The division of labor according to skills and specialisation directly affect the productivity and competitiveness of the economy, it increases both the demand and supply by affecting the price-level, higher innovation and skills and productivity or supply and lower prices also increase competitiveness and demand and prices.
Thereby prices move between high supply and lower prices and high demand and high prices due to changes in productivity and competitiveness. This is true for the global economy, if every country produces goods and services they specialise the division of labour would increase the total product and income by increasing the productivity (Ricardo).
Higher productivity would also increase and help balance of share of the capitalist and labour which means higher demand and supply and growth, though the location of demand and supply and the transport cost are also important for the prices and if the gains from productivity are lower than loss due to transport cost trade could become unviable (Krugman).
While policy-making we are concerned with prices which are key for productivity and competitiveness like interest rate, wages and exchange rate or inflation adjusted or real interest rate, wages and exchange rate. By adjusting them productivity and competitiveness are managed which again affect the prices expectations...
For instance, during inflation real interest rate, wages and exchange rate go down which increases productivity and competitiveness which further increase demand and prices and expectations and also reduce supply and when there is disinflation and deflation real interest rate, wages and exchange rate go up and it reduces productivity and competitiveness which could further reduce demand and prices and expectations and also increase supply, therefore result in volatility...
The central banks actions could further reinforce productivity and competitiveness and prices and expectations, a higher borrowing cost could further increase cost and prices and a lower borrowing cost could further lower cost and prices and increase volatility... It is a dynamic equilibrium for prices move between high demand/low supply and high supply/low demand and people speculate on both high prices and low prices because it is profitable to invest or demand on low prices and increase supply when the prices are high...
Prices expectations are self fulfilling, if people speculate or expect lower prices they hold demand and increase supply which reinforce lower prices and volatility and vice versa...
How INDIAN companies would compete with foreign peers who could now borrow at as little as zero real interest rate..? Cutting nominal reporates could bring market rates low near to real rates in the developed countries... More savings in the g-secs could be a good alternative to simple savings deposits rate... RBI has liberalised rules for investing in the govt bonds...
Inflation in INDIA is good and well within the target band, when the US is trying to increase inflation, INDIA has no dearth of demand and stable prices... Some inflation is good for demand and spending...
The imposition of the retaliatory tariff by the US means that it wants INDIA to reduce tariffs on the US' products is a sign that it wants trade liberlisation between the two countries and a lower tariff on the US product would mean a lower tariff on INDIA product... Trade liberliastion between the two could help lower prices of imports and inflation for the consumers in both the countries and increase competitiveness and demand and exports and higher real wages and income would also increase domestic demand...
If the investors just follow safe heaven companies like bse30 or nifty50, mainly large caps, and buy on the significant correction they could earn even in the short-run... It is more profitable to buy low and sell high and doing it repeatedly one could earn even higher in 30 years... more compounding...
The second wave is good since it would push the govt and people to get vaccinated soon due to the scare of the virus... They would not take the situation lightly...
The infected should be inoculated first to stop the spread... The vaccine has been conducted on 8 crore people but there are still 1.2 active cases who must be inoculated on the basis of priority that could help contain the contagion... Inoculate the infected first...
The RBI may print currency to cover the cost of free vaccine inoculation to 1.3 billion people at the earliest... This would widely boost productivity across the economy, better than any spending to revive growth...
