Indian Economy: News and Discussion (June 8 2008)

Raghav K · Post by **Raghav K** » 15 Feb 2009 09:15

g.kacha wrote:Hey guys ... what do you think will be the overall economic impact of the general election in 2009
Will it act as a minor stimulus now that a lot of money (both black and white) will make its way to the general public as political parties pump up the campaign expenses and the govt ramps up the expenditure for the purpose of conducting the elections ... (in 2004 the Govt of India spent around Rs.1000 crore comp to conduct the election)

your thoughts ...

What kind of a weird question is this?

svinayak · Post by **svinayak** » 15 Feb 2009 11:33

http://www.youtube.com/watch?v=PVlTK4Xv5N4

Larry Fink, chairman and CEO of BlackRock, says India is a an attractive investment destination.
Larry Fink, chairman and CEO of BlackRock, says India is a an attractive investment destination.

wig · Post by **wig** » 15 Feb 2009 13:18

dear raghav,
i am indian and my first name is "wig".

Singha · Post by **Singha** » 15 Feb 2009 15:01

are you from bangalore(kerala) by any chance sir?

Liu · Post by **Liu** » 15 Feb 2009 18:24

Singha wrote:I was in a interior village around 30km away from blr today. its easy to see the wealth and productivity tailing off further one gets from the highway. shops become smaller and less, bikes get replaced by cycles and walking, tractors by bulls, even health seems to improve in the more well connected villages. people were unformly decent though.

a study found per capita income in well connected villages lot more than interior ones.

I hope the yahoos in charge are continuing to pour money in more and better rural roads. has a massive downstream effect on all aspects of life.

it was pleasant to see no kids loitering around in villages, all were in schools we passed or walking back after school, neatly dressed in uniforms and some even had ties. this was in sarjapura region.

yeah, I do agree .

good Infrastructures can decrease the business cost greatly while the the business cost decide the attraction to investment.

Raghav K · Post by **Raghav K** » 16 Feb 2009 07:59

Recession will end in a year: Nobel laureate

Special Correspondent
Regulatory mechanism for the Indian economy suggested
Robert J. Aumann won the Nobel Prize in 2005

He opposes abandoning market economy policies

Bangalore: Economist and Nobel laureate Robert J. Aumann on Sunday said that the economic recession would end in India in a year or two.

Prof. Aumann, who won the Nobel Prize for his work on “Conflict and cooperation through game theory analysis” in 2005, said that a vibrant economy such as India would come out of the economic slowdown in a year or two and accelerate its growth rate.

He opposed the Union Government’s decision to provide stimulus to the economy during the recession.

As the Indian economy had integrated with the global economy, the recession had hit the domestic economy, like in other countries. There was a need to curb inflow of funds to the country and establish some form of regulatory mechanism to monitor that. Integration of financial institutions and investment of funds by them were the major factors that caused the economic downturn worldwide, he said.

http://www.hindu.com/2009/02/16/stories ... 820400.htm

Singha · Post by **Singha** » 16 Feb 2009 08:45

India's 1st rural BPO set to hire 500 more youth

It may be the hour of recession and lay-offs, but the government-run BPO is on a hiring spree. Multi-national telecom and banking companies are knocking on the doors of Fostera at Sanasandiram to outsource their help desk, loan collection, credit card processing, form-filling, insurance and editing work.

Over the next three months, Fostera (short for fostering rural technology), floated by the Krishnagiri district administration over a year ago, will hire about 500 young people from Tamil Nadu's hinterlands for monthly salaries ranging from Rs 5,000 to Rs 8,000. The BPO, which was working just one shift, is switching to three shifts a day to manage the tide of offers, says Fostera CEO MR Ashok Kumar.

Source: Times of India

Vipul · Post by **Vipul** » 16 Feb 2009 19:35

Where the Rupee comes from, and goes.

New Delhi: The major part of the government's revenue comes from borrowings. Consequently, the biggest chunk of expenditure is on interest payments.

Out of every rupee that enters the government's coffers, 29 paise is from borrowings and other debt, with corporation tax contributing 22 paise and income tax another 12 paise.Of the remaining, customs and excise duties account for 10 paise each, with another 10 paise coming from non-tax revenue. Service taxes amount to six paise, while non-debt capital receipts contribute one paise.

On the expenditure side, 20 paise of each rupee spent is on interest payments. Then another 18 paise is on central plan outlay.The central government has to give states 15 paise for their share of taxes and duties. Other non-plan expenditure accounts for 14 paise.Defence accounts for 13 paise, while subsidies on food, fertilisers and energy costs nine paise.Expenditure on state and union territory plan and non-plan assistance are seven and four paise, respectively.

Vipul · Post by **Vipul** » 16 Feb 2009 20:04

Defence gets 35% hike in budget, steepest in recent years.

Realising the need to geat up the security apparatus in the wake of Mumbai attacks, the government on Monday allocated Rs 1,41,703 crore for defence, an almost 35 per cent rise over the previous fiscal in one of the steepest hikes in recent years.

The increase, amounting to Rs 36,103 crore over last year's allocation of Rs 1,05,600 crore, is apparently intended to fund the fast-track procurement of defence equipment to plug the security gaps exposed by the November 26 attacks.

Presenting the interim budget for 2009-10 in the Lok Sabha,finance minister Pranab Mukherjee said the allocation was increased due to the prevailing security environment which had "deteriorated considerably."Noting that the Mumbai attacks had amounted to the threshold being crossed on the security front, Mukherjee said, "We are going through tough times. The Mumbai terror attacks have given an entirely new dimension to cross-border terrorism."

The nearly 35 per cent hike is substantial, particularly when compared with the increase of only 10 per cent effected in the last budget over Rs 96,000 crore allocated in 2007-08.The government also revised the total expenditure for defence for 2008-09 to Rs 1,14,600 crore, he said, pointing out that an additional Rs 9,000 crore was provided for defence expenditure during the fiscal.

