Dr. Susmit Kumar, Ph.D.

After the 1991 economic liberalization, US- (and to some extent UK-) educated/based economists have had great influence on the Indian economic policies. It is worth noting that due to Margaret Thatcher, the British Prime Minister during 1979-90, the UK has been following the “Reaganomics,” i.e. small government, lower taxes, free trade and privatization. But the US economic policies cannot be applied in India at all because the former is based on a Ponzi scheme called “US Dollar” (read my article The US Dollar – A Ponzi Scheme) (please read “Note” at end of this article also). The US had trade surplus from the end of World War II till the early 1970s, but since it has had trade deficit year after year. The reason for it is that Nixon de-linked the dollar from gold in 1971, after which the US has just continued to print dollars whenever it wants, to fund its trade and budget deficits. This has been going on for more than three decades, since the Reagan administration. This US economic policy cannot be implemented in India at all because India cannot print its currency to pay for its trade and budget deficits.

Hence, it was mistake on behalf of the successive Indian administrations to bring the US-based Indian-origin economists to hold top administrative positions. After holding three to five years tenure in India, eventually they have to go back to the US, and hence they just implement the US economic policy, i.e. the Reaganomics. Since the early 1970s, the US has trade deficit year after year; it just prints its currency, which happens to be the global currency, to pay for its trade deficit (and for its budget deficit). Hence, the US economists would NEVER accept that the trade deficit, the primary reason for the FOREX (FOReign EXchange) problem, has the potential to destroy a country’s economy for decades to come. You can google the words “Trade Deficit [or Surplus]” with the name of a US-based Indian-origin economist, who has held a position in the Indian administration, and you will never find any material where the economist has said that trade surplus should be a top priority for the Indian economy.

To US-educated economists, economic progress means the following:

(1)   Rise of Dow Jones Average

(2)   GDP Growth rate

Moreover, they do not give importance to fundamental vital factors such as:

(1)   Types of jobs (mid-wage vs low-wage) being created

(2)   Trade deficit (which is a holy cow for them); a US-based economist can never criticize trade deficit, which the US has had for 40+ years. If they do, their US career is over.

Before even thinking to become a super-power, a country needs to have trade surplus, which the US had for more than 30 years after World War II, China since early 2000s, and both Germany and Japan for last several decades. The last two countries are economic super-powers but are too small to be military super-powers. However, due to the insistence and influence of US-educated/based economists, India’s economy has been heading in the wrong direction since the 1991 liberalization. There is no doubt that these economists are intelligent people and they know what they are doing, i.e. they have deliberately misled and mismanaged the Indian economy. They stifled the economic growth of India, which has all the ingredients of being an economic super-power. They all belong to the same breed of economists who created and sold the US to its Frankenstein, China, in the name of lower taxes and unrestricted free-market.

Due to influence of the US-based economists, the Indian industrial policy is more or less similar to the US. A firm works for the shareholders. In US, Wall Street forces firms to show profit every quarter. Hence CEOs have to come up ways to reduce expenditure and increase income. They squeeze as much money from the firm (like keeping it lean and thin, i.e. having as few employees as possible) as possible for the shareholders. They lay off employees even if the firm has profit year after year. In worst case, they just shut down the firm and imports from overseas, mainly China, as they can make more money by manufacturing overseas. For this very reason, due to being excessively dependent on the US educated economists, the country has been experiencing jobless growth after the NDA2 took over the reins in 2014, similar to "Jobless Recovery" in US since the 2008 Great Recession. This is not good for a nation’s economy. A country is not a firm. For the development of a country, you need to keep the entire population in mind rather than few shareholders as in the case of a firm.

In a small town, if a factory, having couple of thousand workers, closes, it devastates the entire town because the total number of jobs lost may be two to three times of the factory jobs if we consider indirectly associated jobs as well, such as in schools, hospitals, apartments/homes, home repair related jobs, gas/petrol stations, restaurants, grocery shops and auto sector as factory workers would spend their income in these associated fields (please read my article: The Hidden Cost of Imported Items and The Need to Redefine Modi Administration’s “Make in India” Policy). This domino effect has occurred in town after town in the US Midwest, also known as The Rust Belt. Due to the massive job losses resulting from large-scale systemic transfer of manufacturing jobs to China, the median salary in the state of Ohio was $56,400 in 2000 whereas in 2013, it was only $48,000, i.e. 15% drop. Nearly all the states in the Midwest Rustbelt have a similar drop in median incomes (5 States Where the Middle Class Is Being Destroyed, Sam Becker, July 30, 2017, www.cheatsheet.com).

These days, after the resignation of Mr Vishal Sikka from the MD and CEO of Infosys, everyone in media has been praising him by citing the increase in share price of Infosys during his tenure (for an example: Vishal Sikka pulled Infosys out of rut, stock outshone all peers, Amit Mudgill, The Economics Times, August 18, 2017). But no one is talking about how many new employees were hired in Infosys or how much FOREX Infosys earned during his tenure. From the point of view of the country, the latter numbers are more important than the share price of Infosys. As discussed above, share price increase is on paper only. In fact within a week of Sikka’s resignation, there has been nearly 15 percent drop in Infosys’ share price, wiping out nearly the entire rise during his tenure. Also, only a small percentage of Indians have their money in share market.

From the country’s point of view, a firm should work not only for shareholders but also for the employees. Apart from this, firms should also have obligation towards the place, where they are located, and allegiance to the country, in terms of factors like taxes and FOREX (if its products are imported or exported).

In the last two and a half decades, the salaries of CEOs in the US have skyrocketed (please see Chart 1). In India also, the story is the same. During 2016-17, this ratio was as high as 1,200. For example, Wipro (259), Infosys (283), Dr Reddy's Lab (233), Hero MotoCorp (731), TCS (515) Lupin (1,263) (Pay gap: Indian CEOs earn up to 1,200 times more than the average employee, PTI, July 24, 2017). During an economic downturn in a firm, we need to support the statement by Narayana Murthy, the ex-CEO of Infosys, who asked senior executives to take pay cuts to stop IT layoffs Narayana Murthy asks senior executives to take pay cuts to stop IT layoffs. Increasing income inequality hurts the country’s economy. Let us consider the following three cases – if you give one crore rupee to:

(1)   to a rich (one crore), he would buy a Ferrari car.

(2)   to 10 middle class persons (each 10 lac), they may buy 10 houses or 10 cars.

(3)   to 100 poor people (each 1,00,000 rupee), they will spend on food, children (spending on food (retail stores etc.), clothing, school/college, doctor/medicines, etc.), auto, etc.

Now it is easy to find out how many jobs would be created in these 3 scenarios.

Chart 1.

 

Note: During World War II, US enticed all other countries by claiming that it would keep its dollar pegged to gold at the rate of $35 for one ounce of gold. (Please read my article “Chinese yuan replacing US dollar as global currency: A not so distant prospect” for how the US Dollar became the Global Currency due to the 1944 Bretton Woods Accord). The US asked other countries to use the US dollar as reserve currency and also for conducting transactions between countries. This resulted in the 1944 Bretton Woods Accord, signed by 44 countries. As per the agreement, you could have asked the US govt to hand over one ounce of gold for $35.

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