Growth Expectations and, then, the Growth Debate...

Expectations are self-fulfilling, if business think that they would hold till the economy bottoms out that would further deepen the slowdown, similarly if they expect that the economy would bounce back (higher GDP and income and demand) they would invest more which means further income and demand in the economy which means more investment...


If the business after fiscal monetary and monetary policy increase employment and demand that is also virtuous... Investment has been put on hold for a very longtime now... Corporate earnings have never bottomed out completely from the last slowdown during UPA... But, the corporate tax cut has artificially tried to increase corporate earnings to push fore the investment and demand cycle...


Lower growth rate expectations further lower growth rate "coz business invest less, that is the basic observation of Harrod-Domar... China has used higher projected growth rate to increase investment and growth of the economy... The RBI and Gov may avoid lower growth expectations while providing stimuli which are provided to increase growth expectations...


Lower growth often coincides with higher unemployment and lower prices which lower cost and makes the economy competitive and increase demand and spending and exports which is an incentive in itself... Nonetheless, expecting too much and delay in spending could worsen growth rate and expectations...


Lower growth and prices are the right time to increase consumption and investment to lower average cost of production and increase demand and supply or quantity and growth and expectations...


Give hope when others are hopeless... The economy has just caught cold, but the doctor has declared the patient dead... Very bad diagnosis... without providing any cure...


Growth has not gone down, the value of deflator has goneup... The mathematics is consistent 8% nominal GDP and 4% inflation, and a real GDP of 4%...


Real market interest rates are still much higher, the RBI may cut real repo rate to zero to lower real market rates which looks ideal because it is expected to maintain a neutral interest rate or r* to neither be accommodative nor restrictive, neither inflationary nor disinflationary at full employment... Lower borrowing cost could increase demand/supply and growth as long as there is unemployment in the economy... after which inflation might increase...


The data analysts are quoting is quite different from the data available on the web...


INDIA's GDP percapita income and GDP at constant prices have been continuously increasing which shows that there is no severe demand slowdown in the economy, but a blip... Constant prices are a way of measuring the real change in output.


The pattern we see every year is that June quarter is always good followed by a slowdown in September quarter but a better December quarter and then even a better March quarter more…



For instance money GDP at constant prices has decreased QoQ and but, increased yoy by 5%... INDIA's GDP from manufacturing has increased QoQ and slightly lower YoY...


INDIA is in the mid of a yearly cyclical slowdown which shows improvement in money GDP at the constant prices which has increased 1% on QoQ and is considerably higher than money GDP at constant prices YoY...


INDIA is in a yearly cyclical slowdown, in the agriculture and manufacturing too... GFCF has continuously increased under Modi government... It is Gov own Ministry of Statistics and Programme Implementation (MOSPI) data... December data show that GDP is expected to increase with higher margin...


Analyst lack understanding of the real GDP numbers... GDP at constant prices was 34139.97 inr billion in September quarter 2018 which increased to 35851.75 inr billion September quarter 2019, which increase 5% compared to last year... Therefore, if growth was 8% same quarter last year, this year’s growth rate should be higher (real gdp growth yoy... if we use the same base year


Economists use mathematics to verify their ideas... Because it never lies... 34139.97/100 equals 341.39 equals 1% and money GDP at constant prices increased 35851.75 - (from) 34139.97 equals 1711.78 then 8% would be 2731.21then 1711.78/341.39 ie 5%8+5=13% maths may not be right, but the economy has increased 1711.78 that is 5% higher than same quarter last year which would only add to 8% because growth has increase yoy...** figures in inr billion...


The point is that money GDP at constant prices has gone up compared to GDP at constant prices same quarter yoy... which means growth has increased compared to same quarter last year... when the economy grew, say 8% at a healthy pace... we are producing more than the last year... This year’s growth would higher than 8% if we use the same base year as for calculating growth rate previous year same quarter because we have produced more than last year ...


INDIA economy has increased more than double in the last 8 years... The statisticians are changing base year every year to calculate real GDP growth rate, but if we use 2011-12 as the base year for calculating real GDP growth rate the INDIA economy has increased considerably...


INDIA's real GDP growth rate for September 2019 if we use 2011-12 as the base year has been 35851.75 -13500 (app.)/13500*100 equals 165.57% in the last 8 yrs, with an annual growth rate, 165.57/8 equals 20% per year... using deflator of 4% the real growth rate would be 16%....

                                           INDIA's GDP at Constant Prices


Lack of skills would depress wages of the skilled in sectors like the skilled engineering and medical, unskilled like agriculture, construction... Though, the Govt has restricted supply of CAs, CSs... Supply of the right skills could help maintain wages, incomes and demand and could attract investment...

