Poor Arent Lifeless Bricks

India is a poor country. As per world bank reports there are about 450 million people living below world poverty line. (less than $1.25 or Rs 62.5 per day). Over all the World Human Development Index HDI report keeps India in the company of Sub saharan countries. We are with countries like Solomon Islands, Lao People’s Democratic Republic, Sierra Leone and Equatorial Guinea. But shut your eyes wide to this. Say that we have half million people working in IT industry and soon we will be a superpower.

What does it REALLY mean to be poor? I personally have not faced extreme poverty. India’s poverty can be best expressed through following facts, unless one questions World Bank and other organization’s integrity.

1.Over 200 million, or about one-fifth of India’s population, is chronically hungry.

2. 2.5 million children in India die every year before reaching the age of five. (Gujarat Riot Victims: 2000, Tsunami Victims: 7000)

3. Literacy Rates in India today are 66% for Adult and 88% for youth while the same figures for China are 91 and 96%.The difference between male and female literacy rates is 21%

Unemployment, Healthcare, Public Transportation, Urban Waste management, Education are few more areas where I can cite that few million people are not getting even the basic structure that every human must deserve.

If we compare china with India. Take 1978 as the base year where India and China were at par. Even a century ago when United States was Emerging as a superpower, Argentina was just at par with it. Today we know the difference between US and Argentina. India’s comparison with China has been exactly the same. When in 1978 India and China were at par, today China has overtaken India by a margin too large. In fact China has beaten India squarely.

But India is democracy. Things happen at a slow rate here. I think this is the worst excuse one can give. There is no logical relation between democracy and being slow. Even Japan, England , US are fairly democratic. Democracy being slow is acceptable logically only if we use “democracy in India is corrupt” as a intermediate premise. But whatever it may be, any system that allows 2.5 children to die every year when they could have been saved is essentially useless.

We must note that all the governments right from 1947 were self professed pro-poor governments. They implements what they called pro-poor policies. Their every speech promised elimination of poverty. Despite that nothing has happened. The reduction in poverty over years has happened largely due to luck and global development. Its not a change brought by systematic planning and policies.

The roots of India’s failure in eliminating poverty (or any other failure) lie in its faulty policies. Refer to any article on India’s poverty today. In the cause one cause is never missed. That is the license Quota Raj. Despite this the Indian government was just not ready to do it. They finally had to do it in 1991. It was done because the only choice left was to go bankrupt. People responsible for this dark period not just went unpunished but were even glorified. The same license quota raj is also one primary reason of increasing corruption in India.

One decision to give up the license regime and open the markets made significant difference to India’s economy. But this was neither predicted nor wished by Indian policymakers. China did. They opened their economy in early 80s and India lost 10 important years.

As this article argues these faulty policies look at poor as a lifeless bricks. Bricks that are used to line up and build the ladder that helps to attain power. The pro-poor policies are not actually targeted at “eliminating” poverty but they actually “sustain” poverty. The best example is of NREGS explained beautifully by Atanu Dey. I think its the ignorance of masses (which is again a result of intellectual poverty attributed to our poor education system) and even the media hero that consider such schemes as pro-poor.

Let me quote from the livemint article

One of the authors of this study, Narayan, even told The Times of India in an interview: “People want a free-market economy. But they need the skills to connect with it. The government machinery needs to treat the poor with dignity and respect. This is something that they value a lot. The people also desired free and fair elections and honest leaders as it helps in empowering them.”

The true way to eliminate poverty is by viewing these people not as helpless ones but as able people. Provide them with opportunity and not outcome. Dont provide the employment but just provide them with opportunity to employment. If you dont allow to setup industries, if you dont allow private companies to setup schools you end up having an employment guaranty scheme which produces ZERO output. It help the poor to sustain for another day but doesn’t help him a day after.

If the government has stressed enough on education, urban planning, industrialization and wealth generation instead of slogan against poverty. Today India would have been a far better country. Even today we fail to recognize our mistakes.

The only reason why we hope India is developing is because of handful of industries like IT. (But India’s computer infrastructure is very weak and underdeveloped compared to that of china. ) These industries have comes into existence only due to free market policies. The planning comission had never visualised IT as an industry and outsourcing as a component adding to GDP. Still today IT has grown. In fact every aspect that the government has ignored has grown. Just compare Cricket (not controlled by government) and Hockey (Controlled by Government).

I think it is time for government to think of poor people not as lifeless bricks that deserve compassion and support but as able individuals who need freedom from cliches. Given them freedom to write their own destiny. Give them freedom to choose their own future. They are very much capable of doing well, but only if government doesnt interfere.

My Related Posts

1. India’s Growth Story

2. My thoughts on Recession

3. Atlas Shrugged

4. India’s Middle class failure

Inflation: n00b’s guide

I went to vegetable markets after a real long time. Though I never felt the heat of inflation I was indeed shocked to see the prices. Just like all other government facts and figures I had thought that 7+ inflation wouldnt affect life of common public.  coriander leaves were now selling for Rs 15 instead of Rs 5 before.  Eggs were Rs 4 up from the last time I bought them.

