Wednesday 25 May 2022
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Dump Keynes

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ohn Maynard Keynes was a myopic economist whose theory took two-and-a-half decades to unravel. That the economy can be boosted by governments that pump public money into the system ― in the absence of private investments ― was proven wrong by the 1970s’ stagflation in Europe where across the war-ravaged continent had gone crazy over the idea since his death in 1946. By quoting Keynes ― “in the long run, we are all dead” ― Manmohan Singh has established the shortsightedness of his economic philosophy, too, if he ever had one between his years under Indira Gandhi, PV Narasimha Rao and Sonia Gandhi. But then, how is the Modi-Jaitley combination’s economics any better? Notwithstanding the encomia India’s big industrialists have been showering on Narendra Modi since the time he was Gujarat’s Chief Minister, they haven’t invested big in the country in the two-and-a-half years that he has been the Prime Minister. The promises of Mukesh Ambani, Chanda Kochhar, Kumar Mangalam Birla, Cyrus Mistry, Azim Premji et al at the launch of “Make in India” in September 2014 that they would create lakhs of jobs within a year have rung hollow. A desperate government then followed in the footsteps of Keynes with a series of yojanas (schemes), which meant nothing but investing people’s money to raise people’s income! If common sense is not enough to understand how ironical the proposed cycle is, one may look up to another famous economist to expose Keynes. Milton Friedman had predicted Keynes’ prescription would fail, and it did. If economist-versus-economist sounds academic, look at China for a practical lesson. Scores of ghost towns haunt the government that erected the buildings ― only to see that there were no buyers for those houses. If amid high ratings of Modi in opinion polls, people see no change in their lives despite an end to big-ticket corruption, the lopsided view in the Keynesian model is to blame.

The additional problem with the Singh-Modi or Congress-BJP similarity is that it leads to confusion in the electorate. Keeping aside the swayamsevaks of the Sangh Parivar, no Indian is sure why he or she must replace a Congress government with one headed by the BJP. The UPA had made the choice easy with a plethora of like the 2G spectrum allocation scam, Commonwealth Games extravaganza, block allotment scam, nepotism, etc. While that helped Modi rise to power, retaining power calls for a distinct economic ideology. A section of the BJP’s core supporter base, the middle class, is at its wit’s end to figure out how to argue that this government’s policy is better. The poor are getting their subsidies alright, but they aren’t getting new or better-paid jobs. A whole lot of new start-ups hardly create a job or two per unit of employment.

In this inertial scenario, the government must find out why the private sector is looking on as a mute spectator ― now further dumbfounded by demonetisation. For one, Modi is scaring the business community. While the socialist refrain that one cannot be rich without being unethical cannot be appreciated, a climate of conformity with rules cannot be created by raid raj of the tax department or a shock therapy of notes’ abolition. Having taught hoarders of cash a lesson, Modi must now start ensuring that the private investor gets a bang for his buck. He had successfully explained to Gujaratis why his model in their State wasn’t cronyism. Given his continuing high popularity ratings, he may well convince the remaining Indians now. India has realised in two-and-a-half years what took Europe two-and-a-half decades to fathom. Dump Keynes; adopt Friedman. The latter had also predicted how America could avert the subprime mortgage crisis of 2008. Unfortunately, the George Bush Jr regime did not quite follow his roadmap of capitalism. India should ― to avoid 1970s’ Europe and the US of 2008 alike ― and chart a path of growth that generates adequate employment and higher incomes. The act of turning old high-value notes invalid has finally bust the myth that Modi is risk-averse in economics; yet, if he finds the Chicago school precarious, he may try the Austrian Ludwig von Mises. Or our very own Chakravarti Rajagopalachari.

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  1. Thanks for writing this piece and initiating a debate. If I remember well during his recent interview PM Modi wad asked about non generation of jobs and failure of private sectors investment kick up. Modi replied it’s took time for him to understand his mistake.

    Larger question is why the promised job generation by prominent industrialist and business honchos on eve of make in india didn’t happened ?.

    My understanding is that industry participated and were gung-ho but was expecting something in return, some discretionary benifits, some preferential treatment but government didn’t humoured or courted them . In other words there was no business as usual.

    What this business as usual way of working is: submit proposal to government jacking up project expenditure to tune of 100%, asking some assistance from government or % of capex as government grant. For rest applying for loan from preferably state own banks, expediting disbursal or approval by putting banker on call from North or south block. In the end project cost to company NIL but publicity, hype and hoopla and some jobs at cost of tax payers money.

    No easy answers are that why private sector is not keen to ramp up or row in uncharted waters.

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