Mukherjee said the increased Plan expenditure for Defence this year would be Rs 86,879 crore, an increase of Rs 13,279 crore over last year's Rs 73,600 crore.The increased Plan expenditure would include Rs 54,824 crore for capital expenditure as against Rs 41,000 crore in the revised estimates for 2008-09, he said.

The Defence Ministry had returned nearly Rs 7,000 crore as unspent money from its last year's capital outlay of Rs 48,007 crore as its plans to procure light utility helicopters and 155mm guns did not fructify.Mukherjee also said the government would provide for any additional requirement for security of the nation.

The increased allocation for defence assumes significance as the government had decided to fast track the acquisition for the armed forces following the Mumbai attacks.

The defence forces have already prepared a long list of equipment, mainly for its special forces' commandos who carry out specialised strikes including anti-terror operations, to be bought under the fast track process.After the Mumbai attacks, the government also initiated a massive revamp of the nation's security structure, which includes creation of a Coastal Command.It also approved the Coast Guard's request for purchase of fast patrol craft for securing the long-winding 7,417-km coastline.Defence minister AK Antony, South Block officials said, welcomed the increased allocation for his ministry in this year's budget.

Of the Rs 54,824 core capital expenditure allocated for 2009-10, Defence Ministry officials said about 95 per cent would be towards procurements for the Army, Navy, Air Force and the Coast Guard and the rest 5 per cent towards research and production units.

Despite the hike this year, India's defence spending is still at about 2 per cent of the GDP, compared to China's 7 per cent and Pakistan's 5 per cent.

Raghav K · Post by **Raghav K** » 16 Feb 2009 22:23

X posting from another thread.
Catastrophic Fall in 2009 Global Food Production

To understand the depth of the food Catastrophe that faces the world this year, consider the graphic below depicting countries by USD value of their agricultural output, as of 2006.

Now, consider the same graphic with the countries experiencing droughts highlighted.

On the flip side, when a nation appreciates its currency and starts consuming more of the world's resources, it leaves less for everyone else. So when china appreciates the yuan, food shortages worldwide will increase and prices everywhere else will jump upwards. As there is nothing that breeds social unrest like soaring food prices, nations around the world, from Russia, to the EU, to Saudi Arabia, to India, will sell off their foreign reserves to appreciate their currencies and reduce the cost of food imports. In response to this, China will sell even more of its reserves and so on. That is competitive currency appreciation.

http://www.globalresearch.ca/index.php? ... leId=12252

Singha · Post by **Singha** » 16 Feb 2009 22:47

the US, argentina and australia are major exporters of wheat ?
among rice producers india, china, thailand...

John Snow · Post by **John Snow** » 16 Feb 2009 22:47

Canada too
US is one off the largest producer of Rice (11th)

(for the last decade or so India has net surluss and an expoter of food grains)

Katare · Post by **Katare** » 16 Feb 2009 23:12

Vipul wrote:Defence gets 35% hike in budget, steepest in recent years.

Realising the need to geat up the security apparatus in the wake of Mumbai attacks, the government on Monday allocated Rs 1,41,703 crore for defence, an almost 35 per cent rise over the previous fiscal in one of the steepest hikes in recent years.

The increase, amounting to Rs 36,103 crore over last year's allocation of Rs 1,05,600 crore, is apparently intended to fund the fast-track procurement of defence equipment to plug the security gaps exposed by the November 26 attacks.

Presenting the interim budget for 2009-10 in the Lok Sabha,finance minister Pranab Mukherjee said the allocation was increased due to the prevailing security environment which had "deteriorated considerably."Noting that the Mumbai attacks had amounted to the threshold being crossed on the security front, Mukherjee said, "We are going through tough times. The Mumbai terror attacks have given an entirely new dimension to cross-border terrorism."

The nearly 35 per cent hike is substantial, particularly when compared with the increase of only 10 per cent effected in the last budget over Rs 96,000 crore allocated in 2007-08.The government also revised the total expenditure for defence for 2008-09 to Rs 1,14,600 crore, he said, pointing out that an additional Rs 9,000 crore was provided for defence expenditure during the fiscal.

Mukherjee said the increased Plan expenditure for Defence this year would be Rs 86,879 crore, an increase of Rs 13,279 crore over last year's Rs 73,600 crore.The increased Plan expenditure would include Rs 54,824 crore for capital expenditure as against Rs 41,000 crore in the revised estimates for 2008-09, he said.

The Defence Ministry had returned nearly Rs 7,000 crore as unspent money from its last year's capital outlay of Rs 48,007 crore as its plans to procure light utility helicopters and 155mm guns did not fructify.Mukherjee also said the government would provide for any additional requirement for security of the nation.

The increased allocation for defence assumes significance as the government had decided to fast track the acquisition for the armed forces following the Mumbai attacks.

The defence forces have already prepared a long list of equipment, mainly for its special forces' commandos who carry out specialised strikes including anti-terror operations, to be bought under the fast track process.After the Mumbai attacks, the government also initiated a massive revamp of the nation's security structure, which includes creation of a Coastal Command.It also approved the Coast Guard's request for purchase of fast patrol craft for securing the long-winding 7,417-km coastline.Defence minister AK Antony, South Block officials said, welcomed the increased allocation for his ministry in this year's budget.

Of the Rs 54,824 core capital expenditure allocated for 2009-10, Defence Ministry officials said about 95 per cent would be towards procurements for the Army, Navy, Air Force and the Coast Guard and the rest 5 per cent towards research and production units.

Despite the hike this year, India's defence spending is still at about 2 per cent of the GDP, compared to China's 7 per cent and Pakistan's 5 per cent.

Well when I saw the headline I was pleasantly surprised and excited but alas truth is that it is total bull that this govt is dishing out on defense budget. In reality defense budget has gone down this year if you discount for hyper inflation and Rs depreciation against dollar.

All the increase that they are showing is because of 6th pay commission awards and arrears for last two years.

What count is capital outlay

Last year’s capital outlay was budgeted at Rs 48K corer
Out of which only Rs 41K Corer was spend (navy's project are main culprit beside Army procurements) net loss of Rs 7 K corer

This year they have allocated Rs 54.8K Corer which is 13% more over Rs 48K corer that was budgeted last year. If you take 20% depreciation of Rs against $ since most of the capital budget is spend on importing stuff and ~10% inflation the actual capital budget has gone down.