Certainly the inflation has affected our lives very badly. And the things are only going to worsen from here. Economy and nature that maintain a perfect balance always. Nature does so because of Law of Conservation of Energy and Economics does so because of  the same law can be approximated to money.

Here are some Myths , causes, prevention and consequences of/about Inflation.

Definition

Inflation can be defined in may ways. A simple definition can be that the decrease in time value of money. As the time progresses the value of currency in terms of things it can buy goes down. Inflation rate of 10% would mean that an object that cost Rs 100 today will cost Rs 110 after 1 year. Rs  200 after 10 years (without considering compounded depreciation)

Myth

Inflation is caused by lack of money among public. This is a wrong belief.  Inflation results from increasing purchasing power of the people. When people have more money they tend to buy more. When they buy more demand increases. The fundamental law of Economics is that prices are directly proportional to demand. As the demand increases there is a great pressure on production, as the production can meet the demands the prices go on increasing.

Cause

With Indian markets going global has created ample opportunities for Indians. We have also seen great entrepreneurs born in India. This has resulted in may people going rich. People in software industry must have realized this. With many people going rich has seen a great increase in demand for all the items , from food to automobiles and petroleum prices.

Cause

Liquidity is another factor that contributes to inflation. We see so many banks landing loans so easily to the people. A person earning 3 lakh per annum easily gets 10 lakh loan on 240 installments. This suddenly increases cash in hand for that person. The money he would have spent in future comes in his hand in present. Hence he starts buying things which he cant afford under normal circumstances.

Consequence 

Inflation can not be avoided. There is hardly any country in world that has negative inflation rates. Since the populations and quality of life is only increasing inflation can only rise. Inflation has a very deep affect of economy and people.

Inflation rates of below 2.5 are considered as best. Such an economy is best and people are happy with the prices. They get enough to eat and enjoy. They can save money which when properly managed by government can result into further prosperity for the nation.  E.g. Japan with 0.2%

Inflation rate of 5% is considered OK. But things need to improve. Like on all fronts India’s performance was always mediocre falling somewhere between 5-6%. However because of tremendous growth potential it was undermined.

Inflation rate of above 5% is alarming. It has many implications. It means people are unhappy and not getting what they really want. As the rate goes up unrest among public increases which can finally lead to anything including a civil war. Noone wants to invest in such a country. Rate above 5% need prompt action from government.  E.g. Zimbabwe 1033% Yes its one thousand and thirty three percent. The currency has negligible value and people would rather believe in good old barter system. Iraq 53% because of war conditions.

Prevention

The possible measures to prevent or control inflation? Its simple dont allow people to haev money with them deprive them of money and the demand will go down. How to deprive them of money? The government terms it as ‘Monetary Policy’ it actually means High interest rates (Loans), Speed breakers for economic growth, high taxes for new rich people, rationing of items that have high demand etc. etc.

All these measures suggest that the economy will get a kicking where it hurts the most hence no one invests in such a country. Which results into lower stock markets, increase in unemployment. So its like calling a recession. Finally it meets a point where people are left with no money or just enough to meet the demands. That is when the government starts loosening the grip and again things might start upwards. ‘Might’ because not necessarily the economy might attract investors after the inflation is controlled. It takes many years to gain confidence.

What can India do?

India in very much dependent of Petroleum Exports. So the prices are very much on Dependant on them. Petroleum prices will never go down here from future. The solution is very very difficult. One possible solution is to compensate the deficit caused by petroleum by increasing productions in other areas such a agriculture and engineering. India’s agriculture is growing at 4% or below and there are no hopes of it improving instead this year the agriculture has costed us around 71k crores.

Finding alternative sources of energy is the best solution in my opinion. A good breakthrough in technology can change things upside down. India certainly cant do this on its own. Only US can help India.

Put taxes on Rich people so the demand is curbed. I am sure the government will resort to this alternative. The only reason why they have not done this is because of pending elections. Suddenly they will give a blow to the rich class by increasing different sort of taxes manifold.  By rich I mean the service class people like IT engineers.

Rationing is another thing that will come in future. Especially for fuel. Though it will be tough to implement, it can be an option. You might have to take a license to buy petrol for your car.

Increases interest rates on loans. The thing that government has already done.

Fool people. The approach the goverment is most likely to take. Alter the data to make people believe that things are alright. Control petrol and food prices by making PSU’s bleed and giving things like loan waivers and subsidies.

Surrender and play the blame game . Government will do this when they reach the dead end. Before jumping off the cliff they will kick our butts first. They will take all nonsense decisions in panic. Will surrender to IMF, world bank or the US. Will depreciate value of currency, chunk out money from Monitory fund, Ban several goods. Increase taxes manifold.

If you think I am exaggerating please note that the India has already done this in past.  Indian even had to sell the gold with Reserve bank of India.