The Finance Minister
has reduced corporate tax, withdrawn enhanced surcharge on superrich and FPIs
and further removed tax on share buybacks for companies which pushed the stock
market to record intraday high of more than 2000 points and analysts have
forecast further momentum in the stock prices in the near to medium term in the
expectation that it would continue to add to the competitiveness of the Indian
Industry and corporate earning and profits.
Nonetheless, GST rate
cut expectations may further delay demand... People would hold spending.... The GST rates are not something cast in
stone... During low growth lower GST rates could boost demand and growth
through lower prices and during high growth they could control demand and
prices by using higher GST...
The govt needs to adopt
a flexible viewpoint... Similar to interest rate management to manage
competitiveness, price, demand and growth expectations... The government could impose 5% GST on cereals
to support farm prices and increase revenue by choosing a large base...
INDIA''s Public Debt is
low compared to other countries like US and China which is not a issue... It's
fiscal deficit and debt are not a problem for spending and growth... though to
increase productivity and demand supply and growth... when demand and supply
both would increase prices could remain stable...
Atleast, there is no
news about INDIA''s Public Debt, it has one of the lowest Fiscal Deficit in the
world... Rating Agencies have artificially maintained a lowest investment grade
or rating for INDIA... despite favourable fundamentals....
Growth is decided by
increase in the workforce per year, if the workforce is increasing at 9%
peryear then the economy must grow at 9% to keep everybody employed... It is
the potential growth rate ie growth of the work/labourforce or the natural rate
of growth...
INDIA should maintain
and use its strategic oil reserves to increase supply and stabilise demand and
oil prices during high prices... In a recent report it has been pointed out
that oil prices could go as low as $25 per barrel in the hindsight of the
advent of the EVs...
During the previous
monetary policy regime, the RBI did not help when inflation has had been low...
Year 2015-16 is the best from the point of view of inflation and growth... But,
when demo hits the RBI never cut interest rate even with low inflation, except
a cut in the late 2017, and then two back to back rate hikes due to higher oil
prices and then a course correction when the oil price fall again...
It confused the
investors and then resumed rate cut cycle which delayed investment in the
expectation of lower interest rate ahead... It also confused the stock
market... Moreover, LTCG and the global tariff war have also added to the
uncertainty... Urjit Patel''s resignation was totally unexpected; during his
tenure the RBI overexpected inflation expectations and maintained a hawkish
stance...
Equity investors may
take a longrun approach for investment because equities may provide better
returns than bonds, 10-15 yrs... Big corrections are oppourtunity to buy for
the longrun and sell after holding for long when prices are high... Consistency
in performance is a sign of good stocks... Equity can normally give 10x returns
in 10-15 yrs... Longrun investment could help form stable prices and
expectations in the stock market...
There is a limit to
reduce interest rates because people would save less if they have to pay banks
or interest rate becomes negative or they would move to risky assets for income
or inflation adjusted income... Negative bond yields could reduce the inflation
adjusted returns and savings and investment and growth... Lower borrowing cost
has limits to increase productivity and competitiveness of capital and
investment...
The lower prices and
expectations in the US economy could be attributed to automation and increased
productivity of labour and excess supply... and lower inflation and interest
rate and expectations... A tight labour market would put brakes on lower price
expectations and increase price expectations by increasing the wage cost and
interest rate cost...
The US economy has
increased the supply of labour by using automation, probably, which is
responsible for lower prices and interest rate and expectations... Lower
interest rate could further increase supply and lower price and interest rate
expectations… The US should subsidise its exports with the tariff money to make
them competitive or cut their tax equal to the revenue from tariff...
Recently there has been
a debate on the Universal Basic Income (UBI)… UBI is not economically feasible
because of huge fiscal cost, but unemployment benefits claims help support
livelihood during recession and unemployment, the US has had it which supported
demand and prices during the last lowdown...
