Indian Economy: News and Discussion (June 8 2008)


Suraj
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Postby Suraj » 09 Jun 2008 04:34

Important concluding posts from previous thread:
Suraj wrote:One needs to analyze and understand the distinction between political statements and actual economic actions. Take NREGS, a prime whipping boy. It was to doom public finances, but it turned out that its impact has been marginal. Why ? Because NREGS is *not* a new program - it's largely a repackaged Congress-stamped program comprising several older subsidy programs, primarily localized or restricted cash-for-work and food-for-work ones.

From a political economic perspective, it's likely the current political dispensation will shoot itself in its foot electorally through its own inability to overcome its political compulsions, and helped in no small measure by trying worldwide economic conditions. Prudent fiscal policies would at least have ensured that GoI did not find itself in the corner, but that is another matter.

From an economic perspective, all growth is ultimately return on investment. The investment in this case is aggregate investment/GDP. While that figure remains high, growth will be high, at a sustained level, with dips in one year just amplifying growth the next due to base effect.

Historically, investment/GDP was ~15-20% until the early 80s, which it increased to the low 20% range. In the 1990s, it was in the mid-20%s. Over the last 5 years it has been over 30%, with the last years figure being close to 37% . That this data matches trend growth rate is not a co-incidence - it is the reason for trend growth rate being what it is. Countries can grow fast for brief periods despite a low investment/GDP, but they cannot sustain that pace. But if investment/GDP is high they will maintain high trend growth rate as a mathematical consequence.

Further, that there would be a significant capacity bottleneck in the economy that would not ease much at least until early 2009 was known well in advance, and has been analyzed and posted here ~1.5 years ago, as Katare would attest. I also agree with his statements regarding overall macroeconomic concerns.

People will face hardships due to rising inflation and high cost of essentials, and GoI will pay the political price for it, partly because of its inability to get over its historic paternal attitude towards economic issues, and partly because it is at the wrong place at the wrong time, so to speak. But from a larger economic perspective I would hestitate to claim it's a crisis. If one wants bad news, of course, one can go read The Economist. They never fail to disappoint, literally :)

Kakkaji wrote:The failure to dismantle the Administered Price Mechanism (APM) has come back to bite us in the leg. The consensus to do gradually do away with the APM had held remarkably through the Govts of UF and NDA, and the steps to get there were being taken every year. But somehow the NDA Govt developed cold feet at the last mile, and then the UPA seems to have killed it. Now the petrol and diesel subsidies will break the PSU oil cos.

Arun Shourie was far along disinvesting HPCL and BPCL when the then Petroleum Minister, Ram Naik, short-circuited it. It did not bring Ram Naik any political dividends, both he and his party lost in the next election. But the damage Ram Naik did through his short-sightedness has cost the country dear.

Had APM been dismantled and HPCL and BPCL disinvested, the petrol prices would still have risen in step with the rise in the price of oil, but the people couldn't have blamed the GOI, nor would the treasury have to bail out the oil PSU with massive public funds. :(

vina wrote:
Suraj wrote:Surjit Bhalla on oil prices:
Greasy Oil Economics


Suraj, oil shot up by $11 a barrel yesterday , on Shaul Mofaz's talk that an Isreali attack on iran is "inevitable" if they didnt close down the nuclear program. Now the supply disruption risk is back on the table and markets are pricing that in, all in the speculative bubble environment.

The $150 a barrel looks well within reach. Now those kind of prices simply cannot be sustained via subsidies. Something has to give. Either the govt cuts it's spending program financed via deficits and massive taxes on oil, or it raises prices on oil and lets it float freely. The former is politically loaded, while the latter is politically suicidal. The govt NEEDS to cut taxes which are ad valorem on oil to insulate the consumer.. But for that it needs to cut back NREGA and farm waiver.

Now NREGA and farm waiver rollbacks will have problems, but raising oil prices to $150 a barrel, plus the massive taxes on top of that is will inevittably send an inflation and price shock through the system and that is guaranteed to hand out a big election defeat to the Congress. I hope the govt factors in which one of the two is lower risk in elections.. Defer the NREGA and Farm waiver (or atleast allow initerest only servicing of that) by a year or two when hopefully the oil bubble would have burst and you can have "normal' economics.

The govt needs to do contingency planning for $150 oil now. The reason why they cant moderate the oil price hike is the huge fiscal stress it will put on the govt, given the huge "social" spending committments. Now, the wiggle room is gone. Cut/defer JNU jholawala /DSE and commie inspired social boondoggle and loan write offs(deferral, forebearnce could have worked there.. why write off?).

Commies of course are bogus, when they claim that the social spending can be financed by 'windfall' taxes on oil companies and generally by raising tax rates. That will have an absolutely chilling effect on growth and employment generation and massively kill investments going forward. Yup the commies have it right that the "under recovery" garbage put out by the govt is totally bogus.. that pricing is all notional, but their "solution" of "tax the rich" is equally bogus and plain sloganeering instead of actually implementable sound policy!.

Oil prices NEED to go up, to kill demand, get subsituties into play and increase efficiency of oil use. We see signs of that happening in the US with people switching out of SUVS and trucks into small compacts and sub compacts. India's subsidy of diesel etc increases demand.. same with China and it's oil subsidies. To kill the oil monster, you need to see big falls in demand in relation to price incresaes. That will break the back of the bullish sepeculators when the production increase in response to prices and when the prices start going down, the OPEC can do nothing to hold it up.. After all,just like any cartel, it is an unstable equilibrium and there is every incentive to cheat on quotas and the ability to hand out deterrent punishment is nonexistent. Basic game theory.. but for that scenario, demand needs to fall.. Commie way, by keeping subsidies on fuel up, wont tamp down demand.

pandyan wrote:According to OPEC, the current oil demand is in 83MB/d range and taking into account all the economic growth in india/china/other countries, their projection is that by 2030, oil demand would be in 130MB/d range. That is 50% increase over 25 years.

OPEC and non-OPEC oil producing countries are not interested in increasing oil production because they believe the prices are artificially inflated by traders and any further increase in production can cause a sudden collapse.

I find it hard to believe that crude cost will double in less than a year when there is no noticeable supply constraints. It is also hard to believe that demand went up so high in such short period of time that it is triggering the price rise.

BTW, when second phase of reliance refinery is completed their total refining capacity will be 1.2MB/d which is around 1.44% of the total world consumption (going by opec numbers). this is an astounding refining capacity. Their plant is capable of the refining cheap/low grade crude and convert to high margin products. Apparently, their vertical integration (refining/petro-chemicals/integrated power generation) is bringing efficiency to the levels that they can compete very effectively with other refiners in middle-east.

vina wrote:
Singha wrote:Govt subsidy for diesel to small passenger vehicles must be withdrawn.
only buses and CV cargo. oil pumps will be glad to oblige.


That is impossible to do and implement on the field. Just policing that and preventing diversion and corruption will be impossible. What can and should be done is to withdraw all subsidies from diesel and lessen the burden on Petrol which cross subsidizes Kerosene and diesel single handedly. This is leading to "dieselization" of India. Think of the ridiculous things happening.. Audi Q7, S Class Mercs and 7 Series BMWs and even lesser cars like Swift, Indica etc get to enjoy subsidized diesel.

What can be done is to let diesel rise to real levels.. Which is ABOVE that of Petrol.. Now, the math for diesel vehicle buyers will not be so compelling anymore, trading higher initial cost and higher fuel cost against greater fuel efficiency and only folks who need diesel vehicles really like commercial vehicles (trucks, cabs etc ) that put in long distances will buy them.

Singha wrote:I learnt two new things from reading outlook money mag just now.

- high sulphur heavy crude from Iran apparently trades at a discount of
$11 to light sweet crude because few refineries in the world are able to
process them. well guess what RELIND's Jam-1 and soon RPLs Jam-2 are
two of the leading spots in the world to process this into diesel.
unlike the oil PSUs they dont have to see at a discount in India and RELIND has already shut down its national chain of petrol pumps. they have tieup with exxon chevron to export products.

on basis of that does RPL look like a "accumulate" ? its trading around 160
these days down from its 190 recently.

- in a speech on 26th May apparently the RBI Governor admitted that
inflation is underestimated and so is fiscal deficit. the outlook editorial says
though fiscal deficit is claimed as 3.1% of GDP this does not take into
account the huge oil and food subsidies, the farm loan waiver nor the
sixth pay commission. totalling up these costs, the fdeficit comes to 10%
of GDP which per the RBI Guv is "one of the highest in the world"

I also read a report in yahoo news yesterday that while healthcare and
social services in US added 455K jobs in last yr, the total net gain was
only around 55k last yr, which means "the rest of sectors have been in free fall"

bart wrote:
vina wrote:That is impossible to do and implement on the field....

You are missing the point that the main use for Diesel is not fuelling small cars but commercial transport such as trucks, trains, busses, and also agricultural machines. So if the price of diesel is increased, price of commodities will go through the roof which will hit the common man badly. That is the reason diesel is subsidized and kept low.

Unfortunately that means that diesel is the fuel of choice for car owners and petrol car owners are at a disadvantage. A solution for that would be to levy a special tax, similar to the road tax on diesel cars, say around 5% of the vehicle value, or perhaps Rs 2 per km run on diesel small cars.

vina wrote:
bart wrote:You are missing the point that the main use for Diesel is not fuelling small cars but commercial transport such as trucks, trains, busses, and also agricultural machines. So if the price of diesel is increased, price of commodities will go through the roof which will hit the common man badly. That is the reason diesel is subsidized and kept low.


