Indian Economy - News & Discussion Oct 12 2013

Gyan · Post by **Gyan** » 15 Dec 2014 11:34

We can keep interest low and still control real estate inflation by keeping out hot foreign money

panduranghari · Post by **panduranghari** » 15 Dec 2014 13:25

You all guys who are ranting and raving at Raghuram Rajan, should first read

http://www.rbi.org.in/scripts/BS_Speech ... spx?Id=930

And then comment on what he said. Show me anything which suggests he is anti- Modi government. Its like sheesh. You guys should stop relying on MSM. In the GDF you guys rant about how bad MSM is and here you use the MSM to make your points.

I am glad RR is the RBI governor. He knows what he is talking about. What I do not understand is why Urjit Patel- a Kenyan national is a deputy governor of RBI?

member_28714 · Post by **member_28714** » 15 Dec 2014 13:48

panduranghari wrote:You all guys who are ranting and raving at Raghuram Rajan, should first read

http://www.rbi.org.in/scripts/BS_Speech ... spx?Id=930

And then comment on what he said. Show me anything which suggests he is anti- Modi government. Its like sheesh. You guys should stop relying on MSM. In the GDF you guys rant about how bad MSM is and here you use the MSM to make your points.

I am glad RR is the RBI governor. He knows what he is talking about. What I do not understand is why Urjit Patel- a Kenyan national is a deputy governor of RBI?

No one claimed he is anti-Modi government. ATM his policies seem to be to shore up the USD by buying it off the open market. We are exchanging precious assets for green paper, thus suppressing the rupee's purchasing power and hence keeping cost of capital high.

RR has been braying inflation for too long. Where the hell is the inflation? What is his justification for not cutting rates? The Finance minister disagrees with Rajan on his policies. He openly questions Modi's policies, especially when he has no business to do so. More so because he twists the whole Make in India initiative as some export drive.

Why dont you justify point by point what policies of his you agree with and why? Of all people you know whats happenning with the dollar. Why is he trying to hoard it? Rajan came into office in Sep 2013 when our Forex reserves were at 275 billion. Since then he has added 40 billion dollars. And all this when external capital is cheap and easy to enter India.

For whose father? Is he trying to prop up the dollar? Is he working in cahoots with the IMF to sink some more worthless US paper into India? btw, who do you think pays for this? If those 40 billion were not bought by RBI, the rupee would be trading at 50 to a dollar today at the very least. Do you have any idea how much relief that would have provided to Indian companies with dollar debt? On the other hand with cash (green cash) in hand, how exactly is Rajan helping? For what Armegeddon is he saving for? And why would people even accept the useless green paper when such an Armageddon hits. If he was saving for a rainy day, then he should save in gold. We have not bought an ounce of gold since the 200 tonne purchase half a decade back. Why the obsession with the dollar?

Moving on to interest rates. Please help me understand why in India we pay 10% rates to own a home, which is more than twice that of any other top 20 economy? Why should companies pay 15% interest and then further face a 10% depreciation/amortization annually when every one of our competitors its almost as good as zero?

Now lastly, China model? What absolute rubbish is he talking about? Are we a state that runs businesses or allows our people to own and run them? When did Modi ever say we want to become like China? And in what authority is he commenting and sitting in judgement of these things anyway?

And lastly, I dont need to read the script. I listened to every word he said , live, when it was broadcast. Rajan clearly has an insubordination problem. He is the wrong man for the job. I strongly believe that we are in better fiscal shape today simply due to the commodities crash and nothing to do with what Rajan did (or did not do). What did he do since taking office? His only decision so far is keep rates stagnant and keep buying dollars. Other than that, what did he do? Pliss to enlighten pliss.

btw, I think he is serving his notice period already, and thats why he is making all these noises so that he can claim later that he was fired for speaking his mind.

smart chap and well groomed by the khan as a house slave - my opinion.

Gyan · Post by **Gyan** » 15 Dec 2014 15:25

Jaitely neither has courage nor intellectual capacity to question or dismiss the Rockstar.

panduranghari · Post by **panduranghari** » 15 Dec 2014 16:06

Don George,

I will critique the RR speech when I have some more time. I promise to do that by the end of the week.

However, this would be helpful.

FT interview

For all that, he seems anxious. “Central bankers have had enormous responsibilities thrust on them to compensate, essentially, for the failings of the political system. And my worry is we don’t have sufficient tools to do that, but we’re not willing to say it. And, as a result, we push as hard as we can on the existing tools, and they may create more risk in the system.” An early critic of quantitative easing, Rajan picked a very public fight this January, accusing the US Fed of reining in QE without considering the effect on emerging economies, not least the period of capital flight and investor panic in India, prior to his arrival at the RBI.
“Six years since the financial crisis, central banks still have their foot fully on the accelerator . . . [pushing] credit into emerging markets,” he says. “We don’t know how this will end . . . It may end smoothly, if we let the air out of these inflated markets slowly, or by a series of mini-crises. But it may be more dramatic if, one fine day, suddenly the world realises the US is going to raise interest rates quite quickly . . . then the air will go out much faster.”

George wrote:For what Armegeddon is he saving for?.

