chrislbecker.com

Politicians and Keynesian economists like to put massive spins on economic conditions to justify more government spending. This morning it’s coming out of India.

The Indian government may spend 300 billion rupees ($5.3 billion) tripling the length of its expressway network to ease traffic jams that are slowing trade, wasting fuel and sapping economic growth, reports Bloomberg.

The country intends to add about 1,600 kilometers (1,000 miles) of roads with at least six lanes, Raghav Chandra, joint secretary at the Ministry of Road Transport and Highways, said in an interview on June 14. He didn’t give a timeframe for awarding construction contracts or for completing the projects…India plans to build the network as it contends with congestion that costs $5.5 billion a year, according to a study by Transport Corp. (TRPC)of India and the Indian Institute of Management, Calcutta. (Bloomberg extract)

Of course, the slowing Indian growth has little to do with traffic congestion, but rather with contracting broad money in recent months, resulting in the cyclical slowdown. As I wrote to clients in the Business Cycle Monitor in September 2011:

…note that rolling 4m annualised money growth has smashed lower, contracting by 9.7% in July. This compares with +0.5% in June, and +6.7% in May. This type of monetary growth slowdown while price inflation is still accelerating will bring with it a vicious squeeze on the economy. Malinvestments will be liquidated at a rapid pace as the capital structure that existed before the monetary-driven boom reasserts itself. It will pressure prices higher, and also force the central bank to stay tight and possibly even hike rates once more.”

Economic conditions continued to drive the economy in this direction, so in December I wrote the following to clients in the Business Cycle Monitor:

…The business cycle crash is playing out in India, as we have been anticipating. The risk is rapidly shifting back toward rate cuts by the RBI, as momentum for credit and money supply growth is tilted firmly to the downside.  As such expect to see more easing in coming months to turn monetary metrics around.

And the following call to expect fiscal ‘stimulus’ from the government came on 4 April 2012, again published in the Business Cycle Monitor:

As the Indian economy slows from a cyclical perspective, pressure is on the government to increase countercyclical spending at a time when government tax revenues are collapsing.

So ignore the political spin coming out of the Indian administration and the Keynesian economists. The planned government spending to relieve ‘traffic congestion’ is all part of an effort to lever up government in order to offset collapsing private borrowing, to reverse collapsing broad money and prop up the malinvestments created during the cyclical boom, which was caused by the central bank lowering interest rates below the market rate.