I was going through this article today on rate hike and inflation, but the problem (inflation) and the popular solution in India (rate hike) and elsewhere in the world has been bothering me for a long time, and as late as yesterday night..
If Price is a equation of supply/demand, shouldn't supply be addressed to control inflation rather than demand through credit for a country like India which is still at the development phase ??
Clearly, we do not produce much of anything, import huge quantities through traders (almost everything), much of which is hoarded most of the time, with exorbitant duties (the total duties on any product in India can reach 25% of the value easily) to benefit a few communities who monopolize manufacturing by intricately teaming up with politicians and setting beneficial policies.
It is so strange the world's biggest steel producer doesn't have a plant in India even though steel demand is expected to increase or is required for the massive infrastructure overhaul. 80% of the country's oil is imported (know the talk of low reserves, but what about low exploration). Coal imports hit a new high of 70 million tonnes last year (even though we have the 4th largest coal reserve), nearly 2/3rds of all the chemicals are imported into India and so on and so forth... obviously with the world demand increasing the prices of a lot of products which are imported in India tend to rise, and the country has to bear the price burnt...
India is one of the highest interest rate countries in the world.. they should certainly have a re-look at creating a low interest rate environment for industries to produce more.. and cater more to the demand.. rather than increasing interest rates and curtailing demand...
no idea if the above make sense.. but till then lets tighten the screw on interest rates...
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