The Indian Economy this year...

Inflation is closer to the upside-target even when we have used a higher price base-year and also a change in methodology. A change to a higher-price base-year for inflation will reduce inflation relative to the low base-year. A low price base will show higher inflation... All these changes in the base-year and methodology have made our inflation target achievable... And, if we will retreat to original base year, definitely the inflation rate would be higher... more than 5.61% and hopefully less than 6%... A rate cut is warranted only when our inflation-rate is lower than 5%... and, probably the effect of lower oil prices is yet to show-up in the latest inflation data for the last quarter or later... We are definitely on a glide-path... an all around lower prices because of low transport cost/prices... But, no doubt economists and policy makers need data to decide and justify the course, for more informed decisions, too... It is not always necessary for the RBI to keep the inflation rate lowest, also because of price-rigidity, but it is important to keep it low and try to stabilize at that level... means more consistency in policy, not too much frequent changes... INDIA is a supply-constrained economy, not only in terms fuel and energy like the developed countries, but also due to bad marketing of other essentials of life, mainly food... A rate cut would help exports competitiveness. More money-supply, more depreciation... Good time to build-reserve, too, more depreciation...

Public spending in times of fiscal-consolidation from a rating point of view may be not so good but we have also ample reasons not to believe the rating agencies. The last recession we saw in 2008 is largely attributed to banks misconduct and wrong ratings in the US... They painted a good scene of the economy while debt and inflation soared at risky levels (the sub-prime-crisis)... Economist criticized rating-agencies for this. Therefore, if we think that rating agencies have a credibility-problem that might be true... Public-spending on infrastructure when the private sector is constrained of capital and infrastructure, itself... will help pick the economy steam, growth, because we are supplying what the economy really needs to increase quality of life... We want inclusive development of all people and regions and that should be best gained when we increase knowledge and skills, a productive work-force, a true human-capital... he will also pay taxes, revenue will increase... The government is exploring ways to finance the infrastructure-deficit... This best way to finance this is to borrow from the West for long-term where interest rates are record low or allow near complete FDI... That would also help improving foreign-reserves, meanwhile... The RBI too can contribute through lending its gold which lying idle in the reserves, and corporate should be included to bring in private capital... The GoI is considering PF funds to finance infrastructure in the long-run, good-idea...

INDIA is a big exporter of cereals... a big part is going out of the country and prices can go down if we reverse the situation... if everybody else's expenditure on food will go down other prices will follow... food inflation in cereals was always high... but does this price reach the poor farmers pocket... grains are bought at an earlier date and is sold (by the government) after months... Prices go up every month, but this gain does not reach to the farmers... our poor farmers are not very speculative... beside big fishes... those who have control-over storage and release of food grains to the markets... i do not think the farmers have all the control to market his produce... the difference between the farmers price, the storage price, the whole sale market-price and the retailers price... with-out much value-addition... only increasing the market cost... The GoI should help farmer store without cost and sell to the whole-sale market when he thinks prices are right to run the cost and earn profits, not the middle-man... Our 60% of population lives in villages and dependent on agriculture for a living... The middle-man chain has depressed agricultural income... The profits are not reaching the farmers and also cost the GoI subsidies and MSP determination... All these have made agricultural unattractive to other professions... Land is most scarce... for housing too... agriculturalists low income is against demand and growth... Everybody else’s income is increasing faster...  

More competition, more supply, even from imports and simple FDI too should keep prices in check for a larger set of consumers compared to producers subset... farmers are also consumers... And, a good thing is that a farmer does not buy grain, they are sellers... it is the excess of what he can consume so his food problems are partly solved... if any farmer does it he is making a mistake, because he is then buying it from the market at a higher price... not wise... food problems are for the rest of us... Villages are full of good and nutritious food... most farming is done in small villages... but it is devoid of good education and close markets... The long-run trend found in the west that as money-supply has increased more supply of goods and services has kept prices in check except oil... is opposite of what the quantity theory of money says... In short, lower prices ahead and the region is also ahead in terms of jobs (quality too) and the standard of living... I do not know about Europe but as far US is concerned, after Paul Volcker (a former fed chief) inflation remained under control within the comfort levels below 10 % even after increases in oil prices... so to reduce subsidy market is the best strategy...  Food is problem for those who is not growing it... it is a problem for others... So food prices rise or fall it does not impact the rural-population nutrition charts... Extreme poverty is a partial condition... Not a general observation... mostly attached to cities... More farmer income will directly benefit the industry... And when 50% population of INDIA is seasonal occupied by the agriculture... it is major source of income... a big sector... a lot of population is dependent on agriculture... alot of demand will be generated... This will work in through the multipliers (actually accelerator)... The more industry will pay the more it will reap... The government is increasing cost in the middle... Agricultural subsidies will be paid by the market... They would invest in storage... Market is competitive it would cut the costs... When it will become profitable more investment would follow... INDIA is populated... Scale is too big for investors... Just like a cheap and volatile share... Volatility increases the risk for investors and returns high... The more you can buy the more you can sell... more profits... Very good investment...

