Reforms and Rupee...

The consumption spending due to improved income expectations higher minimum wages, pledge to double farmers'' income and the 7th Pay Commission is likely to drive the economy despite of low business and government spending which would speed recovery in employment and growth... Lower wages and ample stock of labour and lower interest rate and expectations also increase probability of investment spending expectations followed by the consumption spending... Lower inflation would also lower cost and increase competitiveness... However, the RBI is expecting higher inflation on the basis of past experiences, but the government has worked well on the supply side reforms except land and labour reforms... The land reform requires lease reforms and life-long stream of incomes to the farmers or the land holders... However, labour reforms requires flexibility in hiring and firing which is important for the ease of doing business for which unemployment benefits or a good social safety net is required... Nonetheless, Insolvency and Bankruptcy Code is another milestone in timely recovery of loans and would help businesses and banks... The government role is to bring the schemes proposed in the budget to life by implementing them on the ground...

Recently the IMF has advised the Government to provide Rs 2600 Universal Basic Income (UBI) to all which would cost 3% of GDP after replacing food and fuel subsidy… However, a targeted transfer to the poor would reduce the cost... If there is a family of four, payment to parents only would suffice the objective... However, benefit to acquire knowledge and skills should also be transferred... NREGA is used as a tool to provide employment to the unskilled, but skill-development could reduce fiscal deficit by enabling them to get employment in the private sector, saving public money... It would reduce government expenditure on creating employment... Moreover, skills would also help increase real wages by increasing productivity... Demand and growth would increase…

A higher real effective exchange rate for the rupee or a strong currency means it could buy more things and foreign currency which could also make it competitive... It also means cheaper imports and lower demand and inflation... It also increases foreign currency inflows... A strong currency also increases competitiveness because INDIAn rupee could buy more... Whoever is holding the rupee would get benefited... Demand for INDIAn products could go up too... It would increase imports and exports too because real effective wages would go up due to lower domestic price-level... Recently exports have picked up despite a strong rupee...