Competitiveness/Productivity/Lower-Prices and Demand/Supply/Growth...

Capital has no intrinsic value because the central bank could print money and lower the borrowing cost and no feelings or emotions unless it is combined with labour which eventually increases productivity of labour...

On the otherhand, labour has feeling and emotions therefore wages cannot be cut because it would be unjust, but inflation is used to cut real interest rate and wages to increase investment and exports which lowers domestic demand, but increases exports...

Nonetheless, lower inflation could increase, both, domestic demand and demand for exports, at lower prices industry would sell more... INDIA needs to scale up its level of economic activity to make itself competitive to get place in the global supply value chain and increase profits... Increasing exports could help create jobs in the economy...

To increase demand the Corporate Tax Cut may be passed on to the consumers which might increase Real Balances or Real Incomes with the Public... Lower prices would increase demand and price expectations when everybody would buy at the sametime at low prices...

A 7% reduction in prices could be attractive enough for spending decisions, even for the stock-holders, demand for inventories may goup, too... Corporate could themselves help increase demand and supply...

The Monetary Policy interest rate cut transmission has been too weak and too slow, due to high NPAs, which means liquidity has been lagging and not letting banks to pass on rate cuts to the consumers/borrowers which may increase demand and supply and growth in the economy...

Economists often point that lower interest rate discourage savings in fixed interest rate income or deposits or assets which are worst kind of investments, especially in banks, which pay too low compared to other savings in bonds and equities and also subject to inflation and inflation expectations...

The Govt must encourage investment in G-secs instead of plain fixed deposits through bank deposits... Higher interest rate discourages investment and demand and real incomes and wages and spending... The commercial banks could themselves help increase demand in the economy, if they pass on previous rate cuts by the RBI, which could increase revenue and earnings...

Both, the Govt and the RBI need to clear uncertainty from the growthpath and make the rational expectations about prices materialise and stabilise... Lower prices mean that demand and supply or GDP and price expectations may goup, whereas higher prices mean that the same all would go down...

Nonetheless, if people expect lower prices they delay demand and increase supply and further lower price and GDP expectations, but when people expect higher prices and growth they increase demand and lower supply which further increase price and growth expectations... But, too much volatility on the eitherside could taketime to restore price and GDP target at full employment... The objective is to stabilise prices and growth at full employment...

Taxes are also tool, just like interest rate to manage demand and spending in the economy by the way of incentivising competitiveness and productivity and prices... Policy makers should adopt a counter cyclical approach to stabilize demand/supply and prices and growth at full employment.