Inflation Management, Even During Low Demand and Gradual Unlock...

The RBI needs to bring the market rates down, the psbs and the private commercial banks, they are not lowering the borrowing cost, but inflation has cut the real interest rate close to zero to negative which is the right time to increase spending, any attempt to lower inflation by rate hikes would reinforce inflation (and expectations) by restricting supply, since INDIA is supply constrained and demand is already low and could increase unemployment...

 

If it cuts rate of interest it would increase supply and demand by reinforcing disinflation or deflation by increasing supply and demand as long as there is unemployment in the economy, lower prices increase demand... Therefore, the RBI must commit the inflation target by lowering the borrowing cost and increasing the supply till the output gap closes with full employment...

 

The RBI may further cut as long as there is unemployment and possibility to increase supply and demand... with the natural real interest rate... Higher supply would help lower inflation and nominal or market interest rate and also increase demand....

 

Food inflation is a seasonal phenomenon, it could only be controlled through removing supplyside bottlenecks by the Government, it cannot be controlled by the higher borrowing cost by the RBI... The Govt could also lower oil prices when uncertainty and oversupply has lowered the international oil prices, somewhat...

 

Notwithstanding, if the lower prices are passed on to the consumers it would increase real wages, when food inflation and higher remuneration to the farmers, are used to control overall inflation and demand... If agricultural prices are not allowed to go up then core inflation must be brought down to increase real wages and incomes of the agricultural labourforce which accounts for a large part of the unoragnised sector and is around 60% of the total...

 

If manufactured products, oil and stocks prices are determined by demand and supply then why not the agricultural prices which could increase real wages and incomes of a large part of the population... US has subsidised the agriculture, INDIA too could help increase productivity by lowering the cost of the farmers and increase competitiveness...

 

The govt could also allow higher investment in water and irrigation (dams and reserviours) infra 'coz flood and drought add to the volatility of food prices and uncertainty for growth...

 

The underlying recognition of all the unholy alliances and allies is that no single party is able to provide a better and right substitute of the BJP and PM Modi... When all would become one it would lead to a sharp polarisation of voters, all vs BJP the probability of the BJP winning becomes 50%, other wise 1/all parties...

 

Post election alliance is a sign of thirst for winning anyhow... Congress joining the Seperatists in J&K would mean loss of its image only for the sake of win... Abolition of Article 370 is good for Kashmiris since it would increase growth and development and jobs and incomes and higher property prices and more wealth and prosperity...

 

Jean Dreze has included the training programme in MGNREGA... The govt cannot provide all the jobs on its own, it must use a mix of expenditure on the employment gaurantee scheme and training, skills and specialisation...

 

The govt may subsidise crops that are sensitive to inflation, provide da to wagers and import more, partly... and also let some price hike to help demand in the economy...

 

Additional incentive and spending about Rs 9 trillion would create employment and demand in the economy...

 

Spending on infra could help the blue collar workers who have a high propensity to consume, corporate tax cut would be saved, who have a high propensity to save, unless competitive gains and higher productivity are passed to the consumers, which could further increase real wages and incomes and demand.... Poor people are more likely to spend than their rich counterparts... spending is important during the lowdown... They also need more help...

 

If we pass on lower prices, lower corporate tax, to the consumers, banks too, lower interest rate that would increase real wages and incomes and lower cost and higher profits when money supply is increased... Majority would increase spending which could increase demand and price expectations, cheaper dollars and lower domestic exchange rate would also increase exports...