Praxeology: My Reflexions on India

Recently the government of India raised import duty on electronic items including cellphones and TVs to allegedly boost its Swadeshi campaign of Make in India as well as government revenues (sic). Let us analyze this protectionist policy of government using sound economic laws and see if it is capable of achieving its stated goals. Economics and Psychology of Protectionism In the immediate aftermath of this hike in import duties the price of the imported electronic goods will go up choking some of the demand. This price rise will though not choke all of the demand. Those people whose price elasticity of demand is inelastic, e.g., a diehard iPhone fan, will continue to purchase these now costly imported goods. The price rise will reduce the purchasing power of their money e.g., if the iPhone was selling at 100 rupees before the 10% duty hike then it will now sell at 110 rupees. This means consumer will have to now spend more on iPhone leaving that much less...

Last Tuesday the supreme court of India expressing concern over growing commercialization of the legal profession with lawyers demanding “astronomical” fees from litigants, which made it difficult for the poor to access justice, the Supreme Court asked the Centre on Tuesday to bring a law to regulate the field and to prescribe “floor and ceiling of advocates’ fees” . Let us examine supreme court’s demand of regulating the legal profession in India using sound laws of economics. First, the concern of supreme court re commercialization of the legal profession where lawyers are demanding ‘astronomical’ fees from the litigants is quite legitimate. But after this correct diagnosis of the symptom the treatment offered by the court isn’t sound at all. In fact it is antithetical to the concerns shown by the court as we will see in a while. To understand the issue reflected in court’s concern one needs to simply ask the question, why the lawyer’s fees are astronomical ...

If Narendra Modi and Arun Jaitley get their way then when next time some bank will fail in India they will be legally allowed to confiscate all your hard earned saving, that you have deposited in that bank in the form of savings or term deposit accounts etc., to rescue themselves. Because doing so will be made legal by the government under the new bill that they are drafting, you will not be able to do anything about it once they do it! You will simply have to watch helplessly banks seize your lifetime savings. Modi government is drafting a new bill viz., the Financial Resolution and Deposit Insurance (FRDI) Bill , 2017 which will give these enormous powers to the banks and other financial corporations. In financial market jargon this method (sic) is known as ‘bail-in’. In just legal language this should be called embezzlement on a grand scale. After demonetization and GST this is another big scale confiscation scheme being devised by Modi and his ministers like Jaitley. ...

US based bond credit rating agency Moody’s upgraded Indian government’s bond rating from Baa3 to Baa2. This is one level up from their lowest rating grade. They have changed their outlook of the Indian economy from positive to stable with this upgrade. Modi government ministers and its supporters are terming this upgrade as an endorsement of their policies of demonetization and GST for which they are under intense backlash and criticism of late. One thing that I vividly remember about Moody’s is that this is the same credit rating agency which failed miserably in seeing the sub-prime credit crisis coming in 2007. Just before the sub-prime bubble busted in 2007, this agency was rating the toxic mortgage backed securities (MBS) with their highest rating level of AAA! After the crisis this rating came down to their lowest level of junk ! Does this upgrade matter so much? The fundamental theory behind this bond rating upgrade is the flawed Keynesian idea of ‘borrowing...

The capital of India New Delhi is once again engulfed in toxic smog. The usual blame games by politicians have begun about the cause of this pollution. The Delhi chief minister Arvind Kejriwal is blaming the burning of crops in the adjacent states of Haryana and Punjab for this pollution. Other major causes cited by authorities and activists are vehicle exhaust and dust and industrial emissions . Delhi government has tried every measure like spraying water or the famous odd-even scheme for vehicles etc., that it had in its policy portfolio to combat this pollution but failed. Now the authorities are hoping for rains to come and naturally clean this pollution! Most people discussing this issue are of opinion that only government can tackle this problem of (air) pollution. But is it so? The usual problem with such opinions is that they ignore the alternatives available. For example, in the field of environmental sciences there is a school of thought known as free market ...