They under budgeted pay and allowances in last years budget although they knew 6th pay commission awards would be implemented. Which forced them to over spend extra Rs16K corer on pay and allowances of that amount Rs7K corer was funded from left over capital budget and rest was the additional Rs 9K corer that they are bragging about

Most of the increase for year 2009-10 is also going for additional pay and allowances including the second installment of pay arrears.

Suraj · Post by **Suraj** » 17 Feb 2009 04:25

The government spent like there was no tomorrow during the good times, and now has to deal with the doubling of the annual fiscal deficit in the middle of the slowdown. There was a lot of scope to reduce the deficit in the last three years, which they squandered, and now have much less breathing room than they would have had:
Govt presses rewind button on FRBM

The fiscal deficit this financial year is expected to touch 6 per cent of the country’s gross domestic product (GDP) — the highest in seven years — because of falling tax collections and rising expenditure.

In 2009-10, the deficit, or the amount by which the government’s spending exceeds its revenue and interest payments, is expected to come down by half a percentage point to 5.5 per cent of GDP. The government on Monday revised downward the fiscal deficit estimate for 2007-08 to 2.7 per cent of GDP as against the earlier projection of 3.1 per cent.

The numbers do not reflect about Rs 96,000 crore worth of bonds issued to oil and fertiliser companies. If these are included, the fiscal deficit would increase to 7.8 per cent in the current financial year.

The government later clarified that from 2009-10 there would not be any off-budget items and all subsidies provided by the Centre would be in cash. Further, the government is not budgeting for any subsidy on account of sale of petroleum products in 2009-10.

The revenue deficit is estimated at 4.4 per cent of GDP in 2008-09, against the Budget estimate of 1 per cent. However, the primary deficit, defined as pure deficit as interest payments are taken out of the fiscal deficit to compute it, has moved into positive territory at 1.8 per cent of GDP. It had been in negative terrain for the previous two financial years.

The Centre is projected to borrow Rs 2,61,972 crore from the market in the current financial year, as compared with the initial projection of Rs 1,00,571 crore. This excludes short-term borrowings of Rs 57,500 crore. This is because the revised estimate of total expenditure is expected to increase by Rs 1,50,000 crore, while the total revenue receipts will fall by Rs 40,762 crore when compared with the Budget estimates of the current financial year.

About the gap of Rs 45,000 crore between the calendar of market borrowing and revised estimates for the current financial year, Economic Affairs Secretary Ashok Chawla said this would not be raised from the market, adding that the ministry was holding talks with the Reserve Bank of India on this issue. In 2009-10, the market borrowing is expected to touch Rs 3,09,000 crore.

States, which are under the fiscal deficit ceiling for using debt consolidation and relief facility set up by the 12th Finance Commission, may also get relief in terms of their fiscal deficit targets. The target was revised upwards by half a percentage point to 3.5 per cent of states’ GDP while announcing the second fiscal stimulus package in January 2009.

Capex stagnant, to go up later

The government’s budgeted allocation for capital expenditure as a share of the total expenditure will stand at 11.03 per cent in 2009-10, compared with 10.82 per cent in the current fiscal year, budget data show.

Capital expenditure is for building assets and capacities across sectors, which in turn lead to more jobs. Its share in total government spending has been falling since 2003-04, with the exception of 2007-08. Budget documents show that the proposed capital expenditure is expected to expand 7.8 per cent in 2009-10 to Rs 1,05,146 crore, from the revised estimates of Rs 97,507 in the current financial year.

However, planned capital spending proposed for 2009-10 dipped 11 per cent and stood at Rs 36,800 crore as against the revised figure of Rs 41,301 crore in the current financial year. This is the first contraction in the government’s planned capital spending since 2006-07. Budget estimates of 2009-10 show that the share of planned capital spending in total capital spending in the year is at its lowest (at about 3.86 per cent).

This was seen even as Finance Minister Pranab Mukherjee called for additional government spending in the backdrop of the economic slowdown when a new government takes over.

As seen in previous years, the highest capital expenditure for 2009-10 has been proposed for the defence services, at Rs 54,824 crore, an increase of 33.71 per cent over the revised estimate of 2008-09. Moreover, the government has proposed to spend Rs 13,179 crore in building capital assets for higher education, which is 16.2 per cent more than the revised estimate of 2008-09.

One of the highest increases in capital spending allocation was seen in the Department of Posts, for which the government sanctioned capital expenditure worth Rs 423.3 crore in 2008-09, a rise of 65.4 per cent over the revised estimate of Rs 255.6 crore in 2008-09.

Summary of infrastructure spending plans

ENERGY: The central plan outlay for energy has been increased by 16 per cent in 2009-10, against a rise of 30 per cent in the previous budget. The outlay has been increased to Rs 114,537 crore in 2009-10 from the revised estimate of Rs 98,877 crore for 2008-09. The revised estimate for energy is about 5 per cent more than the original budget estimate of Rs 93,815 crore.

TRANSPORT: The outlay for transport (including rural roads) has been increased by 10 per cent, against a rise of 22 per cent in the previous budget. From the revised estimate of Rs 78,269 crore, the outlay has been increased to Rs 86,218 crore for 2009-10. The revised estimate for transport is about 7 per cent lower than the original budget estimate of Rs 84,177 crore. About 43 per cent of this outlay is for the Railways. About 38 per cent has been set aside for roads and bridges.

TELECOM: In the case of communications, the Rs 16,680-crore central plan outlay for 2009-10 is 17.6 per cent lower than the revised estimate of Rs 20,237 crore for the current financial year. In the previous budget, the outlay had been increased by 32 per cent. It has been left to the new government to “bridge the infrastructure gap by increasing investments in infrastructure to more than 9 per cent of gross domestic product (GDP) by 2014” from about 5 per cent of GDP at present. Mukherjee, however, took credit for increasing investments in infrastructure in recent months to give the economy a growth stimulus.

