Public Debt, Spending and Productivity and Banks' Recapitalisation (Revised)...

Instead of capitalising public sector banks itself the government should sell stake or shares in the equity market that would not need government capital or borrow through bank-bonds form the money-market using private capital... Moreover, there is enough space to increase public debt when the developed countries have exhausted aggressively, including China... INDIA is very conscious of the credit-rating-agencies for a better rating for itself, but INDIA should not be bind by this assumption that credit rating are very credible and foreign investors would pour more money, but the problem in INDIA is private investment and not foreign investment which is aided by cheap capital despite huge public debt in the developed countries... The government should spend without overheating on increasing productivity, education, skill, innovation and infrastructure which also decrease cost of investment and lower inflation... Public spending on increasing productivity would also lower inflation and inflation expectations because production would increase…

Domestic debt is not much a problem because it could be bailed-out with new money... However, debt in foreign currency, especially dollars, could still have far reaching effects across the globe when interest rate are being increased by the US which could increase the risk of default on foreign debt...

Sooner recapitalisation of PSBs would speed recovery in investment, employment and growth... The government must push those plans which have a higher employment multiplier... Skill development according to the market demand would also increase demand for teachers and trainers... If, INDIA could be able to regain 8% growth rate and low inflation (within target) that would increase domestic investment and foreign investment too... Higher growth and growth expectations are better indicators of how the economy is doing for more investment and employment instead of ratings...

International oil prices are now near $ 50 per barrel, half from their peak, but local oil prices are not half from their peak due to different type of cesses... Passing lower oil prices to consumers would increase their spending consumption and savings... Moreover, lower oil prices would also reflect in lower inflation numbers... Both would have a soothing effect on the interest rates and demand, and investment, employment and growth...