What Steps a Progressive Government Do to Eliminate Unemployment and Enhance Economy?

Some nations in this world are now decades ahead of several others with regard to material progress and human development index.

Some are fast moving ahead while some others are stagnant or even in reverse growth.

But why? Have you ever thought about it? Why some communities are progressive while others are not?

Now let us see the common explanations that we make to explain this situation if we find our own nation in degenerative growth:

-Our leaders are corrupt (Why are they?)

-We had been exploited in the past decades by others (Only you? )

- They have all the resources and we don't have that much.(Really?)

-We have been poor and illiterate (Why?)

-Our numbers are much more than we can sustain (Really?)

-We are multi-linguistic,multi-cultured and multi-religious (So?)

Whatever be the excuses, the fact is that some nations are more advanced than several others.

But what is the secret of some nations progress at a faster pace than others? To understand that one must understand the basics of economic growth and the role of money.

Now let us examine some of the basic concepts of economics and money.

Money is the measure of the value of quality and quantity of materials or work or certain special situations required by humans for satisfying their multifaceted needs.

Here value is something arbitrary and depends on the people involved in the exchange (giving and taking) of the materials and the work or situations or services.

Let us consider a few examples:

If I do some cultivation and produce say 100 kg of potatoes that I do not need for my use, I can either give away those to some one free or sell to some one after fixing some mutually agreeable unit for value. The mutually agreeable unit for value as legally defined and controlled by the government of a country is called the currency of that country.

In India it is called the rupee. In the US it is the dollar. If I find a buyer for my potatoes who is ready to buy the potatoes for a value of say fifty rupees a kg then I get 5000 rupees for my produce of potatoes. Suppose we make a deal for a work or service for transporting and supply of the potatoes from my place to the buyer's place for say 500 rupees, this will become the service charge for transportation of the potatoes.

This way we can identify materials (goods) and work (services) or even situations (for example rent for a room or house) or entertainment ( cost of watching a show) or time ( an amusement ride for an hour) and the like. 

When an exchange of money takes place between a provider and a procurer (seller and buyer) for a value for any goods or service or other human need we can say that an economic activity has taken place.

The total of all such values for the economic activities taking place in a nation is called it Gross Domestic Product (GDP). Since the government is the umpire of the game of economics, it is bound to charge a small fee for its supervision. It is called the taxes. Taxes are a small percentage of the value in transaction or the profits made in the transactions.

Now if the GDP of a nation and the corresponding wealth of the nation as gained from taxation can increase when the number of economic transactions and the value of goods and service in transaction increase. When GDP grows, opportunities of employment and more opportunities for economic activities grow.

When humans remain underdeveloped human needs are also limited. If human needs are limited to basic needs of food, shelter and clothing there cannot be much value to several things and services that we see today. Thus human progress and economic activities and its value are all interrelated. The more we progress, the more the chances of economic activities and the more the potential for higher value for services and goods.

Now how can the government enhance value, economic activities and wealth of the nation? In fact it all depends on the government, the umpire of economics of a nation.

If the umpire is clever, the game can be continued even when the players do not know how to play well. So here the umpire needs to be practical and pragmatic. If the umpire is too strict or too lazy, the game can stop abruptly without anyone enjoying the game!

In a similar way, the government or the leaders who form the government needs to be practical or broadminded people for a nation to become wealthy and prosperous.

Such a government knows the fundamentals of economics, value and wealth and the tricks for enhancing GDP even when they make and enforce rules!

Now the foremost thing that the government needs to ensure is that all the citizens have opportunities for fulfilling their basic requirements for survival. It is the governments' primary responsibility that the citizens have food, shelter, clothing, means of education, healthcare, entertainment and the like.



The second thing should be to enhance the amount of excess money that the individuals have over and above the money needed for essential goods and services for survival. When the number of individuals with excess incomes grow the demand for not so essential goods and services grow thereby enhancing more economic activities.

The taxation laws made by the government should not be instrumental in killing economic activities, rather it should be made carefully in such a way that both saving and spending of people are encouraged. 