Do you really want me to get into that? Either you do not really understand the economy or you are just a internet warrior used to twitter talk.

How many points to make?

CAPE over 25x. S&P stock rise purely due to stock buy back. No investment by the companies. Apple having market capitalisation more than the economy of Russia. WTI falling as globally the demand is decreasing as people cut back. Read posts by Austin on perspectives of global economics

VinodTK · Post by **VinodTK** » 15 Dec 2014 18:10

kumarn wrote:Just on TV: November WPI is 0.00%.

please please raghu bhaiyya, cut rate, at least for my student loan emi sakes

Inflation is dying: November WPI hits 0% and you read it here first

member_28714 · Post by **member_28714** » 15 Dec 2014 18:15

panduranghari wrote:Don George,

I will critique the RR speech when I have some more time. I promise to do that by the end of the week.

However, this would be helpful.

FT interview

For all that, he seems anxious. “Central bankers have had enormous responsibilities thrust on them to compensate, essentially, for the failings of the political system. And my worry is we don’t have sufficient tools to do that, but we’re not willing to say it. And, as a result, we push as hard as we can on the existing tools, and they may create more risk in the system.” An early critic of quantitative easing, Rajan picked a very public fight this January, accusing the US Fed of reining in QE without considering the effect on emerging economies, not least the period of capital flight and investor panic in India, prior to his arrival at the RBI.
“Six years since the financial crisis, central banks still have their foot fully on the accelerator . . . [pushing] credit into emerging markets,” he says. “We don’t know how this will end . . . It may end smoothly, if we let the air out of these inflated markets slowly, or by a series of mini-crises. But it may be more dramatic if, one fine day, suddenly the world realises the US is going to raise interest rates quite quickly . . . then the air will go out much faster.”

George wrote:For what Armegeddon is he saving for?.
Do you really want me to get into that? Either you do not really understand the economy or you are just a internet warrior used to twitter talk.

How many points to make?

CAPE over 25x. S&P stock rise purely due to stock buy back. No investment by the companies. Apple having market capitalisation more than the economy of Russia. WTI falling as globally the demand is decreasing as people cut back. Read posts by Austin on perspectives of global economics

Chief, I know whats coming. And you did not even mention China. In none of those scenarios will the 300 billion in us paper help us. which is why he should be buying gold and not dollars if he wants to prop up our reserves. please read the two lines after the one you quoted.

I understand the economy, you did not understand the rhetorical question I asked.

phari, we know each other from DFI. we have already had enough talk there to know that we agree. that was until a worm called pmonkey was made mod and i walked out. (signed: trackw)

panduranghari · Post by **panduranghari** » 15 Dec 2014 19:28

Trackwhak. Yeah I remember. Howdy mate? Remember for a central banker, he has to see the whole of the economy. Buying gold works for common man. But a central bank buying gold is called Gold Open Market Operation or GOMO for short. GOMO is net negative for the common man. Currently the pervasive effects of GOMO are not perceptible as we are living within a glass bowl looking outside (like a gold fish) - a FOFOA analogy. We cannot really differentiate between physical plane and monetary plane. The monetary plane covers the physical plane. The consequence is we know the price of everything but the value remains anonymous until the monetary plane collapses within itself like a red giant collapses and turns into black hole. And as with a black hole nothing escapes including The current valuations given to things, like a Gaitonde fetching 22 crores in an auction. This is a realm of monetary plane. monetary plane prevents one from seeing value. When you confuse value for price, you are mixing up physical plane and monetary plane. The purchase of Gaitonde could be perceived as wasteful deflationary spending, in many ways works for us common man.

The central banker however thinks differently.

Again a quote from FT

For all that, he seems anxious. “Central bankers have had enormous responsibilities thrust on them to compensate, essentially, for the failings of the political system. And my worry is we don’t have sufficient tools to do that, but we’re not willing to say it. And, as a result, we push as hard as we can on the existing tools, and they may create more risk in the system.” An early critic of quantitative easing, Rajan picked a very public fight this January, accusing the US Fed of reining in QE without considering the effect on emerging economies, not least the period of capital flight and investor panic in India, prior to his arrival at the RBI.
“Six years since the financial crisis, central banks still have their foot fully on the accelerator . . . [pushing] credit into emerging markets,” he says. “We don’t know how this will end . . . It may end smoothly, if we let the air out of these inflated markets slowly, or by a series of mini-crises. But it may be more dramatic if, one fine day, suddenly the world realises the US is going to raise interest rates quite quickly . . . then the air will go out much faster.”

With regards to the http://www.firstpost.com/india/inflatio ... 50421.html I have a great image to share. A canary in the coal mine.

member_28714 · Post by **member_28714** » 15 Dec 2014 19:58

^^ Rajan complains of QE money coming into India. Why? Because Indian capital is four times as expensive. Unless you make indian capital cheap, the qe money will continue to pour in because we have CFO's who cannot afford to pay Indian debtors.

RR's strategy seems to be to hedge against it by buying dollars when the qe comes in and sell when fed stops qe? Tell me, how is this really a hedge? Especially since sooner rather than later the dollar may not be worth the paper its printed on.

