A Brahmastra called GST.

The Consumer Price Index fell to 4.87% in April from 5.25% in March, which is well within the RBI target of getting it down to 6% by January, 2016, while the Index of Industrial Production fell from 4.8% in February to 2.1% in March. The Wholesale Price Index has fallen for the second straight month. It was -2.65% in April from -2.1% in March. Food inflation has fallen from 6.31% in March to 5.73% in April. Prices are falling in manufactured goods due to low commodity prices, which is good, and due to low demand, which is bad. In response to a question on interest rate the Finance Minister hinted that a cut would be highly desirable, saying," I expect what every Indian expects." A low interest rate will, it is hoped, stimulate demand, by encouraging consumer spending on credit, as well as make it less expensive for companies to start new projects. Since the government is the largest borrower by far, lower interest rates help the government reduce its bills. Most crucially, it will allow public sector banks to restructure bad loans by issuing new loans at lower interest rates which companies can pay. Bad loans have risen to Rs 1.81 trillion by the end of March but the RBI warned that they have not reached their peak as yet. Unless banks are able to clean up their books they will be unable to lend, especially for infrastructure projects, vital for the economy, which have very long gestation periods. These are very valid reasons for a genuine cut in the interest rate, not by a namby-pamby 25 basis points, but by a hefty 50-100 basis points. But, as with everything in life, there are problems. Inflation is soft for now but food prices may rise as unseasonal rains damaged crops in the north and El Nino may affect this year's monsoon, how severely, remains to be seen. After falling for a few months fuel prices are on the rise again which will feed into retail inflation after a lag. The RBI has signaled that it wants to keep interest rate 150-200 basis points higher than the rate of retail inflation so that people save money in banks rather than buy gold as a hedge against loss of income. Gold import has increased by 15%,  to 192 tonnes, in the first quarter to March while gold jewelry import has risen 22% to 150.8 tonnes. With ample foreign currency reserves and soft commodity prices the government is able to handle it for now but if commodity prices start to rise it could be a problem. Foreign investors are selling Indian stocks and bonds. As FIIs buy dollars to repatriate money back to their home countries the rupee falls. A weak rupee will make imports, especially oil, more expensive and increase prices. With weak demand low interest rate may not increase investments but create asset price bubbles, as in real estate. Perhaps the problem is elsewhere. Our taxes are too high, killing demand. The government must do anything to pass the GST bill. That will be the game changer. Or Brahmastra, as we call it.