They got the rate cut they wanted, now let us see who benefits.

The deed is done. The Reserve Bank slashed interest rate by 50 basis points, taking everyone by surprise. The stock market index, the Sensex jumped over 400 points on the news, the rupee surprisingly has gone up by 10 paise and, not surprisingly, 10 year bond yields fell from 7.727 to 7.611. With the 2 biggest festivals of Durga Puja, starting 19 October, and Diwali on 11 November the RBI probably wanted to generate a feelgood effect to stimulate consumer spending, hoping to increase demand, so that capacity utilisation of industries improves from its current level of 70-72%. Economic growth is dependent on domestic demand because exports have fallen by 20.7% year-on-year, giving rise to fears of job losses. But will this move increase consumer demand which is very anemic at present? Will people rush out to buy cars, houses and clothes and go for holidays, paid for by credit? The total number of credit cards in use in India is a paltry 21.5 million, much lower than 35 million who pay income tax, with total outstanding credit of Rs 324 billion. Some have multiple cards. Household spending in India is not governed by the cost of borrowing but by the cost of food, fuel, school fees and the price of consumer goods. The Consumer Price Index in down to 3.66% but inflation expectation is still in double figures for the next quarter and for the next year. That people are hurting is shown by the steep fall in household financial savings, which is the lowest in 25 years. If people do not save banks will have less money to lend out. Lower interest will hurt those who depend on their savings for their daily expenses, such as pensioners, who will be forced to reduce spending .High taxes add to price rises, discouraging consumer spending even more. Then there are jokers who recommend an increase in tax on fuel and telecom to pay for the Swachh Bharat Abhiyan, which is the Prime Minister's initiative to clean India. What happens to the huge taxes we already pay? Other jokers want to force a one car per family policy in Delhi to reduce pollution. The automobile industry contributes 7% to the GDP and provides jobs to millions, not only in manufacturing but in sales and servicing. However, tax on diesel should definitely be increased gradually until diesel price is equal to the price of petrol. This will hugely increase tax collection, stop the use of diesel cars and improve pollution, as seen with the Volkswagen scandal. Borrowers will gain from the reduction in interest rates. The government is the biggest borrower and so will gain the most as we see from the fall in bond yields. Banks maybe able to restructure the mountain of bad loans they are sitting on. The real estate sector will hope for higher sales even though prices are unrealistic at present. Higher sales will protect black money of our leading citizens. Business fellows were pleading for a rate cut. Let us see if they use it for us or for themselves.