That aside, I am against any plan to accumulate forex on fiat. If you want to accumulate, then buy oil fields, gold, farmland in africa or ex soviet states. these assets are true hedges against paper money. it does not matter what the process is or it it will freak the world out that India just bought 1000 tonnes of gold. we need to be clear that we do not entertain cheap foreign capital especially when it is not backed by a strong reserve like the fed is today.

Accumulating dollars will appear like saving for a good day but we are literally selling away our future. Lots of middle class wealth will get wiped off.

Regarding the chart (I am going to assume that this is US specific), M0/M1 no one gives a fk about as its small change. Less than 1% of fiat actually exists on coin and paper. M2 and M3 plunge was an after effect of 9/11 where overall economic activity fell and savings were eaten into (or, if you believe the conspiracy theory and how many guys pulled their money out in the weeks leading up to 9/11, then no other explanation is necessary). The printing that followed the crunch and the disbursement of that through mortgage caused the bubble and we are here today. This has nothing to do with interest rates which were and still are reasonable in the US (despite the crisis).

Either way, this is in no way related to what RR is doing, in fact is anything it adds credence to my argument that RR must stop buying dollars.

Once again I ask you to kindly discuss rajan's policies one by one and give me an argument why anything he is doing today is working for us. core inflation dropping has nothing to do with him or his policies. it is simply a reflection of global commodity picture. that leaves the next big indicator. Bank NPA's as well as credit growth.

NPA's are rising and any credit growth we are seeing is more interest accumulation on existing loans. When was the last time you heard SBI giving out a billion dollar loan for anything in India. This is at a time when it costs a billion $ to add a GW of power or 300 KM of 4 lane highways . And we are like 400 GW short and about 10,000 km short.

Vamsee · Post by **Vamsee** » 15 Dec 2014 20:57

Consensus reached on GST constitutional amendment bill. If there are no major exceptions, then this is HUGE for Indian economy.
Some people estimated that it will add 1-2% to the GDP.

#AcchheDin

rsingh · Post by **rsingh** » 15 Dec 2014 21:20

^^
Please jara parkash dale for mango abduls.

Suraj · Post by **Suraj** » 15 Dec 2014 21:58

GST will significantly boost inter state commerce within India, eliminate existing bottlenecks and reduce inefficiencies and delays. In the process, it will increase pace of economic activity, generating incremental GDP growth each year.

Vamsee · Post by **Vamsee** » 15 Dec 2014 22:05

^^^
rsinghji,

Right now India is not a common market. It is broken into multiple markets. By bringing GST we are trying to convert India into one unified market.
GST will subsume all indirect taxes. But if we keep too many exceptions, it will defeat the very purpose of GST.

It will facilitate the smooth movement of goods across India.

Gus · Post by **Gus** » 15 Dec 2014 22:36

will it reduce the truck lines at border posts between states?

we have a huge inefficiency in how road transport is done. the variability in times kills us in running things predictably and efficiently.

Vamsee · Post by **Vamsee** » 15 Dec 2014 22:44

^^^
More than that, we need to move goods transport to rail & (inland) shipping :-(

Our propensity to subsidize passengers and hiking prices for goods in the railways is costing us a lot.
It is always way cheaper to move goods by Waterways & Railways compared to roads.

I hope NG & SP will do the right thing rather than populist thing.

--Vamsee

Kakkaji · Post by **Kakkaji** » 16 Dec 2014 04:07

Core loan norms relaxed

Mumbai, Dec. 15: The Reserve Bank today relaxed norms for structuring existing long-term loans to infrastructure projects.

The move will not only revive stalled projects but also help banks to tide themselves over mounting bad loans.

The new guideline widens the scope of the 5:25 scheme by including existing standard long-term project loans worth over Rs 500 crore to be flexibly structured and refinanced.

Under the 5:25 scheme, banks can extend loans to an infrastructure developer for 25 years with an option to rewrite or reset the terms of the loan or transfer it to another bank or financial institution after five years.

The latest development will ensure long-term viability of existing projects by aligning the debt repayment obligations with cash flows generated during their economic life, the RBI said in a circular.

Comments from Gurus? How significant is it?

Suraj · Post by **Suraj** » 16 Dec 2014 04:13

Trade deficit at 18-mth high despite 7% rise in November exports

A month after a contraction, merchandise exports in November rose 7.3 per cent to $26 billion, compared to $24.2 bn in the same month last year. However, imports grew 26.8 per cent in the month, fastest in this financial year, reaching $42.8 bn over the $33.8 bn a year before, with inbound shipments of gold up 500 per cent.

The trade deficit in November, as a result, widened to an 18-month high of $16.9 bn. Before this, it was only higher in May 2013, at $20.1 bn.

However, many economists said the current account deficit would not surpass two per cent of India's gross domestic product (GDP) this financial year.

Total exports during April-November, first nine months of 2014-15, were $215.75 bn, about five per cent higher from the $205.4 bn in the corresponding period of 2013-14. With four more months before the year ends, exporters believe the government target of $325 bn will be met.

Baba Kalyani's 'Make in India' work starts with import substitution strategy

The Kalyani group has formed a 'Make In India' project team pulling in senior executives to work on an import substitution strategy.

