Economic Thoughts...

  Article; Austrian School of Economic Thought Gaining Influence as Nations Tackle Debt    Comment;   Use of quantitative easing was not fully supported by many economists including Paul Krugman. His stand was that the economy is in liquidity tarp and the US economy needs fiscal policy. Markets are unable to lift an economy in liquidity trap, only govt. can boost economic activity through public expenditure. We needed to affect demand by higher wages. As far as gold standard is concerned even gold does not have an intrinsic value. It is only used to produce jewelleries nothing else. Moreover deregulation of banks in the US, mainly the shadow banks, were responsible for the sub-prime crisis...

We do not need to worry too much about growth...

Article;

8 percent growth target for 12th plan an ambitous one : Prime Minister

Comment;

If China can grow 8% amid all the crises in the trading regions like the US and Europe India too can achieve 7-7.5% if it goes for domestic demand. China’s dependency on exports for growth is well known and is also advised to concentrate on domestic demand. In India the Reserve Bank of India has subdued the demand for investment by not lowering the key interest rates. And the day repo rates will go down investment economic activity and growth rates will pick-up. We can easily expect the growth rate for Indian economy at 7.5-8% if inflation and repo-rates come down. I can easily remember how fast the growth picked up back in 2008 when the economy received high doses of fiscal and monetary stimuli due to sub-prime crisis in the US. I do not think we need to worry too much about growth …

We can achieve 8% before 2014...

Article;
India's return to 8% growth rate is unlikely to happen before 2014-15


Comment

;

The only thing that is holding Indian growth story back is high inflation. Inflation in India is a structural problem. Markets are not that efficient. They take too much time to respond to increases in demand pressure. They do not operate with sufficient or reserve or spare capacity. Any little increase in demand is likely to upset the supply conditions. Prices are very sensitive under these supply conditions. I hope FDI in multi brand retail would help removing supply side bottlenecks and consumers (we all consume but we all do not produce or supply) would be benefited in form of lower prices. As far as the question of expected growth rate of Indian-Economy is concerned i’m sure economist would not have expected a growth rate lower than 7-8% if RBI had lowered the key interest rate-repo and reverse repo rates- by 50-100 basis points. One more thing that any central bank takes into account is unemployment rate. If unemployment increases, growth rate decreases and vice-versa. Only if the unemployment rate in India above the RBIs target, RBI has some room to lower key interest rates by choosing a higher inflation target around 10%. If it does so we can easily see the growth rate of Indian economy around 7-8% in the next 4-6 months…

He Supports My View Although not Directly....

Something ( Everything) Rotten in the State of Macro

Readable...

ww.economist.com/news/21567079-meet-economists-who-are-making-markets-work-better-micro-stars-macro-effects

Micro over Macro...

Article;

http://economictimes.indiatimes.com/opinion/interviews/global-economic-turmoil-to-continue-till-2015-kaushik-basu-chief-economist-world-bank/articleshow/17643530.cms


Comment;

I would say both market and government are irrational. We can easilyspot the examples like the US and the Europe. In case of the USmarket fails and in the case of Europe government fails. In one casewe have too  much private debt and in the other too much govt. debt. Where is the relief? We need to steer economies with a common man's intelligence. I mean we need to look at micro aspects or micro economics. We do not need too much debt or may benegligible...

Remove Bottlenecks...

Article;

http://economictimes.indiatimes.com/news/economy/indicators/indian-economy-may-beat-expectations-in-2013-goldman-sachs/articleshow/17542523.cms


Comment;

If infrastructure and supply side bottlenecks were not there the chances are that the economy had grown with a growth rate equal to the rate of inflation, i mean 7-7.5%. Because inflation is also an index of increase in consumer spending even if it is under compulsion, read price-rise. The higher (rational) the inflation target set by an economy or the actual inflation the higher the growth rate probably it can achieve.

Take a Look at Food and Fuel Inflation...

Article;
http://economictimes.indiatimes.com/news/economy/indicators/inflation-hits-10-month-low-but-rate-cut-unlikely/articleshow/17620360.cms

Comment;

I disagree that the main gauge of inflation is WPI, and, it is neither CPI nor core-inflation (manufactured products). If I had to choose an indicator of inflation I would go for food-and-fuel-inflation because the argument is that we need to protect the value of money poor people are getting because their income/wages are more or less indefinite, and, depends upon a variety of factors like season and availability of work. Poor people do not consume all the products WPI, CPI and core-inflation take into account. Ninety percent of their consumption basket includes food-and-fuel. Food inflation at 9.4% and fuel-inflation at 10% makes me, too, expect that key interest rate won’t come down in the next 4-5 months…

The Other Problems...

