The govt may tweak income tax rate to increase demand of the salaried class and the middle class as it has been pending since a long back at par with the indirect taxes and the corporate tax cut rationalisations of the tax structure... Corporate are not passing cost gain and lower prices to the consumers.. Banks and the govt (oil prices), too...
Though, inflation and lower debt may increase demand, but disinflation may increase the value of money, too, and demand... Both, low prices and higher price expectations increase demand and spending, but high prices and lower price expectations may delay demand and spending and growth and expectations, increasing money supply would further increase demand by increasing the real incomes and returns on money...
Higher income, after tax, may increase demand and spending by the consumers while investors would increase investment in the sight of higher demand which would increase price expectations and spending and growth... When both demand and supply would increase prices and lower unemployment and would increase growth upto full employment...
Refinancing and restructuring of the NPAs due to interest cost and recession could help the investors... Refinancing at current rates (floating rates) could save a few of the bad debt due to low demand and higher cost... The RBI might control business by providing forward guidance about prices using the interest rate mechanism...
The inflation target band is more important than the average target, prices move between highs and lows and also due to change in price expectations... High prices and expectations signal high demand and higher interest rate and lower supply and further higher prices and vice versa based on the monetary policy actions...
If prices remain stable in the band it means expectations are stable between 2-6%... Below 2% its a case of cut and above 6% means its a case for hike, though the RBI has tolerated higher inflation during covid... The investors could take advantage of the monetary policy forward guidance to take investment decisions since inflation and inflation expectations and interest rate and expectations are stable... The inflation has barely crossed the upper and lower limit since the inflation targeting has been adopted...
Hike could signal hold on investment and increase supply and cut to signal demand and expansion... lower prices mean more demand and higher price expectations and higher prices mean more supply and lower price expectations... Lower prices mean it’s time to demand and invest more which would also stabilise the prices and higher prices mean it time to increase supply... Business expectations reinforce prices...
The stock markets market-cap to GDP ratio is still low compared to the recovery (in the stocks) seen after the 2008 recession stimulus... The stock prices might be expensive, but not from the time perspective... The stock market might be at all time high, but stock prices have been in the correction mode at many occasions since 2013...
Though the stock market is reaching late at 47, 000 which might be achieved earlier without heavy corrections... The stock markets still have much space (potential) to go up... The markets may try to catch up pace to level the loss in the midcap and small caps stock prices since 2017... Large caps still could be safe heavens... they have just recovered from the March 2020 correct and could scale new heights...
Strong rupee expectations could increase foreign capital inflows resulting in further lower interest rate and lower dollar which means more demand and investment... and, lower inflation and higher real wages... which also means higher productivity and competitiveness...
INDIA's debt market is largely underdeveloped since it lacks proper corporate bonds market so the foreign investment could flow in as a result of easing abroad like the US economy... When foreign money would pour in it would lower the interest rate and increase bond prices which would be a gain... The interest rate in the emerging markets would converge to the developed countries zero real interest rate...
In the developed world higher money supply has resulted in lower borrowing cost and prices and higher supply which has lowered prices or inflation... Bonds do well during lowdown when the interest rate are lower due to higher money supply and higher bond prices which have a negative relationship with inflation and prices in the broader economy...
The three farm laws are scrapped in the hindsight to increase farmers' bargaining power when there are more avenues to sell the produce, more players in the market with competitive rates, even exports... APMC has been replaced to cut the cost of the middle man and mandi's are not equipped to reduce wastage and storage cost which ultimately affect inflation which profit mandis and not the farmers...
Even more the concept of MSP is flawed, the govt sets MSP and buys it own, what a market it is where buyers set the prices and not utility and demand/supply? What is this arrangement? Prices must be set by the farmers according to the cost... The cost for Punjab and Haryana farmers is low due to too much subsidy for water guzzling crops, though, farmers at the other locations, having less than two acres need Maximum Prices, why they would sell at minimum prices...?
The farmers must consult poor farmers at other locations, before demanding removal of farm laws... they must win their support that they would sell at min prices or max prices... Contract farming would further increase demand and prices and investment in crops in demand...
We need more investment in the aggregation of the farm sector... We actually need an aggregator of aggregators....
Some question…Why the govt is forcing the farmers in to uncharted waters when nobody knows about market or frankly speaking in the stock market of grains... all could lose... Nobody can know the markets...A stock market is a risky place to be with without the regulation…
Modi lost several rural seats even in Gujarat also alongwith many states though he dedicated few past budgets to rural and agri sector to gain the lost ground when the Congress has good hold in rural areas due to MGNREGS... He is trying to appease rural areas by allocating higher funds for the rural guarantee scheme playing the old vote bank politics...
Modi's actions are timid and half hearted to move to a market system while his government is reiterating that mandis and msp would continue... The govt is trying to stop the farmers stir somehow... but farmers are unwilling to go back in case of unclear govt intentions... In a market system the farmers could still be losers because they lack knowledge of economics and business and big players could still play spoilsport at the cost of small and marginal farmers...
Poor farmers would lose and would be pushed to sell low in absence of any price forecasting models... Rich would have both money and grain to withstand low prices, but not small farmers..... This year too a lot of funds would go a longway to satisfy the peasants and farms, an unproductive sector like a black hole, no amount of money can satisfy poor and small farmers who actually need education and skills to grow and develop...
What people expect and how do they behave could turn it into a reality, if people have money and they expect higher price expectations they would increase demand and hold supply that would further feed into the the price channel or increase prices, but if they expect lower price expectations they would hold demand and spending which would also increase supply that would again lower prices...
