Growth could bounce back...

The main reasons for slow growth has had been the election outcomes and lower inflation and interest rate and expectations on the back of lower food and fuel prices... People have delayed spending, especially investors and the borrowers…

Because of uncertainty about the aforesaid three factors which has slowed down growth, but from a medium to long run perspective INDIA story remains intact due to its huge human capital and other factors like low and stable inflation...

Economic policies create more disruption in the economy thorough price and price or inflation expectations, nevertheless it is important to stabilize prices near FULL-EMPLOYMENT by maintaining real interest rates neutral or zero...

They (economic policies) are similar to an untrained swimmer who can save himself by not doing anything than by doing something... If the policy makers try to tighten money it would lead to higher prices which further increase prices by higher borrowing cost and vice-versa...

Real interest rate in INDIA is too high which has made people delay demand, consumption and investment and increase savings and lower spending which might again increase real rates by lowering prices...

Everybody is pretending that the govt should increase spending to boost growth, but only few to point out that it must spend to increase production in the economy by increasing investment and employment... Lower prices are good for demand, but lower price expectations delay demand and spending...

The policy makers should work to stabilise prices and price expectations to continue growth through effective govt spending to increase productivity...

Lower prices mean that productivity has increased which increases demand and at lower prices supply could be increased to earn more or increase profits... Nonetheless, govt spending could increase demand and prices or inflation and inflation expectations, but lower supply which might reinforce inflation...

Therefore, it is important to increase demand and supply, both, and employment and investment for price stability and growth...

Low productivity and wages and demand, supply, investment, employment and growth are problems for the economy... Frankly speaking less use of technology in the face of lack of a vibrant technology sector may be behind lower innovation and productivity...

The Indian stock market has no meaningful tech sector or industry...

The UPA regime had overheated the economy which increased employment, but lowered real wages which did not work, employment should mean higher real wages and incomes and expectations...

INDIA''s huge demographic dividend could go waste if people are not skilled in consonance with market demand and are unproductively employed which is likely to depress wages/incomes, demand and supply and growth...

INDIA could impose export duty to increase domestic supply and lower oil prices and interest rate expectations... The UPA government let increase exports of cereals when domestic prices of cereals touched 20% inflation...

Interest Rate and Prices and the Stock-Market Amid Trade-War and Higher Oil-Prices...

Lower real interest rate increases employment and investment and demand and supply, which lowers cost and prices, more demand for labour may also increase nominal income if labour is scarce, which also increases savings... The evidence from China is consistent with theory, excess savings and lower interest rate...

Lower interest rate expectations in INDIA due to lower oil and food prices, oil has now a ceiling of $ 75-80 pb by Saudi domestic deficit instead of three digit oil prices, and in the US and China lower interest rate expectations are due to low oil and inflation and tariffs and slow trade deal... which have delayed spending in the three countries...  

Stock markets need demand and spending in the broader market which depend upon higher price expectations and bottom price expectations that prices would not fall further... Lower prices and interest rate expectations may increase supply, which may further lower prices and expectations, but if the consumers and investors know the bottom of prices and interest rate s/he might start demand and spending...

Higher interest rate and slow growth are among the reasons for lower margins, loss and NPAs in INDIA... The commercial banks could also increase demand and growth and reduce loss/increase profits by increasing transmission of interest rate cuts... Lower demand and growth has also increased NPAs to a considerable degree...

Manmohan was ignorant when Mukerjee traumatized the investors with too hard economic stimuli which sent inflation above 20% and 9% interest rate... which led too much depreciation that was controlled by Rajan with pledging NRI deposits attracting higher returns...

The economy is in bad shape because of loans during UPA 1 and 2 that turned to NPAs when the economy slowed down due to too much higher demand, higher inflation and higher interest rate, all during UPA... NDA reduced inflation and brought back the rate cut cycle...

Cong so long in the power… never committed food security and oil security which are major sources of inflation and lower real wages and incomes too, including agriculture, which is also hit by the lack of proper irrigation facilities and banking facilities... Congress has totally lost the direction to steer the economy... It has no vision...

