Dr. Susmit Kumar, Ph.D.
As discussed in my article Modi, the Best PM, India Has Ever Had, but He Needs to Stop Viewing India from the Prism of Gujarat, Mr. Modi is the best Prime Minister, India has ever had. I will never doubt his sincerity and zeal to make a difference in the lives of ordinary people in India. Despite providing corruption-free government and tremendous efforts by the Modi government to uplift the lives of all the Indians, BJP lost three major states in the heartland of India in the recent state elections, mainly due to not creating sufficient number of (middle class) jobs since the NDA government took over in Delhi in 2014. Mr. Modi and his party are reaping the fruits of the poisonous tree planted by the UPA government. It was the UPA government which started the tradition of bringing the US-based Indian-origin economists, starting with Kaushik Basu as Chief Economic Advisor (2009-2012), to formulate the Indian economic policy. There is no doubt that the US-based “imported” economists and management professors are brilliants but as pointed out in my several papers, these “imported” economists have been knowingly implementing the disastrous economic US policy, known as “Reaganomics” which has bankrupted the US (please read my paper: US-based Economists Knowingly Propagate Disastrous Economic Policies).
A politician’s job is to win elections, and after winning elections it is duty of his advisors to guide him in running the government. But Mr. Modi has not been getting good advice on the economic front.
Here is the list of US-based Indian-Origin economists brought to India to formulate the Indian economic policy:
1. Niti Aayog Vice-Chairman – Arvind Panagariya, (2015-2017).
2. Chief Economic Advisor – Kaushik Basu (2009-2012),
Raghuram Rajan (2012-2013)
Arvind Subramanian (2014-2018).
3. RBI Governor – Raghuram Rajan (2013 - 2016)
Urjit Patel (2016–2018).
[Largely due to my two years efforts, now India-based economists are holding these three positions.]
Once I had a discussion on Indian economy with an Indian-origin US-based MBA who lived in Silicon Valley, California. I explained the reason behind the demise of job growth in India, saying that massive privatization by the government had reduced the purchasing power of millions of Indians as in low category jobs, resulting in workers being paid much less than those in similar government jobs. For an example, a car driver gets only say 10,000 rupee a month in Delhi (5,000 rupee a month in state capital like Patna and 3,000 rupee a month in sub-divisional towns) in a private firm whereas a similar job in government fetches 30,000 rupee a month. Likewise, the owner or the shareholders of the private firms, which are providing the privatized services to the government, are making millions and billions. Like brain-washed Americans, the Indian-origin US-based MBA said that being a tax-payer, he did not want a driver to be paid 30,000 rupee (taxpayer money) a month when a private firm could deliver the same service for 10,000 rupee a month. Then I gave him the following example:
Nearly the entire catchment area of Brahmaputra river lies in China whereas India and Bangladesh get all the water. Therefore as per his theory, India and Bangladesh should not object if China diverts all the water of this river to its massive desert areas in the north. It is worth noting that the economies of several Northeastern Indian states and Bangladesh are dependent on this river. During 1960s, China had a (crazy) idea of making a hole in Himalaya by using nuclear explosion, to suck the monsoon rains to convert the Chinese desert on their side fertile land, but it would convert the Indian Gangetic belt into desert.
Then he agreed that the government should intervene to make level playing field for both rich and poor.
As we would see in this paper, India needs to come up with economic policies suited to India as it cannot just implement a foreign economic system such as the US or Chinese. We will also see that privatization creates millionaires and billionaires by decimating the middle class. Privatization pushes the middle class into lower class. As money is limited, for the creation of millionaires and billionaires there has to be transfer of money to millionaires and billionaires, who get their money from converting middle class people to lower class. This has been happening in the US (please see the various charts and tables as well as discussion in my paper: Part IV – US Bogus Market-Driven Economy and RBI’s Functional Autonomy) since the 1980s in the form of “Reaganomics”, referred to as trickle-down economics or voodoo economics by political opponents, while political advocates label it free-market economics.
Since 1980s, the US is surviving on printing its currency, which happens to be the global currency, to fund its twin deficits – budget and trade deficits. US economists, along with the Wall Street bankers, have created the Frankenstein China and sold the US to it. As per the 2009 Pentagon Economic Warfare Simulation, China has a stranglehold on the US dollar and US economy. In each and every scenario in this simulation, China won, without so much as reaching for a gun. (please read my paper: The Functional Autonomy of RBI and FDI).
Let us take an example of coal production. As per the Niti Aayog’s policy paper, created under Dr. Arvind Panagariya, the Modi administration has decided to open up the coal sector to commercial mining by private entities. In the beginning of 2016, the Coal India Limited employed 333 thousands (333,000) people and produced only 452 million tonnes coal (Coal India, Wikipedia) whereas in the same year, the US coal industry, which is entirely in private hands, employed only 50,000 people and produced 670 million tonnes coal which is nearly 1.5 times the Coal India Limited coal production (Coal mining in the United States, Wikipedia). Hence in near future, we will see layoff of nearly 300,000 (3 lakh) employees in the coal industry. For a private firm, profit is the number one priority and the job creation and safety of employees are the lowest priorities. As discussed towards the end of this paper, if we consider the indirect and induced jobs due to loss of 3 lakh coal employees, India may lose anywhere from 6 lakh to 10 lakh middle class jobs.
Now let us discuss how the US and China have been able to overcome this massive loss of jobs due to privatization (other two economic superpowers, Japan and Germany, have small population and due to their high technology industries, they do not suffer from this phenomenon):
(1) Under Indian Economic Policy: Three lakh persons, laid off, will get only say 10,000 rupee a month jobs. In the election, these people would vote against the party in power, which right now happens to be BJP.
