An elephant is four-legged. No use pulling just one.

Despite strident calls to lower interest rates in India the Reserve Bank decided to keep them unchanged this morning. The man who was responsible for the dire state that the economy is in is still trying his best to inflict as much damage as he can by whipping up hysteria for a rate cut. While the economy grew by 5.3% in the second quarter to September, compared to 5.7% the previous quarter, manufacturing grew by only 0.1% in the same period. However, in November the Purchasing Managers Index for manufacturing jumped to a 21 month high mainly due to increased consumption, reflected in a rise in output of consumer goods and in output prices. Lowering interest rates too quickly may stimulate consumption which will result in higher imports, worse trade deficit, rising prices and lead to inflation. The common refrain is that lower rates will increase investments by making it cheaper for companies to borrow more money from banks. That is a complete lie because companies in India have the highest level of loans in Asia and are defaulting on repayments, leading to a rise in bad loans in public sector banks. They have to repay their previous loans, so that banks can clear up their books, before they will entertain any requests for fresh loans. Interest rate in the Eurozone is just 0.05% and the ECB is charging banks to park money with it overnight, resulting in a negative interest rate, which means that banks get back less than they put in. In return banks are charging customers for keeping money in banks. This is to force people to spend money to boost demand so that companies invest in new start-ups, which will create new jobs. Despite such drastic measures GDP growth rate was just 0.2% in the third quarter, the manufacturing PMI for November was 50.1%, which is barely in positive territory, while inflation is still at 0.3%, dangerously close to deflation. If a negative interest rate is failing to stimulate growth in Europe why should we see a dramatic boom in our economy from a cut of 25 basis points? To really stimulate growth we need a cut in taxes which have a multiplier effect on inflation by adding to the rise in prices. People spend money much better than the government where politicians waste our taxes on bribing the ' vote bank ' and civil servants steal the rest. We may feel that over 100% taxes on luxury cars are justified but what about 21% tax on generic medicines. However, there are still communist types who think that the middle class should be killed off by punitive taxes. On the other hand, high prices of fuel have already fed into the system so taxes should be kept high so that they can be lowered to cushion the effect of a sudden rise in the price of oil. An elephant cannot walk by pulling one leg.