Prices and Growth (Rate)....

 Growth comes from either accelerator and or multiplier, when consumption increases first and, later, investment and more employment and demand and further consumption it is the accelerator and when investment increases and it further increases consumption and further investment... 

Investment reinforces or induces investment ie multiplier and consumption reinforces or induces consumption ie accelerator... 

Lower prices increase demand, other things remain constant, lower prices increase the value of money and consumption and demand and price expectations and higher prices decrease the value of money and increase and investment and supply and price expectations... 

Lower price expectations again reinforce lower prices and vice versa... Because what people expect too much becomes a reality if the expectations are rational... a rational expectation is a common belief... about prices and consumption and investment or demand and supply...

If the rational expectation is that price would fall they would hold spending and increase supply which could reinforce lower prices and it they expect higher prices they would increase demand and spending and hold supply which could further increase prices...

In the West productivity has increased, especially labour, but real wages has been as low as back in 1970s, that has put a lid on demand, though supply has increased... Higher money supply and low borrowing cost in the past decades have kept inflation low...

 Depreciation, lower wages, interest rate and exchange rate have increased demand of exports at the cost of domestic demand, though supply side and imports have strengthened that shows weak Phillips curve relationship between inflation and unemployment ie inflation would increase after full employment... 

Nevertheless, lower wages and interest rate have increased the productivity of labour and capital and supply.., but not their product, wages and interest rate which have depressed demand and increased supply and is reinforcing lower consumption and investment and lower prices... Higher real wages and interest rate expectations could increase spending, both consumption and investment, and prices and growth... 

Typically, low growth is marked by low prices and vice versa... The objective is price stability at full employment and growth... If prices at the full employment are stable, neither inflation nor deflation we must cheer the stability... In the West supply side has improved alot tokeep prices stable at full employment... Stability would help to keep up investment…

Lower inflation or a strong domestic exchange rate and a strong foreign exchange rate or appreciation lower import cost/prices could also increase export competitiveness... Lower inflation means a strong currency and cheaper exports, too...

Today money's value is tied to nothing and the central bank prints currency while maintaining inflation targets; it is not tied to gold or anything... These are investment goods with a value in currency terms or exchange value, these bitcoins and the major Tesla viewed by investors as profitable ventures, there is nothing like bubbles if it is backed by earnings growth... if inflation is low and stable... Many central banks have allowed bitcoin exchange and in the stock market...

INDIA direct taxes are highest among peers... To increase real wages and incomes the GOI may reduce incomes tax that would also increase competitiveness and demand, when there is limited transmission of lower cost to prices, like lower interest rate transmission by banks and higher prices in the real estate...

Budget may try to build dams to stop floods (and generate electricity, too) and improve irrigation facilities to control seasonal food inflation and help stabilise the interest rate regime which could increase productivity and competitiveness and demand...

Farming is the oldest form business... Most of the growth models in economics are based on agriculture... By selling lower to achieve economies of scale big farmers are hurting small and marginal farmers, it is the basic strategy in any market to gain the market share, lower prices and larger pie of the market... Look at oil producing countries... 

Indeed big subsidies have lowered cost and the farmers are selling even lower than the actual cost... especially the small ones...

Due diligence must be given to the fact that the growth has not been negative; it is negative only when compared to the last quarter or last year... For example, if the last quarter or year growth rate was 7%, a - 24% lower growth rate would be -24%/7% equals 3.4%... 

The growth rate is positive but lower compared to the last quarter and year... Higher inflation expectations from a lower base would help maintain spending or due to lower prices which could reinforce demand and prices... Every paisa spent anywhere would further increase income and demand and spending...

GDP Constant Prices in India increased to 33141.67 INR Billion in the third quarter of 2020 from 26895.56 INR Billion in the second quarter of 2020. Source: Ministry of Statistics and Programme Implementation..

Recovery from the Pandemic and the Farmers share in value...

The RBI has loads of dollars, foreign exchange reserve which could be used to capitalise banks... Strong rupee could increase foreign capital inflows and cheaper imports and domestic inflation also due to lower oil prices... Lower prices increase competitiveness and demand in the economy and exports... which could help maintain stable interest rate...   

 

During covid it is important to maintain some inflation to keep up demand and spending and help increase supply...

 

Farmers need share in value addition at every stage from raw materials to intermediate to finished product and in bidding and auction too, till it reaches the consumer... It would be profitable that Famers decide prices on the basis of cost...

 

Why the government decides the prices of grains...? The Farmers must be provided the capacity to hold and slowly sell on price rises... Small and marginal Farmers should be benefited by the market system and be able to sell directly to the urban retailers at very low cost...

 

The FDI in multi brand retail was allowed only to increase procurement by the large companies directly with mandated local sourcing... The transport cost must be low...

 

Short run is more predictable than the counter view that long run is more certain therefore the long run premium is higher than the short run, which is wrong... We could tell what could happen in a month or three on the basis of data, but difficult to tell what could happen in the next 5 or 10 years...

 

 Stock Market investors shall give little importance to day to day news and stick to the longrun story and invest more at corrections... Analysts say that investors need to follow the stock specific cycle and not the market cycle which could affect the stock market cycle too, especially the index stocks...

 

People wrongly believe that they shall buy when they expect that the market would go up, but contrary to it when they buy the market increases, though if they hold and wait for lower prices it would increase supply and lower prices... Investors shall try to gauge the majority rational expectations... which might turn a reality... Rational expectations are very important for investment decisions...

 

Correction means more investment... Lower prices increase demand and price expectations...  Guv Das view is for short term investors, there could be an imminent correction... From a 2 to 5 year perspective the outlook is good... The RBI too lower interest rate to increase demand...

 

The stock market is always suspected for bubble coz it runs on liquidity by the central bank, higher liquidity means higher stock price valuations therefore the market has responded sharply V shaped recoup with the liquidity support ahead of the broader economy and the RBI still in accommodative mode... Nonetheless, the market cap to gdp ratio is low compared the revival saw after the 2008 crisis...

 

Higher inflation due to supplyside disruption has helped increase margins and earnings of the companies... Higher inflation means higher margins and earnings... which have also pushed the stock market high... As long as the central bank maintains an accommodative stance the party at the Dalal Street might continue...

 

Lower prices in the stock market increased investment demand (after the Mar correction) while higher prices in the broader economy due to supply disruption and lockdown which hit the consumers demand, too... Higher unemployment has again hit the consumption story... Unless prices in the broader economy correct a little bit due to lower cost and higher productivity and supply and higher income, consumption demand may remain low...

 

Since more people than a million are adding to the labourforce every month then how can production remain low with more consumption and investment demand and spending and stable and accommodative monetary policy... 2021-22 would be more prosperous than 2020-21....

 

Modiji's attempts to curb corruption have been failed manytimes like to reduce back money in the economy that has skewed the inequality through demonetisation, but it turned out to be a bigger scandal by banks... Without sweeping reforms to cut down on corruption all would go down the drain which would further increase inequality and abuse of power and position...

 

Economists may give hope to the investors to keep investing in the economy that might help... The stock market investors and even FPIs are an important source of growth and must be saved; now not only rich, but many more people invest in the stocks...

 

Recently, BofA said that credit growth is bottoming out but growth could remain weak… Nonetheless, if the credit growth is bottoming out the growth would follow... If business or investors buy or demand or spend when prices and cost are low and sell or supply when prices are high they would gain and that would also help achieve stable prices and full employment...