Even though INDIA has so far relied on the domestic
demand for growth, external demand could also be pursued for a higher growth-rate,
when some of the sectors of economy have been overburdened for employment, like
agriculture, when it has depressed the wage rates and incomes by the oversupply
of labor, however there are fewer value addition jobs that contribute to
productivity and real-GDP in manufacturing and services due to low skills base,
moreover construction has also attracted unskilled labor that is abundant which
is also responsible for lower wages, demand and growth. INDIA has a large pool
of unskilled labour which might be diverted from agriculture and construction
to manufacturing and services and export oriented businesses by imparting
skills according to the industry demand. Lower paying sectors and industries
are responsible for lower wages coupled with lack of skills and low demand and
growth. INDIA so far has resorted to domestic demand also due to low
manufacturing and exports, but now it must look-up for exports which has the
potential to provide jobs and increase employment opportunities. As we know,
INDIA has a much larger young-working age population, but the economy is
lagging by creating less jobs and demand. INDIA needs to create 1.7 million
jobs every year for 10 years to absorb the labour-force that is increasing 10%
per 10 year, but slow pace of investment might obstruct the economy’s long-run
target to provide full-employment.
Poor people's’ marginal propensity to consume is higher;
therefore the accelerator is bigger than the investment multiplier, because all
wages are consumed because of the subsistence wage theory. Capitalists bid the
wages at the minimum or subsistence wages, moreover inflation also lowers real wages
by inflation, but it also reduces the value of investment, profits and savings,
which counters the argument that inflation reduces the value of debt; inverse
of the debt-deflation dynamics by Fisher, inflation would affect everybody in
terms of the purchasing power, investors should invest when inflation is low
and increase supply when and where prices are high, lower prices also increase
real wages and contain demand for wages. However, depreciation and higher
expected inflation may be responsible for higher nominal exchange rate and
exports. But, lower real wages at home might reduce domestic demand for demand
of exports. The inflation in INDIA has gone down in the recent past which has
also made the rupee stronger which is likely to reduce the current account
deficit and the RBI’s neutral monetary policy stance has also yielded in terms
of stronger exchange rate. However,
lower inflation might also make the economy competitive and increase exports.
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