Relationship between Inflation,Growth,Capital

India is a growing economy, set to join a League of Nations (BRIC) to emerge as one of the emerging economies by the middle of the third millennium. It had an impressive growth rate, upward of 9%, its Foreign Exchange reserves enlarged more than 7 times of the figure in 2003-4, its trade grew to beyond three century mark, its poor slowly were growing and had better living conditions, the purchasing power of the middle class grew, and consumption began to drive the economy. Inflation was at its lowest, in contrast to the high growth returns. India was on the red carpet growth to prosperity. India slowly emerged as a economic powerhouse with investments from abroad soaring in making it the favourable foreign investment destination. Ever since March, 2008 there has been a constant increase in the rate of inflation. In Nov 2008, it touched 10.45%, in Dec 2009 it was 14.97%, in January 2010 it went up to 16.22% and in September 2011 it posted 9.72%. The Government, made a monetary Policy amendment by increasing the low Bank interest rates, which has seen revision more than 13 times since the last 18 months. Relentlessly, the Banks went on expanding the interest rates with the hope that they would be able to slide down the inflationary impact on the economy. More they tried, more difficult it became. India’s war against inflation resulted in sacrificing its growth which came down to 7.5% and may slip to 7.2%. The Government gave the Magna Carta to the Oil companies to decide the petrol prices. The Petrol prices have been increased repeatedly, so that it increased the percentage of inflation. It has become very difficult to tame inflation as it has gone beyond a point. Our markets have seen a lull. Foreign investors do not beseech India like before. There has been a fall in percentile of investment. American economy is creating a Permbra situation in the Indian economy. When markets are lull, it passes on the feel to the Economy. Interest hike has seen the Non performing asset of Banks increase by 20% in the period, June-Sept 2011 (Rs 16,132 Cr). All the Public sector restructured their loans and 17% of all the advances show that it had turned bad. Many Small Medium Enterprise are turning red or closing shop as they are not able to get proper and timely Credit. A propped up credit at 14% makes availing loans unviable for units. Big Corporate companies can opt for External borrowings, but with the Indian Rupee turning meek against the dull Dollar has made foreign loans costlier than before (Rs 49.70= 1 $)(from Rs 40 = 1 $). They are indeed, waiting for some threshold. The aviation industry is in the dole drums because of this. The Exporters are also facing brunt on this front. Their dollar worth of goods account for more rupees while the expenses in the domestic market has gone sky high. The cost of credit through Foreign Exchange for Packaging Credit is not sustainable. Conflict over Policy objective higher level of well-being, that is means of achieving it- by higher growth or by lower inflation, trade-off is necessitated; both cannot be achieved simultaneously. Government intervention in financial and goods markets, due to macroeconomic rigidities has caused market failure and microeconomic instability. Inflation is harmful rather than helpful to growth. Policy implications will see inflation- growth nexus. Negative co-relation between inflation and growth in the long run would result in the influence of the former on reducing investment, productivity and growth. We are in the thick of core inflation, inflation on the basis of CPI, food inflation, low asset creation, declining value of parity (Rupee- Dollar parity), monetary inflation, and price inflation. There was a semblance of over heat in the economic growth and its irrational exuberance has seen the trajectory of growth going hay-wire. More than the fiat currency (paper currency), over supply of bank notes has resulted in depreciation of their value (Classical Economists David Hume & Ricardo). This may perhaps be one reason that the Draft which had a life of 6 months was traded in the market between persons. (This was treated like commodity money). Money is what money does. Money is transferable. It is constantly exchangeable. So long as money is in circulation, money gives equal value of other goods and services. Somebody may invest money to make some product. He employs workers and other managerial persons who look after his unit. They buy the raw materials out of the funds from their working capital and manufacture end product for sale to some wholesaler or retailer, on receipt of which he pays the money towards the cost of the goods which are demanded on the basis of Invoice. He pays the money and takes the consignment and sells the same and makes money. Again, he places the order. These steps are repeated. The money received is put in the Bank account. Salaries are paid to workmen, other staff on duty. Bills of Raw material supplier, embellishment supplier, packaging supplier, transporter, telephone bill, electricity bill, other temporary staff bill, other bills towards purchase of merchandise, etc are all paid, and they in turn pay for goods and services. There is circulation of money. Bank charges interest rates. The owner takes the Profit. Money capital is