There is a strong
negative relationship between prices and demand/supply, lower prices increase
demand and vice versa... we have evidence from China that cheap products
increase demand... If all the stimulus by the Govt, in the face of Corporate
Tax Cut and GST and rate cuts by the RBI and also lower oil prices to an extent
are passed on to consumers it could give demand a big boost in terms of higher
purchasing power and spending...
NREGA is only a
shortrun approach to the problem of jobs... Giving money to the poor could
directly add to demand and inflation without adding to the productivity of the
economy, but providing skills could boost both productivity and demand and is a
longrun solution of the problem...
Nowadays very few of
the economists talk about the distribution of labour according to specialization
and skills... Stable employment according to skills is the best insurance
against poverty... Poor people must have the requisite skills in order to get a
job...
It is worth a thought
that if we allow private foreign investment in sectors like manufacturing we
need to reduce the cost of capital for domestic companies, since lower
borrowing cost of foreign companies make them more competitive, because without
that domestic companies would not be able to compete directly and lose market
share...
Liberalising the
banking sector and borrowing abroad are far more important for creating
employment than increasing import of goods and services... Stable foreign
capital in the banking could do alot to help increase capitalization of the
economy and increase interest rate cut transmission by the RBI...
Capital moves from
lower yields to higher yields and increase supply of capital and lower yield
expectations and vice versa, moreover there is convergence of policy and
interest rate across countries in the longrun... Lower borrowing cost in the
developed countries could help foreign capital inflows and help increase
demand...
Constrains on big
settlement in cash or only through bank accounts could also help capitalise
banks... During Demo the banks were flooded with liquidity, but it was only
temporary, which could help increase transmission of rate cuts by the RBI...
The Govt could increase tax exemption limit upto Rs 8, 00,000/per year and is giving reservation
to economically backward upto the same to the uppercaste... and tweaked the
income slabs in the last budget in 2018...
There is no point in
reducing tariff, corporate tax cut, interest rate and oil prices if it is not
passed onto the consumers which may boost real wages and incomes and
profits..... Slow transmission may take time in recovery in demand and price
and growth expectations, when everybody tries to buy at the sametime it
increases price expectations which increase spending and growth....
People should buy or
invest when prices are low and sell when prices are high, that would also
stabilise prices... Lower prices expectations delay demand and higher prices
expectations increase spending, but lower prices are more expansionary because
it increases quantity and profit and viceversa...
Nonetheless, like
growth is uncertain, prices expectations are also uncertain, people's lower
price expectations are also subject to uncertainty... If they were so good at
predicting price and growth, no business would ever fail...
There is no useful
unemployment data every month and quarter for the RBI to give forward guidance
for investment and prices like real interest rate, real wages and real exchange
rate and the real-GDP growth and reduce uncertainty for business...
People in INDIA pay
direct taxes, indirect taxes and many other types of tariffs... cess... Nonetheless,
overall lower these could help increase
demand-supply-prices-quantity-and-growth and expectations by increasing
productivity and competitiveness of the economy...
It would also boost
real wages and incomes... and real profits... when the economy grows at a
healthy pace revenues are also bound to increase... Tax like interest rate is
also a tool to tackle demand-supply-prices-quantity and growth and
expectations..
Recent pickup in
inflation, close to a percent cannot be totally ascribed to food and fuel, it
is a good recovery in prices which may point to recovery in demand after
September...
INDIA's current
real-GDP at current prices is 7.99% which is considerably higher than current
real-GDP at 5.4% at 2011-12 prices because prices in 2011-12 were significantly
higher than the current year which has increased the value of deflator than the
current year when prices are low compared to 2011-12... In a sense the Indian
Economy is still growing at 8% when prices stable... normal... could suit the
concept of the base-year...
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