We often prefer to assume that those in authority or government are much intelligent than us and whatever decisions they take are the best ones for the common citizens. We prefer to think that our authorities seldom do mistakes or tell lies or cheat us. We keep thinking that our governance systems are all for our benefits and they ensure justice to the common people like us. At least, that's our wishful thinking!
But in reality, due to several reasons it is more often the other way. At least that is what we observe in many nations of the world today. Governments and governance are as perfect or imperfect as the people of the respective nation. Some are better, some average while several are worse.
Human errors and stupidities are the reasons for most of our sufferings, except perhaps those pure natural calamities. Humans with acquired authority for some time do more stupid acts that eventually cause much harm to many people, including innocent ones! Clever and intelligent people acquiring authority to rule nations are found to succumb to evil thoughts and deeds and perish after some time. Cleverness never ensures character and goodness!
There is absolutely no reason why a nation cannot be administered in a wise and just manner ensuring the best living conditions to its people. Unfortunately, it doesn't happen that way always. Governments of our world have been doing their job as if their decisions are influenced by good thoughts, stupidities or evil ideas in varying degrees.
The Indian economy is in shambles for quite some time. But the government and its experts are very reluctant to admit it. They keep trying to publish very many reports that keep producing data and analysis trying valiantly to prove that their decisions have all been very correct and useful.
Let us recall some of those decisions that has caused some major damage to the Indian economy due to certain inherent problems that the decision makers probably overlooked or ignored.
The first was the abrupt withdrawal of certain currency notes in circulation. All of a sudden, existing Rs.500 and Rs.1000 denomination currency notes were withdrawn from circulation and citizens were required to give due explanations for getting those replaced with new currency notes. The idea was told as a step towards eliminating unaccounted cash in the economy and to speed up digital currency transactions. The idea was perhaps good. But the people suffered immensely. What happened next?
The logic of withdrawing Rs.1000 was to prevent people from hoarding black money. But the Government failed that logic by re-introducing Rs.2000 notes! People thought that digital Point of Sales (POS) machines would become a common thing as promised by the government. But it never happened. No one in the government talks about it any more!
The actual data regarding the black money in the economy arrested by this demonetization exercise did not get officially publicized. Whatever data ever published was too late and apparently proved the futility of the decision by the government. (Read: Demonetization: What India Gained and Lost)
Perhaps the biggest loser was the government. Reserve Bank of India's dividend payout to the government got reduced by half, post demonetization. The government's assessment of big black money in the economy proved wrong. Only 0.7% of the currency failed to return back to the RBI. In turn RBI incurred heavy losses for making new currency in circulation!
The biggest problems perhaps happened in the small scale industry sector in the rural areas. This sector provided much employment. They most often did their money transactions in cash because of the non-availability of infrastructure for digital cash transactions and the mere lack of knowledge and skills of the people to transact digitally. The demonetization was a sudden blow which caused thousands of such businesses to get closed for ever.
Thus demonetization exercise by the government, though thought as a wise step was not so eventually. People suffered and with the people the government too suffered. When transactions of money in the economy come down, the tax collections by the government also come down. That was what happened. But it is very difficult for some men and women to admit problems happened due to their stupidities! They often forget the fact that admitting a folly is essential to analyze it properly so that such follies are avoided in future. But most often, it is seen that those in some authority are reluctant to admit follies. Such an attitude is bound to create more follies.
India is not a nation which is fully literate. While many developed nations have achieved almost 100% literacy, India has yet to achieve that level. See world literacy rate chart! When literacy in itself is not full, how can one assume that digital literacy or the ability of people to handle smart phones and computers be adequate for people to do their economic or money transactions in a digital environment? As on 2021 only 45% of the Indian population has access to internet connectivity. That does not ensure that all these 45 % are adequately literate in using the internet and computers for economic transactions. Obviously, people who are computer savvy are much less. More over, nearly 40 % of Indian people are in the below poverty level and these people cannot even afford computers or smart phones.
