Economic Survey 2018-2019

The Economic Survey has laid out a strategic road map to take India to the $5 trillion GDP league by 2024-25. 
The first economic survey of Chief Economic Adviser Krishnamurthy Subramanian can be summed up in terms of the following ten points:

(1) Focus on the virtuous cycle
At a time when the economy is gripped by a consumption slowdown, the Economic Survey talks about raising the investment rate and the saving rate to lift India to the next level of economic growth. 

(2) Case for a healthy India
The behavioural insights from the Swachh Bharat Mission can be used for laying the foundations of a healthy India. A healthy India means more labour productivity which translates into more savings and more investment.
(3) Reform the lower judiciary
The pendancy of cases at the lower judiciary level which leads to delay in contract enforcement is hampering India's further growth on the ease of doing business index. The Survey talks about fixing this gap within the lower judiciary through various means like increasing the working hours, improving the administration of courts and using technology to speed up the clearance in India's lower judiciary.
(4) VIP privileges if you are a top taxpayer
The Survey recommends incentivising top tax payers of the country. This includes VIP-like privileges such as expedited boarding privileges at airports, fast-lane privileges on roads and toll booths, special “diplomatic” type lanes at immigration counters, etc.

(5) A Detroit for EVs in India
The Survey visualises creating a Detroit for EVs in India. The Survey says, "EVs hold enormous potential for India not only because it is environment friendly but also because India can emerge as a hub of manufacturing of EVs generating employment and growth opportunities. It may not be unrealistic to visualise one of the Indian cities emerging as the Detroit of EVs in the future."
(6) Double down on reducing policy uncertainty

The message from the Chief Economic Advisor is that the policymakers should double down on their efforts to reduce the scope of any uncertainty in economic policy making as it affects investor sentiment.

(7) Deregulate labour laws
The Survey recommends easing of labour laws to spur job growth. The deregulating labour law restrictions to help create more jobs. “Deregulating labour law restrictions can create significantly more jobs, as seen by the recent changes in Rajasthan when compared to the rest of the states,” the Survey said.

(8) Infants, not dwarfs, need more care
The Survey says that the government should foster the growth of large firms which employ more than 100 people instead of focusing on smaller firms with less than 100 workers. The rationale is that the share of smaller firms in overall job creation and productivity is negligible compared to large firms which account for around 90 % of overall productivity and three quarters of job creation.

(9) Make Behavioural Economics an important pillar of policy making
The Survey takes insights from various government schemes which rely heavily on behavioural change. The voluntary giving up of gas subsidy in order to provide gas connection to poor households encapsulates the impact of behavioural economics. The Survey recommends setting up a "Behavioural Economics" unit in Niti Aayog and a "Behavioural Economics" audit for every government programme.

(10) Data revolution

The Survey recommends using public data to revolutionise development in the country. Since data is the new oil, the Survey says that data should be made a public good.  Data "of the people, by the people, for the people" must become the mantra for the government, which needs to view data as a "public good" and make necessary investments. 

Read more in Economic Times

Good Quote

“Wealth is not without its advantages and the case to the contrary, although it has often been made, has never proved widely persuasive. ”
― John Kenneth Galbraith, The Affluent Society

Current Account Surplus - Good or Mixed Bag?

Economists have led us to believe that trade deficits are unhealthy for any economy, and lead to a crisis over the long-run (e.g., Italy, Greece, Spain).

But trade surpluses also have their downside. 

For instance consider the case of some European countries like Germany, Sweden, Switzerland, Denmark and the Netherlands which have been piling up surpluses. 

In these countries there has been fewer imports, and less domestic spending. 

Germany's surplus is an old agreement between businesses and unions in favour of wage restraint to help export industries remain competitive. This has freed firms from the threat of being held to ransom by unions. The government on its part has sponsored an admirable system of vocational training. Maybe India could take a page out of this book, since we are already implementing Skill India!

However, for a large economy, at almost full employment to run a current account surplus in excess of 8% of GDP puts an unreasonable strain on the global trading system and is a threat to the global free trade. 

How Do You Become a Good Economist?

6. 

If you are at a college or university, attend the economic research seminars at your college whenever you get a chance. 

You may not understand the discussions at first, because they may seem too technical, but you will pick up more than you know, and eventually you’ll be giving the seminar yourself!

Good Quote

“Under capitalism the common man enjoys amenities which in ages gone by were unknown and therefore inaccessible even to the richest people. 

But, of course, these motorcars, television sets and refrigerators do not make a man happy. 

In the instant in which he acquires them, he may feel happier than he did before. 

But as soon as some of his wishes are satisfied, new wishes spring up. Such is human nature.”
― Ludwig Von Mises,

Theory of Coordination

One of the interesting theories of development economics is the Theory of Coordination.

