Indian Economy: News and Discussion (June 8 2008)

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

Post by Hari Seldon »

^^^Has to do with using the nominal rate of GDP growth and not the real rates (inflation adjusted ones). The nominal rates were in the 14-15% per annum territory all along, IIRC.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Suraj »

csharma: Please read about the difference between real GDP growth rate and nominal GDP growth rate.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Prem »

Suraj sir
Any good estimate of Indian economy if we update the Base year and add guestimated black economy ? The reaosn i ask is the numbers will give us realistic difference between ours and Chinese economy. Even 30-40% addition will make huge difference in next 6,7 years .
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Suraj »

Sorry Prem, I can't provide anything more than a guess that anyone else could also come up with. Ideally I would want to look at sectoral production data in detail and reconcile that data against CSO's metrics. However, I have not had the opportunity to do that.

Just as a clue to how much the current base year is out of date, recall the recent news about Bajaj ending scooter production, to focus on motorbikes. Well, the CSO's base year methodology assigned more weightage to scooters than to either cars or motorcycles, and in fact assigns about the same weightage to bicycles and motorcycles, in terms of economic value. Sounds realistic, right ? :)
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Hari Seldon »

Tax reform in India

Economist waxing eloquent on the GST.
An ambitious overhaul of India’s confusing hotch-potch of indirect taxes could give business a boost.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by harbans »

Suraj sir
Any good estimate of Indian economy if we update the Base year and add guestimated black economy ? The reaosn i ask is the numbers will give us realistic difference between ours and Chinese economy. Even 30-40% addition will make huge difference in next 6,7 years .
Premji, that is exactly why there is curiosity in the Chinese and Indian figures over the last decade. There is some confusion when some economists state India will be a 3 trillion USD economy by 2020. By the same yardsticks 400b to 1.3 trillion in 8-9 years for India or China's 1.3 trillion to 4.2 trillion in 7 years till now..India should be around a 5-6 trillion USD economy by 2020. So your question is indeed relevent.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Hari Seldon »

India to Remove Ambiguity on Local Banks Ownership
NEW DELHI -- India will very soon remove the prevailing ambiguity over the ownership issue of Indian banks, which is arising out of the new foreign direct investment policy, Commerce and Industry Minister Anand Sharma said Thursday.

"A final view to remove any ambiguity will be taken soon," Mr. Sharma said at a conference.

Several Indian banks--including ICICI Bank Ltd.--in which overseas investors hold a majority stake directly or indirectly, have approached the finance ministry seeking clarification on a recent policy change.

The new policy considers Indian banks, in which overseas investors hold a 51% stake and above, as foreign.

The banks were apprehensive because their future investments could attract restrictions that are imposed on foreign investors in different sectors of the economy.

The change in the policy was made on Feb. 13 by the Department of Industrial Policy and Promotion that is part of the Ministry of Commerce and Industry.

Separately, Mr. Sharma said that there is no proposal to allow foreign direct investment in multi-brand retail.

Mr. Sharma also said that the final consolidated FDI rules will be issued in two months and that these rules will be reviewed every six months.
Re the bolded part, IMHO it is proper and correct that pvt banks operating in India with a majority foreign equity ownership be classified as foreign only.

After the recent meltdown and all, it is no secret that banking is and should be declared a strategic sector and ought to be protected from foreign domination via sectoral caps, IMHO.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Prem »

Harbans ji, lets hope and assume we have close to actual 2T economy now. I will go by next 15 years or say mainating same growth till 2025 will bring us completely out of Woods (Like Tiger). :D Quadruple it twice and we get to spread love to all near a- broads even if we dont go by PPP multiplication. Idea is lets not forget our strength now.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Suraj »

GoI announces a range of reforms on the eve of the end of year holidays:
GoI in pre-Xmas reform drive
On the eve of Christmas, and a long weekend, the Union government went into an economic reforms overdrive. The Cabinet cleared proposals for public enterprise reform, while the Union ministry for commerce and industry came forward with a draft consolidated foreign direct investment (FDI) policy replacing 177 press notes and notifications. The Centre also cleared proposals strengthening copyright laws.

In a bid to further empower mega central public sector enterprises (CPSEs), the Navaratnas, and help expand their operations at the global level, the government announced a “Maharatna Scheme”.