In the earlier example, imagine that the individuals have enough excess money to buy potatoes even at 100 rupees rather than 50, my income by selling potatoes double from 5000 to 10000. If the tax rate is say 10% the governments' income too double. 

But when there is much difference in the values from nation to nation, the economics involving international trade becomes complex and the governments need to be more shrewd and practical. This is where intelligence of leadership becomes more and more important.

In such a scenario, the clever governments becomes more wealthier and stupid governments lead their people to doom. 

Stupid governmental acts are those acts that kill opportunities for economic activities to grow. Analyze any government act of say new law, rule, taxation etc. If it is directly or indirectly causing economic activities of people to decrease, it should be stupid as far as economic growth is concerned. When I say economic activity, I exclude those activities that are potentially dangerous for the safety and security of the people and the nation as a whole.

When the people are also economic novices, their leaders too are likely to be like that. And such situations enhance economic disparities to grow among nations of this world.

And factors like greed, corruption, stupidity and desire for controlling others and such other evils take control of human mind both in the people and their leaders. When that sets in, unseen evil forces take control of human minds in more and more numbers.

Humans collectively suffer in the clever acts of evil!

Why Do I Consider Frequent Rate Control Exercise By the Reserve Bank Not Good?

I presume that you have some idea about the basic functions of a central bank in any economy or country. In India it is called the Reserve Bank of India or RBI while in the United States of America it is called the Federal Reserve System and in the United Kingdom it is the Bank of England. There is no standards as to how a central banking organization of a country is to be named and these institutions are known differently in different countries or economic regions.

Essentially, the central bank functions more or less independently and its main function is to control or direct the country's economy properly with various monetary measures or policies adopted from time to time. The central banking system though may be called independent of the government, it is not practically so always. The government does have influence on its functioning, though exercised by indirect means and methods.

The central banking system uses its powers vested on it by appropriate legislation or laws for framing and implementing the monetary policies of the country. Just as individuals deposit money in commercial banks or take loans from them, the central banking system functions as a banking system for the banks. In other words, banks can maintain an account with the central bank and they get an interest for their deposits and they are charged for any loans they take. 

The interest rate at which the central bank lends money to the commercial bank is called the Repo Rate while the interest rate they obtain on their deposits is called the Reverse Repo Rate. The central bank can mandate how much money that the individual banks need to deposit with it at any time. This is called the Cash Reserve Ratio (CRR). Thus the Repo Rate, Reverse Repo Rate and the CRR are often used by the central bank authority for exercising controls on the economy by changing those appropriately. These are like the accelerator, brake and steering of a car!

A car driver can use the pedals and the steering for controlling the speed and direction of the car the way he wants. In a similar way, the head of the central bank ( e.g. the governor of the Reserve Bank of India) can use the control tools for giving direction and speed of the economy.

But a passenger sitting on a car may not feel comfortable when the driver uses his pedals and steering quite abruptly or irrationally or too frequently. We call such a driver a novice who does not know how to drive properly. The car drive could be chaotic and may even prone to accidents. The passengers would be scared for their lives by sitting in such a car. The behavior of such a driver becomes too unpredictable when he happens to drive in a crowded place with narrow roads. His chaotic drive becomes too panicky if he happens to have a master who scolds him too often.

Same applies in the case of the head of the central bank as well. The economy becomes chaotic and unpredictable when such a head cuts rates or enhances rates abruptly or too frequently. The people who happen to be in such an economy become too panicky and confused not knowing what to do next. They may curse the fellow who creates this mess or may even try to jump out of the economy.

When a novice driver starts behaving unprofessionally, there appears many bystanders who cries out various instructions to the driver from the outside for various reasons. Some want to see the fun. Some wants to see and accident taking place. Some may even want to make some money out of the chaos by crooked means.

In a similar way, when an economy starts behaving chaotically under the chaotic policy steps too frequently implemented by the head of its central bank there could be outsiders who start giving directions from outside for their own vested interests. They may be the media, the representatives of business entities, the politicians or even the general public!

