Bells for More-Spending...

Prices or the general-price-level or inflation play an important role in the economic-policy-making and the economic-growth (-rate) via spending, private or public, when lower prices and price-expectations are a signal for expansion or more spending, and, higher-prices or price-expectations are a sign of contraction or lower-spending, all through by the management of money-supply and interest-rate or borrowing cost by the central-bank when lower prices and interest-rate and expectations also increase the scope of public-spending without crowding-out the private-sector expansion and overheating, however the accelerator from public-spending on employment and wages has a higher value than the multiplier because all wages are consumed by the poor, their propensity to consume is higher, demand and economic-growth increases at a faster rate. In the context of the Indian-economy and demonetization and limits on cash-withdrawal, which has hit employment, wages and spending, recently, has set lower prices and growth and expectations in the near-term also promote the expectations of lower interest-rate by the apex-bank and higher public-spending by the government, it presents a case for expansionary monetary and fiscal policies, however the RBI delayed the rate-cut in its last monetary-policy-review in the hindsight of not to violate its inflation-targeting framework, adopted during the last governor tenure,  under the uncertainty and unavailability of the latest inflation numbers, but, now, as the most recent data (December) on inflation show unexpected fall to 3.41%, due to interruption in the economy-wide economic-activity, lower demand, supply, prices and higher unemployment, because of the unprecedented move to demonetize 86% of the currency in circulation, the bank might decide to cut-rate in higher frequency to stall falling economic-growth and expectations and at the same-time improvising the prospects for the economy which is still trying to recover from the past rate hike cycle and slowdown with higher non-performing-assets (NPAs) as the residue which is a major concern of the economist and policy-makers in the country. Higher NPAs are a major drag on the capacity of the commercial-banks to lend- out to businesses to increase employment and growth and they are hesitant to invest due to slow recovery from the past trough, nonetheless the growth-rate of the Indian-economy is the best among the major economies, though lower than its peak or potential depending upon the labour-force participation rate that joins every year, the higher the workforce of an economy the higher are its growth chances because it increases both demand and supply. Notwithstanding, when the private-sector is short of bad- assets and lower borrowing cost, it is upto the government to lead and crowd-in them by more spending on infrastructure and improving productivity of the economy. The RBI recently has prodded the government to be wary of high debt and misallocation of resources, but it is natural to have high debt during slowdown to increase revenue and growth in the future, however it is still low compared to other countries like China. Nevertheless, generally, economists warn of higher foreign-debt because the central-banks cannot print foreign-currency, but debt in domestic-currency could be easier to handle. Higher public-debt in a developing economy is desirable because of higher needs of the economy when the private-sector is limited by higher borrowing-cost and slow recovery in demand. INDIA is still gaining pace from the previous slowdown and rate-hike cycle for which lower interest-rate and public-spending could be panaceas for more private spending, lower unemployment and higher economic-growth-rate. Higher growth and growth-expectation are crucial for investment decisions…