Economics for the dumb.

In 1977 China instituted its one-child policy. This prevented 400 million extra births till today which, in turn, led to large numbers of women joining the labor force bringing down labor costs for industry. In the 70s the Yuan was 2.46 to the dollar rising to 1.5 in 1980. By 1994 China devalued the Yuan to 8.62 and pegged it at 8.27 to the dollar from 1997-2005. This gave an enormous cost advantage to exports and created vast numbers of jobs pulling millions out of poverty. To keep the Yuan weak China bought dollars and US government securities building up foreign currency reserves in excess of $3 trillion. This kept interest rates low in the US while cheap Chinese goods subdued inflation leading Americans to indulge in higher spending financed by debt. China did not embark on any social programs choosing, instead, to focus on building infrastructure. A new power plant went up every week, wide new roads, modern railways and airports which, in turn, created millions of jobs and underpinned its economy. Now that the economy has matured the Chinese are slowing growth, which still remains above 8%, to keep inflation in check. CPI in April was 3.4% while it was 9.47% in India. Low interest rates in the US and the Eurozone led to easy money some of which came into India. The Sensex touched 21,078 on January 2008 and property prices zoomed by 800%. The government took the credit saying that this was due to its policies since India is not an export economy but depends on internal consumption for growth. Hence high economic growth must be due to people becoming richer. Someone came up with the label BRIC in which India was the letter I. Numerous photo ops showed the World Famous Economist with world leaders with that self satisfied smirk on his face. Believing in their own hot air about future projections of growth at 9% the government embarked on expensive social programs. Instead of reducing taxes and subsidies, which would have reduced expenditure, the government decided on direct money transfer to the poor in the form of MNREGA scheme which pays Rs 162/day for 100 days per year to rural people. This immediately caused rural wage inflation leading to food inflation. Instead of a vigorous campaign to reduce population they lauded the " demographic dividend " of so many young people joining the work force. Trouble was that 90% of these were poorly qualified paper graduates who were unemployable. Wages in the IT industry has been rising at greater than 10% because of paucity of good quality candidates. Instead of spending on education infrastructure like improving school buildings, books, computers and broadband salaries of government school teachers was increased by 80%. However, they are of low standard and do not work so children remain poorly educated. India is now facing falling growth at below 7%, inflation at 10%, falling rupee, which feeds inflation, and reduced consumption leading to reduced tax collection. Unable to keep deficit in check the government has raised taxes and levied new taxes on every activity. This will further raise prices and reduce consumption. So clueless are they that they are arguing with Fitch and S&P for a raise in credit rating when everyone is warning of stagflation. You would think that to grab power these people would be intelligent. Not morons.