When an economy is in an unsteady equilibrium its dynamics becomes unpredictable. In such a situation some people make windfall gains while the majority make huge losses. It is always the uninformed masses that suffer the most. When an insane driver drives the car in a crowded place, it is always the innocent bystanders who get affected adversely!

In short, such a situation takes out the confidence of the people in the economy and the policy makers that drives the economy. More than the certified driving skills, it is the confidence of the passengers that makes a driver more desirable!

And public confidence is the most important thing for a stable and progressive economy. Public confidence comes when the economy is in a steady state of progress that is more or less predictable. Measures taken to control inflation might cause deflation too quickly in an unpredictable economy and frequent happenings of these situation further worsens the situation. Peoples' confidence in monetary policies deteriorates and people begin to bypass the governmental systems in their own manner. And that is not good for any nation!

When an unsteady behavior sets in for an economy, any quick action to set it right could further enhance the instability. That is the general rule for any control system, applicable for the economy as well.

The way the RBI tries to control the Indian economy is causing worries though the media bystanders are extending all praise. ( News-1 / News-2/ News-3) 

My worries are on account of the following:

1. The Indian stock market cannot ensure safety of savings of the majority public as the Foreign Institutional Investors can suck out public money at periodic intervals of their choice making the uninformed public helplessly watching their savings evaporate suddenly without any notice. Stock market investments are subject to risks and therefore there should be dependable investment options with reasonably good returns such as the bank fixed deposits. The monetary policy makers should not do their acts without addressing this issue.

2. The government has washed its hands from the responsibility of paying pensions to the retired people. Neither the government nor the private organizations now has any guaranteed pension scheme which offers some reasonable income to the retired population. Even the present savings linked pension plans are mere brainwash systems which are too poorly managed causing great sufferings to its members. When pension funds are invested in equities, the same money sucking by the FIIs keep happening which the government nor the RBI can prevent. What the people want is guarantees to their savings!

3. A growing economy in paper with macro economic data do not necessarily safeguard the interests of the individual citizens. When jobs or incomes from employment are proceeding towards the no guarantee mode, how can people take long term loans from banks? If long term loan EMIs to work, it is essential that long term fixed deposits with guaranteed returns also should work simultaneously.

4. Floating point interest system is essentially a cheating system. It is not market driven or based on ethical practices. Once the people understand it well, the confidence in banking system would diminish. It is neither good for the banks nor for its customers in the long run.

5. Unsteady monetary policies help only some individuals to make huge money by way of corruption and it does not ensure good governance.

6. Indian business houses that make huge profits from low interest regime do not pass on the benefits to the general public or even its employees. Neither they do any thing to enhance employment opportunities.

Let me stress this once again. Confidence in the economy and its monetary policies are more important and that cannot happen when the policies change too rapidly and too irrationally without due consideration of ground realities of the nation.

Generating Employment for Indians- A Layman's Suggestions !

I am not an economist nor an expert in finding solutions to the complex problems of a complex nation like my own !

But like many others like me, I do keep a watch on developed nations such as the United States of America or China or Japan, that have been making visible material progress. Their Gross Domestic Product (GDP), per capita income ,  human development indices (HDI), etc., amply correlated by visible physical features vindicate their superiority!

For example, my country India has been with a shamefully low per capita GDP of about $ 3700 . The actual purchasing power of the citizens of India are much lower than this figure. Regrettably, it appears that the Indian policy makers no longer feel the shame ! [See the GDP per capita income list of the world's nations here !]

Indians keep justifying the low per capita GDP on account of the huge population. But then they forget about China whose population as well as the per capita GDP are much higher ! This clearly shows that the Indian situation is on account of poor governance , administrative policies and gross mismanagement of public affairs! Perhaps all these happen due to the defective democratic governance system that the country has adopted ever since it had become a modern republic. 

Indians are too keen to watch the politics and policies of America rather than their own. I too am no exception. What makes me salute the American system is the importance that they give in generating employment to the citizens of the country. A US president is evaluated as good if he could implement policies which generate employment to the US nationals.