Arictle;
http://economictimes.indiatimes.com/opinion/columnists/swaminathan-s-a-aiyar/real-and-imaginary-problems-of-electronic-cash-transfers/articleshow/17448650.cms

Comment;

Although i know the writer for a long time because he writes very well but i think he is missing the macro economic effects – inflation and budget deficit – of such a welfare scheme. For the past 2-3 years we are in the realm of high inflation and high fiscal deficit. A simple rule of economics is that whenever money supply increases, either by government or by the central bank, it stokes inflation, then why here nobody is taking note of that thing… Moreover, we are continuously discussing government fiscal deficit as high and the government too is planning to bring it to a sustainable level…

i’am in no way opposing CTS but the ground realities tell a different story; a cash strapped government and a lonely central bank fighting with inflation… It is like telling people about something we can not deliver, right now, but the government looks in haste. Cash transfer schemes have been successful in other countries (like Brazil) to make a dent on poverty which India can replicate, but with a pause, till the supply side is good enough to take the shock demand presents. i’am sure such a scheme would necessitate a little inflation and we have to chose we want it right now or with a time-lag. If we go for former we will have to chose an inflation target of 10% or more, but, if we go for latter we have to wait for some time to let the inflation cool-down and chose an inflation of 6-7%.

No political party can dare to oppose a scheme which covers a large population but they should endorse their own versions/variants of CTS…

RBI's Credibility...

 Article; http://economictimes.indiatimes.com/opinion/interviews/the-real-problem-for-india-is-d-subbarao-shankar-sharma/articleshow/17215127.cms   Comment;

Subbarao is doing what he is supposed to do as a central banker. The RBI's credibility depends upon his actions. Price stability and full-employment are the two macro-economic objectives of monetary and fiscal policies. The economy on the employment front is doing fine we need price stability to check inflationary expectation to limit the demand for increase in income and wages economy wide to avoid the cost-push inflation...

Depreciation is good...

Article;

http://economictimes.indiatimes.com/news/economy/indicators/rbi-has-little-room-for-immediate-rate-cuts-morgan-stanley/articleshow/16879596.cms

Comment;

I agree Rupee will depreciate and has negative effects. But with growth at 6% and inflation at 8% i think India is having normal times. Neither too good, nor too bad. Growth is good we need to push it further. India has a poor export sector and we need to give it a push. No doubt Indian currency is very weak but that is a good thing. And, a good thing even when compared to the gains from a strong currency. With a strong currency we buy products of a foreign country and employment is created in foreign. But cheap currency gives exports an impetus which creates employment at home and increase tax base (not always). A currency depreciation is always good. Even if Indian currency depreciates further it will help the economy in the long-run. The larger the gap between the strongest currency and weakest currency the more it will take to converge to its true- value, equilibrium exchange rate. And, the longer will be the advantage of the country “of being cheap” for currency or for products. Currency depreciations have pulled out economies out of recessions. And, developed countries welcome it...

Which Way the RBI Will Go?

Article; 

http://economictimes.indiatimes.com/news/economy/indicators/inflation-at-10-month-high-dampens-rate-cut-hopes/articleshow/16819566.cms 

Comment; 

Before the RBI the question is not just inflation… it is actually a trade-off between inflation and unemployment. If inflation is high the central bank chooses a lower level of employment by raising interest rate. On the other hand, if unemployment is high it chooses a higher level of inflation by lowering interest rate. To sum up, a central banks’ job is not just keeping check on inflation but to ensure full employment, as well. Just to note, full employment is established before 100% employment, at 95% employment or 5% frictional unemployment.

 Recently i read at many places that in 2012 unemployment rate fell to 3.8%. I wonder, with many, that how with a high interest rate, around 8%, and with everybody keeping their hands-off of investment unemployment rate fell to 3.8%? If it has and is true… it is a sign of overheating of the economy and, now, i do not wonder, anymore, why inflation is persistent. Anyways, at other places, i found unemployment rate for the year 2011 at 9.8%. On the basis of the 2011 data even if i guess that what could be the unemployment rate for year 2012, i can’t guess less than 8% because interest rates remain almost same with 50 basis point cut in repo rate by the RBI. This figure is 3% above than our frictional unemployment rate of 5%. In one situation, we can not lower the interest rate, in the other, we need to reduce unemployment rate by lowering interest rate, choosing a high inflation target. I’m confused which data the RBI will find true to choose its course…