Thus any one with some reasonable common sense can easily understand the prime need for India to bring its below poverty people to higher economic levels. And why is it important? It is because, people with higher economic spending capacity enhance the gross economic transactions of the nation. This would enhance the gross domestic product or GDP. When GDP rises, the government gets more money from taxes. When the government has more money, they would be in a position to spend more money to enhance the nations infrastructure, defense and other measures which in turn boost the GDP to higher levels. When the economy grows like that in a positive manner, Indian currency becomes strong. India would no longer would be required to sell its products and services in the international markets in a cheap manner!
In other words, more people with more money to spend, enhance the market potential of the nation. That creates incentives for more production of goods and facilitates better and new services. In turn, job opportunities starts growing and more and more people will get employment or business opportunities. The economy starts going up and the governments, central, states and local, start becoming richer and more creative.
So the most important task of the government in this kind of a situation would be to enhance peoples' income.
The next question is how to do it!
Indian governments have been doing it in the most regressive or unproductive manner so far. They have been adopting the technique of subsidies. They give some kind of price subsidy or some meagre pensions for poor people that is much less to boost the economy in any meaningful manner. More often, the effect of these subsidies are not visible in the economy. It's like putting some sugar in a big lake to make the lake water sweet! The sugar simply gets wasted without any real benefit as intended!
Ideally, every rupee transacted should benefit the individual, the society and the government. But foolish people in decision making often cause stupid decisions by the government or its various organizations causing much negative impact on the country and its people. The desired good objectives hardly get achieved. On the contrary more often opposite effects start taking place!
Governments more often try to control the economy by periodic revision of bank interest rates. These interest rates are said to be based on broad economic analysis, but often they are administered arbitrarily or more or less that way. In India, this is effected through the Reserve Bank of India. Thus bank interests on deposits and loan interests rates are all essentially administered rather than based on any demand- supply market conditions!
Some people in higher administration levels think that reducing interest rates can boost investment opportunities and growth in business. To some extent this is true. But when interest rate administration by the RBI is done too often on a quarterly basis, it causes one of the biggest problems in business-the uncertain markets and market confidence. This is much more detrimental to economic growth. Another problem in reducing interest rates is reducing income of government on this count. Interest rate cuts make some richer while several others get poorer. More often it is the common public who toiled hard to earn and save money for future needs get affected adversely by bank interest rate going lower and lower year after year.
In my opinion, low bank interest rates could be a better economic situation for countries which are fully developed with majority higher income citizens. But for countries like India with a good majority of people below peanut incomes, bank interest rate reduction is not a good idea! It only helps big corporates and big business houses who often do not share their profits proportionally to the government as higher taxes or to the common public share holders as higher dividends. Perhaps they might enhance the salaries and perks of some of their top employees. But such growth in higher net worth individuals seldom help the country as the higher wealth of high net worth individuals never percolates down to the economy effectively. It is easy to understand this by simple arithmetic. For paucity of time I do not want to attempt it here.
It seems there is a lobby of big corporates and their paid economic media houses who keep working to influence the government for reducing bank interest rates through the administered mechanism of the Reserve Bank of India. India has been reducing the bank interest rates continuously for the past couple of years. In the last 5-6 years time, bank interest rates thus administered have reduced more than half. Bank fixed deposit rates for the common man has reduced to much less than the yearly inflation. FD rates and the savings bank interest rates are more or less similar and at around 3.5 to 5.5 % now and it seems the lobbyists are trying hard to make it reduced to 1% or lower as it is in a few developed nations. The irony is that some such countries are now thinking of enhancing their administered interest rates!
Interest rate cutting on a regular basis to levels less than the inflation level is a stupid thing to happen. It is interesting to note that some paid economic writers keep telling high interest rates are the cause for high inflation and price rise while some of their counterparts keep telling the other way. It is interesting to note that the economic media writers and opinion makers keep telling falsehoods the way they are told to do. Our planet is essentially one controlled by evil thoughts and evil doers!
And evil minds keep influencing common people with their clever falsehoods that the latter ones are incapable of distinguishing from truths. And that way the common citizens keep suffering while their clever leaders do whatever they like with impunity!
So long as the majority common people are handicapped with illiteracy and poverty, bad governance keeps perpetuating in the name of good governance!
