1/7
"While Finance Minister Nirmala Sitharaman is betting infrastructure spending can have a multiplier effect on job creation and drive overall prosperity, the reality is it will take time for benefits to trickle down to those who need it most."
scmp.com/week-asia/poli…
"While Finance Minister Nirmala Sitharaman is betting infrastructure spending can have a multiplier effect on job creation and drive overall prosperity, the reality is it will take time for benefits to trickle down to those who need it most."
scmp.com/week-asia/poli…
2/7
Unfortunately that's the way this growth model works. In a country that is severely under-invested, like India, one of the main growth constraints is the unavailability of domestic savings to fund badly-needed investment. In that case policymakers must boost savings.
Unfortunately that's the way this growth model works. In a country that is severely under-invested, like India, one of the main growth constraints is the unavailability of domestic savings to fund badly-needed investment. In that case policymakers must boost savings.
3/7
One way is to welcome foreign capital and to ensure that this capital is directed mainly to investment, and not towards funding increased consumption. This requires capital controls to direct investment and to protect the Indian economy from speculative inflows and outflows.
One way is to welcome foreign capital and to ensure that this capital is directed mainly to investment, and not towards funding increased consumption. This requires capital controls to direct investment and to protect the Indian economy from speculative inflows and outflows.
4/7
The other way is to boost domestic savings and – again, imposing capital controls – to ensure that these savings are concentrated in a banking system incentivized to fund investment rather than land speculation or consumption.
The other way is to boost domestic savings and – again, imposing capital controls – to ensure that these savings are concentrated in a banking system incentivized to fund investment rather than land speculation or consumption.
5/7
But savings are just the obverse of consumption. The only way to boost savings relative to GDP is to reduce the consumption share, and that almost always means reducing the consumption of the poor and middle classes.
But savings are just the obverse of consumption. The only way to boost savings relative to GDP is to reduce the consumption share, and that almost always means reducing the consumption of the poor and middle classes.
6/7
This, after all, in what China did in the 1980s and 1990s, Brazil and Japan in the 1950s and 1960s, and the USSR, very brutally, in the 1930s, prior to each of their own investment-driven growth "miracles".
This, after all, in what China did in the 1980s and 1990s, Brazil and Japan in the 1950s and 1960s, and the USSR, very brutally, in the 1930s, prior to each of their own investment-driven growth "miracles".
7/7
What ultimately matters is whether the savings squeezed out of the poor end up funding productive investment – in which case the pick-up in future growth can more than compensate for the current pain – or ends up funding business profits and/or capital flight.
What ultimately matters is whether the savings squeezed out of the poor end up funding productive investment – in which case the pick-up in future growth can more than compensate for the current pain – or ends up funding business profits and/or capital flight.
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