Wednesday, January 15, 2014

AAPanomics is it that contentious ?

                        Recently i have been getting to read too much of emphatic cavilings, remonstrates reeking with malice in lieu of  political thuggery over the recent Delhi governments decision to do away with FDI in retail, there are voices of descent from the industry says a prominent newspaper, there are apprehensions about this setting up a wrong precedent which will drive away foreign investments so says the party which was the reason behind such a situation to become a possibility. The foreign minister of this country who has always held a personal grudge against the year old party which is heading the Delhi government has spewed venom saying that its a party made up of third rate people who harbor Jurassic ideas, could it get anymore obvious than this, where were these opinionated people when 9 other states rejected this FDI proposal while it was presented to them by the government at the center. The real purpose behind the functioning of any democracy should be to throw up governments which would abide by our constitution which stands as the guiding principles for such governments to function in their full capacity in the interest of the people, corporate ideologies and their goals shouldn't take up the role of those guiding principles in establishing a form of governance which might in the long run end up being detrimental to the very foundations on which this country was built. Divers views and news's apart if one were to wield ones knowledge of economics into understanding the things as they have been presented it would become obvious that there seems to be a  wrong understanding in general about the relationship that exist between job creation and investment, & capital expenditure. Investments dont generate jobs as such, which is what an unassuming corporate psychoanalysts would want the general perception to be, but the fact remains that its not the people who invest create jobs but its the people who consume.              
                                       Addressing the concerns of the people who think that they have all the understanding of the free market economics just because they have read Adam smith and have become aware of his invisible hand theory is not the intention of this write up, nor its intentions are to make people realize how off the mark they go whenever they try to argue that there is a  direct relationship between investments and industrial progress which leads to job creation, which they always try to corroborate with  the workings of Capital expenditure which allows businesses to spend money either to buy fixed assets or to add value to the existing asset's which infuses usefulness in them extending beyond the taxable year to accrue future benefits by creating demand in future, adding to it their belief that an increase in the consumption can be created only through aggressive marketing. This write up is just an attempt to reach out to people who are wanting of a better understanding of what and how things should be after having realized how interconnected the businesses are in today's globalized world, how labor markets specific to a geographic location are free to serve the businesses located half the world across. So to start with capital expenditure the capital expended on creating more value over the existing assets doesn't happen unless and until there is a scope to enhance the output of product to out run the costs resulting in dividends after a period of time and that happens only to accommodate the consumption that is to happen in the future, though advertising plays a very important role in general which normally enhances the consumption it plays different roles in different economic setups at different levels, In a mature economy Advertising mostly plays the role of a whip which helps to drive down the competition as there is a limit to the amount of consumption that can happen in an economy or for that matter any economy so to speak, which is due to the constrains as set up by various other elements, if we were to discuss about those constraints this write up would take up more space than i would like it to. Its imperative to understand that our fiscal and monetary policies should be aimed at striking a balance which allows capital expenditure to increase vis-a-vis savings rate, that should be our real goal, that would take care of all the problems one would list out arising out of falling consumption owing to the fall in real wages, FDI in retail would drive down wages even further in the retail sector to keep up with the competition, no doubt consumers will get to gain but there are other ways to do that, its not necessary that we need FDI in retail to enhance the efficiency in the delivery system, such measures as such are only prosthetic in nature which in the long run would become detrimental to our economy .... 

Prasanna Kumar 

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