INDIA, US, China... (Rev.)

The protectionism does work and the free-trade does not, when we have capacity to produce at lower prices and scope to reduce unemployment, importing at higher prices lower real wages/income/profits...

Automation might help save labour and lower prices (due to lower real wages) in countries with full employment to increase productivity... ie capital and tech rich countries... Countries with higher unemployment need to use cheap labour intensive tech...

The economists dislike protectionism and automation... If, it had been true, that they are bad, China had not grown unprecedentedly... Imports are important for lower prices to increase economy’s productivity... unfurnished and intermediate goods to get a place in the supply goods global chains and lower global prices may be good for price and employment stability...

The 6% unemployment rate (INDIA) is only 1% more than the full employment range which points that the economy is growing just below the potential real growth 8%... which could be gauged also from the fact that after factoring the natural rate of unemployment the population growth rate is 8% which is also the potential growth…

The economy (INDIA) is growing 7% which is just 1% short than the potential growth rate... 1% increase in unemployment shows that the growth rate is lower by 1%... 1% of unemployment means 10 million jobless...

The US shows that full employment could go down as low as 3.5 % which means that there could be 25 million unemployed in the economy which also means that INDIA could grow at just over 10%...

INDIA has adopted a flexible inflation targeting which means that the RBI can tolerate higher inflation upto 6% and could afford to be patient not to raise real rates...

Had the RBI not increased nominal interest rates when inflation was low, the higher real interest rates had not increased the borrowing cost, which exposed the shadow banking crises and the economy turned slow due to liquidity crisis...

Price stability always comes at the cost of higher unemployment... We have stable prices during NDA... with setbacks for demand... from monetary policy, too...

The rate cuts would not solve the problem of low inflation in the US, rather they could further lower inflation by lowering borrowing cost and increasing (investment and employment and) supply and demand by increasing productivity of capital or lowering the opportunity cost of capital, which could again increase rate cut expectations and the economy might find itself in a deflationary spiral... The same is true for inflation and rate hikes; they further increase rate hike and inflation expectations...

The Fed may try to stabilize real interest rate at neutral or zero at which there is price stability and full employment...

If the multiplier theory is true tax cuts in the US could multiply its effect every year if money supply is not tightened and/or reduce spending by the government... Now, the Fed has to maintain stability of the natural real interest rate, real wages and exchange rate, and savings and consumption, and, investment and employment, and, demand and supply, and, prices and incomes and the economic growth and expectations...   China is facing excess capacity and over supply and also lower demand due to trade tension with the US which have reduced prices and expectations which must be changed to higher prices and expectations to increase demand and also to constrict supply to increase growth... China must increase real interest rate and expectations to increase price and price expectations through higher borrowing cost and lower supply without overheating... Higher price expectations could increase demand and lower supply to increase prices and expectations....

RBI and Oil...

The RBI should devise a mechanism to push banks pass on full rate cuts while maintaining the existing margins... which is doable... to stoke investment and growth... Higher liquidity too could increase scale of business and profits... Atleast banks are better-off even with full transmission of rate cuts...

The growth and inflation relationship is weak and is dependent on the excess capacity and output gap... Higher unemployment means prices might go down as a result of production and growth...

A neutral stance may help avoid rate cut expectations and delay in consumer and investment spending as people are less sure about rate cut expectations... When people expect lower prices they delay spending... Nevertheless, lower household inflation expectations could further reduce spending... To avoid this, a neutral stance is good... It means both rate cut and rate hike depending on the inflation and expectations…

Price and demand-supply or quantity of commodities are like bond price and interest rate or bond yield, income is decided by both bond price and yield, likewise income from oil or a commodity is decided by both price and quantity, either quantity goes up and prices go down or quantity goes down and prices go up, nevertheless returns or income remains same and lower prices mean higher quantity demanded and supplied and higher prices lower quantity demanded and supplied, revenue or income remains same...

It is a mirage that higher price would increase income... Moreover, lower prices further lower price expectations because either supply and demand or quantity increase or people delay spending if they expect lower prices, similarly higher prices further increase price expectations 'coz people demand and supply or quantity decrease or people increase spending if they expect higher prices...

Lower price expectations delay demand and increase supply which further lowers price expectations... Higher price expectations increase demand and delay supply which again increases price expectations...

