The best use of the RBI’s
dividend transfer of Rs 1.76 Lakh Crore would be to build dams and irrigation,
50% of the agricultural land has no irrigation facility dependent on uncertain
rains... Higher productivity of agriculture is good for low and stable
inflation and interest rate...
The RBI has around $
500 billion in the foreign exchange reserves which is idle and doing nothing
since CAD is under control... which might be lent to the govt on lower interest
rates... to increase productivity by investing in infra and improve the quality
of life by investing in health and education...
Including oil, real
estate, electricity and liquor in the purview of the GST could prove to be a
radical reform going forward... The govt has been only delaying it... To
contain revenue the Govt may impose a neutral tax on food items which would be
a larger base for tax collection...
The industry may also
try to balance demand and supply on the production frontier by adjusting prices
themselves; lower prices increase demand and supply or increase in scale and
profits instead of poking government to make them competitive by short run
stimuli...
Competitiveness is
brought by innovation and increase in productivity, though; the govt could
lower tax to increase in demand and could increase them back when demand and
inflation are high back to control demand and prices... Industry are rolling
back production when inflation and interest rates are low, cost of investment
would be low... and supply when prices are high...
Higher oil prices would
make people go for EVs lowering oil price expectations... INDIA has also
incentivised EVs on a scale basis to reduce oil import bill and domestic
inflation... also because EVs are sustainable... further lowering oil price
expectations...
The growth could bottom
out when the RBI stops cutting interest rates, means no further lower prices
and interest rate cut expectations and it is cheapest to borrow, during this
rate cut cycle, both the consumption and investment demand and spending could
bounce back fast because its profitable to buy when price-cost is lowest
possible and sell when prices are highest possible... that would stabilize
prices and growth... The RBI shall end its rate cut cycle soon to kick-off
spending and growth...
If one is investing for
10-15-20 years you can buy lumpsump that in the longrun the difference would be
marginal, but if you are buying for less than 5-years then SIP is good. The
stock market largely moves in tandem to the monetary policy cycle... Buy when
economy and prices are low and sell when the economy and prices are high...
that would keep the economy and market movement and price stable... leading to
higher demand and price expectations...
The govt should repeat
its commitment towards investment and growth from different aspects and reform
it envisages to achieve on a regular basis to give positive news to the
market... Government should make its spending plans public to increase demand
and investment and growth expectations...
Low and stable
inflation and interest rate are important for financial stability at full
employment, than lower inflation and interest rate expectations which might
delay spending... The Fed during 2008 set higher inflation and price
expectations to avoid deflation and liquidity trap, but shifting goal posts by
extending easing in several rounds did not let price and interest rate
expectations increase leading to more spending, due to longer lower demand, price
and interest rate expectations...
The Fed (US) now could
drop the inflation targeting which was only adopted during the last
downcycle... which has lowered inflation expectations since people would
believe the Fed would increase interest rates if inflation increases above 2%
and would lower demand and increase supply lowering price expectations... By
increasing inflation target the Fed could increase price expectations...
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