Full employment and full growth, still to achieve...

Recently the issues of jobs creation and unemployment have gone viral in the discussion circles, among economists and analysts, that the government, even though has succeeded in increasing investment and growth by spending more on infrastructure, but the growth has been lackluster in creating enough job oppourtunities, which might be true, but as we know we are still recovering from a downturn due to the previous rate hike cycle which has become accommodative only after the new government has joined to office, the rate cut cycle started only when a new government took place at the centre. Nonetheless, the leaders in power have made clear that they want the nation to be of job givers and not seekers, and the efforts in that direction, ease of doing business and promotion of startups – a fillip to create environment for investment, employment and growth – have been enough to push INDIA’s rate of increase fastest among the major world economies. It has surpassed both the other two Asian giants – Japan and China in the recent past after 2013 and has become one of most attractive investment destination, which has low inflation (which means less depreciation) and more inflows, depreciation increases cost of foreign funds in the debt and the equity market. FDI’s and FII’s has been consistently flowing in, however the rating agencies has given a low rating with a stable outlook when they should rate it good given its growth rate and macroeconomic indicators, the low inflation has brought back expectation of rate cuts and an accommodative stance by the RBI when the commercial banks have only reduced home loan rates while investment in other sectors have been subdued, but the corporates have borrowed heavily from foreign through bonds and have also borrowed from the domestic debt market through bonds. But, the domestic banks have been helpless in creating new loans ‘cause of bad loans for which the RBI might use OMO’s to improve balance sheets to increase loans. Or, the RBI may allow sick PSBs to raise capital through bonds if not using the equity route… Or, all to some degree…   Reluctance of the commercial banks to pass on the previous rate cuts, the gap between repo rate and market rates, all point that the money supply have been inadequate and still the RBI has adopted a neutral stance even when it was hit by demonetization and surge in temporary liquidity in banks which the RBI restricted to create loans. To improve investment, employment and growth, the RBI must continue with an accommodative stance, lower interest rate and interest rate expectations are important to increase investment, lower unemployment and increase growth.