The Budget had it all... it was a very good Budget... We had spending on the Agriculture, Education, Heatlhcare, lower Income Tax, removal of DDT and push for privatisation through disinvestment and protection of domestic producers and employment through import duty... All money would ultimately go to people's hand which either might be saved or spend or both which the economy needs at this point of time... It was a prudent budget that would help crowd in private investment and consumer demand... Higher savings could increase the productivity of capital by reducing interest rate... The spending would work through multiplier...
It is not the duty of the gov to increase investment or unproductive spending, it is up to the private sector, the gov though could incentivize investment by increasing people's income... The budget has given full space to the private sector to increase investment without crowding out, but crowd in... The budget would help stabilize the growth rate... what the gov would spend would be also somebody's income... Lower consumer prices could further boost real incomes... Core-inflation or manufactured goods inflation, excluding food and fuel has been low...
The gov may increase import duty on the finished product and lower on the intermediate products... Employment generation through protection/import-duty and higher price expectations in the domestic economy for the domestic producers could be the right thing to do... It could also help increase productivity and exports... Production in INDIA is important to provide jobs... Domestic producers would be happy with the move...
Import duty increase could help protect domestic producers and increase employment... FM provided everything except LTCG relief in the Budget... It is not rationale to expect common-man a Budget expert... Spending would work through multiplier...
If the gov wants to stabilise the stock market it may try to increase STCGT (short-term capital-gain tax, less than 6 months, or variable for the time period, higher on less time and less for longer time) instead of LTCGT... It would help the stock market investors against too much volatility in the short-run...
INDIA is already $ 3 trillion dollar economy which means Rs 210 lkh crs... People have money, but not value and it would happen when supply/productivity/competitiveness/production would increase for which lower borrowing cost is sine qua non... The RBI might try to increase supply when demand is high and decrease supply when demand is low which could help stabilize prices within the inflation target, higher inflation could further erode value of money... Lower and stable prices could help maintain financial stability... 10% inflation target could also help boost supply and lower prices and create value... people would increase investment and demand at lower prices and low borrowing cost... which could increase demand and price expectations... 10% inflation is very minimal... 0.10 per rupee or 11 on 10...
5% growth per quarter is good when the external environment is reeling under uncertainty and low global growth which could easily add 2% to the total growth rate... China, US, Europe all had been affected by trade wars and supply chain disruption... and, now, the corona virus
If transmissions are not passed to the borrowers... the RBI may cut real rates to zero or neutral real interest rate... Inflation excluding food and fuel is 3.5% and nominal interest rate is 5.15%... Therefore, real interest rate is 1.65%... RBI is no profit organisation... though it pays dividend to the gov... In a less rich economy people save less and positive real interest rate is important to increase competitiveness.... and productivity... lower and stable prices are important for financial stability... Everybody knows that fuel creates uncertainty for growth in INDIA... which INDIA now exports more than it imports...
With Monetary Policy accommodative along a 25 basis point cut and the a neutral real interest rate of 1.25% in a world of negative real rates could help the stock market scale new heights... The market is ready for this, though, higher money supply through OMOs and lower SLR and a lower reverse repo rate could induce banks to lend more at lower rates...
A change in psychology of the investors has been observed that they may take a rate cut or too much easing as signals for that there are underlying problems with the growth or something is wrong... But, Sensex is positive, both mathematical and sentimental... As Analysts are seeing shoots of a bounce back in demand/supply/prices/consumption/savings/investment/employment/growth/expectations....
Rate cut and accommodative Money Supply would increase competitiveness and productivity of capital and investment and lower prices may increase real wages and incomes reinforcing demand and supply and growth... exports would increase too....
The PSBs are also not passing the rate cuts by the RBI, if they take lead, others (PrSBs) may follow as there would be competition to increase the market share...
In Jan inflation increased to 7.58%.... Lower real interest rate and inflation expectations could increase spending and growth, too, as long as as RBI remains accommodative or neutral... The Economy swings between excess demand and excess supply and lower price/higher quantity or higher price/lower quantity, though excess could push prices and expectations down/up by increasing demand/supply and prices and expectations... too much supply/demand could delay spending which might reinforce prices and expectations... In this, if people expect that a(ny) policy or stimuli or expectations that would further increase volatility until it becomes a reality or is completely suspended... Uncertainty also reinforces prices and growth and expectations...
There are alot of things we have that are going through stagnant demand and prices compared to food (except food), fuel, too, just two of the categories which create alot of uncertainty for growth, too.... which directly affect real wages and incomes and demand and growth, food and fuel demand is high in INDIA, but demand in other categories is low which must have credit supply at cheap rates to create jobs... These must have separate funds or incentives to increase production through investment, too... supply creates demand...
The slowdown is an oppourtunity to invest more at lower prices... The real balance effect would work, also through incentives and inducements... Lower prices increase demand and price and expectations and spending and growth and expectations...
Germany’s internal devaluation is a better model than China's external devaluation... Lease of land could lower the cost of land in INDIA....
Now investors and especially SIPs which is a favored route of investment would keep the stock market get going with an upward bias in the medium to long run...
BJP lost some elections due to limited reach to the poor condition of rural and agricultural areas... though, last budgets had been dedicated to fill that gap... If provided skills to the rural population, rural hinterland could prove to be positive for next elections...
Donald Trump the US’ President is scheduled to visit INDIA in Feb. Like always US would like to strike arms/defense deal, investment in indigenous industry could be a success... The President and PM post do not provide any incentive to increase trade and negotiations... like other jobs... They are there to increase investment and create employment in the Economy... Security even above that...
It is a cyclical slowdown... checkout on Google... though, green shoots of recovery are visible in INDIA….
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