Spending its way out of poverty - a solution or stagnation?

In today's news from the Press Trust of India is this article:

Govt to rely on market borrowings to raise public spending: FM



New Delhi, May 27 (PTI) Finance Minister Pranab Mukherjee today said the government would continue to rely on market borrowings to spur economic growth and restore the growth momentum witnessed earlier.
"This (increased spending by incremental borrowing) would need to be further continued in 2009-10, the current year," the minister told the reporters saying fiscal consolidation could take two to three years.

"Let me say unambiguously that we are committed to restoring growth and employment and that would not have been possible without increased spending funded by incremental borrowing," Mukherjee said.

The government during the current fiscal aims to borrow Rs 3,08,647 crore, about 17 per cent more than the last fiscal.

As regards fiscal consolidation, he added, "We are equally committed to the process of fiscal consolidation over a period of say two to three years." The government since December has been trying to arrest the impact of financial consolidation on the country by raising public expenditure and reducing taxes which led to increase in fiscal deficit.

Once you take into account off budget government expenditures, fiscal deficit is already more than 10 percent of the GDP. India's debt is over 80 percent of the GDP. This move by the government will only further crowd out private investment(by eating into the chunk of private savings available for investment) while simultaneously raising the deficit. Ultimately then the growth rate won't be able to offset the debt burden. There is no rationale behind this decision by the Finance Ministry. The minister is pretending that government spending is what produced growth in India whereas it had everything to do with the economic reforms first under Narasimha Rao and then under Vajpayee. The government is taking a false step by thinking it can just spend its way out of poverty. Unless serious efforts are taken to control the deficit, our nation is going to take a severe hit in the future.

p.s: In keeping with this overspending, the Centre has already breached the deficit targets stipulated under the FRBM Act and the Fin. Min. is asking the new government to amend it to its convenience!

An excellent follow up article that clearly and elaborately explains India's situation

My thoughts on the oft-raised 'India does not invent because we are taught to memorise, not think' argument

It is a topic that has come up a few times now in my interactions with various people. Since I made an effort at documenting my thoughts for a blog comment this time, I decided to modify it quickly and put it as a post here so that I may get valuable feedback and so that I may store it for posterity, when I'm sure I'll hear this argument several times more.

First let us look at India as an inventor nation without temporal constraint. Let us also not narrow down to the special case of scientific and technological inventions. Without these two contraints, India has invented much. Every outfit of every culture in India is an invention that is uniquely Indian. The zillion varieties of clothes, the shoes, the bangles, the nose ring, the toe ring, the numerous other jewelry, the 'lota' (a type of tumbler), the 'shoulder pai' (shoulder bag), the earthern pot and many such inventions. What more do you expect to be invented from a land of farmers ruled by kings?

But the issue most desire to have addressed is the lack of scientific inventions. The answer to this problem lies in education. However, it is not so much in our system of education as when we started having a formalised system of education. The most significant progress in science, discovery and inventions have happened in the West after the era of systematic and formal education began. Whatever may be the flaws of such a schooling system as was existent, it was precisely the Christian emphasis on schooling that ultimately led to the flowering of indepdendent and rational thought that eventually not only led to great scientific and engineering progress but also to questioning to a great extent the very dogma of the Christian system that led to this tradition. It is indeed that foundation of formal schooling, initiated by the Christians of the West, that has spread to the east, including to nations such as India, and ultimately led to a glut of scientific minds in the late 20th and 21st centuries even in our country! There has been much contribution by India to technological progress (If you observe, the recent past is not an era of grand individual scientific inventions. The inventions are mostly by communities of people for which the head of the group might be popular, that's all.). However, I concede that there is more contributed by Indians brought up and/or spending time outside our country than those within it(on a per capita basis). This I attribute to the fact that inventions and discoveries(discoveries more so than inventions) require a certain amount of aristocracy. Serious pursuit of scientific and technological progress cannot happen in an atmosphere of daily strife and the struggle for survival. It requires the creation of an environment that leaves the thinkers free of other daily worries and able to contemplate ideas. Hence, this progress is deeply intertwined with economic progress and you'll see our research and technological progress advance as we grow economically.

