Growth turnpikes, the Balassa-Samuelson theorem, financial inclusion as a cause of inflation, a (virtual) single central bank for the whole world? these are some of the bouncers that Professor Kaushik Basu, Chief Economic Advisor, has bowled in his second Economic Survey. He had done the same thing in his first, last year.
A turnpike is the fastest route between two points that are quite far from each other.
The route need not be a direct one, though. The concept is used in growth economics to trace the quickest way to move from a lower to a higher level of capital accumulation.
The Balassa-Samuelson theorem is about the way in which increases in productivity can cause inflation.
As productivity in the tradeables increases, wages increase. So do the wages in the non-tradeable sectors.
This makes consumer price inflation higher in faster growing countries.
Professor Basu has also pointed out that while financial inclusion ? more of the poor having bank accounts ? is desirable, it can result in higher inflation because of the money multiplier which, in India, is almost five now.
Another thought is of a future single global central bank. With globalisation ??the world economy is gradually moving towards a single economy. But we have?multiple money-creating authorities in a single economy?.this may be a factor behind the recent increase in inflation in emerging economies.? Unspoken thought: a single global central bank?
Honesty drives an economy faster
The statements on moral values are fascinating. ?For India to do better as an economy, it is important to foster the culture of honesty and trustworthiness,? it says, pointing to recent research that has demonstrated the correlation between these values and faster growth.
But, it accepts: ?Many a noble plan to reach out to the poor? has fallen on hard times because of the policymakers' propensity to assume that policies are delivered by flawlessly moral agents!?
The solution: ?To cut down on corruption and pilferage, we have to design policies in such a way there is no incentive for ordinary citizens and law enforcers to cheat.?