The global environment for growth has been one of uncertainty for investors prescribed by higher inflation and interest and expectations due to full employment in the US that has also augured higher inflation and interest rate and expectations and outflows from the emerging markets due to depreciation and inflation and expectations.
However, lower oil prices have ebbed the expectations of a strong dollar which could prove to be a positive for emerging markets inflows and appreciation, but tightening in the US and strong dollar could increase uncertainty for growth inspite of lower inflation in the US and slowdown in the biggest trading partner China probably due to tariff and trade war which could be contractionary for demand and investment coupled with slowdown in the emerging markets, including INDIA, EVs have changed the dynamics in the oil market... Even INDIA''s low profile cities have now e-Ricksha....
The trade war has the potential to cloud indecision in investment which is evident in the weak stock markets across the world further aggravated by rate hikes in the US and uncertainty in the oil prices all have contributed to a benign demand and investment scene which has changed expectations about the future and delay in spending,
Nonetheless, emerging markets have their own problems like NPAs in INDIA and higher dollar denominated debt like Turkey that could further add to instability in the domestic and global economy, but it is true that tightening in the US and emerging markets and expectations with inconcluding trade negotiations are bigger worries for the business and investment and employment and wage and demand and growth and expectations.
Higher prices or inflation and expectations signal rate hikes and expectations which lower and delay demand, but increase supply and expectations leading to lower prices and expectations, which again increase demand and price and expectations, when the interest rates are cut, as long as rate hike continues demand remains low and lowers prices and expectations, which eventually increase demand and price and expectations when the interest rates are cut, however prices or inflation and expectations could also affect demand and supply and expectations even without rate hikes and cuts.
Otherthings remaining constant, lower prices increase demand and lower or delay supply and expectations because real value of funds increase on higher returns expectations, and, higher prices reduce demand and increase supply and expectations the sameway… because the real value of funds reduce on lower returns expectations… even without an incentive or disincentive and inducement or reducement…
The idea of base year is to find a year in which leading macroeconomic indicators growth, inflation and unemployment and others behaved normal... Like after adopting inflation targeting and growth that followed....
INDIA desperately needs data on employment inorder to frame consistent policies... It has a large unorganised sector for which it has no data which could increase its GDP... Labour codes might help registration of the labourforce on a daily basis to know the unemployment rates... and... for course corrections...
Generally, WPI must be lower than CPI because traders buy from the wholesale market at lower rate, say lower prices to increase supply in the retail market after transport to selling points and unloading and storage cost... There is a margin of 10% from the wholesale market to the retail shops... normally...
True, CRR is a contingency part of the reserves which might be used to increase lending during rising NPAs and slowdown which is likely to underscore rate cuts transmissions... It is a rainy day fund to mitigate risks of defaults and low demand and growth....
The govt is a big player in the agricultural market... if it delays supply like oil companies that could contain loss... By delaying supply to the market the govt might nudge higher price expectations... when people expect higher prices they hold supply which further reinforces higher prices and expectations... Higher price expectations may delay supply and increase prices and expectations... Higher exports might also help lower domestic supply and increase price expectations... UBI could replace NREGA since both aim to supplement income...
'The biggest benefit of demonetization was to bring black money to the banking which could help create loans since it would increase deposits or savings and lower interest rates... However, RBI did not let banks lower interest rate since the liquidity was not stable, but home loans rates were lowered... which could lead to long run effects on the behavior of people to save money in banks... It could be continued if people choose to cashless... without it... there is no guarantee that people would not again hoard money to avoid taxes...
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