Trump has not only created uncertainty for growth on the trade war front, but also through sanctions on world's some biggest oil producers... Saudi Arab should try to increase scale of oil production to increase quantity or exports or supply instead of reducing supply or quantity and increasing prices and lower demand... Trump has put global growth in doldrums...

The Fed does not need to follow China, 'coz the evidence we have that weak Phillips-Curve or unemployment and inflation relationship from Japan.. The evidence from Japan shows that supply has outpaced demand, due to lower population growth rate and demand and prices may still fall after full employment, due to tech advance, and oversupply...

The Fed itself is aware of the low demand and prices trap, often called as liquidity trap... The lower prices and interest rate in the US shows that demand is still low due to historical gap in productivity and real wages, lower borrowing cost has also bolstered supply relative to demand, also due to lower real wages...

Keeping the real interest rates close to neutral near full employment might still increase demand, real wages and price expectations which may also increase interest rate expectations and reduce some supply that might further increase prices and expectations to avoid falling back in the trap...

Recently, the US has criticised INDIA for higher tariffs on US imports, but it cannot and do not differentiately treat exports from the US and China, it is unbelievable… The reason behind more exports from China is that the US dollar and products are very expensive…  

Economic Policy INDIA, US...

Congress has seen the fiscal profligacy of Pranab and the resulting inflation and election results... Food and fuel inflation have been the sources of worry for INDIA, though both are going through a benign period...

Poor people have a higher propensity for consumption, which may stoke inflation and interest rate expectations... and lower investment and increase outflow of capital... We have evidence of easily overheating in the economy in the case of INDIA...

If the government borrows money it could also increase interest rate and crowd out private investment... Increasing productivity through training and skills may also help increase real wages/incomes, instead of wage spending by the government....

The policymakers are worried about lower prices or inflation in the US. The prices in the US may also fall due to rising productivity due to lower borrowing or capital cost, which might increase real wages/incomes... ORC lower prices would increase nominal and real wages/incomes near full employment and demand if people do not expect lower prices or expect higher prices...

Real rates in the US are near zero or neutral, 2.25 nominal rates and close to 2% inflation, which needs to be maintained for stability in the market... Low inflation means more demand and higher price expectations and vice versa...

Stable interest rate and inflation expectations are important for growth... Lower price and interest rate expectations might delay demand and spending and increase supply and higher price and interest rate expectations may delay supply and increase demand and spending...

We need to balance both demand and supply to shape prices and growth expectations...

We are experiencing low inflation in US, which could possibly mean lower demand and higher supply, which need higher price expectations to increase demand that could be achieved by a loose monetary policy or neutral interest rate or longer lose policy to increase demand near full employment or little higher interest rate to curb some supply and increase price expectations...

The interest rates in the US are still low compared to the past and developing countries. But, the problem is that the Fed is either likely to overtighten or undertighten because lower interest rate further reinforces lower prices through lower borrowing cost and vice versa...

Government should promote hedge investment to control risk... Both, lower cost and prices and higher cost and prices and expectations can benefit businesses if they are anticipated correctly... Investment at lower prices increases profitability to sell at higher prices...

Bonds work well during slowdowns and equities during growth... Businesses and investment needs to know price and expectations before investment... If you can rightly predict prices, lower or higher, and act accordingly, any investment would give you better returns...

Easy money and higher inflation and financial assets prices and consequently higher interest rate and expectations are the problems that trigger slowdowns... Low inflation and interest rates in both, the developed and developing countries point the capacity to expand further.

Nonetheless, stock markets could go for bigger correction in the case of a slowdown, which is so far far given low demand and spending and prices... The biggest problem to the growth is oil prices, which may feed into inflation and asset prices, including dollars...

Few years back lower demand and commodity prices in the global economy had helped INDIA contain the CAD and inflation, that low global growth was good for INDIA… but due to increased demand for employment and exports the need is a steady growth in demand in the other countries, too...

INDIA, US, China... (Rev.)

The protectionism does work and the free-trade does not, when we have capacity to produce at lower prices and scope to reduce unemployment, importing at higher prices lower real wages/income/profits...

