In growth theories we equate mathematical-growth-figure with others, out of 100%. If the RBI sets its inflation target at 5-6% it is likely that economy will also grow at 5-6%, which are not bad figures at all. The same inflation-rate suggests that the rate of growth of goods and services (G&S) and rate of growth of money supply will remain at the same level (quantity theory of money), fiscal spending being zero. But, if in the next period fiscal spending increases to 3% it going to add another 3% to inflation and growth figures to 9%. After all it is increasing money-supply, fiscal deficit being zero. But, if fiscal deficit also increases to 3% it will catapult inflation and growth to 12% which is very high and needs RBI and Government intervention not to push inflation targets further beyond 9%.
Let us see its effect on distribution of national income between capital and wage investment in case of organized labor and capital organizations.
Assuming that the central-bank has shifted its inflation target to 9% with government spending at 3% and fiscal deficit/debt at zero, since, the government has created a spare capacity during booms (assume).
It is a requisite to give conclusions on the present scenario of the Indian-economy.
These days RBI has underscored it inflation target at 5-6% and Government spends with the rate of 6% without any spare capacity. Therefore in the first instance we get inflation figures at 12%. Lack of strong labor organization can not force the investors to increase wages by 12%. But, if the organization (strong) is present and organized it is going to add further to inflation, and if the retail chain is also not organized it will add to inflation somemore. By the way capital market is more organized than labor market under RBI’s supervision and it responds almost every month since US’ recession.
The point is if RBI sets an inflation target every body should follow it even those in the government. Or, the chain of spending, deficit, and debt without a reserve capacity would push inflation between our shoulders and nose.
The preset government spending around 6% of GDP and RBI’s inflation target is likely to produce an overall inflation of 12%.
Therefore wage-increase should not be less or more than 5-6%. It is another way to increase money supply although through wages.
Nevertheless, every body is applauding national rural employment guarantee schemes…
Let us see its effect on distribution of national income between capital and wage investment in case of organized labor and capital organizations.
Assuming that the central-bank has shifted its inflation target to 9% with government spending at 3% and fiscal deficit/debt at zero, since, the government has created a spare capacity during booms (assume).
It is a requisite to give conclusions on the present scenario of the Indian-economy.
These days RBI has underscored it inflation target at 5-6% and Government spends with the rate of 6% without any spare capacity. Therefore in the first instance we get inflation figures at 12%. Lack of strong labor organization can not force the investors to increase wages by 12%. But, if the organization (strong) is present and organized it is going to add further to inflation, and if the retail chain is also not organized it will add to inflation somemore. By the way capital market is more organized than labor market under RBI’s supervision and it responds almost every month since US’ recession.
The point is if RBI sets an inflation target every body should follow it even those in the government. Or, the chain of spending, deficit, and debt without a reserve capacity would push inflation between our shoulders and nose.
The preset government spending around 6% of GDP and RBI’s inflation target is likely to produce an overall inflation of 12%.
Therefore wage-increase should not be less or more than 5-6%. It is another way to increase money supply although through wages.
Nevertheless, every body is applauding national rural employment guarantee schemes…
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