Tuesday, October 3, 2017

Local spending, jobs and the economic growth...






Even though the government at the Center has succeeded in preserving the macro-economic indicators such as fiscal deficit, current account deficit and inflation it has still a lot more to do on employment, demand and growth, when private investment are shying away from more investment and employment due to slow recovery in growth contingent on NPAs and bad loans which are holding new investment and loans back. However, slow private investment has given rise to the clamour for more government spending, but devolution of more funds to the states as a result of the decentralisation has left the Center with few options and less resources to increase public spending to invigour private demand, consumption and investment, nonetheless the center might still invoke local public spending by the states to increase wages or incomes for more demand in the economy, the government might force the state governments to increase their expenditure outlay on increasing productivity, infrastructure and employment which could increase both the demand and supply or the economic activity and growth… The local governments have, now, more capacity to spend when a larger part of funds are now with them and they might play a constructive role in increasing demand in the overall economy… The full employment is very important for the full demand and growth rate… The government might push the local governments to create more employment and growth in their localities…




Services equally have potential to create jobs for the workforce and workforce that join the mainstream everyyear... By lowering the service tax the government might further incentivize job creation... Nonetheless, INDIA has a comparative advantage in labour intensive line of production because labour is in plenty and cheap, real effective wages are low... Moreover, real effective interest rate is higher in INDIA which makes capital dear... Even normally, capital intensive techniques are costlier than labour intensive techniques... Therefore, to provide gainful employment to its workforce INDIA should specialize in labour or services intensive techniques in order to achieve competitiveness and demand and growth...

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