recycled again and again, and another session he will restart the cycle of reproduction with the aim of accumulating more capital and its disbursal. Suppose, the businessman feels that he does not want to continue his industry, so he sells his company to somebody and puts the entire corpus in the Bank. Instead of putting his money-capital back into commodities, he invests it in the bank. He now holds in his hands a claim to capital, perhaps in the form of a bank-account, or a bond, shares or whatever, rather than capital as such. Now his money lies idle in the bank vault. But his claim to the money is secure. However neither his claim nor the money itself are capital as such and can earn no interest, because the money is not in circulation. By its being in the self, it is not expected to produce more money. The Bank, need to loan this money to somebody. May be one person. Or many persons. The persons who have availed the loan should use it productively to earn a return by which he can circulate the money, pay interest, instalments due to the Bank out of his profit. The Bank should pay interest to the depositor as well. It should also make profit to be in business of banking. However, as the class of speculators, bankers, brokers, financiers, and so on, grows, as is inevitably the case wherever the mass of capital in a country reaches a sufficient scale, what happens is, for example, the bank finds that it is able to loan out far more than it has deposited in its vaults; speculators can sell products that they do not possess, “the right kind of person” is good for credit even when they have nothing, .etc., etc. Thus one and the same unit of productive capital may have to support not just the one retired industrialist who deposited his savings with the bank, but multiple claims on one and the same capital. If the bank accepts one million as Savings, but loans out ten millions, each of those ten millions has equal claim to that same value. This is how fictitious capital comes about. Fictitious Capital is value, in the form of credit, shares, debt, speculation and various forms of paper money, above and beyond what can be realized in the form of commodities. The ability of the bank to make unsecured loans is dependent on “confidence”, and at times of expansion and boom, the mass of fictitious capital grows rapidly. Then, when the period of contraction arrives, and the workers can no longer feed the voracious appetites of all these capitals, the bank finds itself under pressure and calls in its loans, defaults occur, bankruptcies, closures, share prices fall, and things fall back to reality – fictitious value is wiped out. In times of recession, even good, useful commodities cannot be sold because money and credit has become scarce, and the commodities prove to be valueless. Fictitious capital is that proportion of capital which cannot be simultaneously converted into existing use-values. It is an invention which is absolutely necessary for the growth of real capital, it constitutes the symbol of confidence in the future. It is a necessary but costly fiction, and sooner or later it crashes to earth. Roughly every ten years, the mass of fictitious capital grows while trade is good, and then, as the capacity of the workers to sustain the mass of hangers on reaches its limits, the downturn gathers momentum and fictitious capital is wiped out, and the cycle begins again. The scale of these crises grew continuously until the Wall Street Crash of 1929, and the Great Depression of the 1930s. The Depression and the War which followed wiped out all the accumulated mass of capital so that a new cycle of reconstruction could begin again in 1945. The New Deal in the US, Keynesian economic policies and particularly the international monetary arrangements set up at the Bretton Woods Conference of July 1944, created conditions for an exceptionally long period of growth after the War. The particular mechanism for the creation of an unprecedented mass of fictitious value in this period was the role assigned to the US dollar as the medium of international exchange in lieu of gold. Under the Mashall Plan, Europe was rebuilt and the US capitalist class further enriched by the labour of all those workers who did the rebuilding. But capital could not organise that reconstruction other than by creating a new mass of fictitious capital, in the form of inconvertible dollars. Today, we are seeing the declining value of the Dollar. There is currency depreciation. By the mid-1960s this mass of fictitious capital began to collapse and world entered a prolonged period of crisis. The mass of fictitious capital circulating in the money markets, futures exchanges and so on today is, however, far greater than ever before. 98% of the value of monetary transactions in the world is speculative, only 2% involve actual use-values. Capital continues to exist by means of the delicate balancing act performed by all the governments and banks of the major capitalist countries, staving off the collapse of this gigantic and parasitic fantasy. The collapse of Banks due to ‘mortgage crisis’ can be attributed to this fictitious capital. The Banks could not recover the debt as the value of property had shrunk. Money is substitute to Capital (Tobin effect). Money, according to Stockman, is complimentary to Capital.