It explains the lack of economic development in terms of coordination failure.

In simple terms, firms would like to be where there are workers and infrastructure; workers want to be in places where firms are already offering good jobs. 

Neither will go where the other is not! 

A typical chicken and egg problem? 

It calls for coordination.

…….. role of the government? planning?

How Do You Become a Good Economist?

Answer 5. 

Follow economics news. 

The best weekly is The Economist. 

The best daily is the Wall Street Journal in the US, Financial times in the UK, Business Standard, The Mint in India.

Good Quote

“Anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist.”
― Kenneth Boulding

Technocrats - Exit?

Many economists and lay people are increasingly disenchanted with the world Bank and the IMF. 

At the core of these institutions has been macroeconomics and the assumption that complex economic decisions should be taken free of political influence. 

But let's face it - decisions in the real world cannot be delinked from reality which is largely influenced by the politics of the day.

The economy is dynamic and complex. 

It is difficult to manage. 

Come economic crises or chronic stagnation and then the expertise of "humans" becomes valuable. 

Technocrats in such times seem cold and delinked from reality.

It is thus that the IMF and World Bank may be less revered on the world stage. 

This is also the case because there are now other competitive institutions in various regions of the world who want to further their geopolitical ambitions.

How Do You Become a Good Economist?

Answer 4. 

Read economics for fun in your spare time. 

To get you started, here is a list of recommended readings. by Greg Mankiw.

• Milton Friedman, Capitalism and Freedom
• Robert Heilbroner, The Worldly Philosophers
• Paul Krugman, Peddling Prosperity
• Steven Landsburg, The Armchair Economist
• P.J. O'Rourke, Eat the Rich
• Burton Malkiel, A Random Walk Down Wall Street
• Avinash Dixit and Barry Nalebuff, Thinking Strategically
• Steven Levitt and Stephen Dubner, Freakonomics
• John McMillan, Reinventing the Bazaar
• William Breit and Barry T. Hirsch, Lives of the Laureates

Good Quote

“Our faith in freedom does not rest on the foreseeable results in particular circumstances but on the belief that it will, 

on balance, release more forces for the good than for the bad.”
― Friedrich A. Hayek

New Trends ...Permaculture

Traditional agriculture is notorious for not supporting other life forms.

Permaculture works on the principle that the less you interfere with nature the better. 

These farmers let their plants evolve into forests, even welcome insects and small animals.

Operational details:

• A permaculture plot can be as small as a single acre or as large as a forest. The guiding principles remain the same.
• Tall, hardy trees form an outer perimeter. Trees with large canopies, like mango, are planted here and there to offer shade to the shrubs.
• The shrubs are typically perennials like lemongrass, tulsi, kadipatta and drumstick, which offer diversity and contribute to mulch.
• The inner zones are designed to grow nutrient-intensive cash crops like maize along with legumes like beans, which provide nitrogen to enrich the soil.
• There are further zones for aquaculture, poultry and bee-keeping.

To the untrained eye, a permaculture farm may look like a patch of wilderness in a neglected backyard. When it looks like that, you know it’s working!

The idea is to switch from the slash-and-burn model of agriculture to a gentler, more permanent formula where fruit trees shade vegetable patches, perennial plants grow, are picked and plucked from, perish, form mulch, feed other plants, and start over. Where birds can eventually make their homes —  where bees and insects thrive, and eventually small animals arrive to nibble or hunt. Where Man has only a passing influence.

Read more:

https://www.hindustantimes.com/more-lifestyle/meet-the-people-growing-food-forests-in-their-backyards/story-GzCJFhn66sooNePVyv3P1J.html

https://permacultureprinciples.com/

How Do You Become a good Economist?

Answer 3. 

Use your summers to experience economics from different perspectives. 

Spend one working as a research assistant for a professor, 

one working in a policy job in government, 

and one working in the private sector.

1 February 2019 - An Interim Budget

An interim budget, just like a full-year budget, is an annual financial statement of a government's finances. 

It contains key details such as where money comes from (revenue) and where it is spent (expenditure), as well as projections of growth and fiscal position. 

However, unlike a full-year budget, an interim budget covers a smaller period of time, usually few months. 

An interim budget is created by an incumbent government before election. 

This year, the general election - to elect a central government - is due by May, thus an interim budget.

Good Quote

“People.. were poor not because they were stupid or lazy. 

They worked all day long, doing complex physical tasks. 

They were poor because the financial institution in the country did not help them widen their economic base.”
― Muhammad Yunus, 

Banker to the Poor: Micro-Lending and the Battle Against World Poverty

How do you become a good economist?

Answer 2. 

Choose your economics courses from professors who are passionate about the field and care about teaching. 

Ignore the particular topics covered when choosing courses. 