“In the period from August 2008 to January 2009 alone, the government accorded approval to 37 infrastructure projects worth Rs 70,000 crore,” he said in his speech while presenting the Interim Budget. Giving details of investments in infrastructure through public-private partnership, Mukherjee said: “Fifty-four central sector infrastructure projects with a total project cost of Rs 67,700 crore have been given in-principle or final approval by the public-private partnership appraisal committee and 23 projects amounting to Rs 27,900 crore have been approved for viability gap funding in 2008-09.”

He also highlighted the government’s decision to enable India Infrastructure Finance Company Ltd (IIFCL) to “refinance 60 per cent of commercial bank loans for PPP projects in critical sectors over the next 18 months or so.” IIFCL has been authorised to raise Rs 10,000 crore for this purpose by March 2009, with a provision for raising another Rs 30,000 crore, if required. “With this, IIFCL and banks will be able to support projects involving a total investment of Rs 1,00,000 crore in infrastructure,” he added.

In urban infrastructure, the outlay for the flagship programme — Jawaharlal Nehru National Urban Renewal Mission (JNNURM) — has been hiked to Rs 11,842 crore. This is over 70 per cent more than the Rs 6,866 crore allocated for the programme in the current fiscal year. As of December 31, 2008, 386 projects amounting to Rs 39,000 crore had been sanctioned under the mission, said Mukherjee.

vina · Post by **vina** » 17 Feb 2009 08:20

Suraj wrote:The government spent like there was no tomorrow during the good times, and now has to deal with the doubling of the annual fiscal deficit in the middle of the slowdown. There was a lot of scope to reduce the deficit in the last three years, which they squandered, and now have much less breathing room than they would have had:

Ah Suraj, You finally get "religion" . Ol Vina had said this long ago, but then you were the "argumentative Indian" , who also wanted to set up a "desi" sovereign fund. I had posted long ago on what Chidambaram and the UPA were doing with the "budget of hope for best case". The ducks lined up for 3 years, now they dont. So goodbye budget, and they crash and burn!.

Anyways, to use the esteemed Rahul Mehta's words (I seriously think we should invite him back with all Honor & Dignity), AWMTA . Welcome on board the skepticism express!.

For that spinmeister N.Ram and his "interview" with MMS on the IAF 1, on the way to the US and "Keynesian stimulus" , i had warned that there was none. And yes, there is none , despite, deluded ideologues like N.Ram beating the drum on one.

Suraj · Post by **Suraj** » 17 Feb 2009 09:42

Vina, boss , I have never been a fan of UPA's fiscal profligancy even in the best of times. I just used drier prose than your inimitably emphatic style, so you probably did not notice

Rahul Mehta · Post by **Rahul Mehta** » 17 Feb 2009 17:09

vina wrote:Anyways, to use the esteemed Rahul Mehta's words (I seriously think we should invite him back with all Honor & Dignity), AWMTA . Welcome on board the skepticism express!.

I am back.

Forum Rakshaks (aka admins) have allowed me to come back.

No invitation is needed, and no need for (extra) Honor. The fact that you guys still do remember me is enough honor. And Vina, please send me royalties for using AWMTA, I badly need money now.

And dear anti-RM elements : please do not get so shocked. I wont be spending much time here. As some of you may be knowing --- I am forming a political party named as "Right To Recall PM, CM, judges" Party whose alternate names are "Right to Recall" Party and MRCM-Recall Party. MRCM stands for "Mineral Royalties (and Land Rent from GoI plots) for Citizens and Military". Remember the dreaded proposal that mineral royalties and land rent from GoI plots like IIMA, JNU, airports etc should directly go to us commons? That dreaded proposal has been DRAFTED in form an executive notification, and Party's 3rd key demand is to get sign of PM on that proposed executive notification !!

So I am busy with campaigning in cyberia (cyberia = universe outside cyberspace aka real world). Thats lives me with less time for cyberspace. So anti-RM elements will not get much pain from me on Forum. But InshaCommons, if my campaign goes well, then you might see land rent , recall etc demands in real world

.

And my thanks to Forum Rakshaks for letting me come back. And also thanks to Vina, Sandeep Mody , Singha etc for still remembering me.

.

Tanaji · Post by **Tanaji** » 17 Feb 2009 17:45

Welcome back Rahul... you were missed definitely!

durvasa · Post by **durvasa** » 17 Feb 2009 18:24

Welcome back RM,

And please pay your first monthly instalment of $3.625 million as rent to Al Gore for using Cyber real estate to promote your cause

Nayak · Post by **Nayak** » 17 Feb 2009 21:14

Every Indian to have debt of Rs 30,000 by March '10

February 17, 2009 18:47 IST
Viewed from an angle, the average debt of every Indian has been estimated to soar to about Rs 30,000 in about a year with the government Competitive economies stepping up it borrowing programme in the next fiscal to fund public expenditure and stimulate the economy.

The average debt of a citizen would nearly be equal to his 10-month income, which on an annual basis has recently been estimated at Rs 38,000 by the Central Statistical Organisation (CSO) for a population of 115.4 crore (Rs 1.15 billion).

With the government adding about Rs 3,00,000 crore (Rs 3000 billion) to the public debt annually in the last few years, the total public debt is estimated to zoom to a whooping Rs 34,06,322 crore (Rs 34.06 trillion) by March 2010, nearly double the amount recorded seven years ago.

In order to fight the impact of the global financial meltdown on the Indian economy, the government substantially increased its market borrowing programme in 2008-09.

According to budget papers, as against the target of Rs 1,00,000 crore (Rs 1 trillion), the government would end up raising Rs 2,62,000 crore (Rs 2,620 billion) during 2008-09, more than two and a half times the original estimate.

Part of the increase in borrowings can be attributed to the stimulus packages raising expenditure and reducing revenues through slashing duties.

For the next fiscal, the government has pegged the market borrowing target at over Rs 3,00,000 crore (Rs 3 trillion), which is expected to be revised upwards at the time of the regular budget in July.

