Competitiveness/Productivity/Lower-Prices and Demand/Supply/Growth...

Capital has no intrinsic value because the central bank could print money and lower the borrowing cost and no feelings or emotions unless it is combined with labour which eventually increases productivity of labour...

On the otherhand, labour has feeling and emotions therefore wages cannot be cut because it would be unjust, but inflation is used to cut real interest rate and wages to increase investment and exports which lowers domestic demand, but increases exports...

Nonetheless, lower inflation could increase, both, domestic demand and demand for exports, at lower prices industry would sell more... INDIA needs to scale up its level of economic activity to make itself competitive to get place in the global supply value chain and increase profits... Increasing exports could help create jobs in the economy...

To increase demand the Corporate Tax Cut may be passed on to the consumers which might increase Real Balances or Real Incomes with the Public... Lower prices would increase demand and price expectations when everybody would buy at the sametime at low prices...

A 7% reduction in prices could be attractive enough for spending decisions, even for the stock-holders, demand for inventories may goup, too... Corporate could themselves help increase demand and supply...

The Monetary Policy interest rate cut transmission has been too weak and too slow, due to high NPAs, which means liquidity has been lagging and not letting banks to pass on rate cuts to the consumers/borrowers which may increase demand and supply and growth in the economy...

Economists often point that lower interest rate discourage savings in fixed interest rate income or deposits or assets which are worst kind of investments, especially in banks, which pay too low compared to other savings in bonds and equities and also subject to inflation and inflation expectations...

The Govt must encourage investment in G-secs instead of plain fixed deposits through bank deposits... Higher interest rate discourages investment and demand and real incomes and wages and spending... The commercial banks could themselves help increase demand in the economy, if they pass on previous rate cuts by the RBI, which could increase revenue and earnings...

Both, the Govt and the RBI need to clear uncertainty from the growthpath and make the rational expectations about prices materialise and stabilise... Lower prices mean that demand and supply or GDP and price expectations may goup, whereas higher prices mean that the same all would go down...

Nonetheless, if people expect lower prices they delay demand and increase supply and further lower price and GDP expectations, but when people expect higher prices and growth they increase demand and lower supply which further increase price and growth expectations... But, too much volatility on the eitherside could taketime to restore price and GDP target at full employment... The objective is to stabilise prices and growth at full employment...

Taxes are also tool, just like interest rate to manage demand and spending in the economy by the way of incentivising competitiveness and productivity and prices... Policy makers should adopt a counter cyclical approach to stabilize demand/supply and prices and growth at full employment.

Slowdown and Policy Transmission to Demand and Growth...

Low inflation and interest rate are the right time to invest, when the cost is low and as the firms would invest that could increase demand and price and expectations, but high inflation and price are time to increase supply… if everybody does the same that could help stabilise prices and interest rate and expectations...

Nonetheless, lower prices and interest rate expectations could reinforce lower prices and interest rate and expectations... Lower price and interest rate expectations could delay demand and spending and increase supply further lowering price/interest rate and expectations, but higher price and interest rate expectations would delay supply and increase demand further increasing prices/interest rate and expectations...

The market has still space to climb further as it is lower than the past peak... Stimulative commentary from FM could further increase the investment in the stocks... Correction expectations could be self fulfilling because people would hold buying which could increase offer/supply... Lower price expectations increase offer or supply of stocks which further lower prices...

Too high NPAs have resulted in limited transmission of rate cuts by the RBI by the commercial banks... Though government has recapitlised banks and resolved NPAs though IBC we still have considerable NPAs due to demand slowdown too... If the RBI and Govt use $ 50 billion or Rs 4 Lakh Crores from foreign exchange reserves to recapitalise banks that would help transmission by commercial banks...

Selling $s could increase expectations of higher $ demand by the country in the future which could be avoided by communication to deter too much speculation on dollar demand and price expectations... A strong rupee and lower interest rate and higher investment and employment and productivity and lower inflation could increase consumption and investment demand and growth expectations...

Raising foreign money through rupee denominated bonds and investment in infra could create ample jobs for its large unskilled workforce which could sooth the bond market... A strong rupee would increase foreign capital inflows... lower borrowing cost would increase demand supply prices and growth...

Lower inflation and real interest rate expectations mean people could hold spending to reach bottom to increase demand and spending... In INDIA inflation expectations has picked up from the bottom after demonetisation and near the rate cut cycle end could further increase demand and inflation expectations...

Nobody can exactly tell the bottom of real interest rates... But, INDIA has almost reached to the rate cut cycle end which would be cheapest to increase demand and spending which increases price and growth expectations...

Depreciation in the rupee and hardening of bond yields or lower bond prices show that expectations of the two markets are different... Foreign exchange market expects higher money supply demand and inflation and lower exchange rate while the bond markets expects lower money supply and higher bond yields or lower bonds prices...

Expectations affect current prices and growth and the market continuously corrects current and future demand and price and expectations... Many times expectations are already factored in the current price if everybody is thinking or expecting the same, but may correct due to risk or uncertainty or change in expectations, too...

The Corporate Tax Cut must be passed on to the consumers to increase real wages and incomes and demand... Similarly rate cuts must also be passed on to the borrowers to increase demand... Likewise GST too must again be passed to consumers to increase demand... These all together could be a big boost to private consumption and private investment too...