Theories based on western economies may be the wrong medicine.

Economic policies of governments and banks are based on macroeconomic theories and one of the gurus of macroeconomics has been Milton Friedman. His teaching on monetary policy on the role of inflation on unemployment was discussed by Nobel Prize winner, Paul Krugman in an article in 2007. However, not all of Friedman's theories have been proved to be correct. His Permanent Income Hypothesis predicts that people base their spending on expectation of future income and not on how much money they have at present. Thus, if someone gets a rise in salary she will spend more in expectation of a continuing rise in prosperity but if the same person were to receive a windfall she will stick it in the bank. So, if any government resorts to 'helicopter money', which means issuing a cheque to every citizen, will it result in increased spending, which in turn will increase production and lead to economic growth? Studies are showing that Friedman's theories are not fully correct, half the people behave opposite of what Friedman's theory would predict. The trouble with this kind of policy is that there is enormous difference between economies. In Sweden where everyone is assured of cradle-to-grave social security, based on high taxes, there would be no need to save. Whereas, in India subsidies are targeted at the poor, so the middle class tries to save for retirement, education of children and health emergencies. This is touted as moral. Targeting subsidies at the poor received a huge boost from the success of Bolsa Familia in Brazil where women were paid for each child, if the child went to school and for regular medical check up. That was fine when commodity prices were high but when prices fell in 2014 its economy declined and is now in recession. President Dilma Rousseff has been impeached and is facing criminal charges for hiding the extent of deficit. In India politicians have divided people into 'r' types who have lots of children and are dependent on handouts. They do not look after their children, as we can see from children begging on streets to working in hazardous industries. The 'k' type are fewer in number, have few children, who they look after and educate for a better quality of life. The only way towards prosperity is to target all handouts to not having children. That would make the 'r' type of people more responsible, in their own interest. Meanwhile, some economists are suggesting that higher interest rate will result in higher spending, leading to higher growth. If interest rates start to rise in the US a lot of foreign money will leave India, leading to a fall in the rupee and higher prices. Nations are putting up barriers to free trade in an effort to protect their businesses. Theories which apply to the US may not be applicable in India. Our policy makers should beware.