India's public debt includes market borrowings, external debt and other liabilities like small savings and provident funds.

Funds raised through market borrowing programmes and issuing treasury bills account for a major portion of the public debt.

Of the total of Rs 34 lakh crore, about Rs 22.7 lakh crore will be internal debt, the amount raised through the borrowing programme.

The external debt, which comprises funds raised from multilateral and bilateral lending agencies, is expected to be about Rs 1.38 lakh crore by the end of March 2010, while the other liabilities will account for the remaining Rs 10 lakh crore.

ramana · Post by **ramana** » 17 Feb 2009 21:40

Welcome back Rahul Mehtaji!

Glad your campaign is taking off. Please do visit us when time permits.

vina · Post by **vina** » 17 Feb 2009 22:01

Suraj wrote:Vina, boss , I have never been a fan of UPA's fiscal profligancy even in the best of times. I just used drier prose than your inimitably emphatic style, so you probably did not notice

I hate to say this, with me being the old school Kangress supporter, but the BJP have it right when the ripped into the Govt on the budget.

Yes, by giving into the commies and trying to play the populist card, the govt has gone absolutely bonkers in it's spending and basically wasted the bounty of the past 3 years. This last 1 year of disastrous policy has undone all the work of the previous years.

There was no need at all to cut retail prices of petrol and diesel. They could have kept it as is. It was not an election issue and I doubt they will get even brownie points for that. They should have covered the deficit.

I fear some really bad news after the elections and have a strong suspicion that the govt is not letting us in on the full picture.

Suraj · Post by **Suraj** » 18 Feb 2009 01:12

Back in 2005-06, 2006-07 and 2007-08, when the economic survey was released together with the budget, and GoI could only reduce the fiscal deficit by ~1% per year despite massive y-o-y increases in tax revenues, it was pretty certain they'd be left holding the bag in a downcycle. There were multiple articles on the subject, rubbishing Chidambaram's claims about reducing the deficit to be nonsense, because, for one, the reductions were much too little considering the huge increase in tax revenues, and for another, increasing off-budget liabilities effectively negated the claims about the fiscal deficit.

The increase in revenue collections over the last 5 years exceeds the increase in budgeted expenditures, but not the gross expenditures (budgeted and off-budget). The entire notion of off-budget liabilities is ridiculous, and it is just as well that the procedure is being eliminated. The current administration has zero fiscal achievements to show for it, at the end of five years - deficit is essentially back to where it was in 2003-04 with or without off-budget expenditures. The global slowdown should not serve as an excuse - instead of using the good times to restore fiscal health, GoI worsened it.

Also, I'm fundamentally against three financial policies of the current administration - the entire concept of off-budget liabilities, use of cesses as opposed to formally legislated taxation measures (which in addition means the revenues go solely to centre), and the continued marginalization of states in favour of the centre when it comes to revenue sharing, despite the recommendations of the last Financial Commission in 1999-00 . For all the nickel-and-diming through additional taxation measures (e.g. the moronic tax on ATM withdrawals), all it did was support rampant spending.

The sole saving grace is the very high savings (38% of GDP) and investment (~39.5% of GDP) figures, built up from a stable public sector capital base, boosted by rapidly growing private sector investment. That is what gives us the cushion to ride this out.

SwamyG · Post by **SwamyG** » 18 Feb 2009 22:00

Apologies if this was posted here before:
Why India's Economy will Keep GrowingThe Boom From The Bottom; Isolated from world trends, India's aspiring middle will help it grow through the credit storm.
Source: Newsweek

Though it may not look it on the ground at times, India is one of the few bright spots in a global economy with decidedly dim prospects in 2009. It is forecast to grow at 5 to 6 percent this year—which is more than it averaged in the 1990s. Yes, its stock market has crashed, unemployment is spiking, swaths of the real-estate market have more than a passing resemblance to Miami Beach and it now turns out that Satyam Computer Services—one of the country's top five IT companies—has been cooking its books. But a one-off incident of fraud in the flagship IT sector won't knock the country off the rails. India boasts an unlikely growth driver all its own: legions of poor whose incomes have risen just enough in recent years to create powerful demands for basic goods and services.

The rise of India's aspiring middle—a group that lives above the poverty line but hasn't yet attained true membership in modern consumer society—is hardly a new story. But what's surprising is the resilience of this cohort, and the extent to which it has counterbalanced the global credit crisis and the slump in the global export economy of which India is a key player. In part, this is a consequence of New Delhi's past failures; policymakers were never able to make India the export powerhouse that China has become over the past three decades, so now they don't rely nearly as heavily on growth driven by demand from foreign markets.

The idea that Indian backwardness is a plus may sound absurd. But it is always easier to grow from a poor base, so the fact that India is not yet a major economy is an advantage in a downturn. Such a large population subsisting at so low an economic base is a powerful economic driver if it can be mobilized—and for India this group is proving resilient to the prevailing headwinds in the global economy. "It's kind of a self-sustaining process," says Subir Gokarn, chief economist at Crisil, the Indian arm of Standard & Poor's. "There's a huge underpenetration of most commodities and services, and you have enough people at the bottom experiencing enough of an increase in income to sustain growth."

So even as middle-class consumption wanes in India—signified by a sharp drop in auto sales, airline travel and fine-restaurant dining since mid-2008—demand for basic goods and services remains strong thanks to aspiring consumers, many still tied to the farms, who spend their rupees on essentials like soap, medicine and the shoes and clothing that they wear to work. As Gokarn puts it: "If you go back to the economic textbooks, they will tell you that the poorer you are, the stronger your propensity to consume."

The contrast with China, Asia's other economic giant, is stark. Domestic demand makes up three quarters of the Indian economy, compared with less than half for China, which is "why, relative to East Asian economies, India is somewhat insulated from the global trade slowdown," says Shankar Acharya, a former chief economic adviser to the government. Another Indian mainstay—agricultural growth—should remain steady this year, and the services sector, which now accounts for about 55 percent of India's GDP, is expected to be "more resilient" than manufacturing, says Acharya. And despite the financial crisis, the nation's IT sector managed to grow some 20 percent in 2008, according to India's National Association of Software and Services Companies, and IT firms have already extended 100,000 job offers for 2009. "China has been highly focused on the export market, while Indian businesses have been highly focused on the domestic market, and their exports have been incidental," says Saumitra Chaudhuri, chief economist at ICRA, an Indian creditratings agency affiliated with Moody's. That makes India, more than China, a master of its own destiny.

