The Budget (18), Free Market, Borrowing Cost, Housing…

The stock market has saluted the stock market by back firing 1000 points... The market was finding a way for correction... it has relieved the market from tension of correction... it was an outburst of irrational expectations... it has a reason... which has happened as expected... Nonetheless, people think that budget is not populist… but it is a big push for the rural economy where 65% of the people live, which is a big constituency... Moreover, lower tax on corporate or business income is a feather in the cap, too... last year the GOI planned to reduce CT from 30 - 25, slowly in 3 - 4 years, but this year it has done it before the time... The budget has it ALL, push for rural demand, push for business and the promise to review Income Tax for the middle class... it could be inflationary to push everybody's demand for more income.... any spending in the economy affects everybody's income through multiplier... the same crowd in effect, spending increase income and further spending... the government budget is bigger that the last year, estimates too.... which points that the Government would spend more this year... In the (different) words o/f/rom Milton Friedman... it is true that the medical spending is important, but even a dollar spent by the government increases inflation... but, i would add that prices fall as the economy approaches full employment because supply and production increase, but they could increase due to rising wages after full employment, nonetheless, foreign trade could help increase supply, even after full employment.... and increase real wages/incomes/salaries/profits and spending and spending expectations, supply, too....

Coordination runs against the FREE MARKET ideologues... In a market, both, the seller and buyer have equality of oppourtunity to take calculated risks... However, investment or profits run on capital or access to capital... Lower savings and debt and investment, except the borrowed money from the US dollar reserves on which china has bet on, is a big risk, due depreciation and inflation (which it doesn’t admit), which might instigate dollar outflows, and has also lowered real wages and domestic demand in china... China is not a model to emulate... INDIA should follow a secular trend or slow convergence of nominal exchange rate to the real effective exchange rate, means stronger domestic exchange rate, how much things at the current exchange rate, except how much domestic currency, which would also increase inflows... Nonetheless, protecting livelihood or increasing jobs are important for demand of foreign products, too... How a poor country could buy foreign capital goods and services it they are workless and have no money...

Private investment would increase when borrowing cost would go down and the RBI has the ball... The past government cut interest rate as low as 4% when the recession hit back in 2008... But real interest is way above the real rates in the main trading or investors partners economy... which has given less space to domestic investors constrained by higher nominal interest rate and higher FDIs... Even this, less populist budget, due to lower fiscal deficit and debt compared to the last government, and inflation, too... could not work if there would be uncertainty on the RBIs front... how domestic investor would invest... Nonetheless, the government could increase awareness among domestic investors to borrow abroad at cheap rates... since FDIs are permitted by the RBI... Domestic investors could borrow through Masala Bonds from lower rates countries...

Don't worry if RBI doesn't lower nominal interest rate... inflation and inflation expectations would cut real interest rate, due to full employment and higher cost inflation in time.....

Otherthings remaining constant or cost inflation or the borrowing cost, an increase in demand for wages, due to full employment, would mean higher real wages incomes profits... leading to higher consumption savings and debt and investment and employment and growth and prices and expectations....

There is excess capacity or supply in the housing market... vacant houses..... there is actually no need for new houses, but to sell the existing ones... if a builder is unable to fulfill demand on time, he must accommodate demand in the existing supply... construction has the highest of NPAs.... it would accelerate investment and demand and employment and growth and expectations...