Indian Economy: News and Discussion (Jan 1 2010)

[Aditya_V]

IFRS, GST, DTC - India Inc has an alphabet soup of laws coming.

well altest this will keep poor abduls in big 4 audit firms earn a paycheck

[ShivaS]

Speculative (is the answer)

[Prem]

Economist Blows Up Indian Stocks Theory
http://online.wsj.com/article/SB1000142 ... 56334.html

He looks at three main factors to derive the fundamental or intrinsic value of Indian stocks—corporate capital stock, i.e., total assets of companies, after-tax cash flows of companies, and net corporate debt. The cash flows help Mr. Mehra estimate "intangible capital," which he says has contributed vastly to increasing the value of Indian companies over the past two decades. Intangible capital is essentially everything that contributes to the company's bottom line but typically can't be seen or touched. This includes things like a company's brand, research and development, and scientific knowledge. For instance, consider soft drink-maker Coca-Cola Co. Its product is basically just water and sugar plus that special formula, but the value and profits of the company are derived from the Coca Cola brand. This brand value is Coca Cola's intangible capital.Accounting for intangible capital in valuing stocks is an "innovation of the study," says Prof. Mehra.
What does all this mean for investors?
Mr. Mehra expects Indian companies' intangible capital and the economy to keep growing rapidly for many years. That, in turn, will help Indian stocks to rise, making them a good investment especially for young people saving for retirement. "Buying stocks is buying the productive capacity of the world," says Mr. Mehra.Mr. Mehra cautions that his research doesn't account for short-term movements in the stock market, so he can't predict where stocks will be over the next year or two.

[Suraj]

Apr-June fiscal deficit falls 68% to Rs.40K crore

The Centre's fiscal deficit fell by 68 per cent to Rs 40,196 crore during the April-June period year-on-year, on increased revenue receipts from the auction of 3G spectrum.

The fiscal deficit, which represents excess government expenditure over its revenue, for the first quarter of the previous year was Rs 1,24,302 crore. The major fall in fiscal deficit comes from a significant hike in revenue receipt of the Union government, which saw a rise of 178 per cent to Rs 1,99,810 crore in the quarter.

The additional Rs 1,27,815 crore that the government collected this quarter, as compared to the year-ago period, comes mainly from non-tax revenue -- at Rs 1,15,816 crore.

Towards the end of the quarter, the government had collected a sum of over Rs 1.06 lakh crore through the sale of spectrum for both 3G and Broadband Wireless Access (BWA) against the budget target of Rs 35,000 crore.

The first quarter fiscal deficit represents a mere 10.5 per cent of the budget estimate of Rs 3,81,408 crore for 2010-11, whereas the deficit in the year-ago period accounted for 31 per cent of the year's estimate of Rs 4,00,996 crore.

Reining in fiscal deficit assumes importance as stimulus measures provided by the government since late 2008 had disturbed targets. Against the target of a mere 3 per cent mandated by a Central legislation, fiscal deficit more than doubled to over 6 per cent of the GDP during 2008-09. Last fiscal, it further rose to over 6.5 per cent.

Food Security Law to cost $23 billion

India's proposed food security act could nearly double its food subsidy bill from targeted levels, according to a statement given by Agriculture Minister Sharad Pawar in parliament on Friday.

Pawar said the cost of the new welfare scheme could be between Rs 76,720 crore ($16.5 billion) and 1.07 lakh crore ($23 billion). The budget target for food subsidies for the fiscal year to end March 2011 is Rs 55,578 crore.

SEZs to retain tax benefits, with riders

Units located in special economic zones (SEZ) are likely to retain the income tax concessions even after introduction of the Direct Taxes Code. A compromise is being worked out by the commerce and revenue departments, though a continuation of the tax dispensation will come with certain riders for units in the duty-free enclaves as well as SEZ developers.

The riders would be in the form of amendments to the SEZ Policy, which the ministry of commerce and industry is currently working on. The government is contemplating the introduction of certain eligibility criteria for the units to obtain the tax concessions.