“The Maharatnas will be given more freedom over Navratnas and will have powers to make equity investment to establish joint ventures, wholly owned subsidiaries and undertake mergers and acquisitions, in India and abroad, subject to a ceiling of 15 per cent of the net worth of the concerned CPSE in one project, limited to an absolute ceiling of Rs 5,000 crore,” Information and Broadcasting Minister Ambika Soni announced after the Cabinet meeting here today.

Soni also said the Cabinet had approved a proposal of the Human Resource Development Ministry to amend the Copyright Act, 1957. “The amendments will give clarity, remove operational difficulties and address the newer issues that have emerged in the context of digital technology and the internet.”

Indian industry hailed the new initiative taken by the government to create a consolidated FDI policy framework. According to Ficci, this would bring foreign investors under a single reference point. The chamber, however, added that the government should actively look into speeding up the pace of implementing the projects to utilise the full potential of inflow of funds. “In the absence of efficient project implementation, the pace of FDI flows could slacken in the future. Procedural reforms, particularly at the state level, are, therefore, the need of the hour,” Amit Mitra, secretary general of Ficci, said.
Core sector data for November suggests strong industrial growth in November as well, following the 10.4% IIP growth in October:
Core sector expands 5.3% in November
The country’s infrastructure sector accelerated by 5.3 per cent in November, backed primarily by growth in steel and cement production in the month.

The six core sectors, which contribute 26.7 per cent to the overall Index for Industrial Production (IIP), had grown 0.8 per cent in the corresponding month of 2008. The core sector growth in October this year was revised upwards to 3.8 per cent from an earlier estimate of 3.5 per cent.
On the GST:
GoI may miss GST deadline: FinMin
“The empowered committee of state finance ministers, headed by West Bengal Finance Minister Asim Dasgupta, is trying hard to bring about a consensus among the states…we are working together, but it may not be possible to roll out GST from April 1, 2010. But I am quite sure, it will be possible for us to introduce GST at an appropriate time,” Union Finance Minister Pranab Mukherjee said at the Industrial India Trade Fair.

He said fiscal consolidation was one of the major concerns before the government. “We cannot live with this high fiscal deficit. The Centre and states have to ensure that it (fiscal deficit) comes down and the answer lies in expanding revenue sources. We have to rationalise subsidy and enhance the revenue base,” said Mukherjee.

On fertiliser subsidy, he said: “I am in touch with the Ministry of Fertilisers on how to rationalise it, so that the subsidy reaches directly to the farmers.”

The government has set a target to bring down the fiscal deficit to 5.5 per cent of the gross domestic product (GDP) by 2010-11 and to 4 per cent by 2011-12 from the current level of 6.8 per cent.
Container freight traffic to rise 16-fold by '12
At present, containerised rail movement is limited to a penetration of about 2 per cent in the overall freight market of three billion tonnes. With Container Corporation of India Ltd (Concor) and private operators set to increase capacity by nearly 60 per cent by 2011-12, containerised cargo being moved by rail will increase to 97 million tonnes from the present six million tonnes.

With this rise, says the document, nearly six per cent of cargo presently moved via road will shift to being transported by rail. To handle the projected additional business, container rail operators plan to add 185 rakes in the next three years.

Container traffic in the country has grown at a compounded annual growth rate of 15 per cent since 1991, due to growth in external trade. Since Indian Railways opened the sector to private operators in 2005, 15 players, including Adani Logistics and Reliance Infrastructure, have entered the market. Blackstone Group recently invested Rs 300 crore in GDL to fund business expansion plans.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by csharma »

Suraj, When we say that India's GDP is 1.2 trillion dollars, then is it nominal or real?

I would assume we use real GDP all the time. If we report GDP growth rate in "real" terms, why would we report the total size of the GDP in "nominal" terms?
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Suraj »

GDP reported is nominal. GDP growth reported is real. Why ? Here's a simple example: country X has an economy solely dedicated to producing an item T that costs Rs.10 each in year N. If it produces 100 of them, its GDP in year N is Rs.1000 .

In year N+1, it produces 105 Ts. One would think growth rate is 5%. However, due to 10% inflation, every item now costs Rs.11. So its GDP is Rs.1155. The growth rate over previous year is 15.5% (nominal growth rate), even though production only grew 5% (real growth rate).

