Nobel Prizes

Nobel Prizes

It is Nobel Prize time once again. The whole world watches which of the eminent figures in medicine, physics, chemistry, literature, peace and economics across the world will receive the highest honour in their respective fields. The Prize winners will be recognized and adjudged for their  long years of hard, focused and dedicated work. If one devotes some time to study the past winners, across the areas, it can be seen that many of them worked devotedly  for 20 to 30 years before they were awarded the prize. There were of course exceptions even in earlier days when the Australian father - son duo William Henry Bragg aged 53  and  William Lawrence Bragg aged   only 25 at the time, won it in 1915. But, by and large most of the winners received the award when they were into their   fifties or sixties. Some have won it in  their seventies and eighties.The oldest to have won the award is Arthur Ashkin who won the award in 2018 for Physics at the age of 96!

While there have been no concerns about the years long work  and credibility of most of these awardees, of late some concerns have been raised about the awards for Peace. Awards have been given for creating  catchy slogans, making  fiery speeches or  beginning a stir about a subject of current global concern and popularity. Please remember that Mother Theresa was not awarded the Prize when she started The Missionaries of Charity in 1950; she was awarded it only in 1979.Nelson Mandela was not awarded the prize even though he started fighting against the racist  Apartheid  in South Africa in the 1940s;he was awarded the prize only in 1993! Even Dennis Mukwege, joint winner  in 2018 along with Nadia Murad,  began his efforts  for treating  women who suffered injuries from sexual violence in 1999. The Nobel Committee would increase its credibility if they also start looking into the sustainability of a movement or an initiative by waiting to see the outcomes for a few years. 

Of course, there have been very interesting cases where the Nobel Committee decided to give away the Nobel Prize for some peace  effort in a particular year  in the same year or the next year without waiting to see whether the peace effort sustains. For example,Yasser Arafat, Shimon Peres and Yitshak Rabin were awarded the Prize in 1994 based on the Oslo Negotiations held in 1993. But peace still eludes the Palestinian –Israel border.

Corporate Tax Cut and Economic Growth

There have been lots of concerns about the economic situation in India in the recent past. The concerns were hastened by the reality of the slower GDP growth achieved in last quarter. Since the realization sank in after the presentation of the annual budget by the finance minister Smt.Nirmala Sitharaman and with the gradual emergence of signals of a deep slowdown of the economy, the finance minister has been making lots of initiatives to boost the economy like additional incentives to boost exports, cheaper loans, loan melas, and the like  and the latest, adding a sweetener in the form of a cut in corporate taxes.

I am not an economist in the strictest sense to make  comments on some of these measures which are directed at beating the slow down. Of course, some of the measures may help but by and large the measures seemed to have been taken in a haste. Why I say this is because the honourable minister and her team don't seem to have considered the real problem. It is not lack of funds availability on the part of lenders , it is not that corporate tax rates are high; it is lack of demand for products manufactured by corporates (Bizarre stories like decreased demand for even undergarments make rounds to depict the state of demand.) What will create more demand? Ability of the consumers to buy more goods. This requires that either they have more money with them to buy more goods or with the available money they are able to buy more of the goods which necessitates that producers lower the prices of their goods.

Now, the pertinent question: Will there be a perk up in demand consequent to a reduction in corporate tax rates? Yes, if the corporates pass on the benefits of lesser tax rates to the consumers and/or employees. Yes, also if they generate more jobs for working class by starting new ventures to avail of the lesser tax regime. But, it might please be remembered that job creation does not happen overnight, if at all it takes place. Most likely the promoters will use the benefit of reduced tax for creating new enterprises with the sole aim of garnering more wealth and in the case of existing companies to declare more dividends and to pay larger executive compensations(with them being the important beneficiaries for both).And entrepreneurs are less likely to invest in long gestation and labour intensive projects as these may not benefit them in the short run. And, please remember that they know that if finance minister could incentivize with a tax cut today, she can dis-incentivize  by restoring it any time in future.

What the government should have done was  to use the same amount of money(something like Rs.1,45,000  crores ) to initiate infrastructure projects which would have created more jobs which in turn would have resulted in the labour class having more disposable income with them, which would have led to a perk up in demand for almost all products. This is what great economist John Maynard Keynes suggested in the 1930s and what Barrack Obama did successfully to overcome the severe  recessionary trends in  US  during 2007-09.

Or else, the government should have reduced the tax rates for individuals, rather than the corporates to leave them with more disposable income.

What Mrs.Sitharaman did would definitely enthuse stock markets and its beneficiaries, but may not lead to an immediate economic recovery. Please remember that stock indices are considered to be leading economic indicators and a spike in the index need not be even an indicator.