Budget 2020-21: Short-Term “Fixes” Endangering the Economy

THE budget figures these days mean very little. The difference between what the budget provides and what actually happens does not come to light even after a time-lag of two years, while earlier two years were the limit. And knowing this, the government provides figures in the budget which are extravagant and hence meaningless, but look pretty. What is remarkable about the 2020-21 budget however is that notwithstanding massive liberties taken with figures, this budget still has been so non-descript that hardly anyone outside of government has had a kind word to say about it.

Inheritance and Bourgeois Ideology

IF a head-load worker were to ask a bourgeois economist “Why does Ambani have so much wealth but I do not?”, that economist’s answer would be that Ambani has certain “special qualities” which the headload worker lacks. Bourgeois economists however are not all agreed on what exactly these “special qualities” are that are supposed to explain wealth inequalities.

Demand-Constrained Versus Supply-Constrained Systems

THE idea is an old one, but the Hungarian economist Janos Kornai clearly conceptualised it, by drawing a distinction between a “demand-constrained system” and a “resource-constrained system”. A demand-constrained system is one where employment and output in the system are what they are because of the level of aggregate demand is what it is; if the level of demand increases then output and employment in the economy will increase, with very little increase in the price-level.

Demonetisation and the Question of Bank Credit

THE demonetisation of currency notes of Rs 500 and Rs 1000 denomination in November 2016 suddenly brought a large amount of cash to the coffers of the banks. Since the banks had to pay interest on the deposits that the public was forced to make with them, they also had to use this cash in a manner that would earn them some income; otherwise its lying idle in their tills would erode their profitability. How the banks used this excess liquidity that had suddenly accrued to them is highly instructive.

The Rise in Inflation Rate

EVEN as the growth rate of the Indian economy is slowing down, and the index of industrial production actually showing negative growth for three consecutive months, August to October (over the corresponding months a year ago), the inflation rate in the economy has started accelerating. Significantly, the acceleration in inflation has been the sharpest precisely during these very months when the contraction in industrial output has been the most pronounced.