Now you can see why nominal GDP and real GDP growth rate are reported. The GDP (economic output) you see every day includes the effect of inflation; X does not transact Rs.1050 worth of goods in year N+1 but Rs.1155 worth. However, if you want to see how much the economy has grown, nominal growth rate is misleading; you can have growth on paper despite 0% growth in production. Zimbabwe would be the most dynamic economy on the planet as measured by nominal growth in local currency, but that is meaningless.

PS: There's a wealth of information on the net about basic economics, so please avoid basic questions beyond a reasonable limit. However, this issue is frequently confused by several posters, so I wanted to post the example above to illustrate the matter.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by kmkraoind »

Suraj wrote:PS: There's a wealth of information on the net about basic economics, so please avoid basic questions beyond a reasonable limit. However, this issue is frequently confused by several posters, so I wanted to post the example above to illustrate the matter.
Sir, I disagree with your statement. I have not come across any post/web page that will explain the thing in simple words/volume content than you explained. For non-economic stream people, your explanation is easily understandable, yet simple and straight forward. So please do take a little extra effort in explaining these for us.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by vina »

Cross posting from Nukkad! :eek: :eek: (where e-con-o-mix came in for some reason and will get banned pronto.. :mrgreen: )
derkonig wrote:Well all of these are commodity based stocks/funds and will remain vulnerable to wild swings in prices. Gold has already run up to irrational levels like crude did in 07-08.
Yes. That is exactly why. Because they are all commodity stocks. See, I think stocks have hit the highs /close to highs. There is not much headroom there.

Interest rates globally and in India are on their inevitable way up (irrespective of the economy and whatever happens and will be high for the next 20 years or so).

You need protection against interest rate. You cant go into bonds now precisely for that reason. Currency is a dead duck. The Fed will have to keep printing currency like crazy. AmirKhan is desperately seeking to inflate it's way out of the mess, and surely they will get it.

Gold is high relative to a few years ago. But then it is only relative. So given inflation and crash of real currency values, the only way to protect wealth is to get into commodities. Crude will be much higher in future than it is today . No escaping that. Hence from a 3+ year horizon, i would definitely do commidities from current levels.

Remember the basics/fundamentals from Macro Economics classes , with all the IS/LM graphs and everything and the difference between dealing inflation the "traditional" way of letting prices fall, vs the Keynseian way of stimulus and net result that at the end, the price levels in the Keynseian way will be higher than the start of the cycle ?. Yes. That is going to be true. Prices will settle at much higher levels (nominal ) than current. Think of it from that angle and real assets and commodities dont look that cheap
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by derkonig »

^^^^
The trouble with the developed economies & esp. unkil is that these are private consumption driven economies. So no amount of Keynesian economics or socialism will help these countries. IMHO, the massive fiscal policy based stimulus in these countries will not only fail but it shall only aggravate inflation, currency deflation, outflow of funds, etc. And given that higher taxes & high inflation is the most likely scenario, it is highly unlikely that the demand for commodities will see any significant jump.
The commodity prices are likely to see significant amount of volatility, there will be panic rallies like the one we are witnessing in gold, prices will spike, but I really doubt if they shall provide investors with superior returns over the next 3 yrs unless of course the investor times his/her exit during these panic rallies.

In fact now is the time for the USA to turn back to Reaganonomics rather than waste money on social security & healthcare. But given the 2010 is a election year in USA, Hussain O. will pander to the dhimmicrat vote bank aka welfare moochers and further $crew the economy.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by csharma »

Excellent article by Surjit Bhalla.

http://www.business-standard.com/india/ ... de/380692/

Surjit S Bhalla: India's Shining Decade
Two key conclusions emerge about Indian GDP growth. First, that this growth is now at a plateau level of 8-9 per cent. Second, that very soon, analysts and punters will have to change their Word documents to “India is the fastest growing economy in the world” rather than, “excepting China, India is the fastest growing economy”.
As you mistakenly perceive yourself, so do others. For example, the IMF comes out with “respectable” forecasts of GDP growth for China but, low ball estimates for India. (Haven’t you heard — India has 50 per cent poor, China does not have any poor). The first low attempt by the hallowed (hollow?) institution was 4.5 per cent GDP growth for 2009. Recognising the error of its ways, the IMF has revised this forecast sharply upward to 5.4 per cent. For 2010, the forecast is even higher at 6.4 per cent; presumably, that comes with an admonition that the Indian economy is overheating.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Hari Seldon »

csharma wrote:Excellent article by Surjit Bhalla.