Inflation at the target is the objective of the Monetary Policy... Some inflation is good for the economy and demand and spending...

"Inflation at the target is the objective of the Monetary Policy... Some inflation is good for the economy and demand and spending..."

If few rules of the thumb are applied to the stock investing too much volatility could be avoided, investors should buy on big corrections and sell on big appreciations... Buy cheap stocks of good companies that have given consistent returns in the past... In other words, Buy stocks when their P/B ratio is lower than 3 and P/E ratio is high...

And, if you do this during correction and sell during appreciation that would help stabilise prices and the market and increase profits...It is time to invest in battery stocks used in EVs that would compete with oil demand and prices...

Corporate Tax Cut was a big bonanza for the stocks which gained 3000 points in just two days and is likely to increase corporate earnings and cashflow in the medium term and pricing power and more investment and employment and demand/supply and price and growth expectations...

There have been quite sufficient stimuli given which is likely to showup in competitiveness and productivity of the economy and lower unemployment and increased demand/supply in the forms of lower interest rate, lower oil prices, GST and Income tax cut (2018), GST and Corp Taxcut...

As the benefits of low cost and prices have been passed to the consumers and producers it would increase disposal income and demand and growth... Most of the wishes of the industry are fulfilled, except removal of LTCG tax...

Lower tax by the Govt could increase demand and price expectations and investment spending... Lower taxes are also a form of public spending...

The RBI and Govt may scrap interest rate linked deposits and instead they could link bank deposits with bonds which give better inflation adjusted premium, lower bond yields increase bond prices and vice versa or something like inflation indexed bonds...

Real GDP or price expectations are important for investment decisions and the economy is on the Knife-Edge (Solow), if they expect lower growth they would invest less and growth rate and expectations go down and vice versa... if firms increase employment and demand and growth and prices and expectations might improve...

Higher price expectations increase demand or delay supply and spending and lower price expectations increase supply or delay demand which self reinforce prices and expectations... Lower prices should increase demand and higher prices should increase supply to stabilise prices and investment and growth...

If Chinese could grow their GDP double every 5-6 years, why couldn''t INDIA?... All we need to is to scale up our ambitions and investments to be a valuable part of the global supply or exports chain by relying on domestic and foreign competitiveness and productivity... 

Like low growth is vicious or virtuous and self-reinforcing, high growth is also self-fulfilling... Once the growth starts INDIA would soon catch up space probably even better than China...

INDIA has improved a lot on ease of doing business and competitiveness... INDIA is a developing country where taxes and prices are high so that redistribution of income and spending for the poor become possible...

As the economy grows with reforms and production and demand increase, a larger base could lower tax burden on all, also due to lower poverty, and increase competitiveness... Lower prices would increase demand and supply and growth... which have been a characteristic of Chinese growth... cheap currency, too...

To big scale of production reduces cost of production and price and increase income manifold...

The Govt may provide everybody a unique bank acc. no. linked with Adhar Card, easy to remember to facilitate transaction on the mobile phone without POS machine, also for security purpose against counterfeit notes and illegal transaction, to promote cashless payments and reduce black money...

It would also reduce the cost of printing money and could help capitalise banks and increase monetary policy rate cut transmission...

Bonds, Equities and the Broader Economy...

Real or inflation adjusted bond yields and interest rate are important from the investment view... The bonds are paying inflation premium and term premium too which make up higher nominal bond yields, higher inflation expectations are also responsible for higher nominal bond yields...

But, now, inflation has increased which has reduced real bond yields and real interest rate, which could increase demand... Nonetheless, higher inflation expectations have increased bond yields expectations and lowered bond price expectations and more investment in the equities and the production and the inventories... Higher bond yields and expectations mean that the economy has expectations of a bounce back in demand and spending...

The RBI has used a flexible inflation targeting of 4% with a band of 2% on the either side which means the RBI could remain neutral between 2-6% and inflation lower than 2% attracts rate cuts and above 6% rate hikes... This time it must avoid rate hikes upto 6% and remain neutral, but higher inflation means hold on further rate cuts since real interest rate has gone below 1%...

Low and stable real interest rate and higher inflation expectations could increase spending in the economy... End of the rate cut cycle might increase demand and spending...

The RBI may adopt a neutral approach, open to work both ways since inflation is close to its medium term target of 4 - 6%...

Higher food and oil prices get transmitted into the higher cost of living or wage cost and higher cost of borrowing or interest cost and higher price level or inflation means lower savings and investment and consumption... Lower GDP...

The RBI does not control bond yields and wages, they are market determined, though only indirectly... which also decide demand and spending in the economy...

Oil prices are doomed to see a big correction with a downward bias... EVs have changed the market share equation; oil prices are unable to make a comeback (higher prices) despite of supply cuts...

