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Make in India could create a bubble economy

Posted: 07 Aug 2015     Print Version  Bookmark and Share

Keywords:Make in India  economic collapse  capitalism  manufacturing 

Prime Minister Narendra Modi launched the Make in India initiative 10 months ago with the goal of turning India into a global manufacturing hub. Less than a month later, I released the first book in United States to explore the macroeconomics of global semiconductor business (titled Mass Capitalism: A Blueprint for Economic Revival).

With a patriotic fervour and wanting to help the new government of India in its ambitious initiative, I arrived to my home country India and presented my ideas, in the form of a paper titled Global Economic Crisis and Mass Capitalism as Blueprint for Economic Revival, to the Indian government's think tank in Mumbai in December 2014. I explained why the U.S. economy is headed for an economic collapse akin to 2008 due to crony capitalism resulting from a growing gap between wages and productivity in the U.S. economy. I also stressed that for Make in India to become successful and to create a sustainable economy in India, the wages of the Indian workforce must catch up with worker productivity.

As I put forth in my book, I believe that globalisation policies have resulted in a loss of dominance of the U.S. semiconductor industry due to the free trade policies followed by U.S.-based multinational corporations post World War II. These deceptive trade policies have also resulted in a huge unemployment in United States.

Make in India

Even a country like China, which has received huge amount of foreign investments from the United States, has experienced a spectacular economic boom. However, the absence of true free markets, a result of the state capitalism in China, has resulted in a gap between wages and productivity. China has cleverly controlled its exchange rates and avoided depreciation of U.S. dollar (USD) by creating artificial demand for Chinese Yuan, in spite of huge trade deficits of United States with China. In this way, China has not only accumulated trillions of USD in its foreign exchange (FOREX) reserves but has also outsourced huge unemployment to the United States.

At the same time, since the wages of Chinese work force have failed to keep up with worker productivity, China's stock markets started crashing earlier this summer. The trajectory is very similar to the economic crash that the United States experienced in 2008. The Chinese government has tried intervening into its economy but it does not seem to have helped China and the crash of Chinese stock markets continues.

When it comes to the Make in India initiative, not only has the government of India not endorsed any free market policies, its economic policy makers have also not learnt any lessons from the events happening across the world. Recently, there has been an attempt by the Finance Ministry to jeopardise the autonomy of Reserve Bank of India (RBI). The Financial Sector Legislative Reforms Commission (FSLRC) published a first draft of recommendations, which gives the centre the right to appoint four out of seven monetary policy committee members, and takes away the veto power of RBI governor.

I believe that this move has come into effect after reluctance on part of the RBI's competent governor, Raghuram Rajan, to reduce RBI's repo-rates significantly, in spite of the push by the finance minister of India, Arun Jaitley. Rajan is much more worried about the impact of a hike in U.S. bench mark interest rates on the Indian economy and hence does not want to lower repo-rates significantly.

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