Pushing with a String

This post carries the flavour of Keynesian economics but goes farther. If you are repulsed by Maynard Keynes and his way of looking at things, please do yourself a favour and stop reading further.

I will start with MGNREGS. I distinctly remember that the current party of governance at the centre, when it came to power more than five years ago, said that it is letting the scheme survive only to bring to everyone’s attention to its stupidity.

We believed that would be the case, at least to the extent that the scheme would be withdrawn once the bright lights of neo-liberal economics highlight the fundamental idiocy behind the scheme.

Going further back, we also had economists beating their breasts that these handouts to the rural landless poor would feed inflation across the economy. Wage-price spiral and all that. Breast-beaters were not only the literate economists but also the landed gentry who then needed to increase their wages for the services of the agricultural labourers who were, in effect, indentured to them till then; their wage rates now should match the handouts. Oh, my! what have we come to – socialism bordering on communism.

This was what fed the government’s efforts to distance itself away from MGNREGS, citing the thoughtlessness behind the scheme. That was more than five years ago.

Fast forward to now. The government is indexing the rates of MGNREGS to inflation! Whether it is going to help the truly marginalized and the poorest of the poor depends on implementation, which anyway has not been anything to write home about. Is this indexing, then, be a toothless tiger? Could very well be.

Let us not be so cynical and allow that the government truly is interested in putting purchasing power in the hands of the rural poor. After all, one set of statistics after another is showing that the economy is not booming because of slowing down (or at least not slow growth) of aggregate demand. In India, aggregate demand skews towards rural economy.

Remember opportunities at the “Bottom of the Pyramid”? This was a thorn on the sides of neo-liberal economic thinking, and was duly stomped on. Now, the government’s thinking appears to have pivoted away from neo-liberalism.

The government is also changing the definition of CSR – Corporate Social Responsibility. The tag is now a catch-all – anything a bank or a company does can come under this rubric. The government has seen that no matter how much the repo-rate is decreased, bank lending has not increased to any similar level.

OK, perhaps I have stretched it. But do take a look, CSR now includes corporate research! All of us-including government economists and statisticians-know that research in Indian corporates is used only to reduce the tax burden and has nothing to do with research. It has less to do with social responsibility. But, this tax-liability reduction is somehow part of social responsibility. Now, that IS a stretch.

All told, the government is pushing money into the economy. For what? To increase aggregate demand, from the rural to the anti-rural (a corporate business is, almost by definition, anti-rural). If this is not Keynesian what is?

All the erstwhile breast-beaters are silent now. Inflation is not a monster. Boosting the economy by making lending easier (pushing with a string) is acceptable, even to neo-liberal economists.

As someone who does not know economics if it hits him on the head, I cannot figure this out.

Then, addressing the economists, can you?

Raghuram Ekambaram