Hi Ajay, I get your basic point and agree in principle, but I do not agree with your economic analysis - "Foreign investors and domestic investors have choices about where to invest." - true. "They will demand that firms only invest in a smaller set of high-return projects, which are competitive on the rate of return by global standards, even after being taxed." true - how does the 2% expense on CSR change that. "In other words, many projects will not be undertaken." - It is a general outcome for any taxation, not specifically the mandated CSR. May I suggest that what you need to clearly demonstrate is that after taking into account the costs and benefits of the positive/negative externalities derived from such a 2% mandatory CSR, the net benefit will still be negative. Such an exercise would clearly demonstrate your point. Cheers - Amar
As an avid follower of your blog, I thoroughly enjoyed going through your analysis of this highly relevant topic. However, I am stuck at one particular point you mentioned which is the following: "RBI should keep driving up the short-term interest rate until point-on-point seasonally adjusted CPI inflation shows a decline and goes into the target zone of 4-5 per cent." Considering the RBI has been consistently raising the interest rates over the past 12 months and yet headline inflation has not come down substantially whereas growth has definitely suffered, wouldn't further monetary policy tightening hamper our growth potential even more? Indian economy seems to be slowing down already-manufacturing output growth significantly slowed down last quarter and the overall mood perhaps is a bit cautious given the uncertain global economic prospects. Under such circumstances, would it be prudent for the RBI to raise interest rates even more? I know it is a complex situation since inflation is one of our crucial problems today-so how do you think we can resolve this growth vs inflation dilemma that India is facing now? Furthermore, wouldn't the capital inflows potentially resulting from further rate hikes, lead to asset price bubbles thereby adding fuel to the inflationary problem? Your thoughts on this would help a lot in understanding these nuances. Thanks much, Rajeswari.
How can one register for the IGIDR conference? In the link that you provide, I can find the conference details but not information on registration. Thanks.
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Hi Ajay, I get your basic point and agree in principle, but I do not agree with your economic analysis - "Foreign investors and domestic investors have choices about where to invest." - true. "They will demand that firms only invest in a smaller set of high-return projects, which are competitive on the rate of return by global standards, even after being taxed." true - how does the 2% expense on CSR change that. "In other words, many projects will not be undertaken." - It is a general outcome for any taxation, not specifically the mandated CSR. May I suggest that what you need to clearly demonstrate is that after taking into account the costs and benefits of the positive/negative externalities derived from such a 2% mandatory CSR, the net benefit will still be negative. Such an exercise would clearly demonstrate your point. Cheers - Amar
ReplyDeleteHi Ajay,
ReplyDeleteAs an avid follower of your blog, I thoroughly enjoyed going through your analysis of this highly relevant topic. However, I am stuck at one particular point you mentioned which is the following:
"RBI should keep driving up the short-term interest rate until point-on-point seasonally adjusted CPI inflation shows a decline and goes into the target zone of 4-5 per cent." Considering the RBI has been consistently raising the interest rates over the past 12 months and yet headline inflation has not come down substantially whereas growth has definitely suffered, wouldn't further monetary policy tightening hamper our growth potential even more? Indian economy seems to be slowing down already-manufacturing output growth significantly slowed down last quarter and the overall mood perhaps is a bit cautious given the uncertain global economic prospects. Under such circumstances, would it be prudent for the RBI to raise interest rates even more? I know it is a complex situation since inflation is one of our crucial problems today-so how do you think we can resolve this growth vs inflation dilemma that India is facing now? Furthermore, wouldn't the capital inflows potentially resulting from further rate hikes, lead to asset price bubbles thereby adding fuel to the inflationary problem? Your thoughts on this would help a lot in understanding these nuances. Thanks much, Rajeswari.
Rajeswari,
ReplyDeleteRBI has frequently violated the Taylor principle. There's no gain from hiking if the real rate goes DOWN.
Hi Ajay
ReplyDeleteHow can one register for the IGIDR conference? In the link that you provide, I can find the conference details but not information on registration. Thanks.
Sudhanshoo