http://www.business-standard.com/india/ ... de/380692/

Surjit S Bhalla: India's Shining Decade
Totally agree. Bhalla claims PRC's shining days have peaked, of sorts. Logic of arguments made is quite sound besides.
The IMF is in Washington, and its thinking is still respected by many government officials. But one might justifiably ask, a la the Joker, “Why so Low” for India? In a revealing contrast, the IMF forecasts for China are a lot closer to reality, and at least 3 percentage points a year higher than those for India. And here am I, ordinary mortal, daring to contend that GDP growth for India will be higher. Goliath vs David?
Chini stats are unreliable (they're exaggerated, more often than not) and so are ours (under-reported, typically). Am Ok with lowball estimates for India because apart from temporary H&D hits, the ground realities improve regardless and allow Indians to invest in their home-market based on first-hand experience of the changing realities.

Phoren factcat moneybags who go by such country reports and such and are interested in only investing hot money here and now will only raise asset prices outside the reach of our aam aadmi, I fear (happened in real estate, IMO). India's indeed better off being accessible only to those who are willing and able to commit longterm investments in India - namely Indians themselves and foreign investors in infrastructure and other long duration projects.
But the IMF is in good company — in India. We have more than a smattering of the nattering nabobs of negativity (in homage to the recently departed William Safire) to supplement the dark IMF view. Most notably, practically everybody outside of Oxus, Ministry of Finance and the Planning Commission is targeting weak GDP growth for India (should make the poverty investors at the World Bank and the UN very happy). All of this was all too apparent on November 30, when GDP growth figures for July-September 2009 were released. The official estimate for year-on-year growth: 7.9 per cent (Oxus’ seasonally adjusted annualised rate calculation: 11.5 per cent). Most forecasters (including the prestigious PM Council of Economic Advisers headed by former Governor of the central bank C Rangarajan) had an estimate of growth a full 2 percentage points lower at 6 per cent. It is not easy to get a forecast that far off. Especially interesting was the excuse made by most for getting it all wrong — Oh, the drought effects of the summer kharif crop were not factored in. But the last time the kharif crop got harvested by September was in historic cooler climes of a few hundred years ago.

This has been a structural change decade for India. Sadly, this reality hasn’t quite seeped into the psyche and mind-set of a large body of Indian policy-makers and opinionrattis. This should, will, also change in the new decade.
A structural change it has been indeed. I've tried telling that to some BRFites who've gone on to accuse India of failing her 6-700 million poor to abject poverty, malnutrition, nonsanitation and such. Sure, these things are there, but they're not forever - change is progressing slowly at present but accelerating as we speak. The numbers say so.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Sanjay M »

Why is there no thread on Foreign Investment in India?

Anyway, here's the latest:

Goldman Sachs takes 9.4% in Max India for $115 mn
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Rony »

Five Myths About India
Myth No.1: The information technology sector has been the primary driver of India's economic growth.

Notwithstanding IT's annual growth rates of 25% or more, the bulk of the recent growth in India's economy has come from manufacturing and other services. Only the manufacturing sector has the scale to create jobs for hundreds of millions of people, most with relatively limited education. If India is to realize its potential as an economic superpower, it will have to keep following China's path by becoming one of the world's factories. The IT sector gives India a good brand image, but most Indian jobs will have to come from manufacturing.
Myth No.2: India is decades behind China.

Most visitors to India and China form their impressions about these countries by comparing such cities as Mumbai, New Delhi, and Bangalore with Shanghai, Beijing, and Guangzhou. The difference between the two countries' urban centers is truly stark. China's top cities now look more modern and sleeker than New York or London. By contrast, India's premier cities are still vivid examples of the third world. Yet most people overlook the fact that, even though China is clearly ahead of India, the former looks stronger than it is while the latter is stronger than it looks.

