Few days back the
Chief-Economic-Advisor Arvind Subramanian presented the Second Volume of the
Economic Survey which presented an overview of the economy against the context
of demonetisation and tax-reforms such as GST which painted a picture of
negative expectations about growth in the short run and calls for achieving the
potential in the medium to the long-run through using all the levers the RBI
and the Government have.The broadening of the tax base and the greater
formalization of the INDIAn economy are likely to keep fiscal deficit under the
target and improve the quality of spending. Tax is a power-full tool of
redistribution, it is often taken from the rich and is spent on public works
and wages which means given to the poor, therefore it is important that
everybody pays its due taxes, however redistribution of income and wealth
according to the productivity has had been the objectives of the
economic-policies so that it increases genuine demand and supply and growth. If the Narendra Modi government has to end up
fight against black money and corruption it should make transactions with the
bank accounts compulsory... For children and spouses too... He might try a
deadline of eight months to induce or incentivize transaction from the banks
accounts... It should try to end cash completely... Not a single rupee should
be transacted out of the banking system... It would do a great favour for the
poor public who are dependent on the state revenue... It would increase the tax
collection... It would also help in 2019 elections... This time we would not
need demonetisation... but the will to reduce cash transactions with proper
incentives in 8 months... Why people would like to carry cash when it is
possible with JAM (Jandhan-Adhar-Mobile)... Money would be more secure while
transacting direct from the bank accounts... It might try no pin code for
transaction below a certain amount like 100 Rs... which might reduce time
consumed in digital transactions... It should try to make bank transactions simpler...
Businesses should start
production and accumulating inventories during low inflation slowly...
Everything would be cheap except borrowing, as the case in INDIA... Interest
rate cut expectations might not materialize as expected due to uncertainty...
Lower cost of production might help increase margins... Lower borrowing cost
would reduce average cost of production... However, lower inflation and
inflation expectations might increase rate cut and rate cut expectations, but
exactly how much nobody knows...If investors could form same expectations on
the basis of data it would profitable and less risky... You must think what
others think... The expectations that form around a stock increase its demand
and price... Investor should try to gauge demand... It is more profitable when you
buy low and sell high... Corrections are time to buy more...If there is
discrepancy in public expectations and Monetary-Policy-Committee (MPC)
expectations due to lack of communication, signals might be misread...
Expectations are formed by the right communication... Monetary policy signals
must be loud and clear to achieve the outcome, for example more investment...
Gap in expectations might increase uncertainty... Like happened before,
investors are holding back when the RBI is signaling more investment... The RBI
has tried no rate cut and expectations, but lower inflation and interest rate
and expectations might delay spending decisions... There is a big difference in
the RBI''s expectations and people expectations... Differences in information
might lead to different expectations... Unemployment benefits or insurance
would help flexible labour laws, easing hiring and lay-offs would also give
business flexibility ... However, jobs and wages must be attractive enough to
reduce voluntary unemployment...
Chinese would never
engage in a full-fledged war with INDIA because war is expensive, ofcourse for
the both sides... INDIA should not attack first and if China does it INDIA
should give a full blow to teach China a lesson... INDIA should utilize the
time to find Chinese weakness... and get prepared for any contingency... The
problems would be the same on both of the sides... It would also disrupt China
and would increase unproductive spending on war just for the Chinese
show-off... However, import substitution is a better strategy to create more
employment and deal with Chinese hooliganism... INDIA shouldn’t allow imports
that it can produce at lower prices... Tariffs might incentivize local
production too... It is upto to INDIA what it chooses to do... It is just how
you will achieve full-employment and full growth...It is important to protect
domestic employment against undue depreciation which is a short term measure to
increase export demand... It is unjust because the competitiveness is gained by
devaluing domestic currency instead of increasing productivity and lowering the
prices which might stoke retaliation and increase domestic unemployment... It
is also not good for the devaluing country because inflation and expected
inflation increases nominal exchange rate but reduces domestic real wages and
imports which means reduced overall demand... In a way devaluing country is
giving money to consumers to buy its product which is an awkward way of
increasing price competition and increase market share... People would always object
depreciation... Depreciation is a form of undue price competition which might
force some out of the market which also forces others too to follow suit or
fail... It results in currency wars and inflation and higher interest rate
which may put break on demand and growth and global growth...
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