I am aware that is the reason quoted to subsidize diesel. However, remember, there are no free lunches. Either there is an effective tax and wealth transfer on someone else (petrol vehicle users in this case... who surprisingly are "aam admi"..go on..count the no of 2 wheelers and primary users of those vs car owners in India , of whom an increasing percentage use diesel.) or fiscal deficits go up resulting in higher inflation! When you subsidize diesel, by subsidies, what you do is distort price signals.. Higher diesel cost will promote more efficient diesel technologies that lower diesel consumption (common rail, turbo charging etc),in the absence of which, there is no incentive to invest in new technology and increase efficiency! .. this in addition to pernicious effects like a poor hardly able to get by TVS 50 / 100 cc bike owner subsidizing a guy who buys an 80 lakh Audi Q7 3.0 D or a nearly 1 crore 7 Series BMW 3.0LD!

Long term, letting diesel and LPG prices rise is good economics.. If you want to subsidize LPG, do it by give direct cash payouts to deserving families via coupons that can be exchanged for LPG!. How can things get more pernicious if a domestic LPG cylinder is used to drive Lancers and Corollas , Octavias and Civics!.

Unfortunately that means that diesel is the fuel of choice for car owners and petrol car owners are at a disadvantage. A solution for that would be to levy a special tax, similar to the road tax on diesel cars, say around 5% of the vehicle value, or perhaps Rs 2 per km run on diesel small cars.

Yes. a special tax on diesel cars would work, by getting the math of acquisition vs running cost back in synch.. But if you subsidize fuel, you still end up distorting price signal which is not good for long term.

It is the old Coimbatore irrigation pump analogy. When Tamil Nadu started giving free power for irrigation pump, as a rational farmer, what would you do ? . See, your marginal cost (when you are given free power), drops to zero, so the only cost you see is the acquistion cost. So you will buy the cheapest &crudest pump that will work for you (and you can even go for an overkill in terms of size since the electricity cost is zero anyways)..So go to a local dealer and buy the cheapest crudest pump made is some backyard in Coimbatore. That pump will have piss poor energy efficiency, will cavitate like crazy and be incredibly wasteful.. But you couldn't care less, because your marginal costs are zero and you dont pay for electricity!..

vina wrote:Iranian crude was tradionally "sweet" (low sulfur).. The heavy crudes I think are some Iraqi, Libyan (dont know), but the Venezulan crude, esp in the Orinocco basin are extra heavy.. something like tar really and need specialized infrastructure for pumping (some solvent kind of thing to thin it so that it can be pumped and the solvent extracted back) and the refineries have to be set up for that.

I think what Reliance does is that it buys up all the heavy crude in the gulf (where generally crude is sweet) and the other refineries are not set up to handle such heavy grade stuff.. so they end up buying the stuff cheap.

All this from hearsay from my "anal"yst pals who cover these sectors ( one of them is Venezualan who works in NY).

vina wrote:
Raju wrote:Reliance has long-term contracts with its suppliers. Instead of re-exporting the processed material it will be used in India. And the price of Reliance crude is far below industry levels because they are using a heavier dirtier variety of crude.


So what will you do with the PSU refineries ? Idle them ? India has surplus refining capacity thanks to Dhirubhai Ambani's farsightedness in putting up world sized plants. Yeah, at best ,you can kill the goose that lays the golden eggs and seize Reliance and sell it's cheaper fuel at controlled prices in domestic markets, while selling the PSU refinery outputs to world markests at spot prices and making zero margins to miniscule positive margins at best..

Why go to all that trouble. Just do what the commies want and impose "windfall taxes" on Reliance and Essar ..Far easier and less messy than this take over and all that stuff with legal complications and use that to subsidize fuel. It will be the same thing.. Do the math.

Nitesh wrote:http://www.ndtvprofit.com/2008/06/08103517/India-a-case-of-reverse-imperi.html
India a case of reverse imperialism: Forbes


India is still labelled an emerging market, but the Forbes magazine has argued that the country's economy has already emerged. And as the economy spreads its wings, its companies are turning to new international markets, perhaps beginning a reverse imperialism.

Prasant wrote:It will be imperialism when we rape and imprison their women enmasse, wipe out their male populations, destroy domestic industry, let millions die of hunger and disease and impose our language on them. Until then, it is only business.
Funny how Yank and Brit companies having a global presence is only a sign of 'globalisation', but desi companies going global is 'imperialism'.

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Postby vina » 09 Jun 2008 10:27

A good write up of contemporary India.. The story of India is a massive failure of govt, esp in providing the basics, water, sanitation, health care and education to the vast majority. We have too little govt focused on those basics and too much govt doing stuff like running airlines and airports..


A nice report in NY Times.. However the attitude of Dilli in this kind of thing is just incredible. Our gated community in Bangalore too is one of those "chi chi" places, but nowhere close to what the scene of looking over the nose with a delicate Prinz Nez , oh so superior , touch me not Dilli. We are a lot more human /humane and egalitarian.

What is about Dilli and daily scene of crime and murder that gets splashed across the screen in places like Noida, Gurgaon etc by house hold help and other folks I wonder.. You dont hear it in other places like Chennai , Bangalore etc to the same degree, even when exactly similar differences are there. Maybe Dilli billis pay their help too little and exploit them too much.

[quote]The New York Times
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June 9, 2008
Inside Gate, India’s Good Life; Outside, the Slums
By SOMINI SENGUPTA

GURGAON, India — When the scorch of summer hit this north Indian boomtown, and the municipal water supply worked only a few hours each day, inside a high-rise tower called Hamilton Court, Jaya Chand could turn on her kitchen tap around the clock, and water would gush out.

The same was true when the electricity went out in the city, which it did on average for 12 hours a day, something that once prompted residents elsewhere in Gurgaon to storm the local power office. All the while, the Chands’ flat screen television glowed, the air-conditioners hummed, and the elevators cruised up and down Hamilton Court’s 25 floors.

Hamilton Court — complete with a private school within its gates, groomed lawns and security guards — is just one of the exclusive gated communities that have blossomed across India in recent years. At least for the newly moneyed upper middle class, they offer at high prices what the government cannot, at least not to the liking of their residents.

These enclaves have emerged on the outskirts of prospering, overburdened cities, from this frontier town next to the capital to the edges of seam-splitting Bangalore. They allow their residents to buy their way out of the hardships that afflict vast multitudes in this country of more than one billion. And they reflect the desires of India’s small but growing ranks of wealthy professionals, giving them Western amenities along with Indian indulgences: an army of maids and chauffeurs live in a vast shantytown across the street.

“A kind of self-contained islandâ€

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Postby Singha » 09 Jun 2008 11:31

Somini is probably twisting and imaging things a little bit to get the right
psyops angle. with India growing rapidly this "rich poor divide" presents
a nice little cleavage point to exploit.
doesnt matter how poor the PRC countryside is so that 100s of million escape
to the drudgery and abuse of the city factories and the "red princes" flit
around in their S600s eating the finest cuts of meat.

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Postby Singha » 09 Jun 2008 11:39

sensex down 700 pts to 14800. icicidirect has gone belly up.
wanted to buy some nifty etf atleast.

I have heard 14500 is a "fair value" for the market, but who knows...

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Postby vina » 09 Jun 2008 11:56

Singha wrote:sensex down 700 pts to 14800. icicidirect has gone belly up.
wanted to buy some nifty etf atleast.

I have heard 14500 is a "fair value" for the market, but who knows...


Oh..icicidirect .. That goes belly up, whenever anything happens with trading volume.. That is trading service is crap ..and that too overpriced junk, if you have seen any. I am sure there are better ones that offer far better service and prices,if you look around. regular day traders will give you tips I am sure. Try HDFC/Kotak etc.. I am sure they offer better service than ICICI ..

I am willing to take a bet that former high fliers in Real Estate , "Capital Goods" etc which are very interest rate sensitive taking a massive beating.. This fall is the sensex is the pffffffffttt sound of air coming out of the bubbles there. Formerly undervalued sectors like IT/Vity holding gains very well /keeping with sensex.. Thank you

Dont touch Realty with a barge pole. The go go days are over.. They WILL have to drop prices to move the flats they are holding on to... The rentals are dropping, interest costs going up, strong rumors that DLF is in a cash crunch..Commercial real estate is a dog.. The holding power of even the big guys is taking a massive beating.. After all, if you just hold capital, you are destroying value too!. What is the weighing of Realty in Sensex ? ..Surely guys like DLF are there.. L&T, Relpower etc.. must be taking big beating as well. Go for defensive stocks in this environment..

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Postby Singha » 09 Jun 2008 12:06

the new association of blr realtors Koapa -> Credai was actually planning
to raise prices by 9% this month! not sure if was meant to affect all ongoing
projects signed up at lower prices or just new projects.

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Postby vina » 09 Jun 2008 12:13

Singha wrote:the new association of blr realtors Koapa -> Credai was actually planning
to raise prices by 9% this month! not sure if was meant to affect all ongoing
projects signed up at lower prices or just new projects.


Oh.. that was a nice attempt to talk up the market and try to get buyers to jump in and put in their money.. I doubt if they found even a single sucker for that talk.

From what I hear, flats in existing projects are available at nearly 10 to 15% discounts to what the builder is selling in the secondary market.this in Bannerghatta Rd, JP Nagar, Whitefield /Marathahalli . HSR & ORR.. dont know, but I would hazard a guess that it is the same scene there. Now the Sobhas and others are writing in clauses prohibiting sale before possession to cut out speculators and get to genuine buyers.. But duh.. there goes liquidity and hence the froth.. however, the Sobhas etc don't drop prices and want Rs 3000 + per sq ft near Kudlu gate.. Yeah.. good luck. :lol:

I see signs that folks are trying to sell and run, but very very few buyers as of now, given the ridiculous prices and the hope the sellers have that they are ahead of the market and trying to exit before it breaks.. Wait for reality to hit realty! (poor pun, I agree.. but what the heck).