In 2008, China's GDP was just a bit more than three times that of India. If India's GDP grows at 8% to 9% a year over the next decade—a reasonable prediction based on analyses by Goldman Sachs (GS), the U.S. National Intelligence Council, and other analysts—India's GDP in 2020 will be almost the same as China's in 2008. Of course, China would have powered ahead by then, but the fact remains that India's economy is about 12 to 14 years, not decades, behind China's. This is exactly the difference from 1978, when Deng Xiaoping launched China's reforms, to 1991, when India jumped onto a similar train.
Myth No.3: India's democratic politics will prevent a rapid build-up of the country's infrastructure.

Given its fiercely democratic political system, any Indian government will find it impossible to relocate quickly a few million people from a city's center to make way for gleaming office towers and elevated expressways. Note, however, that infrastructure consists of more than beautiful roads and buildings. It also includes ports, airports, power generation and transmission systems, telecommunications, airlines, and railways.

The only aspect of infrastructure that India's democratic politics hinders in a major way is the beautification of cities. The number of people who need to be relocated to build interstate highways, intrastate expressways, and most other infrastructure components is minimal and thus largely unconstrained by democratic politics.

From 1995 to 2007, China spent about 8.5% of GDP on infrastructure. During this period, India spent only about 4.2%. Today, though, the situation is radically different. India is currently spending about 8% of GDP on infrastructure and has plans to increase the figure to about 9%.

Ugly and crowded cities, while an eyesore, are unlikely to derail the ongoing manufacturing revolution, which needs interstate highways and intrastate expressways far more than easy-to-navigate city centers. In short, given its political system, India is more likely to become a manufacturing power long before its cities begin to look modern.
Myth No.4: Uncontrolled population growth is a major burden for India.

Notwithstanding the utter inability of India's democratic political system to impose any type of birth control policy, it is critical to remember that, as people become richer and better educated, they choose to have fewer children. Fertility rates (i.e., average births per woman) in India are declining rapidly—from 4.65 in 1980 to 3.25 in 2000, to 2.68 in 2007. A similar steep decline has occurred in the population growth rate—from 2.15% a year during the 1980s to 1.5% a year from 2000 to 2005 and 1.35% a year since then. If current trends continue, as is almost certain, fertility rates in India should drop to about 2.0 within the next 10 years, and the population's annual growth rate should fall to about 0.6% a year, similar to China's today.

In short, population growth in India is a self-correcting problem that is getting addressed on its own at a rapid rate
Myth No.5: India's education system is world class.

It would, however, be incorrect to conclude that India's education system is anywhere close to world class.

India is not just a large country but also one of the world's most diverse, with extremely high levels of income and educational disparities. The elite engineering and business schools (the Indian Institutes of Technology and the Indian Institutes of Management) are tougher to get into than Harvard or MIT and have produced a disproportionately large number of CEOs and senior executives for some of the world's biggest corporations.

Yet one cannot overlook the fact that adult literacy in India runs at only about 61%, far below the 91% figure for China, the 90% figure for Indonesia, and the 89% figure for Brazil. During the past five decades, China has placed far greater emphasis on primary and secondary education. In contrast, India has placed far greater emphasis on tertiary education. The manufacturing revolution, which is now in full swing and must continue, will need high school graduates and vocationally trained people far more than highly trained engineers and scientists. As in the U.S., transformation of the educational system and rapid upgrading of the infrastructure will be two of the most desperate needs for India's economy over the coming decade.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by SwamyG »

I have struggled to dispel "Myth 1" in my circle of NRI friends. Now I can share something from a US magazine hopefully they would believe.

Added: Forecast of Indian Economy growing at 8% is old news / history now. E&Y says India can grow 9%. It might very well be a case of rounding of decimals one way or the other or some minor correction. But 9% feels so fine than 8% :-).
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Abhijeet »

I picked up a magazine, The Week, recently that had a cover feature on "The Next 10 Years: What Awaits India and You". Most of the articles, to my disappointment, were extremely shallow, lacking any statistical backing or believable forecasts. If you believe the magazine, India is already a developed country where everyone drinks the best champagne, eats the best food from around the world, has regular botox sessions, and so on (I'm not joking). Extremely vapid.

Instead, here is my slightly more substantial wishlist for the coming decade.

1. An average real GDP growth rate of 9% per year over 2010-2019. This will put our GDP at the end of 2019 at around $2.84T, expressed in 2009 dollars, assuming our current GDP is around $1.2T in 2009 dollars. Our nominal GDP in 2019 dollars should be well over $4T.