Higher oil prices and inflation expectations and back to back rate hikes stroked the slow recovery from demonetisation and GST which were implemented in the backdrop of recovery from the past rate hike cycle, NPAs and slowdown... INDIA still needs to achieve the best... in terms of demand and growth when expectations from INDIA are high, especially by the investors, domestic and foreign, from a long run perspective... The investment cycle is still to kick in fully with lower inflation and rate cuts...

When oil prices were low, imports fell when investors ought to import or invest more... to create reserves to sell at higher prices later and contain prices and demand...

Volatility in oil prices add to the uncertainty... Transport prices are an important part of global trade... When global growth is expected to go down oil prices are expected to be lower... Nevertheless, low and stable inflation and interest rate and expectations when growth expectations are low could support oil prices, but inflation and interest rate expectations and higher oil prices would be contractionary... Like interest rate is to reduce domestic inflation, exchange rate could be used to reduce imported inflation... Cheaper exchange rate or at discount could help reduce cost of foreign exchange and prices or inflation, especially through oil imports... Lower interest rate may increase depreciation or nominal exchange rate increasing real exchange rate and demand for exports by lowering the price level... Lower inflation or higher productivity increase demand and supply or quantity, exports, too... In exchange rate parlance increasing means lowering or depreciation in the exchange rate, true for real exchange rate, too... and decreasing means increasing or appreciation in the exchange rate... real rates, too...

BJP has promised more public investment to increase productivity which would increase competitiveness and demand and growth or lower cost/price to increase demand when Cong has promised more demand directly, which may increase fiscal deficit and inflation without increasing effective distribution (market) of labor (employment) and production... Lower AND stable prices have been the attributes of the BJP...

NYAY and Unemployment and The Monetary Policy...

The need to make people independent by providing skills and jobs is overrided by policies to make people dependent and increase scope as vote banks...

NYAY has targeted only the employed and promised to support their income... Atleast no one has put that unemployed would get Rs 12, 000/month...

Probably NYAY has nothing to do with unemployment; it is an income support for the working group earning less than Rs 12, 000... Are unemployed going to get complete 12, 000...?

How NYAY is going to help unemployed... (?), when the problem has been unemployment.

NYAY has overestimated the cost of living... Rs 9, 000 could be appropriate for a family or a household given the existing subsidies... But, it has not targeted the unemployed... There is still scope for unemployment benefits and dbt for education and skills...

There is still need for unemployment benefits transfer b’coz NYAY has only targeted the poor employed by its income support scheme...

Unemployment benefits are an important part of the Social Security...

The government should promote self education and self certification after graduation...

Modi's 10% reservation to economic weaker, people earning less than 8 lakh, is a bigger game changer, it covers a larger population, including the middle class too, besides poor...

Recently Raghuram Rajan raised doubts about the employment and growth data. But, Rajan himself never valued unemployment data while deciding the monetary policy during his stint when price stability and unemployment, both, are important from policy point of view... He never pointed that unemployment data are too much cumbersome...

Government's commitment to low fiscal deficit and better supply side management, especially the food, and lower debt and inflation have been slowly recognised by the RBI... But, had not translated to lower inflation expectations, by RBI, and lower interest rate...

After demo the RBI had to cut rates to increase falling growth expectations... which hit the already bottoming out economy and slowed the economy further... which was further hit by oil prices and depreciation and two successive rate hikes...

The RBI had not been helpful for more production and employment... lower borrowing cost could also increase competitiveness and demand/supply and growth....

Higher interest rate would be bad for, both INDIA and the US... A strong dollar could further increase depreciation and increase oil prices and CAD and outflows... and higher interest rates in INDIA... A US recession would help INDIA in terms of lower commodity and oil prices and inflows...

Lower inflation and inflation expectations might not increase the nominal exchange rate transmission... means lower inflation and expectations premium...

Today the RBI in its monetary policy review delivered a 25 basis points rate cut even when household inflation expectations has remained benign while maintaining a neutral stance which points that further rate cuts might be possible going ahead…

The RBI must have avoided interest rate cut expectations since it could delay demand worsening growth... It had better provided a 50 basis cut while maintaining a neutral stance dependent on the incoming data given higher real interest rate compared to peer countries...