Lowering oil taxes and prices were now an imperative for the economy supported by lower public spending... Lower inflation and interest rate and expectations could provide relief from battering rupee... even exports might not respond due to higher borrowing cost... This time cheap money could help reduce price pressure and maintain demand and supply, which have been suffering due to higher oil prices and dollar and borrowing cost... When everything is getting pricier cheap money could help maintain demand and supply... Lower borrowing cost alone could make things alot cheaper... The RBI must take note that demand has not increased and is not a reason for higher (oil) prices, but supply side has been weak, which could improve with lower borrowing cost... The RBI must communicate well what it really thinks might work in this situation..... Cheap money could make things a lot easier...
Higher interest rates would make the matter worse for importers... Their cost would go up further increasing imported inflation... The same with tariffs... Oil prices are increasing then dollar is increasing, then borrowing cost would go up... Where is the respite...? Demand is not the problem, but lower supply of oil and dollar are increasing inflation which could be further complicated by higher borrowing cost... To control inflation it is important that oil prices come down, if not, dollar must come down and even if not borrowing cost must come down..... Demand is already suffering due to higher oil prices and dollar; higher borrowing cost would further increase suffocation....
Raising interest rates would contradict with simultaneous OMOs and SLR cuts... The RBI is infusing liquidity to reduce effects of dollar selling and less rupee in circulation and hardening yields and less investment, which are responsible for outflows from debt market and depreciation and also outflows from equity further increasing outflows and depreciation... At this juncture stabilizing yields and expectations, if not rate cuts, could help increase foreign capital inflows in debt due to higher bond prices expectations and higher stock price expectations, because of improved investment expectations..... There is a case for the RBI to cut rates or reduce CRR to support its SLR cut and OMOs initiatives.....
Nonetheless, the RBI might also help reduce the oil prices... if the RBI sells dollar at a discount rate below the market price around Rs 50 to the oil companies, they would be able to buy oil at lower cost or for less Rs which could be passed on to the consumers in the form of lower oil prices leading to further lower inflation and interest rate and expectations... So far the RBI has sold dollars at the market price that has helped little and reduced money supply and increased interest rate in the domestic economy and increased inflation and inflation expectations owing to higher oil prices... However, if the RBI sells dollar at the discount rate it would lower oil prices, inflation and interest rate and expectations resulting in higher economic growth.... RBI is no profit institution... It''s objective is to maintain low inflation....
Lower fiscal spending is good for lower inflation and depreciation, too... which could help lower interest rate and expectations... We should recognize the government’s efforts to control fiscal deficit and debt which had been a prime cause of inflation and depreciation and higher interest rate under UPA... Nonetheless, inflation under NDA is at manageable levels which could be further brought down with good policies... We need to anticipate problems of the Indian economy in order to devise proactive polices, which could help increase productivity and competitiveness... Today inflation is under 6% whereas under UPA it shot above 12%... Nonetheless, there is still a lot needs to be done to improve the supply side, from where inflation may creep in, in the economy for which lower interest rate may help improve domestic investment and supply..... Higher prices increase supply when the borrowing cost is low and lower public spending may help utilize resources, like labour and capital, by the private sector.....
Domestic oil industry is now a priority sector given higher oil prices, which might be provided interest or exchange rate subvention to increase production and supply and lower inflation and interest rate and expectations further... Higher oil prices have exacerbated dollar demand and depreciation for which increasing domestic oil production could help lower oil imports, prices and dollar demand, nonetheless domestic oil production has gone down in the past months which has also increased the demand for oil imports... The government may try to partly settle oil imports in rupees or goods to avoid dollar demand and depreciation... Oil is a priority for the lower prices and interest rates and the economic growth rate..... INDIA needs to emerge as self dependent for oil if it wants to lower interest rate and expectations and increase growth.....
Ad Valorem taxes are imposed on nominal value of oil, however higher oil prices were not expected in the estimates or higher oil prices were not anticipated, but higher oil prices must increase tax collection or reduce revenue deficit and fiscal deficit...
No comments:
Post a Comment