If we reduce the middle-man chain in the supply of food-grains farmers will get higher prices... It will incentivize farming... INDIA still has to transform agriculture in to a technology-intensive sector to increase productivity, output... Liberalising the FDI in the food-supply-chain-management will help increase investment in agriculture... while domestic investors are reluctant and slow... Without significant investment to raise farm output our industry will face higher cost of capital...  Agriculture (food) is very crucial for economic expansion from the view-point of inflation, interest-rate and human-capital...  When we talk about supply-side constraints in INDIA food is a major point, besides infrastructure...  The government should not shy away from importing good food to keep prices in check... The whole argument between the Center and the RBI is about interest-rates and food prices are the reason for high rates... The government has set aside Rs 500 Crores as price stabilization funds which should, as sounds, be used to tame prices, but no doubt we will need foreign reserves for imports... The fund will help improve supply within the economy but, again, it will stress our current account deficit that stands low relative to inflation and high interest-rate as a problem... Foreign trade should be used to increase internal demand and growth... It is an opportunity...  Controlling CAD at the cost of domestic consumption, prices and interest rate seems too hawkish...

No organisation can survive without right skills to produce and market its product... Even our PM believes in the skills-shortage and economists under-score his vision... Firms, especially the Indian ones, have not much scope but to employ unskilled and give them on job training... That is how they are running since inception... but, now firms are demanding skill-ready employees from the government so that they do not have to spend time and money to get them job ready... Skills are also important for productivity, wages/incomes, demand, production, employment and growth... Therefore, any policy, even FDI, if leads to these conditions within the domestic economy should be promoted... Moreover, the long-run assumption that labour-supply is fully elastic on the natural or subsistence-wages/incomes is not valid and the evidence of the Indian-economy points that the economy easily starts overheating which is actually very good for wages and income... Weak bargaining power of labour and inflation is responsible for the natural-rate or the subsistence theory...  Moreover, more firms relative to the labour-supply will certainly push wages and income, and will lead to more demand and growth... Therefore, if we have to breach the subsistence-wages-trap, either Unions should be empowered to bargain or at best inflation or prices must go down...

It would not be an overstatement that in the recent times foreign-exchange-rate policy is centered around exports, employment and growth. The pattern is present everywhere... US, Europe, Japan, China... Even the Make-in-INDIA initiative of the present government is a step in giving Indian export sector a push. INDIA’s export sector, especially manufacturing, is largely underdeveloped and there is a scope for employment generation with relatively low wages. The country so far has concentrated on domestic-demand for growth but now with greater emphasis on manufacturing and exports INDIA is likely to out-pace cooling China which is going through a slow down much like the Japanese and the US style, a deflationary bias in the economy... However, INDIA with a sound policy, even in the exchange-rate...  a little depreciated Rupee to give export and employment a chance... can take advantage of both the positions... An investment inflow and hardening rupee and investment outflow and depreciation... Increasing foreign-exchange reserves during inflows and hardening will help us weather too much depreciation during outflow and costlier imports and also increase our competiveness... Moreover outflow and depreciation will, again, increase export competitiveness. We should use our foreign-exchange rate policy for more productive employment and growth, it would be helpful as far as demand and growth (external and domestic) is concerned... The investment-cycle in INDIA too is soon to kick-in with interest-rate reduction... Good for exports... Depreciation and low interest-cost...

INDIA in 2015 became the fastest growing economy in the world after China after change in the methodology for calculating real-gross domestic-product, but its high inflation (due to supply-side problems and slow trade-liberalization) and high nominal interest rate have put brakes on demand-supply, employment and achieving potential economic growth-rate... Higher growth-rate is important for higher demand, investment, and profits/wages with price-stability and full-employment. Monetary-policy is a supply-side tool, but it also increases demand in the economy by the way of increasing employment, but, again not after full-employment... Full-employment means we have reached our limits and there is a scarcity of labour within the economy, and supply cannot be increased with domestic labour and prices or inflation start rising... This can be called the labour supply-side problems with structural-factors like education, skills and productivity... In this situation if we want demand-supply and growth without increasing inflation we need external supplies or the international-trade without which the economy will only feel overheating and loss in the value of money and demand... External sector is as important as the domestic sector in fulfilling demand, increasing welfare and achieving higher-growth rate... If trade-liberalization does not reduce domestic employment and help lower prices and interest rates, it should be promoted, because that might eventually help us achieve full-employment and full growth... The point is that if we have achieved full-employment, trade-liberalization will also help achieve price-stability... More supply and lower prices are important for lower interest-rate, high investment and high economic-growth...

