Aggregate demand, corporate debt and deleveraging

Here are a couple of articles which indicate the consequences of a slack in aggregate demand on corporate debt and the growing need for companies to deleverage debt through asset sales.  We can notice this trend not just in India but also in China.

http://www.livemint.com/Companies/JBn41JpbNPdPBxzOb2FzIO/LT-to-sell-assets-dilute-stake-in-noncore-businesses-AM.html

http://www.thehindubusinessline.com/opinion/editorial/taking-a-haircut/article7678161.ece

Does the government need to step in and increase infrastructure spending?  Can we hold on to "austerity" and worry about fiscal deficit targets?  How do we know that infrastructure projects will not be underutilized (like ghost towns in China)?

These are questions to ponder over.

The pressing need for a new perspective

Today's piece by Prof. Deepak Nayyar in the Livemint (12.06.2015) clearly summarizes the problem with neoliberal economics - although the work neoliberal was never mentioned.  At the core of neoliberalism is inflation targeting and its consequent implications for control of the fiscal deficit. These policies are strangling not just India but even countries like Greece which are unable to come out of depression.  Prof. Nayyar has highlighted the need for "to question and get away from a blind belief in any idea, for ideologies that turn into faith are dangerous."  Who can disagree?  But critiquing economics has always been countered with the question; what is the alternative?  I think here we need to turn to post-Keynesian economics ... and Modern Money Theory in particular.

Here's the link to Prof. Nayyar's article:

http://www.livemint.com/Opinion/DubsmSzgYLBp3Swu8TqPII/The-interest-rate-conundrum.html

The general drift of neoliberalism

Two headlines caught my attention today; from these we get a clear picture of the general drift of neoliberalism.   The Times of India (see link below) declared:

SOCIOECONOMICS: BIG TALK, TIGHT FIST

Funds cuts pinch edu & health schemes

Slashing the education budget and keeping the outlay on health static in Modi government's first Budget was seemingly based on the sound logic of the Finance Commission giving bigger share of taxes to states.

But three months later, harsh reality has sunk in. Mid-Day Meal (MDM) cooks, anganwadi workers and Mahila Samakhya workers have hit the streets and state governments are feeling the heat ….

http://timesofindia.indiatimes.com/india/Modiversary-Socionomics-Big-talk-tight-fist/articleshow/47378636.cms

The other headlines that was an interesting contrast to this was in the Livemint.

Industries call on Modi to spend Rs.1 trillion (Rs.100,000 crore) to boost economy

… At the top of India Inc.’s wish list are investments in infrastructure, simplification of rules for acquiring land and implementation of a proposed national sales tax. Executives say the government should take the lead in financing new roads and public projects to give the maximum boost to Asia’s third- biggest economy.

V.S. Parthasarathy, group chief financial officer at Mahindra and Mahindra Ltd, suggests Modi make a dramatic move by investing as much as Rs.1 trillion ($16 billion) on infrastructure in the next six months. That would provide the country with tangible assets, signal confidence in the future and inject cash that would cascade through the broader economy …

http://www.livemint.com/Politics/hdj6dPF4mtUUilQnHe8ShM/Indian-industry-calls-on-Modi-to-spend-Rs1-trillion-to-boost.html

So is industry really against spending and deficits per se or does it prefer one kind of spending to another?  And the government?  Let’s be clear.

How mainstream macroeconomics thinking finds its way into popular discourse.

Two excerpts from articles that appeared in the Livemint of 20 October 2014 show how the need to achieve a fiscal deficit target is becoming an end in itself.  More than the fiscal deficit number per se the debate needs to focus on the real effects of subsidies in distorting resource allocation (if that is so) and the unproductive expenditure of the government that fails to ease supply side constraints and raise productivity.  There is surely space for an MMT perspective on these issues.

Is the centre finally cracking down on subsidies?

Decisions on diesel prices and cooking gas subsidy will help meet centre’s fiscal deficit target of 4.1% of GDP

Remya Nair

…

The move will also enable the government to meet its fiscal deficit target of 4.1% of gross domestic product (GDP), even after taking into account the expected shortfall in revenue collections.
…

A Union cabinet minister, who did not wish to be identified, pointed out that the government cannot afford to continue with the current subsidy regime. “There are no freebies. We cannot afford to bankrupt the state exchequer,” the minister said, signalling the central government’s intent to overhaul the subsidy regime.
…

Read more at: http://www.livemint.com/Politics/h9P8fnfqgoehC9iRbAHzuL/Is-the-centre-finally-cracking-down-on-subsidies.html?utm_source=copy

What it takes to make in India

The first and most important condition for manufacturing success in India is to have a low inflation regime

Narayan Ramachandran 
…

The first task in ensuring a low inflation environment is to eliminate the primary deficit. This deficit is the difference between the total revenue and total expenditure of the government with debt payments netted out of the calculation. India must begin to deliver upon both a primary and fiscal deficit target as measures of fiscal consolidation in its annual budget. The elimination of the primary deficit and a reduction in the fiscal deficit (to say 2.5% of GDP) will ensure that we live within our means each year, do not increase the stock of debt and crowd out less capital from the productive economy.

…

Read more at: http://www.livemint.com/Opinion/ZNh0XaD02lIvreFus5PHlL/What-it-takes-to-make-in-India.html?utm_source=copy