Farmers need maximum support prices... They would gain when people would compete to buy the produce, they would bid the produce prices high, otherwise the govt would buy at MSP... The govt has not bought enough through the Mandi's due to record production in the past few years and lower price expectations...
Why govt shall buy? It has no money... it only plays a middle man role increasing the cost of supply...
Oversupply of labor has reduced the share per labour in agriculture... we need skills to provide jobs to excess labor and use technology to increase productivity and wage per person... middle man chain has further depressed wages... Rural population is too much dependent on agriculture for occupation...
RBI rate cut end points that the rate cut cycle has almost bottomed out, this is the lowest since 2013 and the RBI has underscored an accommodative stand even when inflation is supply side driven, therefore rate cut is not in sight for atleast a quarter and rate cut only when the inflation pips low...
Materially there would be only a minor difference, high inflation means higher nominal interest rate and lower inflation means lower nominal interest rate, when both mean a stable real interest rate, but changes in nominal interest rate reinforce inflation/disinflation/deflation.
Lower inflation means lower interest rate and more supply and demand due to lower prices, only if there is unemployment in the economy, full employment would constrain demand and supply and higher inflation means higher interest rate and lower supply and demand and higher prices and higher unemployment...
Low and stable prices and interest rate or real interest rate and full employment would help achieve the potential growth rate... Lower prices mean higher supply and demand and higher prices mean lower supply and demand...
The RBI may abandon the inflation target since it (inflation) is supply side driven, higher prices could increase supply and contain prices through the market... Demand is low and accommodative monetary policy could increase demand and price expectations and spending... The RBI has already tolerated higher inflation during covid induced recession... Higher inflation expectations are good for spending...
Maintaining inflation expectations is important for spending decisions, both consumption and investment... Higher price expectations from a low base seem a rational one... Higher prices also mean higher demand and supply...
We have two models to choose from US and China... US' strong currency model or internal devaluation model which means cheaper imports and higher competitiveness and exports and China's cheap currency model or external devaluation model which means cheaper currency and cheaper exports or expensive imports... We gain from both... Though, Chinese model restrict some imports/domestic demand, the US models increases domestic demand...
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