Market share depends on competitiveness and increasing productivity which means lower prices and higher demand and supply or quantity and prices and profits and expectations... Though prices are volatile and move between high and low...

Whatever investors do in terms keeping in the mind rational expectations would be self-reinforcing and self-fulfilling... If they expect or the market hopes that prices would increase, higher demand or lower supply would increase prices and vice versa... Nonetheless, if they increase demand at low prices and increase supply at high prices that would narrow the volatility in the market...

Lowest interest rate means that it would not go down, bond price also would not increase and not profitable in the short run, which means that recession or slowdown or low growth and prices and expectations have reached the bottom so people increase investment in assets or inventories or stocks which have a higher price expectations...

During slowdown bond prices go up that have an inverse relationship with the broader economy and lower interest rate and bond yields... Higher bond yields expectations or lower bond price expectations due to increase in demand and prices and interest rate could increase selloff in the bond market in the short run an further increase bond yields or lower bond prices and increase allocation to the other asset class that have higher price expectations during recovery with an accommodative money and demand supply policy...

The Govt is planning to change base year for growth… The change in the base year after adopting the inflation targeting framework looks reasonable... From that viewpoint 2015-16 is quite normal low inflation, below 4%, and high growth rate, above 8%... and could serve as the base year.... Near 4% average inflation is good to keep the inflation target framework…

Investors must take into account P/B ratio which must be below 2 which shows that the stock is not too overvalued and the possibility of correction is low, nonetheless people must invest slowly if they are investing short term on more correction in the stock...

Secondly, high P/E ratio above 20- could help getting higher returns... P/E ratio shows that the stock has given high returns in the past... Consistency in returns and growth brighten expectations....

Long term investors in good companies need not to worry... 10 years time is a good time horizon for investment... Mutual Funds choose stocks carefully and the risk is diversified... 

Prices and Investment Demand and Full Employment...

Investors move from higher yields to lower yields or higher prices to lower prices markets in order to increase the value of investment because you buy cheap and sell high to increase revenue... 


Low and stable inflation and expectations increase investment and demand and prices and expectations foreign capital inflows, too, and vice versa... 


Lower prices increase the value of money and investment... Low prices or inflation signal that big money would pour in through investments... Lower price also mean higher competitive real wages and demand or consumption, exports are too likely to increase... 


Lower prices make the economy more productive and competitive more money supply would increase demand, foreign trade and investment, too... 


Lower prices mean that the economy has the capacity to expand further... but, too much higher prices and expectations could do the opposite and lower price expectations and delay demand and increase supply...


The rate cuts we are seeing in the US is the insurance against the trade-fights since unemployment rate is too low and stable, but demand and prices are low also due to tariffs which might get a boost if the Fed cuts interest rates... 


The Fed is trying to increase inflation and expectations in the broader economy to increase spending, but tariffs are increasing uncertainty for earnings... Had there was no fight over trade practices the economy did not need rate cuts... 



Since unemployment and prices are low and stable... Lower prices could increase demand, but lower price expectations due to lower borrowing cost may reinforce delay in demand and spending and supply could also increase...


Any intervention by the policymakers by the way of manipulating money supply and prices and expectations in the market could reinforce prices and expectations in the market... 


For instance lower prices and expectations make policy makers increase money supply and prices and expectations, but higher money supply as long as there is unemployment in the economy, and lower borrowing cost would increase investment and lower unemployment and increase supply and further lower prices... 


Nonetheless, in the face of no intervention prices may help recover fast to restore price stability and full employment.


Lower bond yields may mean that money has flown to safety and people are expecting slowdown... Or due to lower prices and interest rate cut and expectations which increase money supply to bonds and could further lower bond yields because there is slowdown in the broader market including the stock or inventory markets... 


Lower bond yields also mean that prices or inflation and expectations are also low due to hold or delay in investment and over supply, but bond prices may increase profits... Higher price expectations from an increase in value due to low price and increase in demand boost spending and revenue and growth and vice versa... 


Too much volatility in prices could deter or slow the process of recovery to the objective of price stability and full employment...

Lower Consumer Prices and Increase Real Incomes...

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...

Competitiveness/Productivity/Lower-Prices and Demand/Supply/Growth...

Capital has no intrinsic value because the central bank could print money and lower the borrowing cost and no feelings or emotions unless it is combined with labour which eventually increases productivity of labour...

On the otherhand, labour has feeling and emotions therefore wages cannot be cut because it would be unjust, but inflation is used to cut real interest rate and wages to increase investment and exports which lowers domestic demand, but increases exports...

Nonetheless, lower inflation could increase, both, domestic demand and demand for exports, at lower prices industry would sell more... INDIA needs to scale up its level of economic activity to make itself competitive to get place in the global supply value chain and increase profits... Increasing exports could help create jobs in the economy...

