Economists believe inflation cuts real variables...

Economists believe inflation cuts real variables like real wages, interest rates, and exchange rates in order to gain competitiveness, but it is against the law of demand that lower prices increase demand and higher prices lower demand... Nonetheless, inflation expectations are self-fulfilling... Moreover, a country where the value of money is losing 5% every quarter shows a weak supply side or high demand... Higher interest rates can control food and fuel inflation through higher unemployment and lower economic activity... Inflation means food and fuel inflation because they reduce poor people's real wages and savings... and investment in the economy... and lower supply means further higher prices... If Inflation is 5.4%, nominal growth is 10% and real GDP is much low due to high inflation... unemployment rate is 8%... The rate cut is justified to increase the 5% growth rate...

 

We are losing competitiveness fast due to food and fuel inflation because they add to inflation and higher wage, and interest rate expectations... Other things constant, inflation and a stable currency would not let exports grow because prices would increase relative to the rupee exchange rate, which would lower export demand... If we really want to increase demand and growth in real terms we should improve productivity and competitiveness where we are weak, in INDIA's case food and fuel inflation... If we had a good supply in INDIA we could expect that lower borrowing costs could increase supply and lower prices and increase demand and growth and expectations... But, India is both demand-dominated and/or supply constrained, inflation tells the story...

 

INDIA is demand-dominated and supply-constrained because of higher prices and interest rate expectations even though we have an 8% unemployment rate and the economy is overheating when there is excess labor supply, we could imagine inflation at full employment which is directly not achievable since full employment would further increase demand and prices... RBI Guv’s never helped include the unemployment rate in the RBI commentary since growth results from trade-offs between inflation and unemployment... What is INDIA's full employment? It is important for inflation, interest rate, spending, growth, and expectations.

 

The Government may bring instruments that could prove attractive to delay consumption, small sacrifices, paid fast and higher, could help lower inflation. During inflation, spending could be reduced by aiding savings... poor people's savings... Saving ideas must be attractive to beat inflation...

 

Due to poor supply and high inflation, India is losing its competitiveness fast. High inflation means that money is losing value fast, and spending will go down. Due to high borrowing costs and further lower supply, prices will increase again. It is cyclical...

 

Inflation is a loss in competitiveness and demand, it makes people poor... The argument is that inflation cuts the value of real variables like real wages, interest rate, and exchange rate and increases competitiveness to increase investment demand at the cost of devaluing savings and since the capitalists save themselves... the trade-off involves the choice of lowering the value of money to increase investment and employment... which lower real wages and demand... IS FLAWED... Inflation creates inflation expectations means the trend of losing the value of money would continue... A simple hospitality worker gets a $ 200 tip a day in Germany, but Indians are struggling to earn the same in a month... There is no end to lowering the value of money... The trend we have observed is that in rich countries the value of money has increased over time with a lower population growth rate and good supply side... Poor people lose savings faster than rich due to inflation and expectations...

 

INDIA is losing its competitiveness fast since the exchange rate is relatively stable. Other things equal, higher inflation means a loss in productivity, competitiveness, and demand. The rupee is stable, but inflation is increasing, which means a loss in comparative advantage and market share. Simply, higher inflation means lower demand, but higher inflation expectations mean further higher prices because people would prepone demand and push prices further. If people expect that domestic inflation is going to increase but the exchange rate would be stable they would consider it a loss in purchasing power in future if the rupee does not depreciate...

 

As far as Chinese competition is concerned, most notably Indian products might not be a cheap and better substitute for Chinese products... We are a cheap currency, and we have an advantage in the Chinese territory, too... But investment is not there, especially in terms of scale. If we produce at lower prices, the same products, then only we have a scope to increase market share... Even when Chinese products involve transport costs and import tariffs... INDIA's 4% inflation tells that we could expect the INR to depreciate 4 % to keep exports competitive but only inflation has made exports uncompetitive but currency is stable... Inflation and higher prices mean that we have lost competitiveness... Higher prices mean a loss in demand and growth and expectations...

 

Supply is increasing and population growth is going down, a phenomenon observed in advanced economies that points to a special quantity theory of money where supply increases and prices fall due to lower borrowing costs..., which means low price expectations... To lower inflation it is important to create low price expectations for the future... Higher interest rates/borrowing costs might increase cost lower supply and increase prices... INDIA is food and fuel supply constrained... Prices are too volatile creating uncertainty for growth... Both, are in the hands of the govt... Provide DBT for ration and reduce taxes on fuel which is also a kind of spending... Without savings and without printing money same investment is not possible, printing money means more inflation, lower investment, and supply further increased prices... The special quantity theory is a long-run trend...

 

The divergence in the share of wages, profits, and taxes provides evidence of the growing monopolisation of the economy. 4-to 5 companies are dominating the whole credit, though business is done by way of loans only, it is the central bank's money... Savings of the poor are either taken away by profits or taxes... The government is too a big monopoly... Businesses instead of increasing productivity find excuses for raising prices and the same with the government and taxes... People are supporting an uncompetitive business and government... With time production and supply shall increase and control prices when population growth is decreasing, but profiteering and taxes have spoiled the demand... Greed is also self-fulfilling because it makes people poor, poor men will be greedy...

 

INDIAN cannot benefit from low interest rates abroad as the banking sector is protected from foreign money... At this nascent progress, this could be a boon for foreign investment... INDIA is 80 times in terms of currency and wages... which could solve the unemployment problem... INDIA should follow the model of a strong currency and cheap imports...

 

INDIA's not even in the top 50 of the top real per capita income countries, though it has the largest labour pool and youngest population... Without investment, we cannot cash on the country's comparative advantage...""India ranks 158th in the world for its investments in education and health care as measurements of its commitment to economic growth, according to the first-ever scientific study ranking countries for their levels of human capital. Why give tax?

 

Low growth and expectations give space to low inflation expectations due to lower economic activity and a slowdown ahead. Lower actual growth than the projected growth rate would lower expected growth, and low investment could be self-fulfilling. Low inflation expectations due to a high base and low growth could be verified by the RBI before cutting interest rates."

 

There are enough poor people's votes and space to work for their betterment... Caste politics for votes is an outdated idea, reservation should only be given to poor people... There is a great divergence between the number of educated people and spending in INDIA and abroad... INDIA has mastered the art of providing unproductive jobs for unskilled labor in agriculture and construction which lies in the unorganized sector... More than 50% of the labor market is unorganized and informal where the minimum wage is too low...