Using available government data, the team is targeting $30-40 billion worth of iron and steel products that are imported into India. These products are mainly imported for the defence, energy, automotive, construction and mining equipment industries.

"These are the low hanging fruit, but in five to seven years we want to build an industry that is globally competitive, and then you Make in India for other parts of the world," Baba N Kalyani, chairman of the Kalyani group, said in an interview with Business Standard.

Make in India is a Union government initiative to facilitate investment in manufacturing within the country. The Kalyani group with an annual turnover of Rs 12,000 crore plans to increase its business three to four times over the next 10 years by embracing Make in India.

"I believe it is true for any manufacturing company in India. If a company honestly starts working on the Make in India concept, it should be able to quadruple its business by 2020-2025," Kalyani said.

Kakkaji: please see this
RBI allows structuring, refinance of existing projects

As a step to ease the pressure on stressed assets, the Reserve Bank of India has allowed lenders to restructure existing loans above Rs 500 crore to infrastructure and core industries’ projects.

Banks and financial institutions will have an option to periodically refinance such loans. Bankers said the revised norms will provide relief to completed projects which have started commercial operations in the said sectors. Many of these were finding it difficult to repay due to shortfall in cash flows and cost overruns.

This leeway is expected to help ensure the long-term viability of existing projects by aligning the debt repayments with the cash flows generated during their economic life. It is a step that will reduce potential stress, said Arundhati Bhattacharya, chairman of State Bank of India.

B K Batra, deputy managing director, IDBI Bank, said the new norms were positive in the sense that they'd help to reduce the debt servicing burden on companies. Banks will save on provisioning for restructured loans.

Banks may refinance the project term loan periodically (for example, five or seven years) after the project has commenced commercial operations. The repayments at the end of each refinancing period could be structured as a bullet repayment, with the intent specified upfront, RBI added.

Refinancing can be done by existing lenders, a new set of lenders or a combination of both or by issuing corporate bonds. Such refinancing can be repeated till the end of the repayment schedule.

Bank can so address existing standard restructured assets; the latter's label won't change. Similarly, existing non-performing loans can be restructured under the new norms but these would continue to carry the “NPA tag”, and refinancing can be done only after it becomes a standard asset, said RBI.

The ability to refinance loans easily provides a significant amount of flexibility, and can increase competition among banks to fund projects, lowering offered rates in the progress.

Gyan · Post by **Gyan** » 16 Dec 2014 08:03

Indian PLR needs to be 4% instead of 14% for Make in India to be successful. Chinese products with low interest rates, better infrastructure support, Govt subsidy, CUSTOM DUTY EVASION are beating the sh!t out of Make in India.

member_28714 · Post by **member_28714** » 16 Dec 2014 08:32

we already have american rags like forbes congratulating rajan on winning the fight against inflation

member_28714 · Post by **member_28714** » 16 Dec 2014 09:00

http://firstbiz.firstpost.com/economy/r ... 13165.html

Rajan has got it mostly wrong: 'Make in India' is largely about 'Make for India'

Too much has been made of RBI Governor Raghuram Rajan’s advocacy of ‘Make for India’ as though it is a contradiction of the Narendra Modi government’s ‘Make in India’ programme. I am not sure Rajan intended this contradiction, but if he did, he is surely largely wrong about it.

First, I have never read anywhere that ‘Make in India’ is largely export-oriented or an import-substitution policy. Those policies failed under Congress-backed socialism till 1991. ‘Make in India is not a throwback to pre-1991 India. At best, one can say that it is an exhortation to foreign companies to make India a manufacturing hub. ‘Make in India’ is not thus in contradiction to ‘Make for India.’

PTIPTI
I don’t know where Rajan got the impression that ‘Make in India’ is all about emulating China in making export the basis of growth. He should check the ‘Make in India’ website and nowhere does it give the impression that it is all about exports.

The broad goals, stated upfront, on the ‘Make in India’ website (check it out for yourself here) are this: “A major national programme designed to facilitate investment, foster innovation, enhance skill development, protect intellectual property, and build best-in-class manufacturing infrastructure.” In fact, you have to try very hard to even find the word ‘export’ on the website.

Go into any of the industry-specific verticals on the website, and the emphasis is on the domestic market (ie, ‘Make for India’ is the theme, rather than just ‘Make in India’ for export to the world outside).

The automobiles vertical points out that India is the seventh largest producer of vehicles in the world, and the “fourth largest automotive market by volume by 2015.” It also points out that autos have four large manufacturing hubs in India, and account for 7 percent of GDP by volume.

Go deeper, and all the talk is about India’s potential, and not particularly the export market. The domestic market is touted as the main reason to invest, and the growth drivers too talk about the domestic potential.

Go to the ‘Policies’ tab, and the talk is about ‘New processes’, “New sectors’, ‘New infrastructure’ and ‘New mindset’. Nowhere does it even mention new export-orientedness or new import substitution. Rajan can surely say that none of this will work, but that only time and experience will prove. It is not necessary to diss an idea at the outset, though Rajan did say he was not advocating “export pessimism.”

