India is not growing at 7.5%, here's why

The GDP or the Income of a country is measured as the well known equation Y=C+I+G+(X-M).  Y stands for Income; C is consumption; I is investments; G is government spending; (X-M) is trade surplus.

Measured as such, perhaps India is growing at 7.5+%.  But I propose that this equation is incomplete.  While this equation did a good job of comparing Income of most western developed countries, when applied to countries like India, it misses out a very important aspect of these economies.

I am referring to the national waste that happens in India.  This equation does not take into account the leakages, the wastage that happens in India to our stock of food grains, infrastructure both public and private, waste of opportunity cost due to corruption, red tape, etc.  Look at how Government spending, especially in infrastructure assets such as roads, pavements, etc. are wasted because of corrupt practices.

This wastage is a key component that keeps our country still in the "developing" stage whereas countries like China are moving into the "developed" category.

If India wants to be the third largest developed economy in the world, then it has to seriously work on reducing wastage so that our growth can be effective.

Thus, Y=C+I+G+(X-M)-W is the new notion of Income.

The Crime that Pays; actually 6 lakhs!!

Only in India!!  If you are successful in committing this crime, the State actually pays Rs. 6 lakhs.
It was reported today that the Telegana Government has decided to pay Rs. 6 lakhs when a farmer successfully commits suicide.  Now, several questions arise:

1. How was this amount of Rs. 6 lakhs determined?  Is this the value of the farmer?  Is it the average value of the loans that the farmer owes?

2. Sec 309 of the Indian Penal Code makes attempted suicide a crime punishable with imprisonment and a fine.  So, if the farmer fails in his attempt to commit suicide, he has to pay a fine.  However, if he succeeds, the State pays Rs. 6 lakhs.

3.Is this award of Rs. 6 lakhs payable only if the farmer successfully commits suicide in Telegana or can they do it anywhere in India?

4. If other states were to follow suit, and if some states actually pay more than Rs. 6 lakhs, can the farmers from Telegana get the matching amount or should they go to the higher paying state and commit suicide?

5. Should the farmer give his KYC details to get this Rs.6 lakhs?  Where should he register to get the award?

6.  Now, Rs. 6 lakhs is in the taxable income bracket.  So, is income tax on this Rs. 6 lakhs payable?  If so, what the Telegana state government pays, goes to the Central Government.

7.  Now, I have a question for Raghuram Rajan of the RBI.  Now, the state pays Rs. 6 lakhs; the farmer who owes money to the bank is dead and so the bank has to write off this loan.  So, when the farmer dies, there is a double impact.  So, what should the RBI do about this?  Can they insist on the banks going after this Rs. 6 lakhs and recover some of the debt amount?

8.  If the political parties make a poll campaign about how much they will pay the farmer if he successfully commits suicide, and if the farmers commit suicide, then who will vote for the parties?  Or, if the party that wins the election does not implement this program after they come to power, then who will haunt them?

Finally, is this program against Article 21 of the Constitution that provides for the fundamental right to live?

UBER: The butterfly which fluttered!!

In the last 2 years since UBER established in India, there has been a major social change that is not yet fully felt and understood.  Now, it is fashionable to become an UBER driver.  More importantly, it pays well to be an UBER driver.

School dropouts are now able to earn about Rs.60,000 per month; that is more than Rs. 7 lakhs per year!!  UBER currently has more than 50,000 drivers in India.  These drivers were perhaps making less than Rs.20,000 per month earlier.  Now their salary has gone up 3 times.  UBER singlehandedly has added Rs.2400 crores to the Indian economy in the last year.

Perhaps more important is that several of them now own their cars.  That is another Rs.2,000 crore to the auto industry.  But all this is nothing compared to the ripple effect that UBER is going to create very shortly.

The IT companies which recruit fresh graduates from engineering colleges pay only about Rs. 4 lakhs per year.  And, that too to people who have spent 4 years studying engineering and spending at least Rs. 5 lakhs for the program.   

http://www.thehindu.com/news/cities/chennai/record-campus-placements-at-vit/article7660950.ece

Contrast that with the Uber driver who makes Rs. 7 lakhs per year without spending too much time or money to get trained.  Uber is now going all out in the country to recruit drivers.  They have committed 30,000 jobs in Tamilnadu alone last week.  So, the IT companies are going to face a tough competitor in talent recruitment.  What will happen?

The IT companies will be forced to raise the salary levels for these entry level candidates.  It is not just the IT companies who will be forced to raise salary levels.  Construction companies, hair dressers, Government offices, hospitality industry, almost every other industry will be forced to raise salary levels.  In effect, the average minimum wage in the country will go up to Rs.60,000 per month.  This is the virtuous cycle that UBER has unleashed.

I bet that this will happen in the next 2 to 3 years.  Imagine what will happen to the Indian economy.  More people can afford to buy more goods such as a nice house, refrigerators, air conditioners, TV sets, motorbikes, cars, send their kids to good schools, etc. – in effect, our factories will be producing more to be sold within India.  Make in India will actually be Make for India!!  This increase in the size of the domestic market will bring prices down since the volume has gone up.  This will make our companies very competitive internationally and so we can sell more overseas – our exports will go up.

All this will happen without any government intervention or incentive.  All this will start happening soon because this UBER butterfly fluttered.