All parts of economics can be made interesting, or deadly dull, depending on the instructor.

The investment craze - ICOs

For the last two years bitcoins and their ilk have dominated news, in particular financial news around the world.

So now we have a new concept. Initial coin offerings (ICOs). Are these financial innovations or reckless speculation?

An ICO does not get you equity in the firm concerned. 

An ICO is essentially a ledger entry. You can buy an entry (not in all countries); in a computer ledger issued by a start up company on the basis of an unregulated prospectus. 

An ICO is a way of raising capital without all the hassles of meeting regulatory requirements or the burden of paying interest to a banker.

Businesses are able to raise this way because investors hope that the coins will rise in value just like bitcoins. 

But the latter are different. 

Bitcoins are a form of digital currency that can be used in a variety of transactions.

The technology that underpins digital currencies is the blockchain technology. 

The blockchain is a secure decentralised ledger that everyone can inspect but no single user can control it.

Financial innovation or reckless speculation? Time will tell!

How do you become a good economist?

Answer 1:  Take as many math and statistics courses as you can stomach.

More answers on the blog next week!!

Good Quote

Good questions outrank easy answers.

                             -  Paul A. Samuelson

Mathematics ... he said

It has been said that any student who has studied economics has read Paul Samuelson's book "Economics - An introductory Analysis" at least once.

Samuelson aimed to bring clarity to economics. He knew that simple plain writing was essential to explain things to the public. But he also wanted to resolve debates which were made obscure by jargon. 

Towards this end he used mathematics to describe theories and work out their implications by solving equations.

The situation today is that difficult mathematics can obscure economics for the uninitiated!!

Good Quote

“The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. 

Indeed, the world is ruled by little else. 

Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.”
― John Maynard Keynes

American Government Shutdown

The foreign economic press has been rife with articles on the American Government Shutdown.

there are points and counterpoints being presented on the impact on the American economy and on the lives of ordinary American citizens; and even American missions abroad.

Some in the government dismiss the adverse impact of the government shutdown on real American GDP. Harvard economist Mankiw feels that opinion is more wrong than right. This is because if one states that there is no adverse impact of the government shutdown one is making an assumption that the  government workers don't produce anything of value when they are at work, or that they will make up all the undone work when they return, so making them stay at home has no significant economic impact. If that were really the case, then they should be given shorter work weeks, so they can enjoy more leisure.

Also take the case of the national parks that are now closed because of the shutdown. Those families that would otherwise be enjoying them are suffering a true reduction in economic well-being that is forever lost.

Point of view and facts - Convergence ... he said

The American economist Robert Solow developed the neo-classical theory of economic growth. Solow won the Nobel Prize in Economics in 1987. 

The Solow Neo-classical Growth Model features the idea of catch-up growth when a poorer country is catching up with a richer country – often because a higher marginal rate of return on invested capital in faster-growing countries.

It is said that developing countries find it easier to get rich once their neighbour/s already are. The same pattern can often be seen in the developed world. Not just between countries but within countries as well.

But that is not the case in India. The states are becoming even more unequal. 

This has been a puzzle to economists.

One theory blames it on poor infrastructure, another on India's skill intensive IT sector, and a third on poor governance.

As long as the divergence does not become more serious and forces of convergence gain strength in other socio-economic spheres all will be better off.

Good Quote

“It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.”
― Murray N. Rothbard

Point of View - Growth or Environment

Our environment is vital to economic growth. 

Ancient civilizations were built on fertile soil, clean water and unpolluted natural resources. 

Current civilizations are facing the prospect of an environment being denuded of its value and valuable resources. 

Every so often we read about some creature becoming extinct. 

It seems to be of scant value to us; but it is part of the eco-system and somewhere down the line the earth is worse off for that. 

Air pollution and plastic waste are there for all to see and experience the ill effects. 

Human activities are destroying the future of human beings and other creatures on earth. 

We have always prioritised the economy. but it is crucial to realise that without the environment our economies will also be destroyed.

We cannot think of this issue in terms of a trade off between economic growth and the environment. we need both. 

So the question that every body is asking is how do we do both?

Interesting Fact- India Will Overtake the US Economy by 2030

India is likely to become the world’s second-largest economy by 2030, next only to China and overtaking the US, according to Standard Chartered Bank's long-term forecast released on January 08 2019.

Artificial Intelligence Anyone?

Advances in artificial intelligence have triggered worries about human obsolescence. 

On the other hand, watching a machine invent new ways to tackle a problem can actually push people to think out of the box; for example, when Gary Kasparov lost a match to Deep Blue an IBM computer! 

AI encourages humans to question old wisdom and experiment.

Happy New Year 2019

Here's wishing all my readers a wonderful new year. And on this blog here's to more snippets, snapshots and passing thoughts :)