My View

1. How to control inflation?
That too much money is chasing too few goods is self-evident. There is now more purchasing power in the hand of organized sector employees, who constitute a sizable chunk of middle class and public by large is more than before interested in real estate investment whenever more liquidity available. Hence what is necessary is a combination of moping up some of excess purchasing power and increasing productivity of the economy instead of raising interest rate which discourages investment? Then why not finance the additional productivity with above excess purchasing power? So government would need more money to finance productive activities and hence need to issue more debt, i.e. T-bills and dated securities. The financial system may not be able/willing to absorb it since nowadays average risk appetite of the market participants have increased and they prefer corporate bonds and other instruments offering higher returns as revealed by perusal of the changes in the composition of investment portfolios of corporates and FIs over last couple of years. So central bank may need to come in the picture to rescue the government, but this is tantamount to printing money. Better increase the income tax exemption limit income slab-wise (as per progressive taxation principle in normative economic sense). It should not be uniform for everybody and a part of that exemption may be allotted to govt securities, e.g. instead of 20000/- for infrastructure bonds, make it 1 lac additional investment in govt securities, this 1 lac should not be constant irrespective to the level of annual income. Rather the % of annual income allowed for exemption may be like 10% for those whose income is below 10 lacs, 20% for those with income between 10 and 20 lacs and so on. Similar practice may be introduced for corporate tax. Overall there should be tax incentive to every entity for investment in public debt.

Above is the reply from an administrative perspective.

From academic perspective, I think India may be entering the crisis zone of capitalism with an explicit need to invoke a post-Keynesian and neo-classical synthesis, the culprit behind the crisis may not be the asset bubble but it may be black-money bubble, which again is an issue of how you define it and essentially a fruit of market failure. The solution may not be located in an economic framework where fund pricing amounts to setting interest rate (a legacy of J R Hicks etc). But the current framework cannot be dismantled on the eve of Basel III era. Hence crises would be there in some form or other.

2. The day after SBI stock touched 52-week low, I was asked by a neighbor "suggest some good buy?" I replied "SBI or any other stock included in CNX or Nifty whose prices are low now and hold them for long period.""Why?""These will as usual catch up the trend behavior after sometime"."Is not the economy down when stock market crashes""If economy means shareholders, yes it is; if it means savers, then it is the good time to buy select stocks; if it means the component of our society who are in a position to neither save nor invest, I shall say when stock market is up they do not reap any benefit - so the question of their suffering out of plunging indices do not arise""But if RBI hikes rates again floating rate borrowers for car, housing etc will suffer""At the same time prices of car and property would also increase in a price spiral and hence sellers benefit. This is a redistribution of income. With every combination of economic variables emerges some unique pattern of income distribution - there is one to one correspondence, you cannot have one without the other". "You economists give ornamental names to stress events"."That is why I like to interview us once and often"(Dear Reader, Please give feedback whether I am wrong/right and to what what extent.)