2. Huge infrastructural development, especially in roads - including elevated, access-controlled expressways between at least our 6 major cities, and networks of intra-city expressways. It should be possible to drive from Delhi or Bombay to Chennai purely on elevated, access-controlled expressways.

3. 500-700 million broadband Internet connections.

4. 1 billion+ mobile connections. Basically, everyone who wants a mobile has one.

5. Below poverty line percentage of under 10% (I believe this is currently 26%).

6. A car market about the same size as the US, about 10 million cars per year (I know this is a stretch).

7. Most important for quality of life: local government finally starts working. Power cuts in major cities are a thing of the past, water is more dicey but generally reliable. 100% of sewage in all our major cities is treated, garbage collection is efficient, intra-city roads are well surfaced and last indefinitely rather than breaking down at the first monsoon.

8. Bombay, Chennai, Bangalore and Hyderabad all have extensive metro systems.

I believe these are all more or less achievable. What things will really hinge on is whether government in India actually starts working, or remains in its current shambolic, dysfunctional state.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by disha »

SwamyG wrote:I have struggled to dispel "Myth 1" in my circle of NRI friends. Now I can share something from a US magazine hopefully they would believe.
Some more points in your favour:

* Most of the recent NRIs are of IT-Vity types, the frog sees only their part of the well
* IT-Vity does have a larger mind share, part of it could be that in places like Cyberabad/Bengaluru the IT-Vity types became the visible icons of change, might have provided a trigger for change as well.
* Without the broader growth, there will be no growth in IT-Vity. IT-vity is a productivity enhancing tool and for that there should be some basic industr(y/ies) to exist. You can cite several here, for eg. Oil exploration, manufacturing, finance etc
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Mort Walker »

1. An average real GDP growth rate of 9% per year over 2010-2019. This will put our GDP at the end of 2019 at around $2.84T, expressed in 2009 dollars, assuming our current GDP is around $1.2T in 2009 dollars. Our nominal GDP in 2019 dollars should be well over $4T.
The basis year for the Indian GDP is 1999/2000, so the GDP of $1.2T for 2009 is actually incorrect. It is $1.5T and Suraj here can clarify this for you and once the MoF revises the basis year, expect GDP figures to jump. I expect the Indian GDP to double every 5 years. India's GDP in 2004 was $650B so doubling every 5 years is not unreasonable.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Prem »

I think 1.2T figure is from last year . This year growth will be in addition. The real kick will be in maintaining the growth for next 10-12 years .
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Suraj »

Base year is 1999-00 on paper, but for all practical purposes, is 1993-94, because both inflation (GDP deflator) and IIP are counted on the 1993-94 scale.

Check out my post from a couple of days ago, that lists the current IIP weightage basket. The relative weightages assigned to several items are significantly out of sync today, such as scooters vs cars - the production of the former has almost tapered off, while the latter is on a tear, yet the former receives greater weightage. The result is that the effect of growth in car production is understated, and decline of scooter production abnormally depresses IIP, and therefore GDP.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Abhijeet »

Mort Walker wrote:The basis year for the Indian GDP is 1999/2000, so the GDP of $1.2T for 2009 is actually incorrect. It is $1.5T and Suraj here can clarify this for you and once the MoF revises the basis year, expect GDP figures to jump.
No, that's incorrect. The $1.2T for 2009 is GDP at current prices (2009 dollars), not 1999 dollars. What you're confusing is that the IIP has not been properly updated since the 1990s, which is true. However, GDP is reported in both constant (base year 1999-00) and current (2009) prices. It's the GDP at current prices that is about Rs. 50 lakh crore, or slightly over $1 trillion (not $1.2 trillion) in 2009 dollars. Here is the link to the CSO report from earlier this year: http://www.123jump.com/economy-story/In ... Q4/33105/1. Note that the GDP at current prices is about Rs.50 lakh crore. The GDP at constant prices is considerably lower, at Rs.33 lakh crore.

You're right that actual Indian GDP may be somewhat higher than the reported figures if the IIP is properly weighted, but in the absence of any reliable information about that, I'm just going with the official figures. I just took the officially reported GDP, in current prices, as of 2009 (a slight overestimate, actually), and compounded it for the next decade. My calculation should be roughly correct.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Mort Walker »

I don't think you can compound GDP for determining future value.
If 2009 = $1.2T, then assuming 10% GDP growth per annum would give in 2019 = $3.1T.