Another case in point that the education with its emphasis on rote learning isn't really the fundamental cause of anything catastrophic is that it is this very rigid schooling structure that existed in Britain for nearly 500 years and still led to a spawning of scientific minds by that tiny island nation. Whether you concede it or not, although the evaluation of merit is rote based, the process of rational thought is still inculcated during the process of teaching and imbibing. That doesn't go to say that the education system in our country needn't be reformed. There is much that needs to be changed. But the root to our changing into an inventor nation lies in economic progress that leads to aristocracy for intellectuals, not a poverty stricken nation with a reformed system of education.

Some hopes

Congress is going to come to power again. It is good that they won by a near majority. At least we'll have a stable government. One also hopes coalition politics will be weaker as a consequence. For these two reasons, one hopes the government will do tolerably ok this time. A BJP victory might also have ratified the religious fundamentalists. So there are some reasons to cheer this victory. However, Congress is very populist in its policies. If its previous term is any indication then there are some serious concerns as the effect of their last set of policy measures will reflect during this term period. In spite of knowing the Congress mindset, I hope:

I hope the government takes the tough decision to raises indirect taxes to increase revenue to offset the already 8% and rising fiscal deficit. I also hope the government will slowly and subtly remove redundant subsidies and improve fiscal efficiency to reduce the deficit. In effect, I hope the government will try to fulfill the goals set by the Financial Responsibility and Budget Management Act, even though it has already failed to meet the time deadline.

I hope the deficit is controlled so that the debt-to-GDP ratio which is already at 60% does not increase further.

I hope reforms are implemented to increase the growth rate and thus offset the debt ratio. In particular: Labour law reform, privatization of banks and opening up of the retail and manufacturing sectors to FDI. Rural infrastructure must be developed too, but I don't know how the government will do that with such a high existing deficit. Using the huge RBI reserves is a contentious issue and may not go down well with the export community if the reserves are flooded into the market for infrastructure development.

Ultimately, I sincerely hope that mounting debt combined with economic slowdown do not lead to loss of public confidence, resulting in capital flight and culminating in a full-fledged macroeconomic crisis and hyperinflation! I know all this is much to hope for from the present government. But I think this is essential to continue to pull our country out of the clutches of poverty and push ahead on the path of welfare to all.

In the end, I wish our government good luck! :)

A lesson in Hyderabadi Hindi

So there is this Bangalore girl who works in my building. She thinks I am a Tamizh, which I sort of am, but she also thinks I am from Chennai because she knows I did my undergraduate there. So she thinks I don't know anything except tamil and English. The other day, I was flexing my arm in the corridor, just to relieve stiffness and not because I'd hurt myself. But she looked concerned.

She: "kya uvaacha?"
Me: "What did you just say???"
She: "kya uvaacha?"
Me: "What language is that?" (politely)

I was seeking clarification. I was aware that 'uvaacha' in sanskrit means 'said' but the combination of words baffled me. She gave me a smug smile.

She: "Its Hyderabadi indi!"
Me: "Oh REALLY?"
She: "Yes, yes. It means 'what happened?'"
Me: "Well, I've never heard of such a thing."
She: "Of course you wouldn't know! They speak a different Hindi in Hyderabad. When I was in PSU(she did her masters there) I had many Hyderabadi friends!"
Me: "Perhaps you've heard them saying something along the following lines: 'aise-ich hua'?"
She: "Ah, yes!"

I just completely burst out laughing my guts out at this point. She assumed adding 'ch' at random locations was what made the 'indi' hyderabadi! :) (Little she did know that I had grown up playing gully cricket with the 'basti' kids in my neighbourhood in Hyderabad :)....)

Human blinkers

I am somewhat surprised and greatly annoyed that people haven't come up with human blinkers yet. Most home-lighting in the average middle-class homes that I have had the opportunity of being in have tubelights or incandescents lamps with highly divergent light. So they are a terrible pain to the eyes while reading. There is too much directionality to the light and that produces a lot of localised glare that I find very annoying. Of course, I would prefer it if the human blinkers weren't just like horse blinkers. What I prefer is something more like a hollow viewmaster with a head strap. So entrepreneurs, pliss to lissen! (If you want a grander idea and all, try this)