RBI kept repo-rate constant at 6.75 with no liquidity injections. Inflation in the recent data, around more than 5%, after two consecutive months of increase may still indicate food supply problems due to seasonal problems and rains that INDIA face almost every year. Inflation in INDIA mainly emanates from the ineffective supply management of food articles. INDIA suffers from seasonal inflation because it is too much dependent on rains and also excessive rains in some parts which lead to flood and crop damage. Every year drought and floods upset prices of agricultural products. Lack of demand and supply data, and effective action in order to maintain price-stability and demand puts INDIA in a fix and delayed monetary-policy action to increase growth for the past several years. Nevertheless, the situation has improved on account of proper actions to manage food-supply by the government and retail inflation has come down from double digits to below five-percent. However, to avoid seasonal inflation there is alot more to be done to get ontime data and effective actions. Agriculture needs a lot of planning to reduce the lag between demand and supply adjustment. The government has a larger role in the supply-side management rather than tweaking demand by the monetary-policy.

RBI in its monetary-policy stated that banks still need to pass-on the previous rate cuts as the interest-rate transmission has been close to half which leaves room for banks to lower the existing rates. Nonetheless, RBI maintained that the monetary-policy would remain accommodative as long as disinflation continues. The RBI proposed to bring methodology to set banking rate as per the marginal-cost of funds. However, the strategy to set bank rates according to marginal cost might not work without opening the sector for more investment and competition. More banks in the market with good regulation may help set rates according to marginal cost. The competition to increase market share results in price-competition among firms. It would also improve transmission... The RBI might try to increase competition in the banking industry...

Any policy is a dis/incentive for a particular outcome... It is true that the black-money is a product of tax-evasion... But, the money flows to other countries' banks... However it may have entered the country from other channels... anyway FDI, FII... foreign banks do invest in g-secs of other countries... The government could incentivize return of the money to the Indian-banks which would increase their lending capacity to lend low... The government might offer zero-tax on the condition that money will be lent to the Indian banks at zero interest rate... Taxes might be sacrificed to lower interest rate... There is always a trade off...

Disinvestment should be calibrated; otherwise it would reduce investment and growth... Timing of public-investment is also important... Disinvestment during downturn might weaken demand and growth... However, timely reallocation to other uses may help growth... Infrastructure is important... Re-capitalizing PSBs could lower interest-rate but more investment in infrastructure would also crowd-in more private investment to improve supply and reduce inflation... Inflation constrains demand and economic-growth by increasing interest-rates... Money from disinvestment must be purposefully deployed...

Rupee depreciation might be sensitive to other factors than a mere increase in money-supply... Like devaluation in dollar due to Fed's rate hike delay... UK may also increase only in 2017... Easy money-policy for longer than expected might increase depreciation of their currencies too... Things have changed alot after China... Everybody is trying to stay afloat... Strong rupee shows the strength of the INDIAN economy... It means money is flowing in...

IMF has recently declared INDIA a hot-spot for global investor and even better among emerging markets due to its equanimity underscored by its reliance on domestic demand for growth, low global commodity price regime because it is mainly an importer, its upcoming rate-cut-cycle, the idea to explore manufacturing and exports possibility with low wages compared to the peers, its high rate of population growth rate, a reservoir of labor and demand, low fiscal and current-account deficit and its pace of expansion and growth, both actual and potential, present best investment and business returns... However, regulations still constrain the ease of doing business... Nevertheless, INDIA has improved alot on competitiveness in a recent rating-report and the government is conscious about problems of doing business, both foreign and domestic... Businesses employ people which is good for demand in the market through multiplier which creates income and tax to improve human-lives... Notwithstanding, the burden of a large number of poor-people, also due to high population growth-rate and unskilled and unproductive labor-force could not be underestimated... Nonetheless, unprecedented public-spending in a developing economy would increase demand and prices (inflation)... The supply of money either by fiscal or monetary-policy should match or increase availability of goods and services... If the policies only aim at increasing money it would not solve the problem, but might lower demand-supply and growth by increasing inflation and interest-rate... The economy might start de-accelerating... Higher prices keep demand and supply low because interest-rate will increase... The question naturally arises that if inflation is high then why the central-banks restrict supply by increasing interest-rate when they may actually increase supply by cutting rates? Low cost of capital might help improve supply and lower prices... lower cost will also lower prices and inflation... When central-banks try to decrease demand to lower inflation it also lowers supply which puts the economy on a down-path... a contraction... Demand and supply are not independent from each-other rather they are different names to address the same economic-activity... When central-banks try to regulate demand by increasing interest-rate it also decreases supply and thereby worsening inflation... However, zero-lower-bound (of interest-rate) is the limit for interest-rate-cut to increase domestic supply after that foreign supply comes into play which might help to store supply and demand and price-stability, actually lower prices to increase economic-activity and growth-rate... So far economists have attributed high inflation to high money-supply and demand, and, not to the actual supply and demand of goods and services which might be positively correlated with low interest-rates...