How to Fix the Economy

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And sure enough, it was. Even so, this is tough sell politically. It is. Things change. Not even the apocalyptic financial crisis has shaken their certainty. How do you make sense of that?

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It comes from the long-term operation of a lavishly funded propaganda operation. Given that, what are the chances the congressional GOP will come around to your way of thinking? OK, so where would you start? That would create a million jobs, including those , schoolteachers that were laid off.

The deficit is way overstated as an immediate action-forcing issue. What more can he do? If you can convince people they can borrow at 2 percent interest right now and the rate will stay at 2 for 10 years, and inflation will be 4 percent, then borrowing becomes a much more attractive proposition than borrowing at 1 percent with 2 percent inflation.

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The depressing thing is that the Fed has basically said: We wash our hands of this. You say in the book that higher inflation would be a good thing. Back when Ronald Reagan was president they used to consider 4 percent perfectly OK. You never know, but my sense from talking to people in the administration and watching their behavior is that they and he have had something of a defining moment.

At some point, they finally appreciated that the people they were negotiating with were not negotiating in good faith. Also pretty good. We have to expect more scorched-earth politics until something changes about the nature of the modern Republican Party, but I think the notion that a second Obama term would be just like the disappointments of the first is probably wrong. Paul Krugman Fred R. Newswire Powered by. Close the menu.

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The finance minister and his MoS cite rural and farm economy as one of the key priorities for the government. Both ministers reiterated poverty alleviation, irrigation, infrastructure creation and social infrastructure as key areas. Anybody who wants to use it for income support can do that. Since the drought, people have stepped forward. We have said we will pay you crop damage, not at 50 per cent but at 30 per cent. Disbursement of relief funds is much higher at Rs 24, crore from an average of Rs 8,, crore-we have massively stepped up compensation for droughts and floods," says Sinha.

Jaitley has had one unexpected piece of luck aiding him: the prolonged slump in crude prices. Given that India imports almost all the oil it uses, this has come as a huge benefit for the government-as has the accompanying slump in other commodity prices, ranging from coal to zinc and copper. But commodity price slumps can also prove to be a two-edged sword. They have reduced inflation and India's import bill.

But they have also played a discouraging role in reducing exports and wreaked havoc on the revenues of companies in most commodity-led industries. As he prepares his third budget, the question is what Jaitley needs to do-and more importantly what he can actually do-given the constraints of a global economic slowdown and a stiff domestic opposition that has stymied many of the bills the government has introduced, including the Land Acquisition Bill and the Goods and Services Tax Bill, both of which were being awaited by foreign investors.

How to Fix the Economy: Scott Smith at TEDxCU

In his first two budgets, Jaitley was criticised by many for being an incrementalist who preferred to improve things gradually rather than taking bold steps. Now, though, there are clear indications that the government is working on some clearly focused areas to fix the economy. The economics has got mired in politics and the inability of the government to push through the goods and services tax has led to much disappointment. Slow progress on the bankruptcy code has been another drag, even though the finance minister did clarify that the bill is in the final stages.

Encouragingly, corruption at the top is down and that has come as a source of relief. Beyond that, the government has to recognise some of India's greatest challenges. At this point, the overwhelming opinion is that they relate to jobs and domestic demand. Perhaps it would do good to remember that a please-all approach could actually lead to bigger disappointments.

A scheme a month and additional cesses have only complicated structures and processes and given out confusing signals about the government's economic philosophy, which has dithered on privatisation and in all likelihood will miss its disinvestment target. In fact, one gets a sense that the government is all-pervasive-from hotels to airlines, start-ups and digital, to which finance minister Arun Jaitley says: "There is a difference; the government is creating an environment in which the private sector and citizens can grow. So the government is not entering those businesses.

So whether it is Digital India or Start-up India or Stand-up India-you are going to ask banking institutions to give loans to SCs, STs or women on viable projects to make them entrepreneurs. You have to fund the unfunded. The calculation here is simple. In the short run, public spending on infra projects creates a lot of jobs while boosting demand in all sorts of industries such as cement and steel. In the long run too, infrastructure creates the necessary conditions to improve economic growth in other industries.

Rethink Make in India? Opinion remains divided on whether India should continue to focus on manufacturing or lay greater emphasis on the services sector. The East Asian model of growth was based on moving labour from agriculture to industry and then exporting manufactured goods. But Goldman Sachs argues in a paper that the services sector remains the dominant source of employment in emerging markets and a solely manufacturing-driven model in the current context faces significant headwind.

The global environment is not conducive to manufactured exports and demand is likely to remain weak over the next few years. There is also significant overcapacity, especially in China, and technological developments are moving against manufactured exports. Also, automation, 3D printing etc are enabling assets to be used more efficiently. Moreover, incentives to manufacturing in the developed world as well as rising costs of funding capex due to rising US rates are all contrarian to the East Asian Model of exporting manufactured goods.

The other problem is that in India, labour laws have stymied scale of manufacturing. An overhaul of labour laws is dependent on states.

How to Fix the Economy: 9 Steps (with Pictures) - wikiHow

Land acquisition for large projects remains a prickly issue, infrastructure and power continue to be patchy and all initiatives by the government have a long gestation period. Taxes continue to be high for the corporate sector and if the political stalemate over GST continues, this too will take a few years for its effects to show. On low private investment, Adi Godrej, chairman of the Godrej group, says, "Investment is low because consumer demand is not sufficient in India.

Many companies are improving productivity from the same plant. There is a lot more mechanisation and robots are being added. The services contribution has outweighed the contribution of manufacturing to India's GDP. Manufacturing contributed 1. Costs involved are lower as is red tape. One of the largest e-commerce companies employs about 30, people and provides indirect employment to 1,00, people. Goldman Sachs calls them the job creators for the next decade. Sinha, says: "After a gap of several years, saw positive progress in the IPO market. Total amount raised in was Rs 9, crore.

Between April and December , Rs 18, crore was raised. A further 8,, crore is possible. When we analyse these companies, more than Rs 16, crore is from new generation companies. Sectors such as power, steel, highways, non-banking financial institutions have not raised money this year. The money has come from sectors such as IT-enabled sectors, e-commerce, education, healthcare, hospitality.

How To Fix The Economy... In One Simple Chart

This is a signal that there is a shift happening in economic activity. Economists like Jahangir Aziz, chief Asia economist, JP Morgan Chase, blame India's obsession with supply side constraints as a key reason for misplaced policy interventions. He argues that labour reforms and ease of doing business are not holding back companies; ease of doing business has improved since And companies have invested in worse capital conditions when returns were close to 17 per cent which are hovering in the negative today.

Domestic buyers will have to replace the foreigners.

But I don't think that the government believes this is the problem, except the chief economic advisor. They have to redesign and shift infrastructure to boost domestic consumption," he says. Aziz makes the point that building ports and dedicated freight corridors will give returns only if exports bounce back.

Focus has to go beyond connecting the metros to connecting the heart of India which will spur domestic demand.


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Also, Indians continue to spend a lot more on education and healthcare, building such infrastructure will spike consumption.