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Nayak » 10 Jun 2008 07:56

Sensex crash: India Inc loses $50 billion - Rediff says.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Singha » 10 Jun 2008 08:15

its being said 13500 is the sensex level at which most FIIs still make some profits.
they are selling out now and if the sensex nears that level they will sell even more
to salvage atleast something out of their investment.
there is no retail buying interest in the market, everyone I know is swearing by
FDs these days even margin trading types :((

http://finance.livemint.com/Announcemen ... activities

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Re:

Postby pradeepe » 10 Jun 2008 09:55

vina wrote:
Singha wrote:the new association of blr realtors Koapa -> Credai was actually planning
to raise prices by 9% this month! not sure if was meant to affect all ongoing
projects signed up at lower prices or just new projects.


I see signs that folks are trying to sell and run, but very very few buyers as of now, given the ridiculous prices and the hope the sellers have that they are ahead of the market and trying to exit before it breaks.. Wait for reality to hit realty! (poor pun, I agree.. but what the heck).


Stay atleast 100km away from the epi-centre's when these big ones fall...

http://www.moneycontrol.com/india/news/ ... /55/341596

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Suraj » 10 Jun 2008 10:12

Results of the latest Economic Census, rebutting the 'jobless growth' whine. It also underlines the unorganized and fragmented nature of employment, which prevents economies of scale. How to transition to organized employment (the debate on organized retail is a prime example), is the primary challenge in terms of rapidly consolidating economic output.
Self-employed nation
There are a number of striking patterns in the fifth census, both by themselves and in comparison with the fourth, done in 1998. In 2005, manufacturing and retail trade were by far the most important employers, accounting for 25.4 million and 25.1 million workers, respectively, out of a total estimated employment of 90 million in the non-agricultural sector, with agricultural establishments covered by the census accounting for a further 10 million. In manufacturing, about 13.5 million workers were employed by rural establishments, while rural retail establishments employed about 11.5 million. Taking both rural and urban establishments together, about 18 million workers were in establishments that had at least one hired worker, while the number in this category for retail was a significantly lower 12.5 million. In other words, about half the employment in the retail sector in this country is in the so-called "own account" establishments, in which the entrepreneur, manager and worker are the same individual. Across all sectors, about 54.4 million workers were in own account establishments. In short, India is overwhelmingly a nation of self-employed people. Even among establishments with hired workers, 95 per cent had five workers or less.

A.V.Rajwade on hedging and speculation (mostly technical, linked for those interested in learning).
Hedging, speculation and derivatives
Finance Minister confident of 8.5% GDP growth current fiscal
A latest study by industry chamber Confederation of Indian Industry (CII) said the economy would grow around 8.6 per cent during the current fiscal on account of a sustained growth in net profits of companies and a gradual increase in productivity and capital efficiency of the Indian corporate sector.

The net profit margin, measured as net profits as a percentage of sales, have increased from 8.8 per cent to 9 per cent over the last eight quarters. This is corroborated by the fact that corporation tax collections have increased consistently upwards, and for the year 2007-08, the net corporation tax collections have grown by 32.1 per cent," said the CII report.

The government has targeted direct tax collection of Rs 3,65,000 crore for the current fiscal. A CBDT official told Business Standard that the new target could be set above Rs 4,00,000 crore.

The government had collected Rs 3,14,468 crore as direct taxes in 2007-08. This was 117.56 per cent of the original Budget estimate for 2007-08, said Chidambaram.

During the current financial year, Chidambaram expects more and more assessees to file returns electronically. "This year, the number will go up dramatically as more corporate and non-corporate assessees are expected to resort to e-returns. We will get early indications of e-filing on the first date of the advance tax payment on June 15," he added.

Chidambaram said that those who have never filed returns or have stopped filing returns three years back will be prosecuted if identified during search and seizure. He added that 15 such cases had been identified recently.

The finance minister also expects that the number of tax returns filed may cross 30 million in the current fiscal. Last year, 27.3 million tax returns were filed.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Singha » 10 Jun 2008 10:16

L&T PE is down to 35 from a high of 75. as I remarked before, maybe the bottom is
when L&T PE gets down another 40% to around 20.

that would indicate sensex in the 12500-13500 range , certainly below 14K.
would still mean in three years 2005-2008 it doubled from around 6000,
very good figure. but 6000->21000 in 3 yrs was totally insane.

so lets wait for the bargain bin to reopen. over next 1 yr there is going to be
a steady stream of bad news from India and the world economy, I dont see any scrap
of good news inbound.

there will be periods of FII withdrawals, followed by retail investors exiting in
despair, rise in depression among traders.

perfect time to "head back into biz school" :((

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby vina » 10 Jun 2008 10:18

Singha wrote: everyone I know is swearing by
FDs these days even margin trading types :((

http://finance.livemint.com/Announcemen ... activities


:rotfl: :rotfl: :rotfl: :rotfl:

What BRF thinks today , India thinks tomorrow!! .. I had posted this FD business when the sensex was at 19,000!!!.. I do think many smart Yindoos sold stocks at that level and went long on 1 yr FD at 10.5% ...

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Singha » 10 Jun 2008 10:20

I have laddered my FD's for 3 months - 12 months timeframe to have cash ready
when the "high powered breakout recovery" happens :rotfl:

in another couple months the first lot will mature, guess I had best put them in
for 12 months this time :((

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby vina » 10 Jun 2008 11:06

Oh.. The selling is just about beginning.. The vice has already started squeezing the nuts of this guy... The squeeze is only going to get harder.. Yeah..another $2.8 dollar loss like this quarter and the game is up.. Their revenues and profits are anyway going to be savaged this year. Make no mistake. Lehman is teetering on the brink. They dont have the size and heft to take the blows that Citi, UBS and Merrill did and still be standing.

The New York Times
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June 10, 2008
Lehman Posts Loss and Plans to Raise Capital
By JENNY ANDERSON and LOUISE STORY

Richard S. Fuld tried for months to persuade Wall Street that Lehman Brothers, the investment bank he runs, could weather the storm in the financial markets. But by last Wednesday his time had run out: Confidence in Lehman seemed to be slipping away.

In the days that followed Mr. Fuld scrambled to secure a financial lifeline for his hard-pressed investment bank and avert the kind of panic that brought down Bear Stearns. The result, announced Monday morning, was $6 billion in fresh capital from an array of blue-chip investors, enough to shore up Lehman, at least for now.

But the news also came with a stunning admission: Lehman Brothers, whose veteran executives pride themselves on their ability to manage risks, lost a staggering $2.8 billion in the second quarter, its first deficit since going public in 1994. The loss far exceeded even the most pessimistic forecasts and reflected a twin blow of soured assets and bad trades.

What is more, hedges that Lehman had put in place to cushion potential losses from mortgage investments went wrong, adding to the red ink, rather than minimizing it. The news heightened fears that other banks might run into more trouble.

The developments mark a stark reversal of fortune for Lehman and for Mr. Fuld, its longtime chairman and chief executive. Mr. Fuld earned accolades — and more than $40 million in 2007 — for steering Lehman through tumultuous markets last year and, two months ago, he proclaimed that “the worst is over” in the markets.

Instead, a crisis of confidence again threatened to engulf his firm. Shares of Lehman slid week after week and doubts grew about whether bank, one of the smallest players on Wall Street, could survive as an independent firm.

The debate over Lehman’s future is unlikely to be put to rest by the infusion of new capital, which comes after Lehman raised $8 billion this year. The stock market rendered a harsh judgment on the latest deal on Monday. Shares of Lehman fell $2.81, to $29.48, bringing its loss for the last year to 60 percent.

Erin Callan, Lehman’s chief financial officer, said Monday that the bank had moved aggressively to reduce its leverage, which some investors feared might undermine the firm. Since April, Lehman has sold about $130 billion in assets, reducing its exposure to mortgages and loans used to finance leveraged buyouts.

To shore up its finances further, the bank will sell $4 billion of common stock priced at $28 a share and $2 billion of preferred stock that will covert into common stock in three years. Buyers include the state pension fund of New Jersey and C. V. Starr & Company, the investment fund by Maurice R. Greenberg, the former head of the American International Group. Investors in the deal said they were reassured by Lehman’s actions.

“I think they’ve done a pretty good job conservatively marking down the things that should be marked down,” Mr. Greenberg told CNBC.

He said further markdowns were possible, but that would not “harm the company in any great degree.”

But Lehman may not be out of the woods. The firm has been engaged in a public battle with short-sellers who have questioned the way Lehman values assets that are difficult to trade, like mortgages and private equity stakes. Moody’s Investors Service downgraded its outlook on Lehman to negative from stable on Monday. Fitch Ratings cut Lehman’s credit rating.

And Lehman’s savvy hedging activities, which had helped the firm avoid the big blowups that rocked many other banks in late 2007 and early 2008, failed to work during the second quarter.

While the firm took a smaller total, or gross write down in the second quarter — $4 billion, compared to $5.3 billion in the first quarter — its hedging, especially hedges on commercial mortgage related positions, failed. That meant Lehman wrote down $4.1 billion in the most recent period compared with only $2.4 billion for the first quarter.

Mr. Fuld has piloted Lehman Brothers through rough waters before. But he also helped transform the bank into a player in the mortgage market, a position that cast doubt over Lehman when the mortgage crisis erupted.

Those concerns came to a head last week. Confronting the gaping second quarter loss, a team of seven executives, led by Thomas A. Russo, Lehman’s chief legal officer, left at midnight on a Saturday to fly to Asia. They met with investors in South Korea who had expressed an interest in buying a stake in the bank.