(2) Under Chinese Economic Policy: There is no election in China and hence Chinese government does not have to worry about them. It would put three lakh persons, laid off from coal industry, in concentration camps and provide them minimum necessities.
(3) Under US Economic Policy: Three lakh persons, who were getting say $35 an hour in coal industry and were part of the US middle class, laid off from coal industry would start working as $12 to $15 hourly paid workers in service sectors like Pizza Hut, and McDonalds or as a labor in massive Amazon warehouses where they work like robots. They will earn $100 a day which is $2,400 a month, becoming part of the US lower class. They rent a one room, which all modern facility including air-conditioning, for $1,000 a month; they spend $400 a month on food and in rest $1,000, they can even visit overseas locations every month. In just three days’ earning, they can even buy a brand new 43” Samsung LED Smart TV (please see Google search of Samsung LED TV price in US).
This is mainly due to the over-valued US dollar. Even a middle class person in India cannot live like them at all. This is the reason that despite the decimation of middle class by massive privatization in US has not resulted in a revolution against the “Reaganomics” in US. On Purchasing Power Parity (PPP) terms, the US dollar is over-valued by six times vis-à-vis Indian rupee. Once China would replace the US dollar, with its currency Yuan, as global currency, the US dollar would collapse to its PPP terms, causing the purchasing power of $2,400 a month to become $400 a month which would be just sufficient for food with nothing left for housing, medical or items like TV and cars.
When China pulls the carpet underneath the US dollar, the US median household income (for a family of four), standing at around $56,000 annually as per 2016, would go down to less than $11,000 a year in terms of purchasing power. Half of US households would then be homeless and would find it hard to even survive as all their money would be good only for food with nothing left for housing, car and health care.
“10 Ways Life Will Change If China Becomes The World’s Superpower”, MARK OLIVER JUNE 18, 2018
http://listverse.com/2018/06/18/10-ways-life-will-change-if-china-becomes-the-worlds-superpower
Some more facts on Coal Industry Privatization:
If we consider the indirect and induced jobs due to loss of 3 lakh coal employees, India may lose anywhere from 6 lakh to 10 lakh middle class jobs as discussed in next section (also please read my papers: Niti Aayog Policy Papers are Death Certificates of the Indian Economy, The Hidden Cost of Imported Items and The Need to Redefine Modi Administration’s “Make in India” Policy).
One major criticism of Coal India Limited (CIL) is that it is inefficient because as per Reuters, its output-per-man shift is estimated at one-eighth of US based Peabody Energy, the world's largest private coal producer (NITI Aayog proposes break up of Coal India into seven firms, The Times of India (Reuters), June 28, 2017). But if you take the dollar, being over-valued, nearly six-times vis-à-vis Indian rupee in PPP (Purchasing Power Parity) terms (please read my article: The US Dollar – A Ponzi Scheme), into consideration, there is not much difference in output-per-man shift in CIL and Peabody Energy. If US dollar goes to its PPP value, Peabody Energy would have to pay six times the present hourly rate to its employees so that employees can maintain same standard of living. In last couple of decades several large coal firms in US, which include the top two producers Peabody Energy and Arch Coal, had to file for bankruptcy. As per Niti Aayog draft of new energy policy, the share of coal in India’s commercial primary energy supply was 55% in 2015-16 and is expected to remain high at 48-54% in 2040. Hence coal being a vital resource in India, bankruptcy by large private firms in coal industry will have a profound adverse impact on the economy which is not acceptable for a country like India.
Privatization Decimates the Middle Class by pushing them into Lower Class:
At the central level, the government has privatized the departments’ vehicle system. Instead of each department having its own vehicles and drivers on its payroll, now private firms are providing cars to senior officers. A driver of one such private firm was complaining to me that he was getting only 10,000 rupees a month and every month he had difficulty in paying monthly fee of his daughter’s school. His predicament shows the adverse effects of the privatization. Suppose there were 300 drivers on government payroll in a department before the privatization of their services. As government employees, they were getting, say, 30,000 rupees a month (in nearly all cases, government salaries for mid- and low-skill workers are more than what a private firm pays). After privatization, 300 mid-wage (30,000 rupees a month) salaried workers are replaced by the same number of low-wage (i.e. 10,000 rupees a month) workers. It is the owner of the private firm who is making the difference, i.e. he is making a lot of money. This transfer of income, from 300 drivers to one owner, inhibits job growth as one rich person’s economic activity cannot replace the economic activities of 300 mid-wage families. One (rich) family would not eat like 300 middle class people; it would not have 600 children (considering two children in a family) to go to schools/colleges; it would not buy 300 autos/cars; it would not live in 300 apartments/homes; it would not go to 300 doctors/hospitals for medical treatment – this list can go on and on. With 30,000 a month, a driver family can spend extra money on children’s schools/colleges, purchasing scooters, renting a better apartment, medical, hospitals, etc. Thus privatization of government jobs has drastically reduced the purchasing power of the people, who were earlier holding the similar job in the government. If say 5 lakh jobs have been privatized, it has eliminated maybe 5 lakh or more jobs due to reduction in purchasing power. This explains the drastic drop in the new job creation during 2015-16 which is mainly due to unrestricted privatization started by the UPA administration. For this very reason, the US has been witnessing jobless growth. Hence Mr. Modi and BJP have been reaping the fruits of the poisonous tree, planted by the UPA administration.
Therefore India needs to come up an “Indian” economic policy to take into account the facts discussed above.
