Achievements of Macro-economics. Sufferings of Micro-Economics.

In economics what is good for micro economics (individual) may and is not good for macro economics. For example it is good that individuals save and postpone consumption but if such habits become addiction of large population, total demand  declines and so macroeconomic growth which, much depends not only on saving –investment but demand consumption( Two side of a coin).

Similarly what is good for macroeconomics may be bad omen for micro economics (individual).  For many years India (Central Government and RBI) was struggling to control inflation ie price riseand now seem to achieve it. But it cannot be said with certainty that success is good for common man. Whole  depends upon how you control it by utilizing  four factors demand, supply (of goods) and government revenue and spending (fiscal deficit) on which inflation depends.

 While inflation can be reduced by reduction in demand (for same good demand is lowered) or increasing the supply of goods (demand remaining same). Other way to reduce inflation is to control fiscal deficit by reducing the spending (which adversely affect future growth, employment and income large population) or increasing the revenue which adversely affects rich tax payers and/or entrepreneurs. RBI has role in it by way controlling money supply (which affects demand).

The problem is present reduction in  inflation  is achieved by control on spending which in turn reduced demand rather than increasing supply and revenue.

The moment new government came in to power much of spending on social sector has been reduced. While it is good that poor is not affected by inflation but if this is to be achieved by reducing the income (of poor) how it can be said good for poor.

It seems, control of inflation has started vicious circle, now RBI has reduced rates. Banks are following suit by reducing lending rates, which in turn is going to reduce interest rates offered on deposit. It will adversely affect the large section of people depending on interest income. In a short time now to have parity government is likely to reduce interest rates on NSC/PPF and so on. Not only it will adversely affect common man but may affect household financial savings.

Thus we see inflation is controlled by reducing wage, welfare and interest income of poor.( Having income to purchase commodities at higher price is always better than having no income to purchase anything.)

Not a good omen for economy which is already adversely affected by low international commodity prices (Do not think it is good for us. Exports are showing negative growth for last 9 months). Low commodity prices are affecting/ will affect large number of nations which depend on income from commodity. (Arab countries, Russia and African countries). Their saving or government surplus is turning negative. They are pulling out saving / investment from international market. So investing surplus is shrinking for us.

 Government needs to be cautious on these developments (including affect of inflation control on poor and savers) and act fast to take remedial/ mitigating action. Already many of schemes /objects announced in last 18 months have shown limited success. Latest being result of disclosure scheme for foreign black money which resulted announcement of less than Rs 4000 cr and now govt. has taken stand that much of black money is in India. New railway time table, which was postponed  for major changes in speed of trains, but did not seem to have achieved desired effect. Credibility is at stake.