We have close to $ 500 billion in Foreign Exchange
Reserves, if the RBI infuses $ 100 billion to capitalize PSBs which would be
close to Rs 7, 00, 000 Crore it could help transmission of interest rate cuts
and credit take-off...
NBFCs would also be benefitted due to credit
flows... Liquidity is also important for the stockprices... People have also
delayed spending in hindsight of Budget announcements...
Internal devaluation pursued by Germany is another
model, except China''s external devaluation model which looks inferior when
considered from the point of view of domestic real wages which increases in the
internal devaluation as inflation goes down... and also reduces the domestic
exchange rate and increase exports...
Since, the RBI has set an inflation target of 6%
(max side) it has restricted the average movement of prices or inflation in the
economy which also means atleast 7% wages and incomes growth would be necessary
to sustain real wages/incomes and demand and growth...
Nonetheless, price expectations are the major
determinant for investment decisions in the economy... The 6% inflation target
binds price expectations at 6% on an average basis... and returns/profits...
The inflation in core-manufactured items or CPI has also been restricted at
5-6%... except stockprices...
Both, low CPI and core-CPI tells that price and
expectations are low (due to inflation targeting) and people have delayed
spending due to lower price and interest rate expectations... Higher
inventories and low demand have also resulted in lower price expectation...
To increase demand and spending the govt should try
to reinforce higher price expectations, but not so much to reduce demand and
growth...
Rate cuts by the RBI could be the appropriate
response for lower price expectations..
As some claim... revenue is also dependent on the
demand and growth and may increase as the economy bounces back... Lower tax and
a big base or scale might be possible going ahead... Taxes also add to
competitiveness domestic demand, exports and growth...
The government has reduced the corporate tax rate
just like the US, but imposed tax on the buyback of shares... Paul Krugman says
companies would increase buyback of shares instead of passing tax benefits to
the consumers...
But, INDIA has tried to disincentivise shares
buyback... Lower prices to consumers might increase real balances with the
public and demand and growth...
INDIA should borrow foreign only in its own
currency... dollar denominated foreign debt would increase the demand for
dollars, resulting in strong dollar and higher imported inflation... and
depreciation in the exchange rate and outflow of dollars...
To attract foreign capital a strong rupee is must...
rupee denominated foreign loans would increase demand for rupee...
If people set same buy price, a lowest (low price)
to buy and a sell price, a highest (high price) to sell, it is possible to make
markets more predictable... All should buy at lowest price and sell at highest
price... PEOPLE SHOULD QUOTE SAME PRICES, BUY OR SELL...
Niveshkon ko ek daam par kharidna aur bechna
chahiye... nuntam par buy aur adhiktam par sell... demat mein pehle se set kar
dein...
Also, the people (investors) who have money need not
to worry much because they can always buy more to reduce the average money cost
and add to sell capacity in terms of time horizon...
But, equities or shares are also a popular form of
getting investable funds by companies... Lower investment in the stock market
would mobilise less funds for investment... Budget has discouraged equity
investment...
What is the rationale after increasing tax during a slowdown?
Slowdown is not the right time to increase tax, it is the fastup or the
upcycle, then it would also lengthen the expansion by stabilising
expectations... by avoiding exuberance... or too much volatility in prices on
the either side...
Higher taxes could lower demand and prices during
higher prices... and help stabilise prices... and vice versa...
One cannot directly compare a millionaire in the
Rupee in INDIA and that of a millionaire in the Dollar terms in the US... INDIA
has less rich than the developed countries... Like poverty defining wealthiness
is also difficult...
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