Government Babus are still in the Colonial Past

UPA II’s most talked out mission to provide exclusive and independent Identification to every Indian was as unique as the programme to take computer literacy in every nook and corner of India through a technocrat Sam Patroda envisaged during Rajiv Gandhi’s prime Ministership. India’s technological face today is Nandan Nilekani, the most well known Indian technocrat who took Indian software to the world through the firm founded by him along with Shri Narayana Murthy from scratch known as Infosys. Naturally, his enthusiasm to do something for the Country was quiet instantaneous. He was asked to head the Unique Identification Project from inception.

A well known face in business circles and elite company, Nilekani must have thought that it was an easy task, already done, if the top layers of the Government like the Prime Minister and others persuaded him to invent a model which would take care of one document that would provide a unique identity card for every Indian. It was a far sighted step. In began Nilekani earnestly, consistently, with a purpose to turn his idea into a Product. Its introduction will have far reaching dimensions. Wide acceptability of the UID would help people to identity themselves instead of having multiple identity cards which may not have all over acceptance.

After having done the preliminary, including creating software and putting it on-line with the Computer in Yojaana Bhavan, the team led by Nilekani estimated the cost to the Government at Rs 14,841 Cr and requested for ear-marked outlay from the 12th Five Year Plan slated to commence from the sun rise of April 1, 2012. The Planning Commission who was the mother department of UIDAI was the first to create a turf War; it wanted financial control over the funding of UIDAI, and insisted on placing an Integrated Accounts department which will monitor demands and undertake implementation by routing correspondence with Planning Commission and not directly routing requests, file papers, wants to the Finance Secretary, directly. Any direct action which required speedy execution was put under a colun. Home Ministry came into the picture raising objections on the reliability of the Unique Identification Number, and insisted on cross checking for duplication as Security angle was involved. This would result in procrastination. Reserve Bank of India’s last straw that UNIDAI would not suffice as a document to open Bank accounts or verification proof has put a big question mark over the utility of the Project itself. How will the project take off, if the concerned Ministries who cannot devise its own methodology to evolve a fool-proof mechanism where to kill a project which had all the projected queries to the reservations.

It was expected. One under Secretary can torpedo the entire Scheme of the government proposes by putting many questions, or probing questions. With Right to Information Act in place, it is for anybody to get the noting to establish that Government went out of the way to placate somebody or gave extra importance to a Scheme. I was appointed as a Consultant on such terms and conditions with a Job description, and my performance was audited by an autonomous body which was under one of the Ministries at Udyog Bhavan, New Delhi. The Ministry used me at the slightest pretext, made me reply Parliamentary questions, and give inferences and ideas requests made by PMO asking the Ministry to process a request, etc. I was also responsible for preparing a Scheme, presenting it before various Ministries including Planning Commission, answered insipid queries raised by other Ministries, amend the Scheme based on norms specified by other Ministries, attend in person the Expenditure Finance Committee meeting which is exclusive to Secretary, Jt Secretary of the Ministry only, etc to argue about the Scheme authored by me . The Scheme was approved by the Cabinet Committee on Economic Affairs headed by the Prime Minister. I had brought the industry under the various Schemes of the Commerce Ministry, made their projects eligible for Duty Drawback, and got over Rs 1.5 Cr released for organizing a reverse buyer-seller meet which saw participation from 120 business visitors. Now, my job with the different ministries was appreciated and I started getting importance. After 3 ½ years, the Government asked the autonomous body as to under what authority they appointed me, and their Internal Finance department, whose officials I would have met at least 2 dozen times to answer a volley of doubts, concluded that my Contract appointment was unauthorized.

Government of India and its officials can do anything under the sun, which cannot be finite and depended upon. They quoted an irrelevant and outdated clause to refuse me fair compensation for the Job I did . When I saw the contradictions surfacing on various issues like the administrative note of Finance Ministry, affidavit of Planning Commission, many other notings by officials on files which are available on the Public domain show that intelligence and sincerity is not a virtue of the various departments of South bloc, North bloc, Krishi bhavan, Nirman Bhavan, Yojana Bhavan, Sanchar Bhavan, or any bhavans in Delhi. A man publicized to the hilt by the media, for the highly pompous schmee to make available a single identity card which would serve all purpose, should have been put to the embarrassment of this nature by the modern day babus who still live in the colonial Past. Shame indeed.