To increase demand the Corporate Tax Cut may be passed on to the consumers which might increase Real Balances or Real Incomes with the Public... Lower prices would increase demand and price expectations when everybody would buy at the sametime at low prices...

A 7% reduction in prices could be attractive enough for spending decisions, even for the stock-holders, demand for inventories may goup, too... Corporate could themselves help increase demand and supply...

The Monetary Policy interest rate cut transmission has been too weak and too slow, due to high NPAs, which means liquidity has been lagging and not letting banks to pass on rate cuts to the consumers/borrowers which may increase demand and supply and growth in the economy...

Economists often point that lower interest rate discourage savings in fixed interest rate income or deposits or assets which are worst kind of investments, especially in banks, which pay too low compared to other savings in bonds and equities and also subject to inflation and inflation expectations...

The Govt must encourage investment in G-secs instead of plain fixed deposits through bank deposits... Higher interest rate discourages investment and demand and real incomes and wages and spending... The commercial banks could themselves help increase demand in the economy, if they pass on previous rate cuts by the RBI, which could increase revenue and earnings...

Both, the Govt and the RBI need to clear uncertainty from the growthpath and make the rational expectations about prices materialise and stabilise... Lower prices mean that demand and supply or GDP and price expectations may goup, whereas higher prices mean that the same all would go down...

Nonetheless, if people expect lower prices they delay demand and increase supply and further lower price and GDP expectations, but when people expect higher prices and growth they increase demand and lower supply which further increase price and growth expectations... But, too much volatility on the eitherside could taketime to restore price and GDP target at full employment... The objective is to stabilise prices and growth at full employment...

Taxes are also tool, just like interest rate to manage demand and spending in the economy by the way of incentivising competitiveness and productivity and prices... Policy makers should adopt a counter cyclical approach to stabilize demand/supply and prices and growth at full employment.

Slowdown and Policy Transmission to Demand and Growth...

Low inflation and interest rate are the right time to invest, when the cost is low and as the firms would invest that could increase demand and price and expectations, but high inflation and price are time to increase supply… if everybody does the same that could help stabilise prices and interest rate and expectations...

Nonetheless, lower prices and interest rate expectations could reinforce lower prices and interest rate and expectations... Lower price and interest rate expectations could delay demand and spending and increase supply further lowering price/interest rate and expectations, but higher price and interest rate expectations would delay supply and increase demand further increasing prices/interest rate and expectations...

The market has still space to climb further as it is lower than the past peak... Stimulative commentary from FM could further increase the investment in the stocks... Correction expectations could be self fulfilling because people would hold buying which could increase offer/supply... Lower price expectations increase offer or supply of stocks which further lower prices...

Too high NPAs have resulted in limited transmission of rate cuts by the RBI by the commercial banks... Though government has recapitlised banks and resolved NPAs though IBC we still have considerable NPAs due to demand slowdown too... If the RBI and Govt use $ 50 billion or Rs 4 Lakh Crores from foreign exchange reserves to recapitalise banks that would help transmission by commercial banks...

Selling $s could increase expectations of higher $ demand by the country in the future which could be avoided by communication to deter too much speculation on dollar demand and price expectations... A strong rupee and lower interest rate and higher investment and employment and productivity and lower inflation could increase consumption and investment demand and growth expectations...

Raising foreign money through rupee denominated bonds and investment in infra could create ample jobs for its large unskilled workforce which could sooth the bond market... A strong rupee would increase foreign capital inflows... lower borrowing cost would increase demand supply prices and growth...

Lower inflation and real interest rate expectations mean people could hold spending to reach bottom to increase demand and spending... In INDIA inflation expectations has picked up from the bottom after demonetisation and near the rate cut cycle end could further increase demand and inflation expectations...

Nobody can exactly tell the bottom of real interest rates... But, INDIA has almost reached to the rate cut cycle end which would be cheapest to increase demand and spending which increases price and growth expectations...

Depreciation in the rupee and hardening of bond yields or lower bond prices show that expectations of the two markets are different... Foreign exchange market expects higher money supply demand and inflation and lower exchange rate while the bond markets expects lower money supply and higher bond yields or lower bonds prices...

Expectations affect current prices and growth and the market continuously corrects current and future demand and price and expectations... Many times expectations are already factored in the current price if everybody is thinking or expecting the same, but may correct due to risk or uncertainty or change in expectations, too...

The Corporate Tax Cut must be passed on to the consumers to increase real wages and incomes and demand... Similarly rate cuts must also be passed on to the borrowers to increase demand... Likewise GST too must again be passed to consumers to increase demand... These all together could be a big boost to private consumption and private investment too...