Automation might help save labour and lower prices (due to lower real wages) in countries with full employment to increase productivity... ie capital and tech rich countries... Countries with higher unemployment need to use cheap labour intensive tech...

The economists dislike protectionism and automation... If, it had been true, that they are bad, China had not grown unprecedentedly... Imports are important for lower prices to increase economy’s productivity... unfurnished and intermediate goods to get a place in the supply goods global chains and lower global prices may be good for price and employment stability...

The 6% unemployment rate (INDIA) is only 1% more than the full employment range which points that the economy is growing just below the potential real growth 8%... which could be gauged also from the fact that after factoring the natural rate of unemployment the population growth rate is 8% which is also the potential growth…

The economy (INDIA) is growing 7% which is just 1% short than the potential growth rate... 1% increase in unemployment shows that the growth rate is lower by 1%... 1% of unemployment means 10 million jobless...

The US shows that full employment could go down as low as 3.5 % which means that there could be 25 million unemployed in the economy which also means that INDIA could grow at just over 10%...

INDIA has adopted a flexible inflation targeting which means that the RBI can tolerate higher inflation upto 6% and could afford to be patient not to raise real rates...

Had the RBI not increased nominal interest rates when inflation was low, the higher real interest rates had not increased the borrowing cost, which exposed the shadow banking crises and the economy turned slow due to liquidity crisis...

Price stability always comes at the cost of higher unemployment... We have stable prices during NDA... with setbacks for demand... from monetary policy, too...

The rate cuts would not solve the problem of low inflation in the US, rather they could further lower inflation by lowering borrowing cost and increasing (investment and employment and) supply and demand by increasing productivity of capital or lowering the opportunity cost of capital, which could again increase rate cut expectations and the economy might find itself in a deflationary spiral... The same is true for inflation and rate hikes; they further increase rate hike and inflation expectations...

The Fed may try to stabilize real interest rate at neutral or zero at which there is price stability and full employment...

If the multiplier theory is true tax cuts in the US could multiply its effect every year if money supply is not tightened and/or reduce spending by the government... Now, the Fed has to maintain stability of the natural real interest rate, real wages and exchange rate, and savings and consumption, and, investment and employment, and, demand and supply, and, prices and incomes and the economic growth and expectations...   China is facing excess capacity and over supply and also lower demand due to trade tension with the US which have reduced prices and expectations which must be changed to higher prices and expectations to increase demand and also to constrict supply to increase growth... China must increase real interest rate and expectations to increase price and price expectations through higher borrowing cost and lower supply without overheating... Higher price expectations could increase demand and lower supply to increase prices and expectations....

RBI and Oil...

The RBI should devise a mechanism to push banks pass on full rate cuts while maintaining the existing margins... which is doable... to stoke investment and growth... Higher liquidity too could increase scale of business and profits... Atleast banks are better-off even with full transmission of rate cuts...

The growth and inflation relationship is weak and is dependent on the excess capacity and output gap... Higher unemployment means prices might go down as a result of production and growth...

A neutral stance may help avoid rate cut expectations and delay in consumer and investment spending as people are less sure about rate cut expectations... When people expect lower prices they delay spending... Nevertheless, lower household inflation expectations could further reduce spending... To avoid this, a neutral stance is good... It means both rate cut and rate hike depending on the inflation and expectations…

Price and demand-supply or quantity of commodities are like bond price and interest rate or bond yield, income is decided by both bond price and yield, likewise income from oil or a commodity is decided by both price and quantity, either quantity goes up and prices go down or quantity goes down and prices go up, nevertheless returns or income remains same and lower prices mean higher quantity demanded and supplied and higher prices lower quantity demanded and supplied, revenue or income remains same...

It is a mirage that higher price would increase income... Moreover, lower prices further lower price expectations because either supply and demand or quantity increase or people delay spending if they expect lower prices, similarly higher prices further increase price expectations 'coz people demand and supply or quantity decrease or people increase spending if they expect higher prices...

Lower price expectations delay demand and increase supply which further lowers price expectations... Higher price expectations increase demand and delay supply which again increases price expectations...

