Econ Mom on Orchids and Fiscal Consolidation

After experimenting with almost all the regulars (coriander, lemons, spinach, chillies, roses, pansies, radishes, mustard) one can grow in a terrace garden, we are now proud parents to a couple of beautiful orchids. And these babies are fussy.

When we got our first orchid home, there was a lot of excitement as we tried to figure out the optimal place for it. Place it too much in light and the leaves turn light green. Too less light and the leaves turn dark green.

After the first week, our baby orchid had only two leaves, one dark green and one light green. “Typical!” I said, totally frustrated with what the orchid is trying to tell me. Lil One’s eyes were already lighting up wickedly as he realized how bothered I am about this. “I totally like this plant,” he said grinning evilly at me. “It so belongs to the family. Totally weird and crazy. Orchid Phadke.”

Orchid Phadke…nice! The name stuck. We’ve also had Tomato Phadke, who grew out of what we were told are capsicum seeds. Ggggrrrrrr! And then, it wouldn’t bear fruit quickly. Lil One wickedly told me that I need to express my love for the plant more profusely than just watering and fertilizing it. So I added singing to my care routine, much to the delight of Lil One. Well, still no fruit, prompting Lil One to make rude remarks about my singing prowess. Finally, one day, in great exasperation, I actually sang a Yo-Yo Honey Singh routine to Tomato Phadke and voila! Next day, we got some pretty little buds. Aaaaaargh! The damn thing likes Yo Yo Honey Singh….Insufferable! Lil One, who lustily sings the Yo Yo songs just to get on my nerves, immediately put his stamp of approval and the plant was duly christened Tomato Phadke. Grrr!

Well, so to get back to pretty Ms. Orchid Phadke, she’s a little phalaenopsis with beautiful yellow flowers. She gave some gorgeous blooms on two flower spikes, but by now the flowers have fallen off. Now, what to do with the flower spikes after an orchid has finished flowering is a matter of great debate with orchidists. Even Milton Friedman didn’t fight Keynes that viciously.

Some believe that you can cut the spike partially, “forcing” the plant into bloom again. But then, there are others who tell you that the plant needs rest and hence if we cut the spike off completely, we’ll get new spikes and gorgeous big new blooms in the next cycle.

The Phadkes, known for their argumentative skills, got into the debate with great gusto. Oh, we read pages and pages on it and saw videos and spoke to experts. Hubby favoured giving the plant a break whilst I wanted to experiment and see whether a second spike can actually flower.

Whilst bickering over dinner as to what should be done, Lil One (I suspect with some bribing from Daddy dearest) made a surprisingly mature observation. “Well, I feel its okay not to have flowers this year if there’ll be flowers forever later. I support Dad. Let’s give Orchid Phadke a break, Mom.”

Econ Mom started. No flowers for a year, so that we can enjoy blooms for a lifetime. Accept lower performance in the short run, so that there’s more robust numbers in the long run. That’s precisely the game in the Finance Ministry currently.

It’s been playing on the news channels and on my mind too, for the past couple of days. Even as the FM crafts out the Union Budget, he’ll stick to the fiscal deficit target of 3.9% for FY16. But what should the target be for FY17? Some economists, notably Arvind Subramaniam and Mahendra Dev, have opined that the fiscal consolidation target can be softened for the next year. So, for FY17, we can actually do a fiscal deficit of 4.2% or something like that.

Now, a bigger fiscal deficit is bad news because it creates inflation and interest rate pressures in the system. Normally, the RBI would raise eyebrows right into the oily Indian hairline with such possibilities, but with oil prices smooth, the crucial link between fiscal deficit and inflation does seem to have become weaker.

Further, if we look carefully at the numbers, we find that the entire growth this fiscal is led by the Government spending. So, if the Government gets unduly fussy about spending next year, our growth rate will go down.

Add to this the fact that private investment normally follows Government spending with a lag, and you’ve got a good argument for continuing the spending by the Government. We economists sometimes get too hung up about fiscal deficits. So much so, that we miss the larger picture at times.

So, next year, we may have a higher FD. Moody’s and Fitch are bound to react with threatening sounds. Let them. FIIs may behave more treacherously than usual. Let them. We may look a bit more vulnerable on paper. That’s okay. No blooms in the next year, so that you’ve a healthy plant in the future.

Epilogue:
I cut off the flower spike completely. I feel a bit bad when I look at the plant minus its spike, but then, that’s that. And, as Lil One informed me cheerfully, “Oh, we’ll get the blooms back, Ma. And if nothing else works, there’s always Yo Yo Honey Singh!” I wonder if the FM also hums Yo Yo songs…

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