But unfortunately no Indian politician talks about employment generation. Neither is employment a factor for evaluating the Indian government!

There are thousand an one ways by which the Indian government can generate employment for millions of its unemployed so that they can at least have a decent living and surely elevate them much above the poverty line.

" Give me a fish, I eat for day; teach me to fish, I eat for a life time!"

This famous quote, supposed to be the favorite of Mahatma Gandhi is not unknown to those in the higher ruler ship of India. Regrettably they keep thinking of the ways in which such a teaching can be imparted to the millions only to conclude that such a thing is not practical in a country populated so heavily!

When thousands of Indians could make a decent living by the so called medical transcription work, I couldn't help saluting the US policy makers who could force their medical practitioners to shell out some of their incomes to others down the line who are only skilled for some lower level clerical jobs!

The westerners are advanced because they have realized the overall advantage of distributing the abnormal wealth at some hands to those who are not so privileged or fortunate. They too were having the mindset of the present day Indians before they faced the 'great economic depression after the world war-I'. But that had made them learn a lesson. And that lesson was about the importance of sharing the profits of business and industry to the larger populace for sustaining economic activities. 

The great depression forced economists to analyze the reasons for such a failure of economy when industrial production was at its peak! They found that all productions are useless unless there is a market that absorb the products and services. And such a sustainable market is possible only when business and industry willingly share their profits with their employees and the workers thereby enhancing the purchasing power of the people as a whole!

They learnt that the profits held up by large Corporate entities are not going to make the country or the economy progress. If they keep producing and accumulating profits for some time without enough sharing, there would not be any markets for their products and services and eventually their businesses would come to a grinding halt.

So, for longer sustainability of business, business tycoons and business leaders have to find ways to distribute their huge cash surplus held up by a few of them to a larger group of people, so that the latter could get some decent  income margins to be spent for more goods and services.  

Again at every such transaction, the government is going to earn from the taxes.

Indian corporates and government  are going to repeat the mistake that the westerners did early in the 20th century which triggered the Great Depression of the 1929.

Why I say this ?

Read this report : Large Indian companies sitting on Rs 4.2 lakh cr excess cash  !!

Had they distributed even 10 % of this cash, which in any case they have amassed by paying less to their employees in comparison to the world standards, the Indian markets would boom. The Indian government would gain substantially in taxes, both income tax and other taxes.

The cash surplus of the Indian corporates are because of their reluctance to pay dividends to their share holders and their reluctance to pay better wages to their lower rung workers and employees.

The cash surplus with them cause them to show a higher book value for their shares. This in turn causes poor investors to shell out their hard earned cash to purchase shares of these companies at higher margins. The investors do not get any return from the company as such. The investors seem to make profits by selling their high margin shares to other gullible investors. The corporates have nothing to lose !

Why such a situation which actually do not help the majority of the Indian public to enhance their incomes so that they have some better  incomes for acquiring better goods and services ?

Whatever the low income, the government tax them heavily. What is the logic in taxing an individual who makes Rs 150,000/- ( ~ $ 3000) per month and the corporate which makes Rs 150 million at the same rate ?

The individual is left with Rs. 100,000 /- where as the corporate is left with Rs.100 million. Since both are individual entities, the money deprivation shock to the individual is much more. The excess money accumulated by the corporate does not do any good for the country ordinarily. Because it it blocked so long as they find some means of spending it. The individual on the other hand has many unfulfilled needs. He could have released that 50,000 immediately to the market had it not been cut by the government as tax. The government would have got an equivalent amount or much more had this money were used by the individual for meeting his unfulfilled needs.

This kind of illogical mind sets in the policy planning levels actually make India a poor nation. They do such things which causes the money generation points dry before they mature.

Killing the goose ?

India can become the richest nation in the world, had the negative growth policies made out by egoistic know-all mindset of those concerned decide to ease out a bit by relaxing their muscles and minds.