But as Lehman’s stock price plummeted anew, falling 8 percent last Monday and then 9.5 percent on Tuesday, it became clear that Lehman did not have time to negotiate such a deal. Executives in the United States, including Mr. Fuld, were courting investors at home.

Ms. Callan, also courting investors, said in an interview last week that she believed the situation would improve once Lehman released its earnings.

“I feel good that when investors are able to hear our story at earnings, the market will react well,” she said.

By Wednesday night, however, Lehman decided to announce its dismal results ahead of schedule in an effort to quell speculation about its financial health.

A marathon weekend followed. Mr. Fuld and his team prepared the earnings statement on Saturday, returned early Sunday, broke for a sandwich, and were back again at 5 a.m. Monday.

The long weekend was not without a bit of levity. On Saturday, Joseph M. Gregory, Lehman’s president and chief operating officer, arrived at the office in an unfashionable green suit.

“What are you wearing?” Mr. Fuld bellowed.

Mr. Fuld then marched Mr. Gregory from office to office on the 31st floor to show off the outfit. “It was an attempt to make people laugh,” one Lehman executive said. :((

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Singha » 10 Jun 2008 12:12

anand tandon @ brics securities

Q: What’s your sense of how long it will take in terms of time to clear out the fundamental problems and the macros that we are facing at this point in time?

A: The fundamental problems in the real market haven’t actually started. Take a case like real estate; we have seen a sharp correction in the real estate stock prices. But if one were to try and do a real estate deal, one would realise that there are still huge access there. Most builders have raised enough capital and have enough private equity chasing even now, prices have far from corrected.

One would actually have to see a similar correction in real estate prices as we have seen in the stock prices for the market to actually start clearing and till that happens many of the sectors will not be in a position to rebound. Real estate is a most glaring example but that is the case for most of the other sectors. We have seen the stock prices corrected; we haven’t seen impact of that on the real economy yet.

Q: Would you say the same for banking because some analyses seems to throw up. Their growth is still clocking at about 20%. Is that such a bad situation or is it just that it’s going to worse for banks?

A: The real economy hasn’t shown the kind of slowdown that the market had. It’s all in our interest to assume that the real economy will not slowdown as much as the market is predicting it and therefore rebound. If it lasts only for a quarter, the rebound can be very sharp and all will be good with the world. More realistic situation unfortunately is that we have a situation where the current account deficit of the US, which was fuelling the rest of the world in terms of ample liquidity, is now beginning to dry up. That will take money out back from the emerging markets including India and interest rates will rise. Therefore, a whole lot of stuff which was going in low return ratios or where one was looking at returns coming in many years from now will find that money is more difficult to come by and therefore cash will be the king. So, cash itself is probably the safest heaven to be in.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby vina » 10 Jun 2008 12:44

Yup.. I agree. If the US raises interest rates, the dollar with strengthen and the money will flow out of places like India. The rupee will depreciate, oil prices in rupee gets higher, fiscal deficit gets even more out of whack and india too will need to raise interest rates.to keep rupee up and inflation down. . Keep an eagle eye out on US inflation numbers. I think the rate cutting in the US is done with. No more cheap money sir, now the genie is global inflation. Also, contrary to what the boosters say, the prognosis for global crop and food output is not rosy at all. At best, it might be a medium harvest, not enough to flood the market with supplies to take the pressure off prices.

The dot com like "bubble" .(oh, we are currently cash flow negative, but will be so after 5 years.. in fact of our billion dollar market cap, the "residual" future value which has minuscule probability of happening is where all the wampum is) of value after 5 to 8 years in high gestation projects like power , infrastructure etc are going to get walloped, esp if financing is not already lined up at cheaper prices as of now.. Good luck when these projects try to raise money in another 6 months during period of high interest rates... Massive risk in implementation itself, not to talk about very uncertain cash flows that will stretch out into a decade or two out into the future. The market is going to have to re-price all that risk in terms of cost of funds to those companies and the stocks will be walloped.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Ardeshir » 10 Jun 2008 12:47

Everyone's looking at US figures today, and Bernanke's been really hawkish offlate.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Suraj » 10 Jun 2008 13:06

I wouldn't be inclined to see the US raising rates right now. The Fed will more likely resort to inflation madrassa math (there's already plenty of smoke and mirrors in the official data) in order to justify the need to hold rates as they are. Bernanke may sound hawkish, but others, say the ECB, have been more proactive lately, probably because they've more wiggle room.

My view of the Fed's position is that despite what they (Bernanke in particular) may say, they are more amenable to high inflation than either recession or stagflation. Despite what official data may suggest, the US quite likely is in a stagflationary condition now. Given the choice of combating the recessionary and inflationary conditions, I see the Fed as targeting the former first, even if it feeds the latter.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Ardeshir » 10 Jun 2008 13:18

Suraj, all indications point to a rate hike in the US as well as Europe.
Last Thursday, Jean-Claude Trichet was at his hawkish best. 'Heightened vigilance', 'sharp monitoring' were all key words that most securities traders are clued up on. Likewise for Bernanke's statements. Most futures traders have sort of priced in these events anyway, given the ferocity of Trichet's statement about the impending rate hike.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Suraj » 10 Jun 2008 13:34

Prasant: I realise you have your ears close to the ground being a trader. Yes I did ready Trichet's hard hitting statements last week. But then there's been no shortage of signals from Bernanke either over the last several months. However, with Lehman's forecast and talk of big writedowns over the summer, plus current economic conditions in the US, I'm less inclined to take Bernanke's statement at face value. With the current political extablishment in its last lap, there may be more political leeway to tolerate high inflation (consumables and fuel have already risen far more than official inflation numbers). Of course I may be wrong.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby vina » 10 Jun 2008 13:57

Suraj wrote:However, with Lehman's forecast and talk of big writedowns over the summer, plus current economic conditions in the US, I'm less inclined to take Bernanke's statement at face value. With the current political extablishment in its last lap, there may be more political leeway to tolerate high inflation (consumables and fuel have already risen far more than official inflation numbers). Of course I may be wrong.


Suraj..I think what you are banking on is a possible financial crisis /bank failure happening if US raises interest rates going forward. However, I think Bernanke has some good weapons here. The Bear Stearns tactic of opening special windows and distress sale is proven now. So any biggie like Lehman in trouble can be handled like Bear. They can get a liquid investor with deep pockets.. Warren Buffet comes to my minds, who will be more than happy to buy Lehman at firesale $2 per share or less prices... In fact, Buffet did exactly similar thing with Solomon Smith Barney after the fixed income scandal and "turned" it around before it got sold out to Citi. He would be very very happy to do it again, if the fed takes on all /underwrites all the illiquid stuff like they did with Bear Stearns and the counter parties are adequately protected.

If Lehman reports another outsize loss next quarter it is a goner for sure.. If the sharks/vultures/wolves circling it smell that Lehman business and financial strength is sapping away .. they will pounce on it and tear it apart in a twink of an eye, just like they did with Bear Stearns. That angle is well covered now.

With "finacial shock of collapses rippling across the system and setting of dominoes" off the table, the Fed can get back to doing bread and butter economics and not crisis management. That would be breaking the back of inflation. Growth will happen only when the price bubble in oil and commodities are pricked. That will happen ONLY if liquidity is squeezed out.. meaning get interest rates up and increase costs of holding and speculating.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby vina » 10 Jun 2008 14:27

The New York Times
Printer Friendly Format Sponsored By

June 9, 2008
Bernanke Watchful of Inflation Risks From Energy
By REUTERS

Filed at 9:21 p.m. ET

HARWICK, Mass (Reuters) - Federal Reserve Chairman Ben Bernanke on Monday signaled the central bank would act to strongly resist rising inflation, as energy costs soar into the stratosphere.

Bernanke also played down a May surge in the unemployment rate from 5.1 percent to 5.5 percent, the biggest jump in 22 years, saying the risks of a substantial downturn in the U.S. economy had receded.


His remarks suggest inflation is featuring more prominently on the Fed's radar screen, indicating policy-makers have little intention to cut interest rates further. Average gasoline prices in the United States have just surpassed $4 a gallon for the first time.

"The latest round of increases in energy prices has added to the upside risks to inflation and inflation expectations," Bernanke said at a conference organized by the Boston Federal Reserve.

"The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing for growth as well as for inflation," Bernanke said.


The dollar jumped to a three-month high against the yen and U.S. Treasuries tumbled after Bernanke's remarks.

LEANING TOWARD THE HAWKS

Bernanke's inflation warning, the third in just one week, seemed to bring him closer to the more inflation-leery faction of the policy-setting Federal Open Market Committee, led by the presidents of the Dallas and Philadelphia Federal Reserve Banks, Richard Fisher and Charles Plosser.

Fisher told CNBC on Monday that a weak dollar could lead to a vicious cycle of higher inflation and weaker growth.

Still, analysts have been skeptical that tough talk on price growth would be followed up with real action in the form of higher interest rates.

Rate futures have begun pricing in the prospect of a rate hike as early as October, but some are skeptical as to whether the Fed's warnings on the dollar and inflation have any teeth, particularly at time when banks continue to reel from bad investments in the mortgage sector.

ROSIER ON GROWTH

For his part, Bernanke appeared relatively sanguine about the economic outlook, more so than he had been just a couple of months back.

"Although activity during the current quarter is likely to be weak, the risk that the economy has entered a substantial downturn appears to have diminished over the past month or so," he said

The speech also pointed to rising nervousness at the Fed over recent surges in oil prices, which have pushed crude oil reached a record over $139 a barrel last week.