The biggest risk to India in 2009 at this point may not be the global economy but domestic politics. Prime Minister Manmohan Singh's United Progressive Alliance will see its term expire in May, and India's election rules mean that he can no longer enact any significant policies—a measure adopted to prevent incumbents from stacking the deck with populist sops. That means as much as five months of paralysis, precisely when speedy, creative action is the order of the day. Moreover, though the nemesis of Singh's Congress party—the Bharatiya Janata Party—mostly favors similar policies, a change in government would likely result in some further slowing of infrastructure projects that are already running behind schedule. And elections in India can be tricky. In the last one, the BJP-led National Democratic Alliance lost despite rapid economic growth, because poor voters rejected the BJP's campaign claims of an "India Shining."

With the light bulb flickering, Singh's Congress may face an even bigger challenge winning them over. The poor don't care how much faster than other nations India is growing, only whether their lives are better than they were five years ago.

Theo_Fidel · Post by **Theo_Fidel** » 18 Feb 2009 22:46

Suraj,

I thought we were getting better at this.

True we run a deficit more than the reported amount.

However this is much much better than in the past. There were certain times in the 80's where the deficit was well into double digits. This debt was monetized as well resulting in robust inflation, rather than the present where the government effectively sterilizes bank deposit money without excessive monetization, relatively.

Most people now agree that the revenue deficit is in the 3%-4% range. As long as our revenue deficit stays substantially lower than our GDP growth rate our debt should remain productive rather than structurally wasteful.

In fact over the past 20 years, due to the growth of the economy the debt to GDP ratio has dropped from roughly 90% to about 55%. This is far less than the USA for instance. Or Japan at 170% of GDP.

Which implies that the growth in debt is less than the nominal GDP growth at 14% or so (Not the real GPD growth), and is hence declining at a rapid clip.

John Snow · Post by **John Snow** » 18 Feb 2009 23:01

Domestic demand makes up three quarters of the Indian economy,

"Keep at a Safe distance from US" Said Spinster in 1997
(In an argument/ friendly discussion with Dr. Tim Spinster had said that the Sovereignty of India will suffer if we hold on to the coat tails of US)

Gurumurthy was not an idiot when he said Swadeshi which Mahatma Gandhi ji ( real one Gandhi I mean) said self sufficency at village level, which again was eloquently reported by Friedman...

Go Gobar Gas

Suraj · Post by **Suraj** » 18 Feb 2009 23:07

Theo, yes, the picture is less scary when seen in a long term perspective, especially compared to 20 years ago. My own view is that the current regime has gone against the letter and spirit of legislation that built the foundations of the current growth. Had there been no FRBM, with its mandated discipline helping turn around public sector savings, we'd probably not have been able to sustain the all-time high savings/GDP rate we have maintained since 2002-03 (when it hit 26% - it had never before reached that mark). Without high savings and investment/GDP , sustained fast growth is impossible. I'm also an advocate of greater devolution of fiscal authority to the states in order to let the best ones grow fast, which is why I made the Finance Commission reference.

Japan is a different market. Unlike us, they have a deep corporate bond market and a very large base of savings held in banks and the postal deposit system - around $4 trillion in just the latter. We don't have an efficient corporate bond market or even a large banking deposit base, with past instances of chronic inflation resulting in people holding enormous quantitise of gold. In our case, companies resort to bank borrowings, where they are squeezed by the government's borrowing, and the explicit SLR requirement set by law. They also have recourse to ECBs now, but in the current climate that is tough. Our private gold holdings must be $2 trillion or more. That's is a mindblowing amount of latent, unmonetized savings, but making it work is an entirely different matter.

John Snow · Post by **John Snow** » 18 Feb 2009 23:23

yes but our corporate bonds, Debentures are quite malleable by operators like Harshad, Lallo most importantly P Chidambaram of Indian Bank!

So first step is reform the rating agencies, transparent tradings, SEC with teeth and swift justice with fool proof punishment. Then People will stick their neck with Gold to market, otherwise tons of gold will be weighing down the neck!

Theo_Fidel · Post by **Theo_Fidel** » 19 Feb 2009 01:47

No doubt the FRBM sets a standard for the government to attain.

However in our situation the 3% deficit standard is unreasonably inflexible.

Almost no country in the world achieves this. The Euro zone went through extended economical paralysis because Germany, for instance, was adamant that all countries adhere to this 3% fiscal standard. It was only when Germany itself abandoned such self imposed ideological commitments that the economy began growing again.

Governments need to have the ability to spend more, esp. when the very fate of our demographic dividend hangs in the balance. We do not want to get old and remain poor. We must spend now, esp. in infrastructure and education with a certain planned recklessness.

This is unfortunately a one shot thing as I've argued here before.

The savings rate has a clear link to the rising income levels of the people. Public sector has gone from -2 to +2. while total savings have gone from 22% to 39%. The public sector change is only a small part of the equation. Even if the public sector returned to its wasteful ways the savings rate would remain at 35% or so. Barely a blip.

While public sector dis-savings has decreased it is more due to rising income levels of the people that allows them to pay more in hard cash for the public sector services. Competition too has undoubtedly helped. You don't hear demands for free electricity or water or telephone like you used to before.

Household savings have remained steady at 22% or so. So the financial + fixed assets of households are increasing at 35% per annum. This fact that our 35% savings rate is 2/3 built on domestic savings alone makes ti much more likely to be stable and long term.

As far as gold goes, it is is our form of bond protection. Knowing they have nondepreciating gold socked away allows the population to consume and buy products/service with greater confidence than they would otherwise. If you ask my relatives, they are spending their income on education and investment with little saving precisely because they have a couple of Kg of gold socked away in a bank vault.

