated a lot but the simple truth seems that stimulus is a good idea or a bad idea depending on the way it is implemented.
If it implemented in a way that something of use to society is produced (as measured by demand which will pay the full price for it) and/or it increases the productive power of society leading to higher taxes, then it serves it purpose. If this is badly done, it leads to only transfer payments which are spent away by the recipient on things without multiplier effects and the Government is left with huge debts with no additional taxes to service this debt. The last 5 years have seen the Government wasting away Rs 19 lakh crores with little to show for. (see this link) These expenditures have not had any effect on reviving the economy and has not increased the productive capacity of the country.
As we stand today, the Indian economy is extremely sluggish. We need to find ways to revive it with a well placed stimulus. The easiest way to decide which place to focus on is to find things for which there is very high latent demand.
As is wont with this blog, let us also look at the areas of our economy terribly mismanaged over the past 30-40 years for the great headroom for improvement and growth may lie there.
There are many excellent candidates namely
Railways is perhaps the best idea for a stimulus. There is a ready market demand for its services. The government needs to come up a plan to de-bottleneck the railways and invest in speeding up the rail network and increasing the capacity. There is a massive footfall at every railway station. Most malls would give an arm and a leg to have this kind of footfalls. Monetizing of this footfall could create massive source of funds for the expansion. Expansing the railways capacity will increase employment directly and indirectly and boost tourism all over India. India has beaches, hills, forests and jungles, snow capped mountains and great places of spiritual tradition. Tourism can unlock the latent energies of many regions whose eco-balance may be destroyed by developing industry. Already we have blundered by increasing industry in hilly areas. This could help in reversing that policy and substituting tourism with industry in these areas.
Urban transport: Lack of reliable, high quality urban transport catering to all sections of society has created a situation where in many cities such as Pune and Bangalore almost everyone owns his own vehicle. Owning your own vehicle is the modern equivalent of owning a horse. The costs of ownership (interest and depreciation), fuel, insurance, repairs and maintenance are huge. Owning even the smallest car sets one back by at least Rs 1,00,000 a year. The resultant load on the traffic system has slowed down the traffic, increasing commute time and wasting fuel also. We could reverse this by investing in public transport. The transport infrastructure has to be of a world quality-no shortcuts or compromises. This will reduce our fuel consumption and jump start the Commercial vehicle industry, lower cost of living in cities.
Can we find the will to prime the right pumps ?
If it implemented in a way that something of use to society is produced (as measured by demand which will pay the full price for it) and/or it increases the productive power of society leading to higher taxes, then it serves it purpose. If this is badly done, it leads to only transfer payments which are spent away by the recipient on things without multiplier effects and the Government is left with huge debts with no additional taxes to service this debt. The last 5 years have seen the Government wasting away Rs 19 lakh crores with little to show for. (see this link) These expenditures have not had any effect on reviving the economy and has not increased the productive capacity of the country.
As we stand today, the Indian economy is extremely sluggish. We need to find ways to revive it with a well placed stimulus. The easiest way to decide which place to focus on is to find things for which there is very high latent demand.
As is wont with this blog, let us also look at the areas of our economy terribly mismanaged over the past 30-40 years for the great headroom for improvement and growth may lie there.
There are many excellent candidates namely
- Railways; It is perhaps the only good or services for which the demand can double if the supply doubles ! The infrastructure is very poor and there is an opportunity to build services around the footfalls created by the Railway stations: shopping, banking, postal services, hotel accommodation and convenience stores.
- Urban transport - buses and metros: It is a problem plaguing society as many levels. Lack of urban transport leads to purchase of private transport either in the form of 2 wheelers or cars. This will reduce diesel and petrol consumption and thereby reduce pressure on our currency also, p
- Low cost housing replacing urban slums. This is an idea which has great possibility but under the current political situation it is a non-starter, as the continued existence of slums is the lifeline on many political parties.
Railways is perhaps the best idea for a stimulus. There is a ready market demand for its services. The government needs to come up a plan to de-bottleneck the railways and invest in speeding up the rail network and increasing the capacity. There is a massive footfall at every railway station. Most malls would give an arm and a leg to have this kind of footfalls. Monetizing of this footfall could create massive source of funds for the expansion. Expansing the railways capacity will increase employment directly and indirectly and boost tourism all over India. India has beaches, hills, forests and jungles, snow capped mountains and great places of spiritual tradition. Tourism can unlock the latent energies of many regions whose eco-balance may be destroyed by developing industry. Already we have blundered by increasing industry in hilly areas. This could help in reversing that policy and substituting tourism with industry in these areas.
Urban transport: Lack of reliable, high quality urban transport catering to all sections of society has created a situation where in many cities such as Pune and Bangalore almost everyone owns his own vehicle. Owning your own vehicle is the modern equivalent of owning a horse. The costs of ownership (interest and depreciation), fuel, insurance, repairs and maintenance are huge. Owning even the smallest car sets one back by at least Rs 1,00,000 a year. The resultant load on the traffic system has slowed down the traffic, increasing commute time and wasting fuel also. We could reverse this by investing in public transport. The transport infrastructure has to be of a world quality-no shortcuts or compromises. This will reduce our fuel consumption and jump start the Commercial vehicle industry, lower cost of living in cities.
Can we find the will to prime the right pumps ?
1. Who is "We"?
ReplyDelete2. The answer is a resounding NO.