It is only in the defence sector that there is even a hint of import-substitution, and here too it is only implied. There is a mention that 40 percent of the budget is spent on capital acquisition and 60 percent of defence equipment requirements are met by imports. So, clearly, here the aim is to reduce imports, and possibly build exports, since even Modi has talked about India being a global arms supplier.

Defence, in fact, is the one area where no government believes in unbridled competition or import dependence because it is considered too vital for national interest. So, if anything, India is only doing what every other country in the world does: become more self-reliant in its defence needs.

So what is Rajan really talking about? And how sensible is his idea of ‘Make for India’ as a substitute for ‘Make in India’ when the reality is that China is increasingly making more for India in several crucial sectors – from telecom to toys to electronic items to everything. The whole of small-scale manufacturing in India has been reduced to a packaging and labelling operation. Most manufacturing in India has been substituted by trading in the manufacturing zones of India. There is surely a case for making ease of doing business, which includes ease of manufacturing business, so that some of our competitiveness is restored.

Rajan is also wrong to believe that the policy of backing specific sectors does not ever work. The success of the Indian IT industry was largely because of government support to it for more than two decades, where profits from the export of software were not taxed to encourage forex earnings. This is what is today saving us from a current account crisis. BPOs came to set up shop in India because labour was cheap and English-speaking talent was in abundance.

India has become an auto hub precisely because the industry was nurtured under fairly robust tariff walls in its nascent stage. (I am not advocating protection at all, but just to show that Rajan cannot take a doctrinaire approach to industrial policy-making, when the global reality is one of mercantilism and protection. He can check if the Swiss will even allow an Indian watch-maker to succeed in their backyard.)

Rajan’s bottomline is this: “I am counselling against an export-led strategy that involves subsidising exporters with cheap inputs as well as an undervalued exchange rate simply because it is unlikely to be as effective at this juncture. I am also cautioning against picking a particular sector such as manufacturing for encouragement simply because it has worked well for China.”

This is fine as far as it goes. Government should not be in the business of picking sectoral winners or losers, but there is no harm in backing up industries where India has a clear competitive advantage – like IT, generic pharma, textiles, metals (iron, steel, aluminium), etc.

What Rajan should know is that ‘Make for India’ was India’s slogan till 1991 and it brought us the Nehruvian rate of 3-4 percent growth. India has slowly globalised and become more competitive, but the ease of doing business is still far behind the rest of the world. This is a key aim of “make in India’, not export-led growth or import substitution.

Either Rajan has said it wrong or the media has interpreted him wrongly. ‘Make in India’ is largely about ‘Make for India’ even as it now stands. the policy may or may not succeed in all areas, but is Rajan trying to say it is not even worth trying?

Gyan · Post by **Gyan** » 16 Dec 2014 09:16

TOIlet group is one of the biggest money lenders and PE groups, no wonder they want Rockstar to keep the interest rates high and liquidity tight. The title of present day Indian current events should be Rockstar Rapes Indian entrepreneur with his Goldman Saches and Chinese friends.

Theo_Fidel · Post by **Theo_Fidel** » 16 Dec 2014 10:24

Rajan has got it mostly wrong: 'Make in India' is largely about 'Make for India'
Too much has been made of RBI Governor Raghuram Rajan’s advocacy of ‘Make for India’ as though it is a contradiction of the Narendra Modi government’s ‘Make in India’ programme. I am not sure Rajan intended this contradiction, but if he did, he is surely largely wrong about it.

This entire article misses the whole point about scale. What India lacks is scale folks. No company can be competitive in the world or even India while making for only for India. All things being equal a company in China manufacturing for 10 different markets and making 10 times the widgets will clobber a company in India making only for India. Even in car manufacturing Indian factories depend on the volumes of export to lower the cost in the domestic world. This is exactly what crushed the entire import substitution economy. Ambassador discovered that there was a market for maybe 20,000 cars inside India. That was the end of investment. Any 'Make in India' must produce for both India and the globe, in fact if you look at East, SE asia, they starved and suppressed domestic consumption in order to export + capital investment. The India economy is not mature/large enough to sustain this on its own. Maybe one day, but not for a couple of generations. As it is without exports no manufacturer will risk his capital and will prefer to twiddle his thumbs....

member_28714 · Post by **member_28714** » 16 Dec 2014 10:28

In which country that has 0% WPI and -3% IIP, do we have Lending rates that top 15%.

What really has me convinced about RR being a two face is the lavish praise that western press heaps on him. There is at least an article a week on how he is saving India from inflation.

vina · Post by **vina** » 16 Dec 2014 10:45

Theo wrote:This entire article misses the whole point about scale. What India lacks is scale folks. No company can be competitive in the world or even India while making for only for India. All things being equal a company in China manufacturing for 10 different markets and making 10 times the widgets will clobber a company in India making only for India. Even in car manufacturing Indian factories depend on the volumes of export to lower the cost in the domestic world. This is exactly what crushed the entire import substitution economy. Ambassador discovered that there was a market for maybe 20,000 cars inside India. That was the end of investment. Any 'Make in India' must produce for both India and the globe, in fact if you look at East, SE asia, they starved and suppressed domestic consumption in order to export + capital investment. The India economy is not mature/large enough to sustain this on its own. Maybe one day, but not for a couple of generations. As it is without exports no manufacturer will risk his capital and will prefer to twiddle his thumbs....

