Innovation Would Help Increase Growth After Full-Employment and Lower Inflation...

The Indian-economy has retained the status of fastest growing country when the US is gaining momentum and China has started to rein in bubbles by controlling some of its demand for credit and debt-building by increasing interest rate. However, the rest of the World has been going through an anemic phase marked by a lower global-economic-growth except the US and INDIA. The slowdown in China after three decades long expansion also lower growth-expectation for the world-trade and growth when it is losing competitiveness by absorbing beyond full-employment and the rising wages might present reallocation of production to INDIA and other low wage countries. China has been a major supply-chain in assembling imports and turns them into finished products and exports which INDIA might emulate to increase competitiveness of its products and claim its share of world trade, lower wages would help if the country produces at lower cost and increases supply to foreign countries. INDIA’s low manufacturing base, though the government has liberalized and improved on the ease of doing business, is responsible for low paying jobs and demand and spending and the economic-growth when it mainly concentrates on domestic-demand. During the Great-Recession INDIA achieved double-digit growth rate only on the back of domestic demand, but it also increased inflation when lower exchange reserves and imports also restricted supply and growth. INDIA had a problem of twin-deficits and inflation has been tamed by targeting inflation and higher interest rates. But, the situation has improved a lot in the last few years, by en-cashing lower wages and lower interest rate and by improvising on productivity and removing restrictions on supply INDIA may think of increasing the pace of manufacturing, employment generation and reducing poverty by increasing education and skills. Nonetheless, inviting the FDI in education, skills, employment and productivity creation should be incentivized; higher productivity and lower inflation would also increase competitiveness and demand. Inflation in INDIA is because it is big country and has a huge demand, but also because it has a low investment and higher borrowing cost and also low exports. The economy easily starts overheating because of full-employment, but is still supply constrained because of low productivity, education and skills base and to excel INDIA now also needs more investment in innovation, i.e. better technology. INDIA these years has also soaked up its labour-force, unemployment is not a problem, but now it must invest in enhancing productivity of its labour-force through right skills and innovation and those come from investment in education and research which needs inducement through proper facilities. Investment in education is probably the most strategic requirement that the government should ensure to make life easy, productive and world-class in the long-run.