Saturday, February 28, 2009
Friday, February 27, 2009
An optimist Indian economy
Economy to grow by around 7 pc in FY'09, hopes Indian FM
Replying to a question on economic growth during an interview, Mukherjee said, "All these are estimates and of course between 6.9 and 7.1 (there is) not much difference, but I do hope when the final figures come out it would be around seven per cent."
I am just wondering what could be the reason behind the overly optimistic predictions bythe Indian political regime. When the Obama administration is trying to be more transparent and asking american people to be ready for tougher times, why is the Indian economy giving overly optimistic predictions to their own people? After all it is a global recession.
Is it because of the upcoming elections? May be.
I would like to think that there is no political agenda but logic behind this optimism. In order to build more confidence in the economy the leaders have to be optimistic (that may mean overly optimistic also). Once the confidence of the consumer increases in the economy, the demand will rise and subsequently the supply too will increase.
This may not be as simple as I am trying make it sound- In such a recession you fix the demand because the supply will obviously follow (Speaking like a true keynesian). To fix the demand you need to lift the consumer confidence, which can be also be improved by such statements by the political leaders.
Replying to a question on economic growth during an interview, Mukherjee said, "All these are estimates and of course between 6.9 and 7.1 (there is) not much difference, but I do hope when the final figures come out it would be around seven per cent."
I am just wondering what could be the reason behind the overly optimistic predictions bythe Indian political regime. When the Obama administration is trying to be more transparent and asking american people to be ready for tougher times, why is the Indian economy giving overly optimistic predictions to their own people? After all it is a global recession.
Is it because of the upcoming elections? May be.
I would like to think that there is no political agenda but logic behind this optimism. In order to build more confidence in the economy the leaders have to be optimistic (that may mean overly optimistic also). Once the confidence of the consumer increases in the economy, the demand will rise and subsequently the supply too will increase.
This may not be as simple as I am trying make it sound- In such a recession you fix the demand because the supply will obviously follow (Speaking like a true keynesian). To fix the demand you need to lift the consumer confidence, which can be also be improved by such statements by the political leaders.
Effective policymaking
In my graduation days my economics teacher used to tell me that there is just one main law of economics- Demand must equal Supply. A number of economists have started thinking about economics as a study that can help explain why demand and supply mismatch. It is often said that the main job of an economist is to explain why his earlier prediction failed. But economics is not as easy to understand as science. In a typical chemistry experiment you can be sure that the elements that you are mixing will create a new compound and the results will vary as you keep changing the experiment conditions such as temperature, pressure, etc. In an economics experiment you cannot predict the outcome easily as the elements (individuals) react differently in different conditions (conditions that can vary by region by economic growth and development). For example, an individual in USA may not be great saver but an individual in India may be. An important consideration while making any economic policy is to understand the behaviour of the individuals in that society. This is exactly why some policies are more effective in some places!
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