Focus on productivity and stability instead of growth and investments

The government must move away from targeting investments and economic growth in the interest of creating a stable environment for productive activities while allowing people to save enough money to tide over bad times. A stable system can be achieved by reining in inflation, removing hurdles that hinder production, and making it easy to convert one’s savings into assets that do not depreciate over time. 

A productive economy results in growth and attracts investments that can be used to fund new productive activities, but directly targeting growth and investments amounts to tweaking the outcomes rather than creating an economy with solid foundations. Such tweaks will lead to bad investments which chase the illusion of high returns and result in massive failures. Deficits in government budgets are major contributors to this illusion of growth in the short term but contribute to the accumulation of debt and an eventual crisis in the long run.

The current crisis in the EU can be traced to the focus on growth instead of ensuring stability in the economy. When the European monetary union was formed, Germany demanded economic stability but France insisted on growth and managed to replace Germany’s proposal for a Stability Pact with a Stability and Growth Pact. As ‘growth’ is usually a euphemism for excessive spending fuelled by growth in money supply, it was inevitable that an economic crisis would occur. The dotcom bubble and the Asian economic crisis of the 1990s too resulted from the focus on growth to attract investors. In both cases, investments chased growth without sufficient productive activities to back such growth leading to a bubble that eventually burst with severe consequences.

Only a small fraction of the population consists of investors and if the government solely targets the creation of rewards for investors instead of allowing everyone to have opportunities to advance, it would create a system that benefits just a few people. The result of such a system would be a ‘Shining India’ for around 3% of the population who are either investors or work for the businesses owned by these investors.
If the government is sincere about the entire country doing well, everyone including those in rural areas should have the opportunity to become entrepreneurs. Existing policies favour the members of the English-educated urban class who are treated as potential entrepreneurs while people in rural areas are treated as though they only deserve handouts from the government. The government recently allocated Rs10,000 crores to fund new startup ventures while earmarking 1% of that amount for “local” programmes in rural areas. The former is really a welfare scheme for the educated class in India while the latter exemplifies the patronising attitude towards Bharat. Government-funded venture capital schemes are nothing but a system of socialised risks and privatised rewards and fly in the face of the definition of entrepreneurship which involves risk-taking. The government also hurts small entrepreneurs when it favours large business houses and it needs to stop this practice. This means bank guarantees, license fees, and auctioning of resources, all of which shut out smaller players from participating in economic activities, must be eliminated. The economy will become strong only when the greater number of people become self-supporting, and achieving such self-sufficiency must be the main goal of the government. 

The author is an expert on technology and economic issues. Views expressed are personal