For instance, cases which have got more than a year extension, over and above the mandated three years to begin their work, are likely to be disqualified for the tax concessions. Also, those units that have failed to earn the required net foreign exchange (NFE) within the stipulated time would not be eligible for the tax holiday.

The provision to discontinue the tax benefits has resulted in severe backlash from the developers, as well as companies who have already put in large amount of investments into the projects, which have a large gestation period. An SEZ project, once approved, is given three years to start operations. It can also get extension for not more than one year to finish the work, after permission from the Board of Approval (BoA).

PM drives push to boost farm growth

A sub-committee on agriculture, appointed by the Prime Minister’s Council on Trade and Industry, met for the first time and decided to come up with a plan to achieve higher growth in the agriculture sector through public sector involvement.

The country’s average farm growth in the first three years of the 11th Five-Year Plan period (2007-12) has been only 2.2 per cent, against the target of 4 per cent for the entire period. The mid-term appraisal has estimated the average growth in the sector to be around 3 per cent.

[Asit P]

I have question on the rise in food prices in India? Is this an inflationary issue or just politics? What exactly is driving this price rise?

Combination of many factors such as lower supply (owing to poor monsoon last year), hoarding etc. The good news is that food inflation has now come in single digit:

For the first time this year, food inflation shrunk to single digit at less than 10% in the week ended July 17, providing the government a much-needed shield to ward off concentrated Opposition attack in and outside Parliament over rising food and fuel prices.

Continuing its downtrend for the second week in a row, the index slid 2.8 percentage points in the week under review from 12.47% in the preceding week. If the trend continues, it will also help headline inflation to cool and ease pressure on further tightening of key rates.

http://timesofindia.indiatimes.com/busi ... 234553.cms

[Gerard]

‘India has more rich people than poor now’

For the first time ever, the number of high-income households in India has exceeded the number of low-income, the National Council of Applied Economic Research (NCAER) has estimated.

[Singha]

finally a figure on saah and biskoot. and this is just one ministry.

http://timesofindia.indiatimes.com/indi ... 214062.cms

Health ministry spent Rs 94 lakh on snacks in 2 years
PTI, Jul 25, 2010, 01.31pm IST

NEW DELHI: The Union health ministry has spent over Rs 94 lakh on snacks and bottled water during last two years, nearly eight times more than the expenses of Prime Minister's Office under the same heads.

The PMO has spent about Rs 11.77 lakh on refreshment during the 2008-09 and 2009-10, reveals an RTI reply.

Exercising his Right to Information, Hissar-based RTI activist Ramesh Verma had sought to know from different ministries the expenditure incurred on snacks and bottled water during 2008-09 and 2009-10.

The health ministry, in its reply, said it had spent Rs 49.45 lakh and Rs 44.62 lakh respectively in the "last two years on refreshment/mineral water", which adds to Rs 94.07 lakh.

The rural development ministry spent nearly Rs 41.42 lakh during the period on snacks served during meetings, the reply from the ministry said.

The water resources ministry has said that nearly Rs 20.73 lakh were spent on these heads during the period, while ministry of petroleum incurred expenses of Rs 19.5 lakh.

Ministry of consumer affairs, food and public distribution spent nearly Rs 35,000 on packaged drinking water during the period, while nearly Rs 14 lakh were spent on refreshments during the last two years.

[Akshut]

Finally dust settles wrt to the BIG number..

http://economictimes.indiatimes.com/Ind ... 243285.cms

NEW DELHI: The Indian economy would grow to USD 1.72 trillion in 2011-12, moving closer towards the USD 2 trillion mark, according to an assessment by the Prime Minister's Economic Advisory Council (PMEAC).

The country's gross domestic product (GDP) at the market and current prices was measured at USD 1.31 trillion in 2009-10 and is estimated to be USD 1.52 trillion in the current fiscal, the PMEAC said in its latest economic outlook.

