INDIA Is Not Demand-Deficient, Spending Would Recover Fast...

As the demonetization story is slowly unfolding in terms of the effects on the demand, supply, and prices and growth, expectations… about the future that how long we have been in the trail of facts would signal the agents to do the best in their budgets, investors included, during this short-period of crisis of cash, matter. If people would feel that demonetization has benefitted them apart from the hardships they have faced they would support it since it is a big social-reform that is worth a short-run-pain since black-money is a form of social injustice and add up to illegitimate demand in the economy. The common-man is the agent to bring this big social-transformation, from corruption to a clean system, since his welfare is dependent on good public-services and state support in the form of direct benefit transfer and social-security net. Higher taxes are spent on the important things in life which are difficult to provide by a small vendor and the money from demonetization would be spent on the welfare of the poor, the Pradhan-Mantri-Garib-Kalyan-Yojna (PMGKY) has been started to show the government’s commitment to improve the condition of the poor of INDIA. Good infrastructure and employment-skills are sine-qua-non to a good standard of living and would help reduce poverty. Employment is best insurance against poverty and exploitation and the curb on black-money would improve the distribution of income and reduce inequality. Black-money in cash is saved after evading taxes that has a direct bearing on the spending on public-purposes to increase the quality of life and social-progress. Tax-evasion is a crime against the society, it holds-back development and growth, and higher spending by government may increase demand and supply. Apart from this a sweeping change could be expected when the banks are flushed with deposits and would be able to finance the loan demand at lower-rates when we say that INDIA is not demand deficient and the RBI has kept levers tight due to inflation and inflation expectations which would lower growth-expectation. However it is expected to cut rates when it has maintained an accommodative stance in case of lower inflation. Demonetization has improved on expectations about loose fiscal-policy and monetary policy in the next few quarters. The economy would definitely gain beyond demonetization because of better expectations for the key economic-variables like low-inflation, lower interest-rate and higher-spending, consumption and investment, and lower unemployment, too… The economy meanwhile is getting its math right… Higher savings due to limit on cash withdrawal would also be spent… Demonetization has increased expectations about the growth-rate in the following quarters. The economic-growth rate could touch 9% in the next few quarters on the back of rebound in demand till the cash-cripple is over because spending would recover at a faster rate …