dear professor vaidya
i am taking the liberty of posting this reply to your mail to my blog, as i think it demonstrates a startling fact: the enormous capital generation that goes on in india. you have shown how this is based on the thrift of the humble housewife, rather than some white guys sending money here.
i have been thinking of this from a different angle, namely the concept that india has *always* been an incredible generator of capital. of course this is why every barbarian from alexander the macedonian onwards to the europeans invaded india -- there was enormous wealth there.
it was only during the interregnum of 1757 to 1991 -- a very long 250 years, admittedly -- that this economic engine was brought to its knees. First, by thieving europeans, who simply stole the wealth through a variety of means. Second, by idiotic stalinist economists, who thought they could second-guess the million micro-decisions made by economically rational human beings.
once this straight-jacket was thrown off, there is enough capital generation to sustain double-digit growth. in other words, FDI is immaterial to india, unlike china, which i suggest subsists on large amounts of FDI, which may not be sustainable. (of course, they have built up a trillion dollars of reserves, but i also suspect the americans will do something to devalue the worth of this fairly soon, which suggests that it is time to exit the dollar. do you accept this hypothesis?).
anyway, you're absolutely right: the indian government has shown its utter incompetence at economics, it should confine itself to guarding the borders. alas, it has shown utter incompetence there as well. in fact, it may be the case that whatever the indian government touches, it destroys -- the 'bhasmasura syndrome', perhaps?
thanks
rajeev
On 11/20/06, Vaidyanathan R wrote:
For your information
Why the Indian housewife deserves paeans of praise
http://www.thehindubusinessline.com/2006/11/16/stories/2006111600500800.htm
R.Vaidyanathan
____________________________
R.Vaidyanathan
Professor of Finance & Control
Indian Institute of Management
Bannerghatta Road
Bangalore--560076
India
3 comments:
Rajeev,
Y'know I've heard that hypothesis a few times and I am puzzled a bit by the logic: Sure, by devaluing the dollar, the value of the moneys that the US has to return to China gets reduced but by the same token won't it reduce the value of all the money that people in the US themselves have? Which would imply a drastic reduction in the standard of living and trememdous inflation no? Wouldn't that be like one Siamese twin shooting himself in a shared limb to spite the other so to speak?
In other words what will be the effect on the US of a steep decline in the dollar? Will the net effect on the US be positive? What will this do to the dollar being the world's reserve currency? Any thoughts?
Prashant
@ Prashanth
America is now fairly out of control as far it's own currency valuation is concerned. Truth is that the real exchange rate of the dollar will get decided where it usually does i.e. on whether there is a trade surplus for America or a Trade Deficit.
No amount of putting it off to a future date will prevent it. America is increasingly uncompetitive and loves to import cheap junk from China (thanks Wal Mart), without having the ability to sell anything to the Chinese in return; not just because American products are uncompetitive, but also Chinese slave wages ensure that Chinese cannot afford any American goods.
The only hope for America is to find a alternative to oil, which still accounts for 20% of all American imports. Only problem being that the Texas oil companies lobby will not let that happen!
Hei KapiDhwaja..
Thx a ton for posting that letter from Vallabhai Patel..
We can only dream of having such leaders in India..
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