Government should have followed Milton Friedman's hypothesis.

"It's about that time in the life of a government: the economy appears to be losing its sheen and elections are fast approaching. The first law of political economy, which the politicians understand better than economists, is to spend your way out of trouble," wrote Prof V Dahejia on the state of the Indian economy. "As the growth numbers continue to be lacklustre, with inflation ticking up, and with literally no room for manoeuvre on the fiscal consolidation map, the Union government of Prime Minister Modi faces its sternest test as steward of the macroeconomy." But increased spending will worsen fiscal deficit, raise inflation and prompt the Reserve Bank to tighten policy rates. The result will be very bad, so Prof Dahejia advises the government to stick to its fiscal deficit target. Not so, wrote Prof D Nayyar. The reason why the government had spent 96.2% of its projected fiscal deficit by August is because of revenue shortfall due to the new Goods and Services Tax and not due to increased spending so there is no harm if the deficit rises as long as the spending is on infrastructure. Credit to industry is not growing, wrote A Iyer, meaning that companies are not investing in new projects which will boost growth and increase jobs. Growth is dependent on government spending and even the Chamber of Commerce wants the spending to continue. There is a simple explanation why the government has spent 112% of fiscal deficit by November, wrote TCAS Raghavan. It is because expenditure has been front-loaded because the budget was brought forward but revenue from taxes continue to come in throughout the year depending on earnings of companies and individuals. Retail inflation rose to 5.21% in December from 4.88% in November due mainly to vegetable prices rising by 29%. Strangely, Wholesale Price Index fell from 3.93% in November to 3.58% in December due to a decline in vegetable price index. How can vegetable prices be higher and lower over the same period? Higher inflation is unlikely to result in wage inflation, analysed Bloomberg, because the job market is soft, as reflected by rising defaults in repayment of education loans. Fuel prices are rising worldwide. The government has given up its plan to phase out subsidy on cooking gas. Those people who had been provided with free gas connections are not refilling their cylinders because they cannot afford it. The suffering of the rural sector is going to get worse, wrote Prof Himanshu, because poor winter rains have forced farmers to reduce area of planting. It is the government's fault for squandering the windfall from the collapse in crude oil prices in 2014-15. A rise in fiscal deficit may not be bad by itself but, rising international price of oil and rising bond yields signalling a rise in inflation, may force the RBI to tighten monetary policy, wrote Rangan and Nayak. The Permanent Income Hypothesis by the great Milton Friedman says that people save windfall profits but latest research shows that it is not true, wrote Prof N Smith. Our government should certainly have saved its windfall gains.