One of the critical trends underlying the massive concentration of wealth and incomes in India is the increasing return on capital versus labor. In almost all rich countries and in most developing countries such as India, the share of national income going to workers has been dropping (The Economist, 2013). Therefore, workers are capturing less of the gains from growth. However, the owners of capital have seen their wealth grow from interest payments, dividends faster than economic growth. To balance the disparity in the returns to capital versus the returns to work, creating jobs in the economy is paramount. India's unemployment percentage has declined to 4.8 percent in February 2017 compared to 9.5 percent in August 2016, as a result of the Government's increased focus towards rural jobs and the Mahatma Gandhi National Rural Employment.
Liquidity
While demonetization has brought liquidity into the financial system, sustaining the liquidity is a different challenge. As the dust settles on demonetization, the liquidity is likely to seek higher returns (Vashishat & Tyagi, 2017). Keeping liquidity in the financial system will depend on the ability of banks to offer attractive longer term deposit rates, engage customers with third-party investment products and enable ease of fund flow within the financial system (Vashishat & Tyagi, 2017). If the excess liquidity cannot be dispersed across the banking system, bond markets and to some extent money markets, cash is likely to find its way back out of the financial system.
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Debt Status
A cross-country comparison based on "International Debt Statistics 2017 of the World Bank which presents the debt data for 2015, finds that India continues to be among the less vulnerable countries with its external debt indicators comparing well with other indebted developing countries. The ratio of India's external debt stock to gross national income (GNI) at 23.4 percent was the fifth-lowest regarding the cover provided by foreign exchange reserves to external debt, India's position was sixth highest at 69.7 percent in 2015 (Pekkanen, 2014).
Recommendation for maintaining domestic equity status
The key trends underlying the vast concentration of wealth and incomes is the increasing return to capital versus labor. In India, the share of national income going to workers has been dropping. This means workers are capturing less of the gains from economic growth. However, the owners of capital have seen their equity consistently grow through interest payments, dividends, faster than the pace at which the economy has been increasing (The Economist, 2013).
Tax avoidance by the owners of capital has only served to exacerbate this cleavage between the returns to capital and to labor. To balance the disparity in the returns to capital versus the returns to work, creating jobs in the economy is paramount. A very high percentage of India’s population are unemployed (Gilmartin, 2009, March 22) .
Recommendation for raising global capital
The emphasis on outcome-based monitoring being advocated by the Indian government, the outcomes in these critical areas of rural development must be carefully monitored to ensure the success of the initiatives. Such success would provide a way for the economy to substitute away from the focus on export-oriented growth to domestic-consumption-based growth.
References
Gilmartin, D. (2009, March 22). Empire, Identity, and India: Peasants, Political Economy and Law. . chicago:.: The Historian.
Pekkanen, S. M. (2014). Oxford handbook of the international relations of Asia. Oxford: Oxford University Press.
The Economist. (2013). Labor Pains . Retrieved from The Economist: https://www.economist.com/news/finance-and-economics/21588900-all-around-world-labour-losing-out-capital-labour-pains
Vashishat, T., & Tyagi, V. K. (2017). Assessing the impact of demonetization of 2016 on the Indian economy: An exploratory study. Asian Journal of Research in Business Economics and Management, 7(7) , 135-150.