It would probably be better to have this discussion in Rupees and leave out the currency exchange rates from calculations. If all goes well, the current decade should see growth similar to the last decade.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by neel »

There are three issues of relevance to this discussion:
  • 1. Underreporting of raw output: This is a big problem since anywhere between 20-40% of output is not reported for inclusion in CSO datasets. However, this portion is roughly static in time (i.e., people are just as likely to hide output today as they were last year); so, it does not affect growth rates or projections.

    2. Reference currency: This is only a problem if you are making projections in a sloppy manner. As long as you are consistent as to which currency you use it is not a problem. However, if you are trying to extrapolate US$ GDP based on an extrapolation of 2009PPP$ GDP, then there is a problem, since the inflation and exchange rate fluctuations have other - impossible to predict - factors.

    3. Inflation: This is the main problem. Extrapolating anything other than GDP at 2009 prices requires an estimate of inflation; one tailored to the particular currency in question.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Abhijeet »

Neel, about your points 2 and 3, expressing estimated 2019 GDP in 2009 dollars should not have any caveats? It was to avoid trying to guess the INR-USD exchange rate in 2019, or the average inflation over 2010-2019, that I only calculated real GDP in 2019 expressed in today's dollars, rather than nominal GDP in 2019.

Mort, there's no reason why GDP can't be compounded, provided you keep the required caveats in mind.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Mort Walker »

Abhijeet,

Ok if expressed in 2009 dollars, you suggest in 2019 GDP = $2.84T. I'm suggesting doubling every 5 years, and if going by CSO data, 2009 GDP = $1.2T, therefore 2019 GDP = $4.8T.

Assuming Rs <---> $ conversion rate stays the same, and assuming 5% per year inflation rate, then the 2009 dollars are in 2019: $1.2T(1.05^10) = $1.95T. Take $1.95T + $2.84T = $4.79T. So the estimates are close?
Last edited by Mort Walker on 30 Dec 2009 11:08, edited 1 time in total.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by vina »

I'm suggesting doubling every 5 years, and if going by CSO data, 2009 GDP = $1.2T, therefore 2019 GDP = $4.8T
Wont happen. You are talking about 10%+ GDP growth. More realistic is 6 to 8%. It will take closer to a decade (8 yrs or so) to double.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by vera_k »

After adding in the GDP deflator, the economy grows close to 12% every year. It's entirely possible to double in 5 years if laggard states get their act together. Gujarat is already doubling every 4.8 years.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Suraj »

Nominal GDP growth over the last five years ranged between 12.5% and 16.5%.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by amol.p »

Alang breaks a record 5,000 ships since 1982

With as many as 130 ships being broken simultaneously, the Alang ship breaking yard has crossed the milestone of dismantling 5,000 ships before the end of 2009. Since its inception in 1982, the yard has recycled 35.61 lakh light displacement tonnage (LDT).

http://economictimes.indiatimes.com/new ... 393378.cms
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Abhijeet »

To double every 5 years the economy would have to grow at about 15% nominally per year, which is possible at 9% real + 6% inflation and assuming INR-USD is constant.

However, the point is that nominal calculations are not very useful, since it is possible to have high nominal growth with low real growth and high inflation. What really matters to Indians living in India is real growth. In real terms, the economy can double every 8 years or so at a 9% rate.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Mort Walker »

I agree most people would rather give away a couple of percentage points of growth to keep inflation well below 5% per year. The idea is to get a handle on what actual GDP is. If the CSO would update the base year and accurately reflect the indicies, we may see a more clear picture.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Suraj »

Until the mid 90s, we used to face chronically high inflation (~10%) and moderate growth (3-4%). It was one of the reasons why banks were historically never very popular for deposits, and so many people chose to hold gold - it was the ultimate inflation hedge for people who were resigned to chronic inflation and slow economic growth. It also resulted in near monotonic erosion of the value of the rupee vs several currencies, e.g. USD and GBP; back in the 1950s, the exchange rate was Rs.4/$1 .