U.S. inflation rose 3.2 percent in the 12 months to April, and by 2.1 percent over the same period when volatile food and energy costs were excluded, according to the Fed's preferred inflation report, the government's personal income data.

The Federal Open Market Committee next meets on June 24-25. Financial markets largely expect the Fed will not begin to raise interest rates until its October meeting.

Bernanke said inflation remains high, reflecting commodities price rises. At the same time, he said, higher raw materials costs have yet to translate to higher prices for products or the need to raise worker pay in response.

But the Fed chairman cautioned there is no guarantee this will remain the case.

"The continuation of this pattern is not guaranteed, and future developments in this regard will bear close watching," he said.

Bernanke sounded a softer tone on worries about weak growth, saying that recent data had "only modestly" affected the Fed's view that the economy will regain strength later this year after a weak start.

U.S. gross domestic product expanded at a weak 0.9 percent annual rate in the first three months of the year, after a sluggish 0.6 percent annual rate in the final quarter of last year, the effects of the bursting of the U.S. housing bubble and a credit crunch triggered by a spike in mortgage delinquencies.

The economy still faces difficulties from the housing downturn and escalating energy costs, Bernanke said.

At the same time, the Fed's rate cuts, which have taken benchmark borrowing costs down to 2 percent from 5.25 percent in September, government rebate checks sent to taxpayers, and signs of healing in battered financial markets provide "some offset" to headwinds still facing the economy, the Fed chairman said.

The central bank also plans to continue measures aimed at helping financial markets recover.

"We have taken a number of actions to promote financial stability and remain strongly committed to that objective," he said.

DISCARDING THE FUTURE

Bernanke's renewed focus on inflation was accompanied by an attempt to distance the central bank from the use of futures markets to predict the direction of commodity prices.

"Futures markets have often underpredicted commodity price increases in recent years, leading to corresponding underpredictions of overall inflation," he said.


"The poor recent record of commodity futures markets in forecasting the course of price raises the question of whether policy-makers should continue to use this source of information."

The central bank had continuously forecast a stabilization in rising energy costs that never materialized.

(Reporting by Mark Felsenthal and Pedro Nicolaci da Costa; Editing by Leslie Adler)

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby svinayak » 10 Jun 2008 21:47

vina wrote:
Suraj wrote:However, with Lehman's forecast and talk of big writedowns over the summer, plus current economic conditions in the US, I'm less inclined to take Bernanke's statement at face value. With the current political extablishment in its last lap, there may be more political leeway to tolerate high inflation (consumables and fuel have already risen far more than official inflation numbers). Of course I may be wrong.


Suraj..I think what you are banking on is a possible financial crisis /bank failure happening if US raises interest rates going forward. However, I think Bernanke has some good weapons here.

Suraj is right. Saving the economy is more important than the inflation right now.
Current situation is US is very fluid. At least two banks are under the cross hair. Wamu and Indymac are vulnerable for collapse.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby ramana » 10 Jun 2008 22:05

Lehman is paying for their bad karma. They deserve to go out and be wound up..

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Suraj » 11 Jun 2008 00:19

In the midst of talk of hardening economic circumstances, some datapoints pointing to positives:
Indian Railways' growth at 19.85%
Continuing with its growth trend, the Indian Railway had registered an earnings growth of 19.85 per cent during the first two months of the current financial year 2008-09 compared to last year.

The total approximate earnings on an originating basis during the period stood at Rs 13,334.72 crore compared to Rs 11,125.95 crore during the previous year.

The total goods earnings have gone up by 23.54 per cent to Rs 9121.74 crore from Rs 7383.35 crore recorded during the same period last year.

On the other hand, the railways total passenger revenue during the period stood at Rs 3727.58 crore, registering a growth of 12.28 per cent compared to the last year.

Export exuberance
The merchandise export and import numbers for April 2008 suggest that things look reasonably healthy on the trade front. Exports grew by 31.5 per cent in dollar terms over April 2007, from $10.9 billion to $14.4 billion. In rupee terms, they grew by almost 25 per cent, from Rs 46,000 crore to almost Rs 58,000 crore. Over much of 2007, after the rupee began appreciating in March of that year, there was a significant divergence between the growth rates in dollar terms, which remained reasonably healthy, and those in rupee terms, which plummeted to low single digits. For exporters whose revenues were in dollars and costs in rupees, this pattern reflected tremendous pressure on margins; for many, viability was threatened.

Imports have also been growing rapidly. In dollar terms, they increased by almost 37 per cent, from $17.8 billion in April 2007 to $24.3 billion in April 2008. Oil imports stood at over $8 billion in April this year, 46 per cent higher than the $5.5 billion they accounted for in April 2007. However, even non-oil imports grew by about 32 per cent over April 2007, a re-assuring sign that domestic demand remains relatively buoyant in the first month of the fiscal year. The Index of Industrial Production numbers, due out later this week, will provide further evidence on the state of the economy.

It has been evident for some time now that refined petroleum products are amongst the fastest growing exports. Because private sector refineries do not get the benefit of the subsidy in the form of oil bonds, it makes no sense for them to sell their products domestically. They, therefore, export their entire output, realising the full international price, while the government-controlled oil marketing companies sink ever deeper into a financial hole. As a result of this distortion, the Indian consumer receives no benefit from having some of the world's most efficient refining capacities in the country.

Registration records show no real estate slowdown in MH
Amid the buzz of a slowdown in the real estate market in Maharashtra, data on property registrations, however, show a completely different picture.

Nearly 240,679 registrations took place in five cities — Mumbai, Thane, Pune, Nashik and Nagpur — during the January-March period in 2008, a 10.53 per cent increase over 217,743 between October and December in 2007.

More property registrations also meant higher stamp duty collection for the state exchequer.

The government collected Rs 2,267.42 crore as stamp duty from January to March in 2008 compared with Rs 1,619.99 crore in the same period in 2007, registering a 40 per cent increase. It had collected Rs 1,374 crore in the first three months of 2006.

However, analysts still maintain the property market has remained stagnant in the last three months. They say registrations come with a lag of 3-4 months after the deal is signed. So property registered between January and March 2008 may have been sold and bought between October and December last year, and do not necessarily reflect the actual trend.

On the oil price front, how redundant formulae cause underrecoveries to be overstated:
The great Indian oil trick: under-recoveries overstated 15%
# Oil companies say calculations based on pre-defined government formula
# Calculation assumes import cost of petrol, diesel, LPG and Kerosene
# Imports of petrol & diesel are negligible
# Govt pruned Rs 78,000 cr under-realisation claim of oil companies to Rs 70,000 cr last year.
# The under-realisation calculation is important as it is used to determine the amount of oil bonds the government gives these companies and the discounts the oil producers give as part of the subsidy-sharing mechanism.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby John Snow » 11 Jun 2008 01:03

ramana wrote:Lehman is paying for their bad karma. They deserve to go out and be wound up..

ramana garu they will be bailed out by Fed soft term loans and under writing.

But ideally fed should let the markest settle it by itself rather than throw public money to shore up bad debts and bad investment banking decisions.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Suraj » 11 Jun 2008 20:36

Apparently the indications that economic growth has not significantly faltered has resulted in RBI deciding not to delay a rate hike:
Indian Central Bank raises interest rate to 8% to rein in inflation
India's central bank unexpectedly raised interest rates for the first time in 15 months, joining a global wave of monetary tightening to combat a surge in inflation sparked by food and energy costs.

The Reserve Bank of India increased the repurchase rate to 8 percent from 7.75 percent, according to a statement in Mumbai. The move came seven weeks before the bank's scheduled monetary policy meeting on July 29.

Governor Yaga Venugopal Reddy joins central bankers in Brazil, Chile, Indonesia and Vietnam in raising borrowing costs. The urgency signals Reddy's concerns after India raised fuel prices at the sharpest pace in at least six years.

U.S. stocks retreated for a fourth day as speculation grew that central banks around the world must raise interest rates to combat inflation.

Federal Reserve Chairman Ben S. Bernanke said June 9 he'll ``strongly resist'' any surge in inflation expectations, while European Central Bank President Jean-Claude Trichet reiterated he may raise rates as soon as next month.

China's central bank on June 7 told lenders to set aside more of their deposits as reserves to stop cash in the financial system from stoking price gains.

The Bank of Canada yesterday unexpectedly kept its benchmark rate unchanged after four straight reductions, joining central banks that are halting interest rate cuts.

Reddy kept the reverse repurchase rate, or the bank's overnight borrowing rate, at 6 percent, the statement said.

``Inflation was becoming a major concern for the central bank,'' said Jayesh Shroff, who helps manage $7.5 billion at SBI Asset Management Co. in Mumbai. ``We could see a knee-jerk reaction to this move in the stock market tomorrow.''

Indian stocks rose today after a 5.6 percent decline in the previous three days. The central bank's decision was announced after markets closed in Mumbai.

The yield on the benchmark 10-year government bonds reached a two-year high of 8.31 percent on June 9. The notes extended losses for a sixth week on concern the central bank hadn't done enough to stem inflation and check a slide in the local currency, which was also adding to price gains.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Raj » 12 Jun 2008 04:55

http://www.dnaindia.com/report.asp?newsid=1170309

Windfall for Tatas as Bumi yields more

Indonesian firm discovers an additional 442 million tonnes of coal reserves

MUMBAI: Tata Power’s $1.2 billion investment in the coal assets of Bumi Resources has hit pay dirt, with the Indonesian mining company announcing a huge coal discovery.

Dileep Srivastava, senior vice-president, investor relations, at Bumi Resources told DNA Money from Jakarta that an additional 442 million tonne of reserves have been found in the Pedayak region.