Exactly. Now that is something "India is importing $20b worth of electronics" dudes simply don't get. To be fair , Rajan , carefully said that he is not advocating export pessimism like the St Stephens/ISE/DSE ding-dongs of yesteryears and import substitution behind high walls (both quantitative and tariff) wells like earlier. He just said that with the current depressed demand situation and huge slack in global industrial capacity, an export led thrust at THIS point in time is probably not going to work and you are better off getting a large internal domestic market going and for that, what you need is structural reforms.

As for interest rates, the Rupee cracked something like 4% yesterday (that news was somehow not posted in this thread, but the 0% WPI read was posted..go figure), Russia raised interest rates by 7.5% or so overnight to save the Ruble, the bond markets are running for cover, the CDS spreads have widened , there is huge sceptre of junk bonds bubble getting pricked (the entire shale boom was financed by the Junk Bond boom), all classes of investors who would never have touched junk bonds were forced into them chasing yield, the Indian markets have been falling for the past month, despite macros improving and oil falling in place (counter intuitive huh? the market should be going up innit? , as I am writing Nifty has cracked 1.5%, BankNifty 2.6% ), there is this entire fear of a 1998 like classic emerging market crisis with Russia (again) threatening to default on global bonds, others like Brazil and Venezula are getting flushed down the toilet... etc...

And of course our very knowledgeable folks put out the following "facts" , you can choose one that picks your fancy.

1) "Rockstar" Rajan, by keeping interest rates up is NOT trying to kill inflation and maintain the Rupee's stability in trying times , but instead should immediately drop interest rates because
a) He is working for Goldman Sachs really (of course, Goldman Sachs is short indian bond market, so Rajan is keeping the interest rates high to protect Goldman's value onree)
b) He is fighting a non-existing inflation (err. the last time the numbers came out it was 4.8% )
c) He is "Anti Modi" (whatever that means)
d) If he drops interest rates , apartments in Delhi will become cheaper

e) FDI in building (remember, 100% FDI is in the construction, not land part) will make apartments in Delhi
i) Cheaper, because the the Indian builders when they see less competition will generously lower their margins and pass on to customer
ii) Cheaper because the Indian builders like DLF and Unitech are so credit worthy (AAA) in fact and are so flush with cash that they can build a 1000000000000 more skyscrapers with the capital they have
iii) Cheaper because they Indian builders deal in whiter than snow money only, while the FDI guys are financed by "Goldman Sachs" and hence must be bad.

With "logic" like that, one wonders what kind of further horrors are in store for this country if this kind of chorus is taken even half way seriously by the folks even within 10 Kms of decision making.

chetak · Post by **chetak** » 16 Dec 2014 10:48

Mollycoddling the privileged lot

Tuesday, 16 December 2014 | Shivaji Sarkar |

Lowering of interest rates for industries hurts the consumers because, as lending rates to the giants are reduced, the common man takes the brunt by losing on deposit rates. It’s a double whammy for the common man

It is time that the Reserve Bank of India raises the deposit rate, to save the investors. Industry, which has misled the Government since 2008, has no case to demand another ‘incentive’ — subsidy at the cost of the common man.

Industries have benefitted tremendously during the so-called economic slowdown and does not deserve any more. Companies have learned from the bad economics of the West, and poor corporate governance to increase their profits. The Western world was afflicted because of deliberate bad management of the finances. Now, innumerable Satyams are likely to rob the Indians.

On an average, Indian industry during the past five years has earned tremendous profit by fleecing the common man. The accumulated profit, during the past five years, of many companies goes over 500 per cent. Even the weakest have clocked 100 per cent.

Inflation is their creation. Industries have jacked up prices of all consumer products from soap, food and beverages to cars and machineries despite fall of prices of raw material. The industry, through large retail chains, also cartelised to increase prices and bolster their profits. But businesses shied away when it came to corporate social responsibility.

They have gobbled up incentives worth thousands of crores. Not only did they restrict the passage of benefit to the consumers, who are forced to sustain their unethical functioning, but they also blatantly raised the prices of products on silly pretexts. And now, they want to further rob the consumers by trying to gain lower interest rates.

Yes, it hurts the consumers because as lending rates to the giants are reduced, the common man takes the brunt by losing on deposit rates. It is a double whammy for the aam aadmi. Industry has been clamouring for a rate-cut, citing the decline in inflation to a ‘five-year low of 5.52 per cent and fall in oil prices’. They are silent on heaping Rs2.36 lakh crore of non-performing assets (or bad debt) on the public sector banks.

The corporates have absorbed the people’s hard-earned money and are now demanding postponing of re-payment, euphemistically called ‘restructuring’. Interest earnings lost on such lending as well as capital loss to the banks are, unfortunately, being treated lightly. It appears that public money belongs to everybody except those to whom it really belongs.

