Some grow and some choose the way to grow. The dilemma India is facing is hurting both the consumers and the producers. Actually, the dilemma is that the government wants the economy to grow at 10% while the central bank has constrained the limits of expansion at 6%.
The main problem facing any economy is finance and India’s growth story is no different when compared with others in the league like China. Since the economy’s finances are regulated by the central bank keeping rate of inflation in mind which is already high somewhere near 8% and the bank is continuously giving us its message that inflation is a concern for poor who’s composition in our demography is high nearly 50% of the total population who earn no salaries but wages.
The difference between wages and salaries is that salaries are determined by companies on the basis of employees’ performance and are revised every year keeping rate of inflation in mind. Generally it happens... Whereas wages are market determined and depends on the bargaining power of unions of any organization. But in India the unorganized sector is vast and unaccounted for which getting the right information about their functioning and parity of wages compared with organized sector is often doubtful. Moreover, workers who work in organized and accounted sectors also get bonuses depending on the company’s performance in every fiscal year. The problem is we do not have any mechanism to ensure parity of wages and salaries in the organized v/s unorganized sectors.
Finance controls nothing but the consumption of the economy. And, half of our population can not purchase consumer durables with their wages if they have not saved enough for the rest of the year.In that case they either resort to banks or local money lenders. We all know the condition of private money lending where exploitation is very high and the interest rate poor people pay is often higher than the market rate of interest. In India, banks are not willing to reach poor people and they either do not have any plans for poor population’s consumption directly in form of higher interest rate on their savings. Indirectly they lend for business purposes where interest are high but our uneducated poor are less shrewd than market and their position are often so tight that they even have to curtail their daily consumption. Another noteworthy difference between wages and salaries is that salaries are more
fixed than wages in a given month whereas wages are earned daily and depend on the availability of work. Therefore, banks are more willing to lend to the salaried class than to wage earners either for purchase of goods or for business. Therefore the point is that those who earn wages should be protected against inflation and price rise. Workers interests are more protected in the organized sector than in unorganized sectors.
A natural question that arises in such a condition is then why inflation is higher than the stipulated 6%, by the central bank?
And, the answer lies in the fact that government has tools to extract money for its expenditure. Government levies taxes and then it spends on development projects like MNREGA to build infrastructure for the economy. Inflation results from an increase in money-supply either by central bank or by the government. To be more clear, inflation results when too much money chase too few goods, or, when demand exceeds supply. The money spent on development projects finds its way in our markets and the real supply of goods, mainly food articles, decreases in comparison to demand which is bound to be high since India is an economy of a billion people and where almost 50% are poor, and,when they get money they run straight to their local grocery shops which are already deficient in food supply and therefore prices rise more than they are expected to rise and inflation now stands at 9%.
However, the government has increased minimum wages under MNREGA but will the government do it next year, too. If it does inflation will go up some more next year, too. If it does not that would be unfair.
The economy desperately needs a mechanism which ensure that if inflation increases wages increase too or consumption will lag behind...
Moreover, we need to ensure availability of goods, food and non food items, both. We desperately need labor reforms and FDI in retail to keep the economy sound and steady on its growth path, and, to converge it towards the equilibrium…
The main problem facing any economy is finance and India’s growth story is no different when compared with others in the league like China. Since the economy’s finances are regulated by the central bank keeping rate of inflation in mind which is already high somewhere near 8% and the bank is continuously giving us its message that inflation is a concern for poor who’s composition in our demography is high nearly 50% of the total population who earn no salaries but wages.
The difference between wages and salaries is that salaries are determined by companies on the basis of employees’ performance and are revised every year keeping rate of inflation in mind. Generally it happens... Whereas wages are market determined and depends on the bargaining power of unions of any organization. But in India the unorganized sector is vast and unaccounted for which getting the right information about their functioning and parity of wages compared with organized sector is often doubtful. Moreover, workers who work in organized and accounted sectors also get bonuses depending on the company’s performance in every fiscal year. The problem is we do not have any mechanism to ensure parity of wages and salaries in the organized v/s unorganized sectors.
Finance controls nothing but the consumption of the economy. And, half of our population can not purchase consumer durables with their wages if they have not saved enough for the rest of the year.In that case they either resort to banks or local money lenders. We all know the condition of private money lending where exploitation is very high and the interest rate poor people pay is often higher than the market rate of interest. In India, banks are not willing to reach poor people and they either do not have any plans for poor population’s consumption directly in form of higher interest rate on their savings. Indirectly they lend for business purposes where interest are high but our uneducated poor are less shrewd than market and their position are often so tight that they even have to curtail their daily consumption. Another noteworthy difference between wages and salaries is that salaries are more
fixed than wages in a given month whereas wages are earned daily and depend on the availability of work. Therefore, banks are more willing to lend to the salaried class than to wage earners either for purchase of goods or for business. Therefore the point is that those who earn wages should be protected against inflation and price rise. Workers interests are more protected in the organized sector than in unorganized sectors.
A natural question that arises in such a condition is then why inflation is higher than the stipulated 6%, by the central bank?
And, the answer lies in the fact that government has tools to extract money for its expenditure. Government levies taxes and then it spends on development projects like MNREGA to build infrastructure for the economy. Inflation results from an increase in money-supply either by central bank or by the government. To be more clear, inflation results when too much money chase too few goods, or, when demand exceeds supply. The money spent on development projects finds its way in our markets and the real supply of goods, mainly food articles, decreases in comparison to demand which is bound to be high since India is an economy of a billion people and where almost 50% are poor, and,when they get money they run straight to their local grocery shops which are already deficient in food supply and therefore prices rise more than they are expected to rise and inflation now stands at 9%.
However, the government has increased minimum wages under MNREGA but will the government do it next year, too. If it does inflation will go up some more next year, too. If it does not that would be unfair.
The economy desperately needs a mechanism which ensure that if inflation increases wages increase too or consumption will lag behind...
Moreover, we need to ensure availability of goods, food and non food items, both. We desperately need labor reforms and FDI in retail to keep the economy sound and steady on its growth path, and, to converge it towards the equilibrium…
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