If they are rich we will be poor.

Business sentiment in India is falling. The India Business Sentiment has fallen by 4.8% and only 26% of business fellows expect business activity to rise. Of course, politicians see only one solution to the myriad problems plaguing our economy. And that is to cut interest rates. Just like the Congress used to go on about. This time they are not talking about growth but about the strength of the rupee which is harming our exports. The government wants to increase our exports to $900 billion in the next 5 years so a weak rupee would help. The high interest rate encourages people to borrow in dollars abroad, at 1-2% interest rate, and invest in the rupee at 7.5%. High inflow of dollars makes the rupee stronger so a lower rate will discourage such arbitrage. Already the IT sector may see a fall in earnings due to the strong rupee against all other currencies, except the dollar. The interest rate is high because retail inflation is high in India, rising to 5.37% in February from 5.11% in January. Untimely rains in March have damaged large areas of crops so the price of food can only rise further. The government has bought 80,000 tonnes of wheat from Australia and a strong rupee helps in keeping the price down. Which is strange since the government is sitting on large stocks of local wheat due to bumper harvests in previous years. Politicians say that lower rates will facilitate borrowing by businesses and increase jobs. The truth is that banks cannot lend because they are sitting on huge piles of bad loans. The net non-performing assets of 40 listed banks have risen by 22.82% to Rs 1.70 trillion. Indian businesses are drowning in debt, having borrowed 34% of the GDP. Borrowings of 1000 listed companies have risen to Rs 35 trillion in 2013-14, compared to Rs 3.9 trillion in 2003-04. Lower interest rate will help banks to restructure loans at lower rates which the companies maybe able to pay off. The reason for lower business sentiment is poor consumer demand, and consumers cannot buy if prices keep rising all the time. From yesterday service tax has risen to 14% which will make mutual funds and eating out more expensive. If people stop eating out then tax collection will drop. They will have to raise taxes even further to increase revenues. As prices rise workers demand higher wages to compensate for a fall in their spending power putting pressure on businesses to raise prices to pay their workers. High taxes also make it more worthwhile to evade paying and take the risk of having to pay penalties if caught. So who can afford anything at ever rising prices? Government employees whose salaries were increased by over 25% by the Sixth Pay Commission. The seventh one is in progress. As they become richer we become poorer.