Price stability and
financial stability are not two objectives... When demand and inflation is low
financial stability requires more demand in order to stabilize the situation...
When FDIs, FIIs, are coming in domestic higher interest rates does not make sense...
Why only foreign countries make investments (?) when the domestic investments
are being held back by higher rates which are also responsible for default on
loans, lower rates could lower borrowing cost of the non-performing-businesses
and could make them viable... If foreign investment could grow why not domestic
private investment... Currently INDIAn economy needs more demand in the sight
to lower growth and growth expectation for which revival in private investment
is vital... Higher real effective interest rate and real interest rate for
domestic investment would make domestic industry uncompetitive... INDIA is far
far away from bubbles overheating and financial instability because inflation
and demand are low...
Nonetheless, higher
NPAs pose currently the biggest drag on the private investment and credit
creation which has made the economy add less jobs and create less demand and
growth, the non-performing businesses and the non-performing-assets on the commercial
banks’ balance sheet has reduced investment, employment, demand and growth
because of less transmission of rate cuts by the RBI which has also made the new
investments costly, the domestic private investment has been delayed due to
slow recovery in demand, again due to bad-debt and higher real interest rates.
However, the tradition to hedge businesses or investment in INDIA has been
behind the developed countries which might help cover risk by insurance, it is
like crop insurance which is probably more risky than business that is done by
finding the feasibility of investment based on demand and supply side estimations…
Hedge investment could help manage risk better in the future… The government and the RBI are mulling the
ways to unload the commercial banks’ off the less reserves problem to kick-in
credit take-off which might pay dividend interms of lower interest rate and spending and growth …
No comments:
Post a Comment