“Bumi is extremely bullish and has pegged a higher coal price assumption of $75.56 tonne against the previous $53.92 per tonne,” he said, hinting at the high quality of the fuel.

“The price assumption is conservative, the market price is almost twice the assumption,” Srivastava said.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Suraj » 12 Jun 2008 11:57

I mentioned earlier that a number of capacity augmentation projects were coming onstream over 2008-09. Here's an article with a figure related to the value of the projects:
CMIE retains GDP growth forecast at 9.5%
The rapid rise in inflation had led to fears of the RBI tightening its monetary policy in April. But the RBI had only hiked CRR and not any policy rates. CMIE said the slowdown in GDP and the IIP growth figures witnessed in the December 2007 quarter was only an aberration and the economy would continue to grow at brisk pace backed by the huge capital investments happening in the country.

The review said projects worth Rs 3.4 lakh crore ($80 billion) scheduled for commissioning would generate employment, and hence, demand for primary and intermediate goods and their completion would eliminate the supply side constraints currently faced by a few sectors. Even if all these projects are not commissioned in 2008-09, their implementation will generate employment, and hence, demand for goods. The low growth of 4.9 per cent and 5.8 per cent in the IIP in November 2007 and January 2008, respectively, and the meagre 2.3 per cent growth reported in production of capital goods in January 2008 had led to fears of possible slowdown in the demand and industrial activity. However, IIP bounced back in February 2008, making a healthy year-on-year growth of 8.6 per cent.

India Industrial Production Growth Accelerates to 7%
India's industrial production growth accelerated in April as companies such as Ford Motor Co. and General Motors Corp. expanded capacity in the world's second- fastest major growing economy.

Production at factories, utilities and mines rose 7 percent from a year earlier after gaining a revised 3.9 percent in March, the statistics office said in New Delhi today. Economists were expecting a 6.5 percent increase.

Automakers are investing more than $6 billion in the South Asian nation to build factories and boost output. Still, production growth may slow this year in India and across the region as faster inflation and higher borrowing costs crimp spending by consumers and companies.

Manufacturing, which accounts for about 80 percent of India's industrial production, gained 7.5 percent in April, according to today's report. Electricity output rose 1.4 percent, mining grew 8.6 percent and consumer goods production increased 8.9 percent.

Ford Motor Co. is spending $500 million to expand its factory in Chennai, South India, to make 250,000 engines and 200,000 vehicles annually by 2010. Nissan Motor Co., Japan's third-largest automaker, and affiliate Renault SA began building a $1.1 billion factory in June.

Economic growth has averaged 8.9 percent in the last four years, making India the fastest-growing major economy in the world after China.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby SwamyG » 12 Jun 2008 18:22

Ramana: What did Lehman do to accrue some bad karma?

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby ShauryaT » 12 Jun 2008 18:49

John Snow wrote:
ramana wrote:Lehman is paying for their bad karma. They deserve to go out and be wound up..

ramana garu they will be bailed out by Fed soft term loans and under writing.

But ideally fed should let the markest settle it by itself rather than throw public money to shore up bad debts and bad investment banking decisions.
Yes, but the Fed comes in because in the electronic world we live in, counter party risk can have a signifincant domino effect. If an FI the size of Lehman fails to settle in time, at worst in T+3 but usually confirmations in T+1 or T, the entire system can come under risk.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Katare » 12 Jun 2008 20:03

some 18 months back we had discussion on the possibility of Indian economy over-heating in short term. In general we kinda concluded that Indian economy should slow down to 8-8.5% to consolidate and over come capacity constraints. Since than we have lost focus and got greedy for 9+% growth. :mrgreen: It is very important that we don't hurt our long term growth prospect for short term growth achievements. Indian economy, especially in absence of major reforms and global issues, must slow down to remove capacity constraints and inflationary trends. I hope RBI would choose policies and mechanisms that would not hurt the industrial capacity and infrastructure creation. Interest rate is most effective tool but it is also the bluntest tool (dumb bomb). CRR hikes and increased risk capital provisions for consumer sectors could be better PGM tools.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Suraj » 13 Jun 2008 00:32

Business Standard reviews the rate hike and IIP data:
Industrial growth recovers in April
Industrial production in April, the first month of fiscal 2008-09, grew 7 per cent, much lower than the 11.3 per cent growth in the same month last year, but nearly double the revised IIP growth of 3.9 per cent in March.

The April growth in the Index of Industrial Production (IIP) was led by an improved performance of the capital goods and consumer durables sectors, data released today by the Central Statistical Organisation (CSO) showed.

Capital goods grew 14.2 per cent in the month over 10.9 per cent in the same month last year, evidence that investment remains robust despite increasing borrowing costs.

Consumer durables grew 5.5 per cent in the month against 2.4 per cent in the same month last year. However, consumer non-durables grew 9.8 per cent, much slower than the 18.7 per cent seen last April.

Monet gets costlier
With the inflation rate having breached the 8 per cent mark in the last few weeks and the revised estimates of GDP for 2007-08 indicating that it grew by 9 per cent during the year, a monetary response was certainly expected. It was only a matter of timing. If the economy is not showing appreciable signs of slowing down, there is an argument to be made for the RBI shifting its policy focus from the growth risk to the inflation risk. The increase in the repo rate, a firmer measure than the increase in the cash reserve ratio (CRR) that the RBI did in its April monetary policy announcement, indicates that it is now less worried about the slowdown going out of control and can, therefore, put more weight behind its anti-inflation stance.

The Index of Industrial Production (IIP) grew by a shocking 3 per cent over March 2007, exacerbating concerns that the slowdown was, in fact, worse than anticipated. Given this, the timing of the interest rate hike, coming as it did on the day before the April numbers of the IIP were announced, may have been a little surprising. In the event, the IIP numbers have vindicated the RBI's decision. The index grew by 7 per cent in April, a reasonable rebound from the March performance (which itself was revised upwards to 3.9 per cent). This is still very much a slowdown — the growth rate during March 2007 was over 11 per cent — but is much more in line with the expected trajectory of the economy. More importantly, the capital goods category, which comprises commercial vehicles and machinery and equipment, grew by over 14 per cent during April. Machinery and equipment, in particular, has been a relatively robust performer during 2007-08. This can be seen as an indication that investment activity has remained buoyant on account of optimism about long-term prospects. That view is reinforced by the April number, allowing the RBI a little more room to rein in demand in the short term.

In summary, both articles have similar statements - that while consumer goods demand has crimped due to higher interest rates, the more important figure of capital goods continues to show strong double digit growth. Therefore the primary criticism of the current interest rate regime,that it will lead to a mid 1990s style investment bust, seems off the mark. Once capacity concerns ease, RBI will be in a better position to lower rates and thereby spur consumer demand again.
Reliance Sees Gas Output Saving India $27 Billion
Reliance Industries Ltd., India's largest company by market value, will start selling natural gas this year at the equivalent of a fifth of global prices, easing the nation's import bill at a time of record crude oil costs.

Reliance will sell gas at $25.20 a barrel of oil equivalent, compared with more than $135 in global markets, Chairman Mukesh Ambani told shareholders in Mumbai today. Piping the fuel from the Krishna Godavari basin off India's eastern coast will cut 1.14 trillion rupees ($27 billion) from the country's import bill, he said.

Reliance Industries is investing $5.2 billion to develop Krishna Godavari, the nation's largest field that is expected to more than double India's gas output. India, Asia's third-biggest economy, imports 70 percent of its oil and doesn't produce enough gas to meet demand from power and fertilizer makers.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Nayak » 13 Jun 2008 14:37

'I want West Bengal to be India's hi-tech hub'

Are you looking for call centers and BPO-type companies that . . .

No, not at all. We want some quality companies that would add value, something like chip design. One recent study said that Kolkata would be the most attractive in the world and another said that as a tier-two city Kolkata would come up in a very big way. Yet, another study says that in Kolkata SMEs (Small and Medium Enterprises) are doing a quality job compared to Hyderabad and Pune. So, in comparison to other states we are in a far better position. We have some temporary problems but they would not last for more than a few months.

But the strikes and . . .

The point I am trying to make is that no 24/7 company in West Bengal had ever have to shut down because of a strike called by any party.

But the strikes have affected industry, right?

There has been nearly 100 percent attendance even during strikes. This is the fact. But the same is not true about Bangalore or Hyderabad. :roll: :roll: :roll:

As IT minister, one with a background in technology, do you have a dream for West Bengal?

I want West Bengal to become the hub of hi-tech in India -- like the (hub of) wireless industry, chip design industry, the ones that can manufacture products. . . I do not want numbers, but quality. That is my dream.


Good luck with that my comrade. Why diss other States just to score imaginary brownie points ?

He speaks like a paki propah-gandu minister always claiming Bakistan is better than India for investment but just because of image and misunderstanding it has been deprived off its share.

:rotfl: :rotfl: :rotfl:

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Vipul » 13 Jun 2008 19:24

Urbanisation of rural India.

The final results of the fifth Economic Census, released recently, point to changing trends in enterprise activity and employment in India. Enterprises in rural India are far less labour-intensive than those in urban India, with each enterprise employing 1.9 workers in the former as against three workers in the latter.
As of 2005, about 26 million rural enterprises employed 51 million people, whereas about 16 million urban enterprises employed 49 million.

However, this trend seems to be changing, with rural employment in enterprises (engaged in activity other than agriculture) growing at an annual rate of 3.3 per cent between 1998 and 2005, as against 1.7 per cent in the case of urban enterprises. A change in composition in favour of the former could arrest the shift of populations to cities.