GDP: A Brief but Affectionate History by Diane Coyle (Revised and Updated Edition 2014, Princeton University Press, pp. 167 ) Diane Coyle’s little book GDP: A Brief but Affectionate History tells a very mainstream history of the statistics of GDP (Gross Domestic Product) in brief 145 pages. The book is divided into six chapters not including the introduction. The introduction discusses what GDP actually means. Coyle throws light on this often confused statistic: GDP is the way we measure and compare how well or badly countries are doing. But this is not a question of measuring a natural phenomenon like land mass or average temperature to varying degrees of accuracy. GDP is a made-up entity. The concept dates back only to the 1940s. As Coyle clearly states, when looking at GDP numbers published by the newspapers, journal articles or uttered by the politicians from their bully pulpit in election rallies, we must keep this fact in mind that GDP is purely a made-up ...

The Supreme Court of India on Wednesday ruled that a man is committing rape if he engages in sexual intercourse with his wife who is aged between 15 and 18 . How logically sound this Supreme Court ruling is? To know the answer of this question we must first understand what ‘rape’ is. An online dictionary of law defines rape as the crime of sexual intercourse (with actual penetration of a woman’s vagina with the man’s penis) without consent and accomplished through force, threat of violence or intimidation (such as a threat to harm a woman’s child, husband or boyfriend). This means, a rape basically is a violation of others’ bodily property right. It is an initiation of aggression against others’ private (bodily) property. Any case of such initiation of aggression re sexual intercourse is a rape no matter what the age of the person whose bodily property is violated is. The age factor is irrelevant here. The ruling of Supreme Court is purely arbitrary and illogical having...

Former RBI governor Y V Reddy said that Coalition governments in India have produced better economic growth rates in the last three decades than a strong majority government… Interestingly, the highest growth in India from 1990 to 2014 was really during coalition governments… So, in a way it’s consensus based… in Indian situation, a coalition probably produces better economic results than a strong government. Mr. Reddy is committing a logical fallacy of Cum Hoc, Ergo Propter Hoc. Just because two things are occurring simultaneously and are closely connected with each other doesn’t mean one is causing the other. Better economic growth has nothing directly to do with what kind of governments, either coalition or majority, India has. What matters for growth is what kind of economic policies these governments are going to follow. If the government is small and less meddling in the free market enterprise system then it will produce stronger economic growth like what hap...

The full impact of Narendra Modi government’s economically unsound policies of demonetization, GST as well as lose money policy of RBI in the form of lending cheap artificial credits to insolvent borrowers via commercial banks resulting in huge load of unproductive debt has started to show on the Indian economy. Finance ministry officials are now saying that India could be forced to cut spending on key infrastructure such as railways and highways as lower-than-expected tax collections and sluggish growth have upset the government’s budget calculations . This was well expected. As we have said in past here on Mises India, when the government gets bigger and totalitarian, the economy tanks rapidly. When the business environment becomes extremely uncertain, entrepreneurs will halt their business plans and stop any further present or future investments, and this will hit the economy hard because only production, saving, investment and capital accumulation can increase e...

The exercise of demonetizing around 87% of all circulating currency note supply taken by Narendra Modi and RBI last November has resulted into nothing but overall disaster for the economy. In his televised speech on 8 th November, 2016 Narendra Modi talked about three main goals of the whole demonetization exercise, and they were : Curbing financing of  terrorism through  the proceeds of Fake  Indian Currency Notes (FICN)   and use of such funds  for subversive activities such  as espionage, smuggling of arms , drugs and other contrabands into India; and For eliminating Black Money which  casts a  long shadow of parallel economy on our  real economy At that time Modi government was expecting that the substantial amount of black money that people were hoarding will never return in the banking system and that will become a windfall gain for RBI which it can then transfer in the government account. Now that 10 months have ...

Yesterday a 9 judge bench of the Supreme Court of India gave a so-called historic decision of declaring privacy a fundamental human right now enshrined in the article 21 of the Indian constitution. Many are saying that this for the first time that some verdict is given unanimously by the bench 9 judges. This verdict now includes privacy also as a part of fundamental rights in article 21 of the Indian constitution, which wasn’t the case previously. Most people of the country and intellectuals have cheerfully welcomed this verdict hoping that this will stop the ruling BJP government from becoming totalitarian. The legal experts have hailed this verdict as historic, a watershed moment and a victory for common citizens by saying that it has far reaching implications for the matters like the beef ban, forceful use of Aadhaar card, government telling people what to wear and eat, abortion, LGBT rights, government surveillance in the form of reading peoples’ emails, text messag...

