GDP is always stated in current prices. When the Prime Minister declared a goal of $ 5 trillion GDP in 2024, it means $ 5 trillion in 2024 prices - not in 2019 prices. So a part of this growth/increase will be price increase. That is - the growth rate needed to go from $ 3 trillion to $ 5 trillion in 5 years will include inflation (the rate of price increase). In this case, the (nominal) growth rate needed is 11% (because 3 × 1.11^5 = 5). The GDP growth rate announced every quarter and every year is the real growth rate - which is the nominal growth rate minus inflation. Our inflation is currently 3%. If we continue with this inflation, we have to grow at a real rate of 11 - 3 = 8%. If we allow inflation to increase to 5%, we have to grow at a real rate of 11 - 5 = 6%. So the target of $ 5 trillion is easily achievable.
CORRECTION:
My friend Amitesh Singh has pointed out a fundamental error in the above analysis. If India's inflation is x% and America's inflation is y%, then the Rupee will go down against the Dollar by (x - y)%. And the GDP target (5 trillion) is in Dollars. This means two things:
1. We won't get any benefit from a higher inflation in reaching the GDP target.
2. The only 'discount' we get in the required growth rate of 11% is America's inflation rate (currently 2%). So we have to grow at 11 - 2 = 9%.
28 September 2019
26 September 2019
India: Capitalism and Economic Freedom
# Freedom has two parts: political freedom and economic freedom.
# Since the beginning of history, every civilisation had a free economic system.
# In 1848, Karl Marx designed a government-controlled economic system – and called it 'socialism'.
# And he called the free economic system as 'capitalism'.
# In 1917, Lenin implemented socialism in Russia.
# In 1947, Nehru implemented socialism in India.
# So in 1947, we got our political freedom – but lost our economic freedom.
# Since the beginning of history, every civilisation had a free economic system.
# In 1848, Karl Marx designed a government-controlled economic system – and called it 'socialism'.
# And he called the free economic system as 'capitalism'.
# In 1917, Lenin implemented socialism in Russia.
# In 1947, Nehru implemented socialism in India.
# So in 1947, we got our political freedom – but lost our economic freedom.
22 September 2019
Money, Happiness, Selfishness
People say going after money is 'selfishness'. Is this language correct? Are we our bank accounts? Going after money is moneyishness – not 'selfishness'. When we go after money, we go away from ourselves. So going after money is the opposite of selfishness. It is anti-selfishness – or at best, false selfishness.
We are not our bank accounts. Then what are we? What is our essence? Our essence is our strength/potential. To achieve happiness, we must discover our strength/potential and do the work that uses our strength/potential. In other words – we must reject false selfishness (going after money) and embrace true selfishness (doing work that uses our strength/potential).
The problem in the world is not selfishness. The problem in the world is false selfishness. And the solution is true selfishness.
We are not our bank accounts. Then what are we? What is our essence? Our essence is our strength/potential. To achieve happiness, we must discover our strength/potential and do the work that uses our strength/potential. In other words – we must reject false selfishness (going after money) and embrace true selfishness (doing work that uses our strength/potential).
The problem in the world is not selfishness. The problem in the world is false selfishness. And the solution is true selfishness.
17 September 2019
Impact Of Artificial Intelligence (AI) On Jobs
Q: What will be the impact of Artificial Intelligence (AI) on jobs?
A: AI will change the economy from A to I – ie, from an A-shaped system to an I-shaped system.
Since the Industrial Revolution (c1800), the structure of the economy has been like this:
That is, the economy had:
1. A few high-skilled jobs (scientists + researchers)
2. Some medium-skilled jobs (engineers + managers)
3. Many low-skilled jobs (workers + operators)
Thus the economy was roughly A-shaped.
Now AI is simplifying most tasks/functions so that they can be done even with low skills. So it is converting the medium-skilled jobs into low-skilled jobs – effectively pushing jobs from the middle to the bottom. And it is creating high-skilled jobs at the top – scientists/researchers to design and build these AI systems.
So the economy will become like this:
That is, the economy will have:
1. Many high-skilled jobs (scientists + researchers)
2. A few medium-skilled jobs (engineers + managers)
3. Many low-skilled jobs (workers + operators)
Thus the economy will become roughly I-shaped.
[Idea source: R Jagannathan, Swarajya magazine]
A: AI will change the economy from A to I – ie, from an A-shaped system to an I-shaped system.
Since the Industrial Revolution (c1800), the structure of the economy has been like this:
1. A few high-skilled jobs (scientists + researchers)
2. Some medium-skilled jobs (engineers + managers)
3. Many low-skilled jobs (workers + operators)
Thus the economy was roughly A-shaped.
Now AI is simplifying most tasks/functions so that they can be done even with low skills. So it is converting the medium-skilled jobs into low-skilled jobs – effectively pushing jobs from the middle to the bottom. And it is creating high-skilled jobs at the top – scientists/researchers to design and build these AI systems.
So the economy will become like this:
1. Many high-skilled jobs (scientists + researchers)
2. A few medium-skilled jobs (engineers + managers)
3. Many low-skilled jobs (workers + operators)
Thus the economy will become roughly I-shaped.
[Idea source: R Jagannathan, Swarajya magazine]
02 September 2019
Economic Reforms, Welfare Schemes & Inflation: How To Win Elections In India
HOW TO WIN ELECTIONS IN INDIA
1991–1996: P V Narasimha Rao carried out economic reforms – and lost the election.
1998–2004: Atal Bihari Vajpayee carried out economic reforms – and lost the election.
Lesson #1: Economic reforms don't win the election.
2004–2009: Sonia Gandhi did not carry out any economic reforms. Instead she carried out welfare schemes – and won the election.
Lesson #2: Welfare schemes win the election.
2009–2014: Sonia Gandhi increased her welfare schemes. But this increased the fiscal deficit – which increased inflation. She lost the election.
Lesson #3: High inflation loses the election.
2014–2019: Narendra Modi learnt all the 3 lessons. So he
1. Carried out some economic reforms
2. Carried out many welfare schemes
3. Controlled inflation – by controlling the fiscal deficit
He won the election.
1991–1996: P V Narasimha Rao carried out economic reforms – and lost the election.
1998–2004: Atal Bihari Vajpayee carried out economic reforms – and lost the election.
Lesson #1: Economic reforms don't win the election.
2004–2009: Sonia Gandhi did not carry out any economic reforms. Instead she carried out welfare schemes – and won the election.
Lesson #2: Welfare schemes win the election.
2009–2014: Sonia Gandhi increased her welfare schemes. But this increased the fiscal deficit – which increased inflation. She lost the election.
Lesson #3: High inflation loses the election.
2014–2019: Narendra Modi learnt all the 3 lessons. So he
1. Carried out some economic reforms
2. Carried out many welfare schemes
3. Controlled inflation – by controlling the fiscal deficit
He won the election.
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