Also much of our debt is internal and held by banks which are mostly controlled by the government. Is this not an even more stable situation than Japan? Hard to se a sell off on this one.

Suraj · Post by **Suraj** » 19 Feb 2009 02:39

Theo_Fidel wrote:We must spend now, esp. in infrastructure and education with a certain planned recklessness.

Deficit spending on infrastructure is something I wholeheartedly support. Unfortunately, the current government's interest in infrastructure appears questionable. On one hand, we have some nice new airports built through private partnerships, a vibrant telecom sector that is largely private, and some very good stretches of intercity as well as rural roads. However, we're still well behind the curve on infrastructure in general, and even the current (though interim) budget does not really emphasize capital expenditure or infrastructure spending.

Further, if the current financial framework cannot support GoI borrowing and private access to capital, the investment by the public sector will come at the cost of the private sector, rather than both doing well. That would negatively affect our savings and investment rates. The progress in instituting an effective corporate bond market has been slow, compared to the alacrity with which GoI has worked on revenue collection minutae.

While I agree that firm deficit limits are a problem in the current circumstances, I have an issue with the way GoI operates - preferring fiat cess measures, off-budget liabilities, and non-transparent Planning Commission driven policymaking. It is a hangover from past paternalism that personally rubs me the wrong way, and reminds me of how GoI has behaved similarly in other matters, e.g. the poorly communicated negotiations for the nuclear deal (but lets not go further on that tangent here!)

As far as gold goes, it is is our form of bond protection. Knowing they have nondepreciating gold socked away allows the population to consume and buy products/service with greater confidence than they would otherwise.

Agreed. But it is illiquid. However, I cannot blame the people for doing this - it will take years of coherent policymaking to build sufficient confidence not to resort to largescale private gold holding, instead of cash.

Also much of our debt is internal and held by banks which are mostly controlled by the government. Is this not an even more stable situation than Japan? Hard to se a sell off on this one.

Funny you would mention this. There was a detailed Deutsche Bank study on Indian macroeconomic conditions, and in particular, why India could grow so strongly despite what was outwardly a heavy chronic deficit situation. Other examples were quoted (Argentina, Turkey etc), who had similar deficit levels and far more significant macroeconomic uncertanities than we did. The primary difference was that our debt is largely denominated in local currency, and the government debt management system 'works', though it underlined the need for a similar mechanism for rating and selling corporate debt. Japan, I think, too has a large Yen-denominated debt , which gives them rather more stability, but their problem is demographic - their problem is not growing old before growing rich, but whether they'll remain rich when they (rather rapidly) age.

Theo_Fidel · Post by **Theo_Fidel** » 19 Feb 2009 04:34

Suraj wrote:Unfortunately, the current government's interest in infrastructure appears questionable.

Agreed, there seems to be failure of imagination and plain neta laziness clearly evident.

Suraj wrote:Further, if the current financial framework cannot support GoI borrowing and private access to capital, the investment by the public sector will come at the cost of the private sector, rather than both doing well. That would negatively affect our savings and investment rates.

Agreed as well. One caveat, there is no evidence that private sector is being squeezed out so far. But this would be a bad thing to happen.

Suraj wrote:While I agree that firm deficit limits are a problem in the current circumstances, I have an issue with the way GoI operates - preferring fiat cess measures, off-budget liabilities, and non-transparent Planning Commission driven policymaking.

I don't think this is past practice. There used to be a time the govt. did not care what the deficit was. Some governments (Charan Singh!) actually boasted about their profligacy in the cause of the common man.

The FRBM actually forces the government to resort to such subterfuges. Causing non-transparent expenditures. Talk about cause and effect.

Suraj wrote:...why India could grow so strongly despite what was outwardly a heavy chronic deficit situation. Other examples were quoted (Argentina, Turkey etc), who had similar deficit levels and far more significant macroeconomic uncertanities than we did. The primary difference was that our debt is largely denominated in local currency, and the government debt management system 'works', though it underlined the need for a similar mechanism for rating and selling corporate debt.

Considering recent turmoil, I'm actually glad this market does not exist at the moment as it probably spared us quite a bit of pain. But agreed in the long term.

Suraj · Post by **Suraj** » 19 Feb 2009 08:23

Theo_Fidel wrote:Considering recent turmoil, I'm actually glad this market does not exist at the moment as it probably spared us quite a bit of pain. But agreed in the long term.

Why is that ? Because of the western ratings agencies themselves having been exposed as questionable at effectively rating risk ? Or something else ?

In the meantime, GoI takes an innovative approach towards funding the stimulus. Instead of issuing debt paper, it plans to translate the RBI's $60 billion hoard of market stabilisation scheme holdings (obtained from sterilizing years of dollar inflows to keep the Rupee from appreciating) into government securities. In other words, GoI borrows from the RBI, who obtains the funds from the large MSS account, a manner of 'using forex reserves for infrastructure':
India to Use Stabilization Bond Fund for Spending

India plans to use cash raised from the sale of so-called stabilization bonds to help fund 450 billion rupees ($9 billion) of additional spending, Economic Affairs Secretary Ashok Chawla told Bloomberg News in New Delhi.

The conversion of the stabilization bonds into government securities may help the government avoid new debt sales. Bond yields climbed to a two-month high last week on concern rising supply will reduce demand for the securities.

Prime Minister Manmohan Singh’s government announced this week record borrowing this fiscal year and next to fund two stimulus packages as the statistics bureau forecast the slowest pace of economic growth since 2003. India raised its borrowing target by 80 percent for the year ending March 31 to 2.61 trillion rupees, excluding the extra 450 billion rupees, and said it would sell 3.62 trillion rupees of bonds in the year starting April 1.

India has sold the stabilization bonds since 2004 to prevent surplus cash in the banking system from fanning inflation.

India’s Iron-Ore Exports Rise on Higher China Demand

India’s iron-ore exports in January rose for the second straight month as China, the world’s largest consumer of the steel-making raw material, increased purchases.

