Raghav’s Take: Big Idea 1 for PM Modi - Reflate The Economy

Raghav Bahl gives you his 5 big ideas for the PM to focus on in his second year.

Raghav Bahl(inset) tells you his 5 big ideas for the PM to focus on in his second year.

As the Prime Minister starts the second year of his term, Raghav Bahl expands on his 5 big ideas for Narendra Modi to focus on. So what can the PM do in the coming year to quickly reflate the economy?

Watch Raghav’s Take.

Big Idea 1: Reflate the Economy Quickly

If you leave out food prices, India’s real economy is in Deflation, with producers’ prices falling by 2%. Deflation is perhaps a more difficult-to-uproot problem than inflation, because it can be a one way spiral downwards – prices fall, profits and wages fall, people expect prices to fall further so they postpone purchases and profits and wages fall further – Japan is a living example of how viciously deflation can sustain itself over several decades.

So what can Prime Minister Modi do in his second year to quickly reflate our economy?

One – he simply has to lean on RBI, using all the persuasion at his command, to convince them to cut Interest Rates by 125-150 Basis Points in the remaining 10 months of the Current Year.

Two – the rules should be so tweaked, by extending theprincipal repayment period and doing whatever else it takes, such that people’s EMIs come down by 30% - so if you are paying Rs 10,000 per month for your car or house, that should come down to Rs 7000, which will kickstartdemand for housing &consumer durables; And since the only fear of cutting interest rates is a spike in food inflation, the government should aggressively import articles which are in short supply, and release large quantities of FCI-held food grain in the open market, to bring down prices.