A growth rate of 3-4 per cent in rural enterprise employment is achieved even if agriculture sector performs poorly. Therefore, enterprises do not depend on surplus farm income. They might have come up to cope with falling agriculture incomes. Nevertheless, healthy farm sector growth helps; a 2-3 per cent growth in agriculture output is likely to lead to a growth rate of rural employment of 5 per cent or more.

The five States, which registered the highest growth in employment (including high rates of rural employment) between 1998 and 2005, were Jammu and Kashmir, Sikkim, Kerala, Haryana and Tripura. Of these, the compound annual growth rate (CAGR) of farm output was negative in Kerala (minus 4 per cent) and Sikkim (minus 1.8 per cent).

In J&K, Haryana and Tripura, however, CAGR of agriculture output was 4.4 per cent, 3.1 per cent and 3.1 per cent, respectively. These three States registered high rates of growth of rural enterprise employment: 7.65 per cent, 8.8 per cent and 5.84 per cent, respectively. West Bengal, by showing just a 1.7 per cent increase in rural enterprise employment despite a 2.66 per cent CAGR of farm output, stands out as an exception.

Given that Kerala, Tamil Nadu and Sikkim registered rural employment growth despite negative CAGR of farm output between 1998 and 2005, it appears that factors other than agriculture performance drive enterprise activity in rural areas.
Kerala, J&K and Tamil Nadu have a well-developed tourism and manufacturing sectors.

But the tenuous link between the farm sector and rural enterprise is evident even in Punjab and Haryana, where agriculture accounts for about 50 per cent and a third, respectively, of net state domestic product. Most rural enterprises in these States are of non-agricultural nature. In fact, Punjab is the only major State where the number of urban enterprises exceeds that of rural enterprises.

While enterprise growth in rural areas seems to occur independently of farm output, a combination of the two appears to be more effective in poverty reduction. Haryana, Punjab (rural employment growth of 5.2 per cent), J&K and Kerala have poverty levels below 10 per cent.

Tamil Nadu, Maharashtra, West Bengal, Andhra Pradesh and Uttar Pradesh have the largest number of enterprises.
Except for Tamil Nadu and Uttar Pradesh, the others did not fare well in terms of generating employment. Andhra Pradesh and Maharashtra registered a CAGR of agriculture of 1.85 per cent and zero, respectively.
Their employment growth rates are lower than the all-India average.

Poverty reduction in the period 1998-05 was more pronounced than in the early 90s. The Economic Census 2005 tells us that about two-thirds of this employment was generated in rural areas, despite the indifferent performance of the farm sector. Are we seeing the ‘urbanisation’ of rural India?

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Nitesh » 13 Jun 2008 19:34

http://www.citywire.co.uk/personal/-/ne ... ?ID=305636

Now is the time to invest in India, says manager
By Danielle Levy
City Wire, UK
13 June 2008

Bhupinder Sethi, manager of the newly launched New Star India Equity fund, believes rising inflation in India will moderate over time and stresses that the region offers investors a ‘multi-decade opportunity’.

Indian inflation has just hit a seven year high, but Sethi says the investment case remains powerful.

‘The global economic landscape is here to stay and will play out over the next five to 10 years. The key is to put money where growth is. In Asia India is the fastest growing economy,’ he says. 'The changes coming through in the economy mean there is a strong case to invest.’

With an election on the cards, Sethi says it is likely that there is a possibility that the current government and a potential new government could sacrifice some GDP growth to contain inflation. However, he says that any falls in the market as a result should be seen more as a minor blip. Pointing to falling valuations, he stresses that now remains a good time for investors to enter the market for medium to long-term gains.

Sethi works for Tata Asset Management Mauritius, part of India's giant Tata Group, which has partnered with New Star Asset Management in a joint venture and is named as the investment manager on the fund.

Lead manager Sethi believes Indian growth has been driven by changes in the developed world and believes the opportunities created by this change will lead to long-term benefits for the country.

Sethi pinpoints infrastructure as a key theme and believes the sector stands to benefit from an increase in public-private partnerships. In particular, he highlights the strain that India’s airports have come under as air travel has grown significantly on the back of increased budget airline flights into the region. He is positive on the government’s decision to privatise airports and, more generally, the increased involvement of the private sector in infrastructure projects.

He describes what he sees as a healthy cycle, as increased infrastructure spending leads to economic progress which in turn leads to further infrastructure spending.

He is also positive on the domestic consumer, particularly as the workforce grows. He believes that India’s 10% consumer credit/GDP ratio in comparison to Malaysia’s 59% and Korea’s 41% represents ‘huge opportunities in terms of consumption’.

Sethi says the increased uptake of consumer loans by the younger population is a theme he intends to play, particularly as he sees financial services as under-penetrated.

Sethi and his team will use a GARP investment approach which provides specialist quantitative analysis of the market situation to reduce the investment universe of 5,000 companies to 400 companies. They then seek to sniff out companies which are fundamentally strong and undervalued.

He uses India-based private bank Axis Bank and construction and engineering firm Larsen & Toubro as examples of the type of companies they are looking to invest in.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Nitesh » 13 Jun 2008 19:35

http://www.bloomberg.com/apps/news?pid= ... refer=home

India Inflation at 8.75%; Fastest Pace in Seven Years
By Kartik Goyal

June 13 (Bloomberg) -- India's inflation accelerated to a seven-year high on soaring commodities and energy prices, stoking speculation the central bank will increase interest rates next month.

Wholesale prices jumped 8.75 percent in the week to May 31, after gaining 8.24 percent in the previous week, the government said in a statement in New Delhi today. Economists surveyed by Bloomberg News predicted an 8.28 percent increase.

The Reserve Bank of India raised the benchmark rate to 8 percent this week, joining central banks in Brazil, China and Russia in increasing borrowing costs to combat inflation even as economic growth slows. Jet Airways (India) Ltd., the nation's largest domestic carrier, and JSW Steel Ltd. said near-record oil prices and other costs are hurting profits.

``Our profit margins have narrowed by as much as 10 percent in the past three months due to the relentless rise in input costs,'' said Sajjan Jindal, vice chairman and managing director of JSW Steel, India's third-biggest producer of the metal. ``Inflation is the biggest danger to the economy.''

India's central bank on June 4 raised its repurchase rate to a six-year high of 8 percent from 7.75 percent, after twice increasing its cash reserve ratio in April to contain inflation.

Bonds fell as faster inflation spurred speculation the central bank will raise borrowing costs next month for a second time this year. The yield on the benchmark 8.24 percent note has increased 14 basis points this week. Governor Yaga Venugopal Reddy and his colleagues are due to meet on July 29.

Repurchase Rate

``We expect the Reserve Bank to raise the repurchase rate by a further 25 basis points in the next policy meeting,'' said Tushar Poddar, an economist at Goldman Sachs Group Inc. in Mumbai. ``We also expect a further 50 basis points increase in the cash reserve ratio in the remaining of 2008.''

Surging food costs and a doubling in the price of oil in a year limit the ability of the central bankers to cushion growth, the Organization for Economic Cooperation and Development said in its June 4 report, predicting the strongest worldwide inflation this year since 2001.

India's inflation in the last week of May was the fastest since February 2001. Price gains in neighboring Pakistan accelerated to 19.3 percent in May, the highest in 30 years. Inflation in Vietnam was 25.2 percent in the same month, the fastest since 1992, and in Indonesia consumer prices jumped 10.4 percent from a year ago.

Indonesia, Vietnam

Central banks in Indonesia, the Philippines, Vietnam and Pakistan have increased borrowing costs over the last two months to tackle inflation. China, where retail sales grew in May at close to the fastest pace in nine years, raised its cash reserve requirements for lenders for the fifth time this year to 17.5 percent from June 25.

India's inflation is likely to accelerate to more than 9 percent next week, the highest in 13 years, after the government raised retail fuel prices on June 4, according to economist Sonal Varma at Lehman Brothers Holdings Inc. The changes in fuel prices will be reflected in price data due on June 20.

Crude oil prices touched an all-time high of more than $139.12 a barrel on June 6, raising concern India's import costs will jump. The South Asian nation relies on crude oil from overseas to meet three-quarters of its energy needs.

``Higher oil prices look set to weaken growth by squeezing profit margins, widening the trade deficit and reducing consumer purchasing power,'' Varma of Lehman said. ``The rate hike increases the downside risk to growth because it will raise the cost of borrowing for companies and households.''

Slower Growth

India's industrial production, which accounts for a quarter of the $912 billion economy, increased 7 percent in the month of April, slower than the 11.3 percent gain in the same month a year ago, the government said yesterday. The economy is likely to grow by 8.5 percent this year, the slowest pace in four years.

Concern that faster inflation and higher borrowing costs will slow growth, hurting profits, have led to a 25 percent decline in the Bombay Stock Exchange's Sensitive Index, or Sensex, this year. The stocks gauge was 0.4 percent or 56.4 points down at 15,193.76 at 2:31 p.m.

Higher cost of funds may force lenders like State Bank of India, the nation's largest lender, and ICICI Bank Ltd., to raise loan rates for houses and automobiles, hurting consumer demand. State Bank is scheduled to decide on lending rates today.

Record crude oil prices prompted Indian refiners to raise local jet-fuel costs by 53 percent this year, threatening profits at Jet Airways and its local rivals. SpiceJet Ltd., India's second-largest discount airline, yesterday said it will cut more routes as a surge in jet-fuel prices hurt profit.

Edible Oils

Inflation in India may accelerate further as the government may revise today's preliminary wholesale-price estimate in two months after receiving additional data. The commerce ministry today raised its inflation estimate for the week ended April 5 to 7.71 percent from 7.14 percent.

