Public-spending... when inflation has an upside-risk
under all the supply-side constraints, including infrastructure-deficit... it
is also a supply-side-problem... no doubt... and will lower inflation after
the gestation-lag... But, why the government wants to stoke growth by putting
pressure on the level of natural-unemployment which increases pressure on wage-growth-demand,
wage-cost-push-inflation... Nonetheless, recent data on unemployment-rate in
INDIA shows it is close to that level... The government’s argument is that it
wants to increase revenue by expending more... So there is a lot of trade-off
that will take place... At one place it (the government) is increasing expenditure,
means money is going-out and when it will crowd-in investment and growth, money
will come in... So, it depends how much money is going-out and how much money
is coming-in and what is the productivity because economist oppose deficit which
is not good for any type of productivity (increase in the ability to produce more
as per demand)... No doubt, more government expenditure will help increase
wages/income, demand, growth and revenue and more profits due to supply- clot which
is due to industry’s clamour for less competition... Less competition because
they do want to be bogged-down by price-competition (read imports), especially
retailers in the food-segment, higher exports in few categories is also responsible
for higher domestic prices... The high population growth rate of the region has
been traditionally criticised, because with so much of skills and productivity
gap, a large part of population is still dependent on the State for jobs and
livelihood which is mainly responsible for higher deficit and debt... When unemployment-rate is close to NAIRU and
supply-side is still choked by inconsistent policy, public expenditure will
increase inflation... The time is not ripe for public-spending... Economists
favour public-spending when there are supply-side problems and the economy is
below full-employment... Supply-side problems are not difficult to identify and
the government should commit to the target set by the RBI... If the government
does do it, it will repeat the mistake of the last government of overheating the
economy... Nonetheless, if the government
delays its employment-guarantee scheme or make it more infrastructure and
human-capital oriented that would help... Atleast, there would be less pressure
on resources especially labour... Market will compete less for labour means
less wage-push inflation... And, lower-inflation will lower interest-rate, on government-debt,
too....
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