Explained: What is Modern Monetary Theory and can it rescue India's economy — Ananth Narayan

The author recognizes that the real issue is real resources. Increasing purchasing power without increasing production correspondingly will lead to inflationary pressure over time.

The challenge is not where the money is going to come from, as MMT explains, but also what is going to be done with it. Will it increase real resources, especially productive resources, or will it just be saved, leading to greater inequality?

Experts across the ideological divide thus agree on the need for India to create jobs and achieve output growth. Without these, high government deficits or even credit growth could lead to inflation and currency instability. Did we really need experts to tell us this?

The creation of jobs and sustained domestic output growth has been our Achilles Heel for decades now. Periods of high growth have often been accompanied by a rapid growth in inflation, imports and our current account deficit.

Job creation and output growth at least partly explain why China is able to sustain more than twice India’s total debt, as a percentage of GDP.

India has huge potential but it is underutilized owing to the inability to organize and manage it effectively and efficiently. As a result, India lags behind China in economic development even through it is a democracy with a competitive economy, whereas China has a managed socialist system with some privatization and market distribution. The difference seems to be largely in organizational ability.

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Explained: What is Modern Monetary Theory and can it rescue India's economy

Ananth Narayan | Associate Professor-Finance at SPJIMR.
This article was originally published on BloombergQuin