What will we export when we make nothing?

A mid-year review by the Finance Ministry says that the GDP will grow between 7-7.5% this year, against a forecast of 8.1-8.5%. The plus points are that inflation is down, because of low commodity prices, especially oil, fiscal deficit will be within target of 3.9% and public investment in infrastructure has been galvanised. The minus points are that exports are falling, private sector investment is slow and the fiscal deficit target of 3.5% will be difficult to meet next year. The report suggests that government spending should be raised next year to stimulate growth, so a fiscal deficit of 4% would be acceptable. " The mid-term report recognizes weak demand as a key constraint and argues for the need to provide a policy stimulus to stoke it. There is no monetary or fiscal bazooka available to quickly revive demand. The rate cuts by RBI will mildly support the economy in the coming year. But this may not be enough," said DK Joshi, Chief Economist at Crisil. We have written many times that lower rates do not stimulate growth. We get less interest for our money while the rich borrow cheaply to increase their assets, so low interest rates merely transfer wealth from the middle class to the rich. Low taxes will increase demand by bringing prices down but this the government is unable to do because of the need for increased spending on infrastructure, to pay for the huge increase in salaries of useless civil servants, and the One Rank One Pension scheme. Allowing the fiscal deficit to increase, as the report suggests, is not easy. The government borrowed Rs 5.5 trillion this year to fund a deficit of 3.9%. The Reserve Bank raises money by selling bonds but the demand was so low that yields for 10 year bonds were at 7.8%, even though the interest rate has been reduced to 6.25%. If fiscal deficit is 3.5% next fiscal the government will need to borrow Rs 5.18 trillion, plus redemption cost of Rs 2.6 trillion, making a total of Rs 7.7 trillion. That will push bond yields over 8% and reduce liquidity by sucking out so much money from the market. Oil prices have reached bottom, so may start to rise and the Federal Reserve may increase rates further, putting pressure on the rupee, which will raise prices. What no one is telling us is whether increased consumer demand will boost our economy. Whatever we buy seems to be made by foreign companies. Cars, refrigerators, and even drinks are made by foreigners. Why do they keep whining about low interest rates when they are not interested in investing in India? A private company, Spacex has successfully brought  its first stage booster rocket back to earth. Who is the CEO of Spacex? Elon Musk. Our Prime Minister met him on a recent visit to Silicon Valley to request him to invest in battery technology in India. Americans invest, our fellows only ingest. So depressing.