Simultaneous...

The recent fall in the oil prices around 25% and the simultaneous appreciation of Rs 2.20 in the past week have turned around the macroeconomic scene in the economy (INDIA) due to lower inflation expectation in the hindsight of the data expected in the coming months after October, which may again push the central bank to reconsider its inflation and interest rates expectations and forecasts further lowered by food price inflation.

However, retail inflation has already gone to 3.4% down in the past two months, even though, fuel prices had showed some pressure which is likely to go down in the data in the future.

Moreover, INDIA’s growth has been over shadowed by the NPAs on the private sector and the public sector bank’s balance sheets since the recognition started after 2013 under overheating and escalation in cost of businesses due to higher inflation and interest rate that aggravated to problem of NPAs which account nearly Rs 10 Lakh Crores.

Prior to 2013, both, food and fuel prices were at their highest due to fiscal profligacy which increased demand without increasing the needed production and coherent reforms and policymaking, nonetheless inflation during the present government has been mainly on the account of imported inflation, especially oil prices that restricted the growth expansion, in addition both the fiscal (3.3%) and current account deficit (2.6%) are quite low, too.

The RBI must admit that NPAs in the Public Sector Banks have grossly affected credit creation and rate cuts as not expected further subdued credit demand and growth... Banks have failed to supply loans as expected, which has put the onus on NBFCs that thrive on banks to advance loans that has increased significantly during the past years at the cost of commercial banks business, but higher interest rate and expectations have made the borrowing costly resulting in defaults...

Although, growth continued, the RBI may not refuse that NPAs did not let demand recover considerably from the last slowdown which could be improved by increasing money supply to promote loans and growth by reducing CRR and other options...

The RBI may not admit, but INDIA is going through, although, a mini crisis which demand contingency funds to be used to sustain growth... RBI must follow the international norms like Basel to decide capital adequacy which requires lower capital ratios than used by it...

Handing excess reserves to the government could increase inflation and expectations if it directly increases employment without increasing the productivity, which lowers inflation and expectations,

However, if it is used to recapitalize banks it would be just since it would channelize investment where we have low supply and higher prices and expectations, like oil, which could increase supply and lower inflation and interest rate and expectations....

The fiscal spending directly increases employment and demand and inflation and expectations, whereas lose monetary policy increase investment, employment and supply where there is higher price or return expectations...

But, the RBI is very slow to recognize this and deliver rate cuts to reduce borrowing cost and increase productivity of capital and competitiveness of the economy, when the job creation is low compared to addition in the workforce, we need 10. 2 million jobs every year to keep all employed, which is also (FULL EMPLOYMENT) the goal of monetary policies besides price stability, when inflation and fiscal deficit and CAD are contained it is prudent to lower unemployment, nevertheless exchange rate control is also responsible for depreciation and imported inflation for the domestic economy and foreign investment outflows.

Nonetheless lower oil prices and cheap dollar have lowered inflation and depreciation and expectations, which have renewed interest in the economy by investors, both, domestic and foreign investors, evident in increased foreign exchange inflows and domestic investors may also follow if inflation and interest rate and expectations continue downward and remain stable at lower levels, which might extend the current trade cycle or expansion in the growth that started after 2014 during the current government owing to favourable food and fuel prices.