Higher oil prices and inflation expectations and back to back rate hikes stroked the slow recovery from demonetisation and GST which were implemented in the backdrop of recovery from the past rate hike cycle, NPAs and slowdown... INDIA still needs to achieve the best... in terms of demand and growth when expectations from INDIA are high, especially by the investors, domestic and foreign, from a long run perspective... The investment cycle is still to kick in fully with lower inflation and rate cuts...

When oil prices were low, imports fell when investors ought to import or invest more... to create reserves to sell at higher prices later and contain prices and demand...

Volatility in oil prices add to the uncertainty... Transport prices are an important part of global trade... When global growth is expected to go down oil prices are expected to be lower... Nevertheless, low and stable inflation and interest rate and expectations when growth expectations are low could support oil prices, but inflation and interest rate expectations and higher oil prices would be contractionary... Like interest rate is to reduce domestic inflation, exchange rate could be used to reduce imported inflation... Cheaper exchange rate or at discount could help reduce cost of foreign exchange and prices or inflation, especially through oil imports... Lower interest rate may increase depreciation or nominal exchange rate increasing real exchange rate and demand for exports by lowering the price level... Lower inflation or higher productivity increase demand and supply or quantity, exports, too... In exchange rate parlance increasing means lowering or depreciation in the exchange rate, true for real exchange rate, too... and decreasing means increasing or appreciation in the exchange rate... real rates, too...

BJP has promised more public investment to increase productivity which would increase competitiveness and demand and growth or lower cost/price to increase demand when Cong has promised more demand directly, which may increase fiscal deficit and inflation without increasing effective distribution (market) of labor (employment) and production... Lower AND stable prices have been the attributes of the BJP...

NYAY and Unemployment and The Monetary Policy...

The need to make people independent by providing skills and jobs is overrided by policies to make people dependent and increase scope as vote banks...

NYAY has targeted only the employed and promised to support their income... Atleast no one has put that unemployed would get Rs 12, 000/month...

Probably NYAY has nothing to do with unemployment; it is an income support for the working group earning less than Rs 12, 000... Are unemployed going to get complete 12, 000...?

How NYAY is going to help unemployed... (?), when the problem has been unemployment.

NYAY has overestimated the cost of living... Rs 9, 000 could be appropriate for a family or a household given the existing subsidies... But, it has not targeted the unemployed... There is still scope for unemployment benefits and dbt for education and skills...

There is still need for unemployment benefits transfer b’coz NYAY has only targeted the poor employed by its income support scheme...

Unemployment benefits are an important part of the Social Security...

The government should promote self education and self certification after graduation...

Modi's 10% reservation to economic weaker, people earning less than 8 lakh, is a bigger game changer, it covers a larger population, including the middle class too, besides poor...

Recently Raghuram Rajan raised doubts about the employment and growth data. But, Rajan himself never valued unemployment data while deciding the monetary policy during his stint when price stability and unemployment, both, are important from policy point of view... He never pointed that unemployment data are too much cumbersome...

Government's commitment to low fiscal deficit and better supply side management, especially the food, and lower debt and inflation have been slowly recognised by the RBI... But, had not translated to lower inflation expectations, by RBI, and lower interest rate...

After demo the RBI had to cut rates to increase falling growth expectations... which hit the already bottoming out economy and slowed the economy further... which was further hit by oil prices and depreciation and two successive rate hikes...

The RBI had not been helpful for more production and employment... lower borrowing cost could also increase competitiveness and demand/supply and growth....

Higher interest rate would be bad for, both INDIA and the US... A strong dollar could further increase depreciation and increase oil prices and CAD and outflows... and higher interest rates in INDIA... A US recession would help INDIA in terms of lower commodity and oil prices and inflows...

Lower inflation and inflation expectations might not increase the nominal exchange rate transmission... means lower inflation and expectations premium...

