Increasing fiscal
deficit-debt limit is the second best strategy to boost spending and growth is
widely accepted... the first being the lower interest rate and lose monetary
policy... During the 2008 crisis the RBI reduced interest rates to 4% and now
we have a higher interest rate at 6% which means we have still a lot of room to
reduce interest rates... In a globalised world higher real interest rates when
the developed countries real rates are negative is a perfect recipe for making
the domestic economy and investment uncompetitive... However, inflation and the
inflation targeting are concerns, but that is much a supply side problem... If
the government could commit better supply side management, even through price
stabilisation policies and funds for food supply and food security instead of
increasing spending directly, it might convince the RBI to lower rates and
increase domestic investment...
Inflation is a problem
for the poor who have less bargaining power in the market and less income and
savings, but good for businesses because it lowers real interest rates... The
government should support the poor so that inflation does not affect their
income function (Consumption plus Savings)... Poor people's propensity to
consume is more than rich people, therefore demand would come from the poor and
lower interest rate would increase investment and supply which are good for the
economic growth rate...
Government should keep
doors (imports) open for food and fuel supply in the short run... Inflation in
INDIA is basically a supply-side problem... The Government and the RBI might
incentivize imports which might improve supply and lower inflation and interest
rates... Lower inflation might further increase chances of rates cuts in future...
Import substitution is a better strategy to create more employment... 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...
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