Challenge to deal with recession. John Maynard Keynes was the most famous economist of the first half of the twentieth century. After studying the Great Depression, which began in 1929, he introduced the paradox of paradox of paradox. The term thrift is basically associated with careful use of money. Keynes used it to explain the economic conditions prevailing after the Great Depression of 1929. After the fall in prices of shares and commodities in 1929, people reduced their expenses in a big way. If a person cuts his expenses then it is a different thing, but if the same thing starts happening on a collective level then a big problem arises. This is because one person’s expenditure is the income of another person. Therefore, whenever a large part of the society reduces spending money, a crisis arises for the economy. This is called Paradox of thrift. Something similar has been seen in the Indian economy in the last few months. Sales of vehicles, two-wheelers, tractors and commercial vehicles have fallen drastically. If we look at the month of August, passenger car sales fell by about 41.1 percent. At the same time, two-wheeler sales fell by 22.2 percent. Similarly, commercial vehicle sales fell by 38.7 percent. Apart from this, people are also consuming less items like biscuits. These are all living examples of Paradox of Thrift.
If a large part of the population cuts their spending then the income of almost the entire population is affected. This category includes everyone from big traders to grocery store traders. This is not a good sign for the economy. To stay competitive in this situation, traders hire employees. This can still be seen in the vehicle and its associated areas. Many companies are cutting production. All these things lead to further reduction in spending. Now the question is what can be done in such a situation? Keynes believed that in such a situation it is necessary to break the contradiction of economy. This can only happen when the government spends more money on its behalf. People’s income will increase with this expenditure and then they will spend that money and gradually the system of contradiction of economy will be broken.
After the knock of financial crisis in 2008, the Government of India spent a lot of money doing something similar. Public sector banks also gave loans generously. The effort behind this was that the contradiction of economy could not make inroads. It also got favorable results. The Indian economy grew at a rapid pace between 2009 and 2011, but problems began to occur one by one after that. For example, the rate of inflation exceeded ten percent. The NPA burden on banks started increasing due to the banks getting stuck. Since the country is still grappling with this crisis, it will not be appropriate to increase the government spending wildly. What else can the government do in such a situation? Instead of spending money directly, the government can give money in the hands of people, which they can spend and increase consumption.
This can be done directly through income tax cuts and indirect tax cuts on GST rates. The fitment committee of GST has said that the rate of GST on trains will not be reduced, because it will cause loss of revenue, but when there will be no sale of vehicles at higher rates of tax, then from where will the government get the revenue? If the rate is reduced, more vehicles can be sold and the government can get more revenue. Here is the matter of the Nobel Prize awarded economist Richard Thaler.
In an interview to the Financial Times recently, Thaler said, “If you want people to do something, make that work easier.” Keeping this in mind, it can be said that now it is necessary that The complexities of GSAT should be resolved. Due to these complexities, the government is not getting the required revenue. It should have one or two rates, as in most countries adopting GST. This will also benefit the traders. GSAT has become a major headache for all small traders. With this, the time has come for the government to stop wasting money on all the loss making PSUs. Along with disinvestment, there is a need to redeem the real estate assets of these companies. This will also help the government on the fiscal deficit front i.e. the government will have to borrow less from the market and the interest rates will also remain at the current level. At the same time, the PSUs that can be privatized should be privatized. There is a saying in English, ‘The business of the government is not business.’ That is, the business of government is not business. Now the time has come to implement it. Instead of increasing its interference everywhere, the government should focus on areas like agriculture, education and health.
It is also the need of the hour that the process of entrepreneurship in the country be made real easy. The complete discharge from Inspector Raj will be water. History testifies that jobs in an economy grow only when the scope of small companies is large. Generally small companies in India remain small or shrink. The process of buying and selling land needs to be simplified. In particular, there is a need to change the land use laws. Clear land titles will also encourage entrepreneurship. The government should allow foreign direct investment (FDI) in various sectors to boost employment generation. For example, 100 percent FDI in multi-brand retail will improve the agricultural supply chain, while the youth will also get jobs. Farmers will also be benefited from this. Most of the steps discussed here will prove beneficial in the long run. Keep in mind that there is no shortcut to success.