Shipments rose to 13.9 million metric tons from 11.5 million tons a year earlier, the Federation of Indian Mineral Industries, a group of iron-ore miners, said in a statement today. Shipments in the 10 months ended January fell 1.5 percent, it said.

China’s plan to spend 4 trillion yuan ($586 billion) on housing, railroads and other infrastructure projects is reviving demand for steel in the country. China purchases most of its iron-ore for immediate delivery from India.

India’s iron-ore exports in December surged 38 percent, the first gain in eight months. Export prices are expected to double to $90 a ton from last year’s low of $45, R.K. Sharma, secretary general of the Federation of Indian Mineral Industries, said on Feb. 10.

RBI signals rate cuts:
Subbarao Says ‘Certainly Room’ to Cut Rates in India

India’s central bank governor Duvvuri Subbarao said there’s “certainly room” to cut interest rates as the impact of the global recession was “much sharper” than expected. Bonds rose.

Pressure to cut rates has been building on the Reserve Bank of India after Prime Minister Manmohan Singh’s coalition failed to announce any spending plans this week in an interim budget for next year. Singh left it to the next government that may be voted in by May to decide on further fiscal policy stimulus.

“This places the onus squarely on monetary policy to combat the slowdown in growth,” said Sonal Varma, a Mumbai- based economist at Nomura International Ltd. Varma expects the central bank to cut interest rates by 50 basis points by March.

India’s growth may slow to 7.1 percent in the year to March 31, the weakest pace since 2003, according to the central bank. The bank expects inflation, currently at 4.39 percent, to ease to less than 3 percent by March 31 on falling commodity prices.

Subbarao kept interest rates unchanged in the central bank’s scheduled policy review on Jan. 27 after reducing them to an unprecedented low on Jan. 2. The repurchase rate, which has been cut four times since October, is 5.5 percent and the reverse repurchase rate is 4 percent.

Najunamar · Post by **Najunamar** » 19 Feb 2009 08:40

Well, I don't know Theo_Fidel's reasons for being glad that market mechanisms similar to Massa land did not exist in India for selling Corporate debt, but I am glad for a reason not mentioned by Suraj Ga(u)ru. If what our own Rakshaks are saying about the likes of GE being levered to the tune of 140x are true, then that illustrates the pitfalls of corporates just gorging on (an illusorily)unending feast of debt. Yes, it may have kept a few legit projects from taking off but we don't have these big boom-bust cycles being fueled by such perverse incentives either (we make other mistakes - blazing our own trail!)

Rudradev · Post by **Rudradev** » 19 Feb 2009 09:25

Apologies if posted earlier/elsewhere.

Indian Dream Fading Fast
February 13, 2009 | 0756 GMT

India’s finance minister will bring down a budget on Monday, after a sudden fall in Indian’s growth rate and two quarters of contraction in industrial output. Dr. George Friedman, Stratfor’s founder, tells Colin Chapman why he does not think India is destined for greatness.

http://www.stratfor.com/podcast/2009021 ... m_fading_f

Singha · Post by **Singha** » 19 Feb 2009 09:42

*yawn*

Suraj · Post by **Suraj** » 19 Feb 2009 10:09

Najunamar wrote:If what our own Rakshaks are saying about the likes of GE being levered to the tune of 140x are true, then that illustrates the pitfalls of corporates just gorging on (an illusorily)unending feast of debt.

The overleveraged entity is not GE but GE capital, an investment banking arm they created. The corporate bond market I'm referring to are about legitimate bonds issued by a company as a source of capital, beyond equity and banking avenues. It is unrelated to the case of GE capital, and merely constitutes a "we should not do this because someone else did something else that badly fell apart". The presence or absence of a corporate bond market has little relationship with boom and bust cycles. The development of such a market would be an incremental process, taking into account local conditions, but it is an important component of a functional economic system, regardless of what's happening in the west right now.

Singha · Post by **Singha** » 19 Feb 2009 10:45

GE Money tried to get into housing loan game here, but withdrew sometime last year.

GE eco-core is a rock solid co due to its huge share of civil and military engines + power gen turbines + naval turbines. a crown jewel of the massa pantheon.

Theo_Fidel · Post by **Theo_Fidel** » 19 Feb 2009 11:30

The essential problem of a market mechanism for corporate debt is that debt can very easily be issued for the wrong purposes.

In our recent case much of the debt issued was structured to be 'sold on'.

This meant that the approach was towards packaging and rating rather than financial viability and recovery of capital.

No doubt other monsters lurk within any market mechanism for debt.

Greenspan alluded to it as much when he said that market components do not prioritize self survival.

Our immature markets would have undoubtedly sinned mightily. I shudder at what could have been the possible consequences.

Raghav K · Post by **Raghav K** » 19 Feb 2009 11:50

Suraj wrote:
Najunamar wrote:If what our own Rakshaks are saying about the likes of GE being levered to the tune of 140x are true, then that illustrates the pitfalls of corporates just gorging on (an illusorily)unending feast of debt.
The overleveraged entity is not GE but GE capital, an investment banking arm they created. The corporate bond market I'm referring to are about legitimate bonds issued by a company as a source of capital, beyond equity and banking avenues. It is unrelated to the case of GE capital, and merely constitutes a "we should not do this because someone else did something else that badly fell apart". The presence or absence of a corporate bond market has little relationship with boom and bust cycles. The development of such a market would be an incremental process, taking into account local conditions, but it is an important component of a functional economic system, regardless of what's happening in the west right now.

http://optionarmageddon.ml-implode.com/ ... ts-123108/

Suraj · Post by **Suraj** » 19 Feb 2009 12:12

Raghav: I know GE would face the consequences of the exposure that GE capital faces - I did not claim they were separate, but that the overleveraging was due to GECap dabbling in MBSs. My earlier response was in the context of the other poster's claim about GE in regard to an unrelated subject of corporate bond markets.

Theo: That's true, but it would amount to an poorly regulated bond market no different from the case of an equity market where a similarly lax regulatory framework would have essentially the same repercussions. In other words, you could apply similar arguments against the equity markets and why they ought to be shut down as well...