They are not even answering where the money loaned to them has been siphoned off. It has certainly not gone into productive use. Has it created black money? Where have they parked the people’s money? The corporates owe an answer before they demand any further concessions. The number of industries in India has increased manifold in the last few years, a clear indication that the corporate need to shed more than to grab. Are they listening?

Numerous Indian industries are growing in stature and gaining more importance as days pass by. Though the main occupation for the bulk of the Indian population has been agriculture, India has been moving towards rapid industrialisation, with its different sectors like iron and steel, real estate, information technology, food and beverage, travel and tourism and business process outsourcing. The 10 richest houses that manage many of these activities have thrived during the years of ‘slowdown’.

Others have not lagged behind. The gross domestic product slowdown has strangely seen adding to their kitty. The common man has lost jobs, has settled for poorer wages, and the Government was forced to shell out over one lakh crore rupees to pacify them with employment guarantee schemes like the Mahatma Gandhi National Rural Employment Guarantee Act, so that the corporate world could further prosper.

The Comptroller and Auditor-General of India has been eloquent on how the corporates have become the largest possessors of fertile agriculture lands, which, as so-called special economic zones, have become their sprawling fiefdoms. In 1996, the fear of a corporate zamindari was expressed. It has become a reality. The special economic zones are bigger rackets than the coal block allocation scam. A review of all of these is called for. Many schemes have to be scrapped and the properties of poor taken over must be handed over to the original owners.

It seems at least one person is treading with caution: Reserve Bank of India Governor Raghuram Rajan, despite being under pressure. Mr Rajan realises that even at 5.52 per cent inflation, prices are not affordable; there has been an almost 46 per cent increase in commodity prices. He also knows that a rate-cut would be counter-productive, as the corporate are not reducing prices. The RBI chief does not believe that the primary factor holding back investment in the country today is high interest rates.

member_28714 · Post by **member_28714** » 16 Dec 2014 10:51

@lol vina, can you explain why the rupee 'cracked'?

'sitting back with a cup of tea'

Arjun · Post by **Arjun** » 16 Dec 2014 10:55

Theo_Fidel wrote:This entire article misses the whole point about scale. What India lacks is scale folks. No company can be competitive in the world or even India while making for only for India. All things being equal a company in China manufacturing for 10 different markets and making 10 times the widgets will clobber a company in India making only for India. Even in car manufacturing Indian factories depend on the volumes of export to lower the cost in the domestic world. This is exactly what crushed the entire import substitution economy. Ambassador discovered that there was a market for maybe 20,000 cars inside India. That was the end of investment. Any 'Make in India' must produce for both India and the globe, in fact if you look at East, SE asia, they starved and suppressed domestic consumption in order to export + capital investment. The India economy is not mature/large enough to sustain this on its own. Maybe one day, but not for a couple of generations. As it is without exports no manufacturer will risk his capital and will prefer to twiddle his thumbs....

Good point.

Both Raghuram Rajan and Jagan seem not to have understood this."Make for India" will lose out to a firm with larger scale that is making both for India and for the world. Focus on scale and quality & selling to the most appropriate markets worldwide is where the game lies. If India has better prospects currently than the rest of the world - fine focus more on India. But the final goal has to be worldwide market share leadership.

Suraj · Post by **Suraj** » 16 Dec 2014 11:04

The entire drama would have been avoided if Rajan stuck to his job and only spoke of macroeconomic policy, instead of criticizing or arguing whether or not any government policy framework would work. It's an unprofessional act on his part. If he wished to provide an opinion, he should do so directly to Modi and Jaitley, not at a press gathering.

Arjun · Post by **Arjun** » 16 Dec 2014 11:19

Uncertainty over Insurance Bill after opposition presses on conversion debate

The sheer stupidity and medievalism of the Indian opposition is beyond belief. There is critical economic legislation that has been stalled for the last 2 days in Parliament, simply because of a blinkered and antediluvian opposition that sees "religion" in antiquated terms. Either (a) allow free-for-all conversions by all religions, or (b) disallow forcible conversions or (c) bar any conversion attempt of any kind. But for heaven's sake - agree on one of these three legislative options and move on to more critical economic matters.

At least the ruling party has behaved sanely on the whole issue. The opposition parties need to get a more modern outlook - else Modi's economic agenda is in trouble.

vina · Post by **vina** » 16 Dec 2014 11:24

Ah.whaddya know.

Memo to Putin from the Tea Drinker .

The Rupee cracked for 4% because Raghuram Rajan DIDN'T drop interest rates. If only he had announced a 500 bps cut, to say 3% nominal Repo rate, the Rupee would be UP 4% instead

So Mr Putin, to prevent the Ruble from dropping, you should ask your central bank governor to

1) Immediately reverse the 7.5% hike that was announced overnight
2) In addition DROP the interest rate by a good couple of %

What this will do is the following

1) Crash the price of Tea which Russia imports in huge quantities (which BTW is up by significantly YTD for 2014 , remember someone's talk about not talking further if ONE commodity is not down 10% for the year, and oh, also the Sugar that goes with the tea as well) , so that the Tea drinker and other Russians will consume lot more tea and Sugar

2) Reassure all the investors who fled with their capital that all is well with Russia and that the $80b drop in reserves will be immediately reversed

3) Goldman Sachs and others who bet against the Ruble who made the $80b profit from the fall will be taken to the cleaners (oh, by how much did Goldman Sachs share rise in the past months concurrent to the fall in the Ruble, did their market cap increase by $80b?)

