Inflation and Politics. – 3 Phase Plan for India’s Economic
Revival
Prime Minister: “Our GDP grew by 10%”
Common Man: “OK …Good”
Prime Minister: “Our GDP Shrank by 10%”
Common Man: “OO Better luck next time”
Prime Minister: “Prices reduced by 10%”
Common Man: “WOW that helps me a lot I will do everything to
keep you in power”
Prime Minister “Prices Increase by 10%”
Common Man: “Grrrrr…I will show you my Vote power next time”
To make it simple Inflation is what
matters to Common man and poor people in particular. It Does not mean GDP
growth is not important but Inflation is MOST IMPORTANT to him. We heard this “Loud
and clear” on Largest Democracy Experiment on Planet earth. Although there were
many other factors. To me this was MOST IMPORTANT Factor.
The biggest challenge in front of
government is of course to curb it. Based on my understanding there can be 3
phase approach to solve this mammoth challenge. Of course writing blog is much
easier than running country but still this is good intentional thought process
which may give something useful.
So here is this 3 Phase Plan for economic revival of India
in next 5 Years.
Step 1) Understand the Big Picture and Problem.
Before Going into solution let’s try to see how we got this
Problem of High Inflation and how big it is... At country level there are 3
recipes of inflation.
1)
Trade deficit (Import more than Export)
2)
Fiscal deficit (Government Spend more than it
earns)
What?
We buy more than we sell and We Spend more than we earn how?? Simple (We print
money for balance like every other country in today’s paper money world.)
What Printed money gives us?? – INFLATION...
3)
Artificially Low Interest Rates.
Interest rates have been always less than real inflation
since 2009 when Inflation super cycle kicked off in India. Thanks to short term
thinking of then FM Pranab Mukharjee and ever brilliant P Chidambaram.
In short we got all 3 sources of inflation in big way which
got us in stagflation (High Inflation Low Growth)
Typically it leads to one of
the below roads..
1)
Deflation First then Economic revival and
Prosperity.
2)
Hyperinflation and complete destruction of
economy.
3)
Continued Hyper Stagflation..
What should be best way to get out of it …
Phase1) Use Bubble to
make Money (0-9 Months.)
This
should be straight forward without any hesitation... Make Money. Although it’s
always difficult to actually make it than said.
Country like India however has lots of obvious options like Suggested by
Subramanian Swamy.
1)
Auction 2G, 3G 4G whatever G...
2)
Auction Cola Blocks,
3)
Get engages with Swiss and Other governments and
get money back
Some of the other options can be
4)
India has whopping 21 Million NRIs... Offer one
time 500 USD “Green Zone” pass to them that will remove Import restrictions
from max 25000 INR to 500000 INR / NO Restriction. Anyways it’s a corruption
paradise how much money government of India truly get is a big question. Even
if 20% NRIs opt for it, it will be whooping 2 Billion USD... If all OPT it’s 10
Billion. (Frequent flyers can also opt for it.) Once done, cut the staff from
that department & stop wasting money.
5)
Indian Railways, and many other Organizations
have massive land sitting Ideal. Give it for 99 Year Lease as long as there are
no security / scalability issues involved.
6)
Dis – Investment. PM Elect Mr. Modi once said “Government
has no business to be in business” If he follows it lots of ever sick / even
better managed Government companies can be sold resulting in huge cash.
7)
Engage Japan, US, Germany, UK they have Money
but no growth. We have huge growth potential but no money so its perfect
partnership.
8)
Find creative ways to make money NOW...
Why NOW – Well Economics is always funny although many
(Including me) believe that Indian Economy is in terrible shape, the mainstream
sentiment is very positive that’s great time to make money. Moreover Sentiment
in country is badly negative on Black money so crackdown on Biggs should be OK...
How much money we need (Refer to chart above.) Total India need 254 Billion USD / year to
balance so called twin deficits. Per
capita its 205 USD / annum.
Is it really easy? May be not but that’s where man with
strong will power come into play. With his Powerful arm he can fill government
treasury with money... During whole this time 6-9 Months Inflation won’t ease
considerably. Communicate to people to be patient. They have seen 7 years of It
6 more months. However don’t reduce interest rates at all.
Phase 2) Burst Real Estate
bubble to kill inflation. 9- 18 Months.
9 Months – 15 Months this is where putting
breaks should begin. It’s a Bitter pillow which we all have to swallow. Indian
Economy has not seen recession since 2001. This is NOT A GOOD sign. Economy
need cooling to curb inflation. There is massive monetary inflation out there
led by “Artificial Real estate Bubble”.
To curb the inflation India should take hard tone on Builder
/ Real Estate Infra Lobby. Companies like Unitech / DLF have been lobbying
really hard with previous government. And just looking at it one can smell “2G
like SCAM” which is not exposed yet. Expose it... STOP LOAN FORGIVENESS/ (RESTRUCTURING)
to BUILDERS. And ask them to sell unsold flats at whatever rate and repay Loan ASAP!!
If they don’t send them behind Bars. It may sound politically incorrect but country
in which people die simply out of hunger every day Should have Capital punishments for
Frauds of Big Quantum.
Anyways - Will it create Bad assets in Banks YES…SO WHAT?? “THEY
ARE BAD” More you delay worse it gets. Will it create scenario where people
will repay more in terms of loans than market value YES… SO WHAT... Let these visionary Buyers
understand that nation is built on Industries not by buying Homes and let them
face burnt of Congress Decisions and propaganda. It’s not BJP who encouraged people
to buy Homes. It’s Congress who created this massive Domestic Super Bubble.
Expose it burst it... And believe it or not that is the root
of Indian Inflation today.
Getting “Criminal Real estate lobby off ventilator (stopping
Cheap / restructured RBI Loans) itself should burst the bubble now but if it
doesn’t raise interest rates and burn the whole inflation”
Will it create recession Yes SO WHAT?? Recession is like
wild fire and is absolute must for long term economic revival. It will create
world is coming to an end scenario but once all mal investment gets purged, “People’s
trust in currency is restored and right message is sent” then economy will
grow at unprecedented rate.
Pranab Mukharjee avoided this P Chidambarma avoided this and
you saw what happened to their party now... BJP should better face it...
Remember People love bitter truth than sweet lie. India
has shown that it’s not bagger’s country who will vote for free food and free
money. They know there is something wrong there in Real Estate. Expose it
communicate it well.
Meanwhile since Government has money they can give tax
breaks to ease pinch of raising rates. It’s all about communicating it well and
doing right things...
Phase 3) Real Growth
(Achhe Din)
With its
demographics, visionary leaders like Mr. Modi, Economy will bounce back like
phoenix bird and it may experience Export led 12 – 20 % Growth (Without
Inflation) for few years provided Deficit is completely avoided. All aggressive
plans of Bullet train, becoming world leader in Food export can be realized in
this.
Just look at Export / Capita of Top 20 Export countries.
India has a Huge Potential to double / triple its export in 5 years which
should change the picture completely.
 |
| Export per Capita |
Also Remember Global inflation has not yet kicked off once
that kick off and if India has passed the Recession India may very well get
massive investment inflow on markets as well as currency. Anyways timing is
always a speculation but I guess focus on inflation and curb it in whatever way
is absolute must!
With 3 years of amazing growth post-recession, Government
should find it easy to get re- elected and maintain growth of economy for
another few years.
Thanks
Author.