Today the RBI in its monetary policy review delivered a 25 basis points rate cut even when household inflation expectations has remained benign while maintaining a neutral stance which points that further rate cuts might be possible going ahead…

The RBI must have avoided interest rate cut expectations since it could delay demand worsening growth... It had better provided a 50 basis cut while maintaining a neutral stance dependent on the incoming data given higher real interest rate compared to peer countries...

Formalisation, Central Banks and Expansion, and Arabs...

There is no connect between formalisation and wages... Even with the Unions in developed countries wages are lagging productivity…Formalisation basically means more data and information on the economy to frame consistent policies… Low skills and productivity are reasons behind jobs and joblessness and lower wages… Formalisation also lowers tax evasion by maintaining accounts…

The central banks or the RBI are to curb irrational exuberance and excesses and try to control too much volatility in prices in the stocks and the broader economy, but not all the prices... Price change and expectations play an important role in investment or speculation...

Lower prices or inflation increase demand and price expectations and higher prices lower demand and price expectations...People buy low and sell high in the expectation of higher prices and higher price increase supply and lower demand and price expectations...

The same is with inflation people try to gain from rational expectations... But, too much volatility in G&S prices might increase change in the interest rate and expectations and demand and spending and growth worsening financial and economic stability... Irrational exuberance creates booms and busts, the central bank must curb too much boom and busts…

Depreciation is a failed strategy because it lowers domestic demand... competitiveness could also be increased by lower borrowing cost and increased capital productivity which could also increase domestic demand... Lower oil and inflation is one of the reasons of strong rupee which means higher real exchange rate, more demand for domestic products...

2.5% nominal interest rate and 2% inflation mean a 0.5% real interest rate which is likely to increase savings and lower spending even when inflation is tamed resulting in lower price and interest rate expectations... During the last recession the Fed has already tried negative real interest rate when nominal rates were close to zero and inflation below target...

The healthy balance sheet maintenance could work as precautionary money during the next recession... Too much tightening could lower price and interest rate expectations leading to a slowdown...

The expected inverted yield curve as a precedent for recession in the US is exaggerated since this time the Fed is more cautious about its past mistakes of too much tightening and defaults and higher unemployment and lower prices and interest rate, later...

This time it has recognised that there is a neutral real interest rate at which there is price stability and full employment and it admits, now, that we have reached the neutral real rates or zero real interest rate at which prices and inflation are stable near full employment...

Nonetheless, labourforce participation rate has been low compared to a decade ago, before the Recession 2008, which might be increased by increasing real wages and if the Fed waits for wage build up when inflation and expectations are low....

Nevertheless, there has been a gap in productivity and real wages since 1970s... By delaying the rate hikes with respect to inflation the Fed has lengthened the expansion... Things move slowly in the economic world, the next slowdown is expected when higher real wages increase demand and price and real interest rate expectations...

…it might still take 3 - 5 years depending on the speed of increase in real wages... lower inflation also means higher real investment and profits...

Higher productivity and lower wages and natural real interest rate since 1970s could be responsible for lower inflation and expectations... Data shows that inflation has increased with rate hikes since 2015... Low inflation and expectations have lowered premium on long term interest rates... Nonetheless, if inflation and expectations increase it could again increase long term rates...

                                                                   Interest rate          

                                                                   Inflation

Withdrawing accommodation and raising interest rate are like taking away money from people and supplying loans and consumption/investment spending, actually backed by banks reserves, even when it has not created inflation and inflated assets, but rolling back money supply and increasing interest rate might lower demand/supply and price and growth expectations...

The Fed should never increase interest rates so much that it increases chances of default and slowdown in the economy even when inflation is muted which might lower price expectations and delay in economic activity...

The stand-off between the US and China is also a major cause of further slowdown in already slow European economies... Germany, the best performing economy in the Euro-area has considerable trade with China which might sour investments...

We have reached a state where no economy can claim insulated from foreign trade and investment and grow in isolation... Even the US growth has slowed down since the inception of trade and tariff war...

Arabs said they want oil at $70… even with supply cuts, but what would happen when the sanctions on Iran and Venezuela would be removed altogether? Prices might fall like the house of cards... Both are among the biggest oil producers... Shale would also suffer along with Arabs...It is just a matter of politics...