So, fire your central bank Gov. who seems to be in Goldman's Payroll and actually drop interest rates. And yes.. Tea will be a lot cheaper, so you can have a lot more of it.

Theo_Fidel · Post by **Theo_Fidel** » 16 Dec 2014 12:25

I dunno.

I think this is a good discussion to have. It seems like again and again our mantiji's get into the business of talking from both ends. Even before the elections I pointed out that this sort of slogan making is meaningless. Kinda like the old school 'roti-kapada-makkan', or 'jai jawan- jai kissan' or etc. What do these mean, nothing. The confusion is 'Make in India' has no intrinsic meaning. It does not convey a single thing to any potential investor.

Governments job is to provide investors what they can not on their own so they can make money, tons of money. This is how you attract investment and keep it. I don't understand why mantriji's get all confused about this. One should note that it took FoxConn all of 6 weeks to wind up operations in Chennai. Announced in October, done in December. This is what 'making' means in the global concept. The risks are huge but the opportunities are also huge. Investors will come because profits are huge. You want investors.... ....go out there and say, come to India we will help you make a ton of money. See no slogan needed.

Let me point out how inane the discussion has become. For the past several years Hyundai & Ford have been requesting, nay, demanding that the Port to Maduravoyil project be completed so they can increase output and speed up exports from Chennai port. So what has our Government done, royally ignored the project and the CG has sabotaged it with some bogus coastal waters issue. Do folks really think that Hyundai India and Ford India do not notice this and will not leave. This sort of paralysis is discussed at the very top levels of management. They can leave at a moments notice, 6 months tops and then export cars to India from where ever they go. Stop getting bogged down in sloganeering and learn to execute at short notice. This is not a project that should take more than 18 months in a world class construction schedule.

krishnan · Post by **krishnan** » 16 Dec 2014 12:35

L&T will finish it within 6 months , if they dont have any land issues

vina · Post by **vina** » 16 Dec 2014 12:36

'Make in India' has no intrinsic meaning

Whaa.....Sacrilege ! How can anything that Modi says have "no intrinsic meaning" ? You must be "Anti Modi" and also be in the payroll of Goldman Sachs!

But more seriously, I do think it is an important thing and is actually well marketed. The instincts and focus are right. We need more investments, more manufacturing, more infrastructure , and more stuff and an environment where people can actually make money.

It is all about execution. The investment process must be kick started. Cleaning up the clogged sewer of decision making that the Congress left behind is a start, but it will not be sufficient. India has deep structural problems that have been swept under the carpet so far , not because folks didn't know of it, but because nothing could be done about it.

But now, this govt has the numbers, to do be able to do it and hence people expect them to do it. Rather than executing on that single minded focus, we are into distractions like "conversions" and this and that , and nothing of consequence in reforms until now.

vina · Post by **vina** » 16 Dec 2014 12:37

krishnan wrote:L&T will finish it within 6 months , if they dont have any land issues

Atthaikku Meesai Veccha Chittappa!

If Aunt had a moustache, she would be the Uncle!

Arjun · Post by **Arjun** » 16 Dec 2014 12:52

vina wrote:Rather than executing on that single minded focus, we are into distractions like "conversions" and this and that , and nothing of consequence in reforms until now.

Err, you mean the opposition is into distraction like "conversions" surely Vina ? Or have you not been following the news the last few days ? Who do you think is stalling parliament wanting debate on the issue ??

Arjun · Post by **Arjun** » 16 Dec 2014 12:57

'Make in India' has no intrinsic meaning

It is probably the best economic branding campaign ever initiated by India since Independence. But branding is not enough without product - and that is where we need to build further on the reforms already initiated.

vina · Post by **vina** » 16 Dec 2014 12:58

you mean the opposition is into distraction like "conversions" surely Vina

Oh, you mean that it was actually Congress MPs who did that conversion thing in Agra and want to repeat it on Dec 25 in some other place ?

Arjun · Post by **Arjun** » 16 Dec 2014 13:06

vina wrote:Oh, you mean that it was actually Congress MPs who did that conversion thing in Agra and want to repeat it on Dec 25 in some other place ?

There are socio-religious organizations like the Church (in the case of Christians) & the RSS (in the case of Hinduism) that have always been actively involved in conversions. What does that have to do with the government and the state ??

Suraj · Post by **Suraj** » 16 Dec 2014 13:08

No one converted anyone in the Parliament. The only party being obstructionist is the the Congress-led opposition. And to what end ? They have zero political power to stop any bill in the Lok Sabha.

chetak · Post by **chetak** » 16 Dec 2014 13:10

vina wrote:
krishnan wrote:L&T will finish it within 6 months , if they dont have any land issues
Atthaikku Meesai Veccha Chittappa!

If Aunt had a moustache, she would be the Uncle!

This is high level stuff.

the more popular version of the same referred to much lower appendages.