Since the 90s, we've had significantly higher growth, and progressively moderating wholesale price inflation. Government activism with respect to inflation is significantly greater, and there's a clear 'grow the pie' focus on the part of GoI that overrides the 'divide the pie' mentality that reigned for a long time. It is important to continue to buttress that mindset that we *must* grow at a minimum ~8% just to employ all the people entering the labour force.

We've had effective finance ministers in MMS, PC, Yashwant Sinha, Jaswant Singh and now Pranab. While MMS and PC get a lot of attention (positive and negative), YS and JS helped enact what I consider the single most important piece of fiscal legislation this decade - the FRBM Act. Keep in mind that we've grown far too big for major reforms to be done by grandstanding FinMins in 'dream budgets' anymore, and what matters are crucial reforms in various sectors (industrial labour law, environmental clearance, incorporation/bankruptcy/liquidation law etc) and effective implementation of frameworks like VAT and GST.

We've also had some excellent RBI governors in C Rangarajan, Bimal Jalan. YV Reddy and now D Subbarao in that period. Even their personal styles were opportune, the first two being growth-centric, YVR being the cautious fiscal disciplinarian and inflation hawk leading upto the global crisis, and since, a proactive governor in Subbarao.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Abhijeet »

I think the quickest depreciation of the rupee came after foreign exchange controls were loosened post-1991. I think till then the exchange rate was something like Rs.14/$ (with the restriction that you could only take a ridiculously low amount like $500 or so per person in a single trip abroad), and then plunged to Rs.40/$ within a few years in the 90s. If exchange controls had been lifted sooner, it's likely the rupee would have sunk to its present 40-50 range earlier.

Inflation seems to still be a huge, huge issue in India, especially food inflation.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Hari Seldon »

Inflation seems to still be a huge, huge issue in India, especially food inflation.
Had the honor of listening to Sri D Subbarao himself deliver a speech a moon or so ago. He mentioned that India has no less than 4 different inflation indices and more often than not, they would not agree. I have little doubt that the WPI tends to discount the end-use price inflation faced by most of us commoners only.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by Suraj »

Abhijeet, yes back then there were foreign exchange controls, as a result of which the market exchange rates were markedly different from the official stated rates. FERA, and subsequently FEMA, were draconian acts that were used punitively.

I don't want to discount food price inflation today, since it remains a major concern to the populace. However, it was chronically higher in the past, particularly in relative terms because nominal income was largely stagnant, while it is rising significantly today. There's a significant supply side concern in food supply; large amounts of food are wasted during distribution, and it remains an inefficient system due to the web of political patronage tied to food supply, especially to the poor.

I recall someone (Chidambaram ?) saying that agriculture has stagnant because it remains the least reformed of the three sectors. Our reforms started with the services sector, which were not too regulated, and were untaxed until recently. China, in comparison, started with agricultural and rural reforms via the TVEs.
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Re: Indian Economy: News and Discussion (June 8 2008)

Post by svinayak »

Image
Tending to India's Credibility
http://online.wsj.com/article/SB1000142 ... 67278.html


By GEETA ANAND

When an estimated $2.5 billion fraud at India's Satyam Computer Services Ltd. rocked the country's corporate credibility last year, the government brought in an outsider, Deepak Parekh, to clean up the mess.

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Dhiraj Singh for The Wall Street Journal
Deepak Parekh, who this week steps down as CEO of HDFC, says he replies to all customer complaints.
Mr. Parekh leads HDFC Group, a financial conglomerate his uncle founded in 1977 as India's first home mortgage company. Mr. Parekh, a U.K.-educated accountant, joined his uncle's business after its first year.

He became CEO in 1993, launching India's first private bank and expanding into life insurance, asset management and real estate to build an empire with assets of $92 billion.

Mr. Parekh's rise has paralleled, and helped fuel, the growth of India's middle class over the past two decades. Before HDFC started, Indians bought homes with savings or borrowed from relatives; HDFC loans allowed millions of salaried middle-class Indians to buy homes for the first time. Mr. Parekh, 65 years old, has amassed a reputation as one of India's leading thinkers on management and corporate governance.

Temporarily installed at Satyam, Mr. Parekh and a cadre of other government-appointed directors retained most of the outsourcing firm's employees and customers in the wake of the scandal, which blew open a year ago when the now-former chairman admitted he had inflated the cash balance with a fictitious $1 billion.
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