Instead of distributing money for various labour generating schemes  here and there, if the government allows all higher income group salaried people who pay more than say Rs.300,000 per year as income tax to have a regular personal assistant for jobs like driver, gardener, security, etc and the payments made to such people to the extent of say Rs.200,000 as fully exempted from tax, can you imagine the number of regular employment generated in India overnight ?

Of course, some people might always do some manipulations. That should not be the reason for not trying out some innovative methods.

That kind of an initiative can make the government popular overnight . Not only they become popular, the economy would boom. It is a kind of action that can force the higher income of the upper strata of society to percolate downwards immediately.

In reality the government's income is not going to get reduced. It will also boom !

There could be many such moves. But for that the government should be ready to take suggestions from all, even from laymen like me. If the suggestions are good for the country they should be broadminded to implement it.

How long they keep themselves isolated in self made chambers of petty politics ?

The country needs people of a different mindset  for thinking and implementing such radical thoughts !

Let us hope we get such thinking people by 2020 !


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Gold and Land : the Two Great Detrimental Forces of Indian Economy !

Traditionally Indian women are irrationally attracted to the yellow metal. Gold is such a compulsive passion and addiction for most of them.

No logic or common sense go into their head when it comes to possessing gold. They are too happy if their near and dear ones spend all their incomes to buy gold ornaments or anything that is made of this shining metal which is other wise of little value to man kind.

They may tell hundred and one arguments in favour of their love for gold.

Any way the World Gold Council (WGC) members should be the happiest lot in this scenario and they are bound to do all they can to keep the Indian women stick to their traditional gold fancy for generations ! This group who controls the 20 odd gold mines of the world need to sell out their produce at the highest profits. A product that otherwise does not have any intrinsic value with regard to its usefulness !

So they keep doing all that is in their arsenal to keep the prices of gold keep rising over the years, though marginally with quantum jumps once every decade !

Total production of gold in the world is to the order of about 2500 metric tonnes per annum.[Source]

Out of the total world production, India imports nearly half. That means all the gold that gets mined and processed gets distributed to the millions of Indian house holds through the hundreds of jewellery shops of India, the only progressing business in India in the recent times.

India spends the major part of its foreign exchange, the hard earned money of Indian exporters and the Indian dollar workers, to import arms, petroleum and gold. Out of which the first and second get fired up and the gold becomes invisible, once it goes into the custody of the Indian women.

Indian women might tell that gold is their safest guarantee to safeguard against future financial difficulties. But in reality even when they actually try to use their gold for ensuring a financial problem, their gold would make them face more problems rather than save them from it. That is because their reluctance to sell it even when there is a crisis. They prefer to take loans pledging their gold at very high interest rates creating a situation for a bigger loss for them or their family.

Imagine the gold that has cumulatively sunk into the Indian house holds all these years !

In this context listen to what this economist warns : The collective obsession of 1.2 billion people with gold can play havoc in the economy unless govt draws up a plan !

Yes, indeed this maddening obsession is one of the reasons India remains as a poor nation. It is difficult to understand this for most people. How can you consider some one possessing half the gold of the world poor ?

But remember ! Gold is not going to get you food, water, education, health or jobs !

Gold ornaments are not going to make any women look attractive also. Those wearing those just as the brides of south India, in reality look ugly ! ( Excuse me for using that word so blatantly !)

Anything in excess is going to  burst after some time. Those who madly spend their money to buy and hoard gold should remember that.

Another facet of Indian economy is the illogical pricing of land. This tendency gained momentum in the recent past.

Land is not yet a scarce natural resource in India. Vast tracks of land are lying vacant without any useful economic activities.

Some people are using land as a unit of hoardable wealth just like gold. This tendency has made all other necessities of life such as housing, education, hospital care, roads and other infrastructure becoming unaffordable and with negative returns on investment.

When India became an independent republic, the visionary leaders had maintained some controls on gold and land. Gold controls and land ceiling acts and regulations were part of that visionary thinking.

As of now, it seems that the Indian leadership has purposefully decided to be vision less with regard to gold and land, the two detrimental forces of economic development !

Detrimental when dealt without vision !

Give a thought to this,  dear ladies and leaders !

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