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Ques. What cutting interest rates by RBI what are other steps that can be taken to curb this slowdown? Explain.
What should be done to address the slowdown of the economy? The answer is simple. It would be obvious to an undergraduate in economics. If there is slowdown or downturn in the economy, RBI should use countercyclical, expansionary, macroeconomics policies to revive growth. Fiscal policy should provide a stimulus, preferably by stepping up public investment. Monetary policy should provide a stimulus to private investment by lowering interest rates. Government borrowings is always sustainable if it is used to finance investment and if the rate of return on such investment is greater than the interest rate payable. The RBI is caught in a monetarists ideology, long after inflation-targeting has been disconnected, in the belief that inflation can be controlled by high-interest rates. Such thinking is based on a flawed belief system about the causes, of and remedies for, inflation. Inflation warriors in India fail to recognize that it was the low oil prices rather than the high-interest rates that tamed inflation The way forward, then is to allow the fiscal deficit to rise, using that to finance public investment, and to drop interest rates which would also help the exchange rate depreciate. Together, these would stimulate investment and promote exports, to revive economic growth.
- Other than lowering interest rates. The financial year 2018-19 was like a nightmare for the manufacturing sector of our country. It saw the lowest growth rate and that is the big concern for our economists now. However, RBI tried the measure of lowering interest rates for easy availability of loans but still the people are not applying for the loan. Apart from the agriculture sector, the main source of the development and income of our country depends on the manufacturing sector and if this recession continues in this pivotal sector then that would put our economy on the major slowdown. So, now RBI and our government should adopt various other measures to curb this situation. It can include lowering tax rates on the manufacturing sector, simplifying the rules and regulations of licensing, encouraging more and more exports, providing subsidies on power consumption, promoting new investments in Special Economic Zones (SEZs), etc. The manufacturing sector plays a very vital role and creates a lot of employment opportunities and if this sector faces slump then that would be the great reason for distress.
- Ans–3. In last few months RBI has cut down the Repo Rate by .25 basis points continuously 2 times from 6.5% to 6.00%. this shows that the Indian economy is slowing down fast. In December ended quarter the growth rate of GDP was 6.6% which is slowest pace in last six quarters. Decreasing the Repo rate successively is not the proper solution to increase the growth rate. there is a need to see the structural issues also like infusing money in the bank is not only the solution but look at the condition of NBFSC and their dept and give them solution will help to increase the growth rate. from February 2018 to February 2019 the industrial output decreases from 6.9% to 0.2% which is not good for Indian economy so need to make proper planning for industries to make proper growth and other program for manufacturing sectors also be implemented by the govt like open foreign markets to sell the industrial output.there is a need to take money from fugitives like Neerav modi and Vijaya Maliya and infuse that money into finacial institutions this will help to increase the growth rate. besides this giving proper employment rather than minimum income like Congress leader said that he will give money upto 72000 yearly.this will decrease the growth rate more so proper planning and implementation is needed to increase the growth rate
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