In the Process of Budget...

We are expecting the first budget after demonetization on Feb 1 which rendered the economy with supply and demand disruptions imposed by note-exchange and limits on cash withdrawls with a lower inflation and inflation-expectations than targeted by the central-bank for 2017 at 5%, which has left the policy-makers with little choice but to re-monetize the economy with lose money-supply and spending by the monetary and fiscal tools to restore the economic-growth, lower interest rate expectations have further strengthened the case for boosting growth and growth expectations.   The Reserve-Bank-of-INDIA (RBI) has signaled an accommodative stance in the face of lower inflation and inflation expectations and a rate-cut is expected in the next monetary-policy review after Bidget-2017 even when the commercial-banks have already cut rates close to 1% after the note-ban and surge in deposits which would help increase demand for investment by improving the rate-cut transmission by the RBI. Nonetheless, higher tax collections followed by the demonetization would help to infuse spending on increasing the productivity and wages; an educated and skilled workforce would increase the economy’s productive capacity and increase competitiveness which is likely to increase demand and growth. The government has announced a slew of measures to give a fillip to the affordable housing for the poor and middle-class through lower interest-rates and exemption in taxes which would increase demand for labour and lower unemployment; it has the potential to increase consumption-and investment demand in the economy and foster the growth-rate. The spending on infrastructure would help improve supply-chain and logistics that would help growth of other sectors; however irrigation is still a negative when the agricultural is so heavily dependent on rains for growth, our former Finance-Minister Yashwant Sinha accede to this problem. The RBI might help the government to finance dams and irrigation facilities in the economy to diffuse floods and conserve water for agricultural purposes, probably by printing money. INDIA has done well in terms of reducing poverty in the last decade but education and skills gap are still there at higher-levels which are mired by low government-spending compared to many developed and emerging economies. China is still ahead in terms of number of patents registered a year and innovation in INDIA is also low which need spending on research and experiment, innovation should be incentivized by the government.