[quote name='Mudy' date='25 April 2012 - 07:52 PM' timestamp='1335363245' post='114735']
[url="http://finance.yahoo.com/news/p-cuts-india-outlook-negative-074839947.html"]S&P cuts India outlook; investment rating in peril[/url]
[/quote]
Well the problem is MMS and Sonia. Sonia wanted social sector reforms during her first term. She was probably motivated by the social security in Italy and Europe. MMS being the economist that he is was keen to follow orders. Let's be very benevolent to these two characters and assume that dole outs are not in any way shape or form connected to buying votes even if it means a broken India.
The rural employment guarantee act was the result.The major drive in the rest of the world is reduction in governmental spending and government as a whole. This has been the direction of reforms. The economic rational is that private capital is selective and maximizes return on investment and government capital leads to false allocation of funds. The ghost cities and miles of fast train networks in China are a case in point. The Indian experiment on rural employment guarantee act was one such colossal blunder.
The obvious reaction from everyone in a country like India is it's political suicide to oppose this measure or it's morally wrong to question such a measure. It's political suicide in the short term but people don't think long term in politics where public memory is fickle. The rural employment guarantee act guarantees pay for work at least for x number of days in a year. The economic activity moves to where the labor is present close to the villages. The government of India builds it's ghost cities and miles of fast trains using local labor except it's not really cities being built or super fast train networks. This stops migration of labor to the economic areas in need of labor.This increases the cost of labor for everyone including farms, infrastructure and industries.
The second issue from the economic perspective is the distribution of government taxes through this program leads to availability of cash which chases the most basic essential of life for the people who receive it. They don't value gold as much as grain. However the grain production in India hasn't increased with the increased affluence and cost of grain and food production has gone up as a side effect of these social sector measures. The market system for distribution of food ensures the food prices move north. The distribution of food has not changed and the people who were the target of these social sector schemes still do not receive food. They can't afford it. Those who could afford it earlier still do but pay more for their food consumption. The poor work for hours and still go hungry. The only real effect is inflation.
China builds ghost cities and high speed rail networks, at least some of which will some day be used. India builds it's invisible ghost cities and high speed rail networks which will never be used to increase the GDP. It most certainly will make the poor remain poor and forever indebted to the Congress. A brilliant scheme. It's not economically sound to question an economist of the stature of MMS.
[url="http://finance.yahoo.com/news/p-cuts-india-outlook-negative-074839947.html"]S&P cuts India outlook; investment rating in peril[/url]
[/quote]
Well the problem is MMS and Sonia. Sonia wanted social sector reforms during her first term. She was probably motivated by the social security in Italy and Europe. MMS being the economist that he is was keen to follow orders. Let's be very benevolent to these two characters and assume that dole outs are not in any way shape or form connected to buying votes even if it means a broken India.
The rural employment guarantee act was the result.The major drive in the rest of the world is reduction in governmental spending and government as a whole. This has been the direction of reforms. The economic rational is that private capital is selective and maximizes return on investment and government capital leads to false allocation of funds. The ghost cities and miles of fast train networks in China are a case in point. The Indian experiment on rural employment guarantee act was one such colossal blunder.
The obvious reaction from everyone in a country like India is it's political suicide to oppose this measure or it's morally wrong to question such a measure. It's political suicide in the short term but people don't think long term in politics where public memory is fickle. The rural employment guarantee act guarantees pay for work at least for x number of days in a year. The economic activity moves to where the labor is present close to the villages. The government of India builds it's ghost cities and miles of fast trains using local labor except it's not really cities being built or super fast train networks. This stops migration of labor to the economic areas in need of labor.This increases the cost of labor for everyone including farms, infrastructure and industries.
The second issue from the economic perspective is the distribution of government taxes through this program leads to availability of cash which chases the most basic essential of life for the people who receive it. They don't value gold as much as grain. However the grain production in India hasn't increased with the increased affluence and cost of grain and food production has gone up as a side effect of these social sector measures. The market system for distribution of food ensures the food prices move north. The distribution of food has not changed and the people who were the target of these social sector schemes still do not receive food. They can't afford it. Those who could afford it earlier still do but pay more for their food consumption. The poor work for hours and still go hungry. The only real effect is inflation.
China builds ghost cities and high speed rail networks, at least some of which will some day be used. India builds it's invisible ghost cities and high speed rail networks which will never be used to increase the GDP. It most certainly will make the poor remain poor and forever indebted to the Congress. A brilliant scheme. It's not economically sound to question an economist of the stature of MMS.