A serious economic miscalculation

Mar 23, 2023

How the poor become poorer while the government builds castles in the air. Lending money to businesses will not create retail demands. The absence of retail demands can only create a nightmare for debt-funded factories. Failed economies and failed US and European banks remain fine lessons.   

When the government builds wider bridges, longer highways, posh airports, railway stations and bigger dams, it tries to create an impression of economic growth. A sad but bitter truth remains on the other side! The government seems to miss the real pulse of the economy, as it fails to see the requirements of the people.

Our economic system is still declining. Building new bridges, roads and dams won’t multiply money in the hands of people. The post-Covid-19 scenario drilled a hole in people’s wallets. In the past, the middle class was in better straits. Today they are in a bad spot, better not to mention the poor. Still, the government shines, more or less as a street robber who steals complete milk from the cows – the middle-class people.

With the traditional mainstays of the Indians, agriculture and village industries, middle and below-average people used to have better lives. Everyone had some savings for bad times. After spending their full savings they could sustain the bad times, with nothing in their hands for meeting another bad day. They became poorer. I am afraid they will never be back to their old feet.

The common people suffer while the government looks at GDP growth, while the life of the poor has nothing to do with GDP growth. On the contrary, the government claims that GDP is growing. But in reality, there is little in the hands of commoners. Only the government had good opportunities in the post-covid times. The money banks lent the private sector as a loan could have been directed into the hands of the poor. That would have resulted in a massive change in the Indian economy as the same would have created demands. That, as a result, would have changed the image of the government. The government would never have been a loser since, on average, a quarter of that money would have come back to the government by multiple taxes. If the government transferred Rs 5,000 to a poor family, the same would have been spent immediately. When they spend money, it will reach the next level trader immediately.

Poor people would have voted in favour of the government. The economy also would have changed to bring a new image to the government. Every person would have received a piece of roti. Instead, the government favoured big business believing that when infrastructure grows, the country also will grow automatically. Ultimately that damaged the environment and spoilt public health badly. Now people do not have enough to make use of the benefits of new infrastructure. The government wasted money on corporations paving the way for inflation. Banks will have left with corporate loan assets with higher vulnerability to an asset loss. Without a retail loan, retail demands will not come up. Corporations with the huge debt-funded project will remain without business with no retail demands, eventually leading to a stagnant business and helplessly a massive default too.

The government also has failed to find the fault in the economic system that does not favour people but industries. Once this system fails, the government should have the courage to change the course. We have seen how deprived people couldn’t trigger demands, which shut down factories and government revenue. We have also seen how the debt burden on production inflated consumer prices. Let us not forget Sri Lanka and Pakistan. It is high time to rethink economic strategies.

Before us, there is the Adani issue and the collapse of US and European banks. What do these matters indicate? Common people invest money in shares and keep their hard-earned money in big banks with no sovereign guarantee – while everything from abjectly poor to super-rich consumers guarantees tax celebration to the government.