Government must take action to boost demand, says Raamdeo Agrawal

Rutam Vora Ahmedabad | Updated on October 02, 2019 Published on October 02, 2019

Raamdeo Agrawal, co-founder, Motilal Oswal Financial Securities

Raamdeo Agrawal also said that an unconventional monetary policy could fuel credit off-take and push consumption demand


Having addressed the supply-side with tax sops for corporate India, stock market experts hope that the government will take action to boost demand as well.

The Union Finance Minister Nirmala Sitharaman announced tax cuts on September 20, which helped revive optimism in the economy, but the celebration did not last long on the stock markets, with benchmark indices falling by over 2 per cent so far this week, after a sharp rally soon after the announcements.

Raamdeo Agrawal, co-founder, Motilal Oswal Financial Securities, said that only “good companies” have gained from the government’s move. “Good companies have won a lottery. But the economy does not run only on good companies. The medium- and small-companies are also a big part of the economy. They need cheaper and easy money. There is no relief for them as of now. Also, government gave Rs 1.5 lakh crore in the hands of large companies, but there’s nothing for the consumers that can spike up the demand,” Agrawal told Businessline.

Also read: Bold tax move needs matching reforms

“We believe that before the festivities, something to boost consumption will be announced, with further tax cuts. This is still a work in progress,” said Agrawal, pointing out that the government needs to take unconventional measures to revive the ‘animal spirit’ in the economy.

Unconventional solutions

Hinting at a cleansing phase is underway in the economy, Agrawal pointed out that the government needs to allow easier credit flow, and keep the economy fully supplied with money.

“The slowdown is because corporate, banking and infrastructure sector are under cleaning (process). The recovery will be slow, but we should not lose patience. We will need to manage this transition well. If required, keep the interest very low - may at 2 per cent or 3 per cent. We require unconventional monetary policy. Unconventionally low interest rates for unconventionally high liquidity. This will fire-up the market. Once earnings rise multifold, eventually it will be pumped back into the economy,” said Agrawal.

‘Immediate worry’

He also pointed out that despite government giving tax-cuts, many corporates are not investing, primarily because they are not sure about the demand.

Also read: Time for India Inc to respond to the government’s tax bonanza

He stated that market is happy with the approach of the government, but “the immediate worry is the consumer demand or liquidity in the economy. This is because of weak credit flow and lack of consumer confidence. But, we are sure these are short-term concerns and the work is in progress.”

Published on October 02, 2019
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