Dr. Subbarao former Governor Reserve Bank of India said in an interview with Think Business that “The single most important cause of the downturn is the decline in investment. Investment was going on at a rapid pace before the crisis and was raising the production capacity in the country.” also he said “India is one of the few economies in the world with supply constraining the economy and the biggest supply constrain is the infrastructure.” and the article was written by Narendra Aggarwal and published on November 26th, 2013.
As per Dr. Subbarao, two issues were highlighted e.g. ‘decline of investment’ and ‘supply constrain is the infrastructure’.
What is Investment and how it relates Nation’s economic growth?
Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate at increase in real gross domestic product, or real GDP, usually in per capita terms.
In economics, Physical Capital or just capital of production, consisting of machinery, buildings, computers, and the like. The production function takes the general form Y=f(K, L), where Y is the amount of output produced, K is the amount of capital stock used and L is the amount of labor used. “Physical” is used to distinguish physical capital from human capital, Circulating capital and financial capital. Physical capital is fixed capital.
Financial capital – Money used by entrepreneurs and businesses to buy what they need to make their products or provide their services.
Perhaps we can say that Investment or financial capital is the choice of entrepreneurs or businesses whether it will be invested or not. In common sense one invests money to make profit and before doing investment the entrepreneur first survey on the market about the demand of product which will be produced and the life of the market and its response. Basic parameter is purchasing power parity of people.
Direction of Indian economy
To discuss about Indian Economy’s direction we should first talk two issues – One is Market depth and Two is Purchasing power. A market depends on consumers, consumers can be domestic or international. Here first we will discuss on domestic market and its consumers. According to various reports already we are well known that industrial production is slowing down due to void of demand either in international or domestic. Why domestic market is saturated and no further broad base demand created? Answer is simple – Limited purchasing power parity. In India, all people cannot buy all produced goods – Consumer durable or Consumer non durable. Why? Because disparity of earnings.
A CEO of a renowned IT company getting salary of around INR 8,00,000,00 whereas a bellow poverty line man’s daily wages are determined INR 32 in city and INR 27 in rural.
Last week, reading a blog post – Where Central government employees confederation have demanded minimum wages for a Central government employee @ INR 27,000 per month if there consists four members in a family. The interesting figure is India’s 70% population, the total number around 0.90 billion, have no purchasing power parity except providing food bill in every month.
Now determine the direction of Indian Economy! That’s the real sense of ‘supply constrain is the infrastructure’.
Every year around 1,00,000,00 new job seekers are entering in domestic labor market and there is no initiative from government’s end to provide sustainable job towards the job seekers. Every year budget placed and passed but no stone unturned.
When I was born heard about Planning Commission, the model was adapted from the then USSR model, now the name has changed to Niti Aayog. Drinks same, label changed. Is it any economic prodigy? Any remedy? Any solution?
The direction was ever abruptly described ‘trickling down economy’. Where is the base and where is the apex?