To contain inflation, Prime Minister Manmohan Singh has cut import duties on edible oils, fuels and other food items and banned the export of pulses, wheat, rice and cement. Inflation is likely to ease in six to eight weeks time, according to the government.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Nitesh » 13 Jun 2008 19:37

http://www.atimes.com/atimes/China/JF14Ad01.html

Asia's awesome threesome
Rivals by Bill Emmott
Reviewed by Sreeram Chaulia

For the first time in history, three great powers - China, India, and Japan - coexist uneasily in Asia. Lacking natural compatibility, all three are beefing up their militaries with consciousness of one another as a prime motive. Just as Pakistan is not the main concern for Indian strategists, China's rising defense expenditures can no longer be explained in the traditional straitjacket of Taiwan.

While Asian sovereign wealth funds are attempting to acquire Western assets, financial capture of a Japanese or Indian company by a Chinese state-owned firm is inconceivable. This is because the three regional powers are prone to suspicions and jealousies in a highly competitive strategic environment.

In his new book Rivals, Bill Emmott, a former editor of The Economist, argues that friendship among Asia's awesome threesome is "only skin-deep" and examines the consequences of their rivalry for the world. Emmott's thesis is that internal changes like the experience of economic growth, awareness of increased strength and pressures of public opinion will affect how India, China, and Japan size up each other and the West in a "new power game" (p 9).

Sadly, this preoccupation with domestic issues leads to lengthy assessments of each country's internal affairs that are not fully relevant to the book's theme of inter-state rivalry. Trapped in the shopworn modernization paradigm of "disruptive transformation" inside each society, Emmott misses slices of the larger geopolitical canvas on which Asia's power struggles are being played out.

The book begins with the accelerating commercial links that are integrating Asia like never before. In the immediate post-war and post-colonial decades, economic exchanges from Japan in the east to India in the west barely existed. Yet, today, the Asia that never had a single dominant culture has "a unifying religion: money and the ambition of economic development" (p 33). Multinational corporations now treat the region as a single economic space and as a "tightly connected pan-national supply chain" (p 42). In the security realm, though, Asia is not quite a collective entity, as shown by the absence of unifying regional institutions.

Emmott's survey of China's strengths and weaknesses leads to the inference that it will be an "awkward neighbor" for India and Japan. Beijing's "smile diplomacy" to assure that its rise should not be feared has few takers in New Delhi due to the former's provocative behavior on the bilateral border dispute. Chinese naval encroachments in the Indian Ocean to secure the "safety of sea lanes" is seen by Indian strategic elites as a strategy of "concirclement". China's military spending is more than double that of India's and roughly the same as that of Japan, which is a far richer country. Emmott portrays China and India as participants in a "strategic insurance policy race" (p 256) that is based on enhancement of respective military capabilities.

At present, the Chinese state does not tax farmers or urban households heavily. However, as expectations for a substantial social security system increase, the Communist Party will need to broaden the tax base and risk demands for democratic representation. Emmott predicts that a serious protracted economic downturn could cause a drop in corporate tax revenues and force the party to introduce "some form of electoral democracy, while ensuring that its substance remains suppressed" (p 85).

The author does not tackle the matter of how domestic regime change in China might go on to impact relations with India and Japan. He assumes that a more open China will be less threatening to the other two Asian powerhouses, although the historical evidence suggests that even if the Kuomintang had won the Chinese civil war and established democracy in the mainland, China would have posed the same strategic threats to India and Japan. Emmott fails to properly evaluate Chinese hyper-nationalism, which shows no sign of abating, even if democracy arrived.

Moving to Japan, Emmott warns against writing it off as a spent force. Five years of continuous economic growth and a new assertiveness in international relations have brought Japan back into the reckoning. The bottlenecks it faces are an aging and shrinking population and ensuing extra-budgetary burdens. Mounting labor costs will be a difficult proposition for the Japanese economy to cope with. Emmott is still hopeful that scarce labor will "provide a new source of discipline to Japanese companies to become more efficient and profitable" (p 115).

Japanese willingness to face up to China underscores Tokyo's "anxiety to involve India in regional affairs" (p 96). A Japan in relative decline, with expected annual gross domestic product (GDP)growth rates of only 1.4% for the next five years, will have "little chance of standing tall and strong alongside China" (p 106). It is in this context that Tokyo and New Delhi are growing closer through "economic partnership agreements" and joint military exercises, which Emmott labels "sensible precautions" against Chinese ascent (p 120).

On India, Emmott credits the momentum that has built up thanks to consistent public policy, regardless of which political party is in power. All Indian governments of the past 15 years have continued economic reforms, moved closer to the United States and deepened engagement in East and Southeast Asia. As India attains global standards of economic growth, it can no longer be overlooked or treated with contempt, as China did in the past. Emmott sees promise in the sharp rise in India's levels of savings (32% of GDP), investment (34% of GDP) and manufacturing sector performance.

On infrastructure, India pales in comparison to China but is improving nevertheless. India ranks well below even its South Asian neighbors on the ease with which business can be transacted and contracts enforced. Except for English language proficiency and an advanced service sector, "India comes up short on almost every measure in comparison with China" (p 149).

Yet, in spite of the frustrations with India's wobbly progress, "more is being done than in the past and things are still getting better" (p 145). For India to march ahead, Emmott advocates meaningful free trade agreements with ASEAN (Association of Southeast Asian Nations) or all members of the East Asia Summit, and faster cross-border trade liberalization with South Asian neighbors that is spearheaded by provincial governments rather than the central government in Delhi.

Emmott devotes one chapter to the environmental degradation facing rapidly industrializing China and India. He presents Japan as a role model to emulate for cleaning up the smoggy and muddied Chinese and Indian skies and waters. A combination of popular protests and the "oil shock"-induced switch away from heavy industry to electronics and high-tech gadgetry helped Japan become a more salubrious country in the 1970s.

China's lack of democracy and independent judiciary, however, leave environmental improvement entirely in the hands of a central government that is beholden to business interests. In a system where promotions and careers of local officials depend on economic growth quotas, environmental law enforcement has a dubious future.

The only way local bureaucrats will change their priorities is if a post-Kyoto deal on global warming is signed by China and applied as external pressure on the mandarins. As to India, New Delhi could be persuaded to join a post-Kyoto treaty if Japan provides financial compensation and discounted technological assistance on pollution control. Such an offer would also present Tokyo "yet another way to balance China's rise" (p 182).

The later chapters of Emmott's book highlight old animosities among China, Japan and India, which are worsening in spite of the continent's economic integration. Heavily politicized interpretations of history endlessly muddle Sino-Japanese relations. As Chinese and Japanese great power ambitions "well up all over the region", flashpoints that look resolvable on paper simmer on (p 213). The biggest risk lies in the East China Sea, where Chinese "gunboat diplomacy" over disputed islands and marine resources has raised Japanese hackles. Chinese claims over parts of North Korea (the "Koguryo Kingdom") ring alarms in Japan, which does not want a Chinese dagger pointing in its direction from the Korean Peninsula.

Sino-Indian quarrels over Aksai Chin and Arunachal Pradesh have stabilized with time, but risk re-ignition should unrest break out in Tibet during a period of weak Chinese central government. The absence of strategic communication lines among China, India, and Japan holds prospects of misunderstandings and miscalculations in crises. Emmott recommends conversion of the East Asia Summit into "Asia's principal political and economic forum", through which regular dialogue among all three major powers is institutionalized (p 272).

Emmott's final chapter is a hodgepodge of unsubstantiated remarks and scenarios. He argues against factual reality that a rapid rise in oil prices would not hurt economic growth in rich, consuming countries. He claims that terrorism and political tension have remained distant from the main arenas of Asian growth, trade and investment between 2003 and 2007, notwithstanding the massive economic costs India has endured from jihadi terrorism. Emmott seems to want readers to believe that India escaped terrorism and that this enabled it to grow economically. He could have done better by offering an explanation of how India managed to grow despite being buffeted with terrorism.

Apart from the general deficiency of reading like a collection of Economist Intelligence Unit country reports, Emmott's book sits on the flawed premise that China, India and Japan are all "grinding up against each other and each is suspicious of the others' moves" (p 253). How can India and Japan be rivals in any sense? Asia is actually beset by two dyadic rivalries, that is, China versus India and China versus Japan. Emmott's concept of a triangular contest is imaginary and illogical. Occasionally, he does broach the possibility of Japan and India "ganging up together against China" (p 263), but fails to unravel the mystery of why such an alignment is taking so long to germinate.

Emmott's yen for futurology yields interesting speculations on what might happen after the deaths of Kim Jong-il in North Korea or the exiled Tibetan spiritual leader, the Dalai Lama, but he bypasses the impact of Russian-American tensions on how Asia's "Big Three" relate to each other.

The author's Western lenses, trained to accept the US as the sole stabilizer in Asia, are blind to the meaning of Russian renaissance for Asia's power balance. His faith in the US and the European Union to bring about peaceful change in Asia overlooks two vital puzzles: How will the emerging Russian-Chinese entente affect traditionally strong Russian-Indian ties and and how does the Moscow card impinge on the cagey Sino-Indian relationship?

By the end of the book, one is left wondering whether geopolitics matters at all or if the "new Asian drama" can largely be explained by rating the economic growth prospects of its protagonists. A consultancy style comparative stocktaking of the Indian, Chinese and Japanese economies and polities differs from a study of the diplomatic maneuvering among the three states along with two other players - the United States and Russia. Emmott's disappointing fare tries to do a bit of both and falls short.

Rivals. How the Power Struggle Between China, India and Japan will Shape our Next Decade by Bill Emmott, Allen Lane, London, 2008. ISBN: 9781846140099. Price: US$26, 314 pages.


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