A recent news report said that in India The IT services industry alone is set to lose 6.4 lakh low-skilled positions to automation by 2021 . Is this true? Let us scrutinize. What is Artificial Intelligence? As Jerry Kaplan, the author of Artificial Intelligence: What Everyone Needs to Know , has said, there is no one all agreeable definition of Artificial Intelligence in the computer community today. Roughly speaking, Artificial Intelligence means, as its founding father John McCarthy said, a process “that of a making a machine behave in ways that would be called intelligent if a human were so behaving.” Artificial Intelligence is an all encompassing name given to different automation technologies that is coming in the market since last couple of decades. From the economic perspective AI is nothing but just another type of capital good (machine) that is going to make the life of humans more comfortable because it increases human labor productivity. It is a form ...

The second volume of government’s Economic Survey recently flagged a great risk of faltering economic growth in India, and demanded a loose monetary policy stance from the RBI in the form of further easing of the interest rate to combat this downside risk. The report said , Forecasting “greater downside risks” to economic growth, the Survey, tabled in Parliament Friday, argues that the “scope for monetary policy easing is considerable” and could go up to 75 basis points. The underlying theoretical basis of this recommendation of monetary policy easing is that a loose monetary policy in the form of lowering of interest rate will revive the economic growth. This means, this policy of loose money will only work if that underlying economic theory is correct. In this article we will analyze this theory and its implications. Is it true that a loose monetary policy can revive economic growth? To understand the answer of this question we need a quick short lesson of sound e...

We are witnessing an age old fact about the State playing out in front of our eyes in India today. This fact is that of, as Murray Rothbard said, the state as an apparatus of parasitism which uses, as Franz Oppenheimer said, political means for its survival. The state is an institute which represent political power which its officials like politicians and bureaucrats use to parasitically live-off productive people on whom they forcefully and clandestinely rule by use of propaganda. One of such propaganda is that there are opposition parties in politics. Of late opposition party politicians are joining the ruling BJP party en-masse in India e.g., many Congress politicians switched over to BJP in the state of Gujarat , The Bihar chief minister Nitish Kumar broke-off his alliance with Congress and other so-called anti-BJP parties like Lalu Yadav’s RJD to form a new government with its enemy BJP party, quite a few MLAs from the SP and BSP parites also joined BJP etc. Th...

In the zeal of controlling everything that either walks or doesn’t walk, the present Narendra Modi government of India is shooting in its own foot. It is giving one shock after another to the society and economy in the form of mob lynching of innocent people in the name of “cow protection”, beef and myriad of other bans, attacks on minority communities, compulsory use of Aadhar card, demonetization of 86% of total currency supply, GST etc. Why am I terming these policies as government shooting in its own feet? The reason can be understood with the aid of the laws of human action. Any individual needs freedom to achieve his full potential and flourish e.g., if I chain you in one room or throttle you then you cannot act to do something progressive and you will most probably die. The same is true for the body economy and society. Freedom is the precondition of any growth or development process. If people and businesses are strangulated by myriad of controls and regulat...

The on-going stand-off between the armies of the Indian and Chinese nation states on the Sikkim border has created quite a bit of ruckus in the, now very nationalistic, Indian public. People in India are calling for a total boycott of Chinese goods . This demand for boycott of Chinese goods is nothing new. Economics of Boycott The relevant question here is that, what consequences will follow if India’s nationalistic public actually decide to boycott Chinese goods? Without going into the details of numbers of what is the volume of trade between India and China etc., let us carry out a theoretical analysis of the consequences that will necessarily follow this action of boycott. What will happen in India after the boycott? The first thing that will happen in India is that the consumers will be at a loss immediately because they will not be able buy and consume the cheap Chinese goods now. They will have to spend more on acquiring the same product because similar I...