Pegging the GDP growth at nine per cent, the economy would reach a level of USD 1.72 trillion in 2011-12, it said.

If the nine per cent growth trend is maintained, India would become USD two trillion economy in 2013-14 fiscal.

In the first two months of current fiscal, the industrial production recorded an annual growth of 14 per cent. "The lead indicators of service sector also suggest increased economic activity," Reserve Bank Governor D Subbarao said in the first quarter credit policy review.

If the tax reforms are implemented as planned from next fiscal, the economy would get further push.

"The gain from GST will propel the country from one-trillion dollar economy to two trillion-dollar economy in a short span of time," Finance Minister Pranab Mukherjee recently said.

Before the global economic slowdown since 2008, the Indian economy grew by over nine per cent for three years in a row from 2005-06 to 2007-08 and expansion was maintained by industry and services sectors.

[Prem]

Akshut beat me on this one but its such a great news and validate Br wisdom about Indian economy and the bench marks set up for next decade.

http://article.wn.com/view/WNAT6385874F ... B9A164108/

NEW DELHI: The Indian economy would grow to $1.72 trillion in 2011-12, moving closer towards the $2 trillion mark, according to an assessment by the Prime Minister's Economic Advisory Council (PMEAC). The country's gross domestic product (GDP) at the market and current prices was measured at $1.31 trillion in 2009-10 and is estimated to be

[Suraj]

Looks like the back of the envelope numbers I did earlier in this page are in line with the PMEAC estimates just reported - I estimated end of 2012-13, approx what the PMEAC did. Incremental annual output will soon consistently exceed $200 billion, and at some point in the mid-2010s, we may generate more incremental GDP than the combined output of SAARC neighbours. This isn't necessarily all good - it may have stability and security implications. But that is better off being discussed in the mil forum.

[Theo_Fidel]

Not to go OT but his part baffles me.

How come our neighbors see an economy growing at 9% and adding a $ Trillion to itself every 5 years and some how are not interested in a piece of the action?

Its not like we get along with Panda but we seem to have no qualms about trading with Panda and getting a piece of that action to the tune of $40 Billion recently.

Take Afghan trade for instance. What stops TSP from slapping a 50% surcharge on goods going from India to Afghanistan and vice versa. In short order it should earn them a cool $10 Billion annually. More than all the bheek that they crawl around the world for. Pay for all the F-solahs they want.

What is it about India that we have prioritized economic interest over almost everything else. Could this change?

[Neshant]

seriously doubt whether Afg has the ability to pay for anything.

[enqyoob]

‘India has more rich people than poor now’
...
For the first time ever, the number of high-income households in India has exceeded the number of low-income, the National Council of Applied Economic Research (NCAER) has estimated.

What I see is an unbroken dissing of the economies of the West firmly predicting a terminal dive, and an equally rah-rah optimism about the exponential upward prospects for the Indian economy. That is known as the MilkMaid Fable in the Panchatantra.

But now this news (I saw it too in the Indian Express) about India having more rich than poor families, is truly interesting.

So the wealth histogram has shifted so far to the right? Then again, I note that "rich" is income > Rs1.8 lakh, and "poor" is below Rs. 40K. This is a far cry from the fabled 20lakh salaries of the EyeTee DOOs and the 35lakh-plus of the CEO tribes.

Is purchasing power so much greater in India that a family making $4000 per year is "rich"? Maybe in 1975 it was, but the rupee bought $0.2 then, as opposed to $0.02 now.

Anyway, what is the point of defining "rich" and "poor" based on income? What about Net Worth? In fact, there the "rich" boundary on the histogram may be over 1 crore, given the astronomical cost of real estate.

So let's see - can a "rich" Indian family (Rs. 1.8 lakh income per year) really afford to live in an Indian metropolis? I think the answer is depressing, and it says a lot about those who created the break points on the historgram.

In 2004, the "India Shining" slogan was roundly rejected by voters who asked: "For whom"?

So I have to ask where this "feel-good" statistic came from - it sounds like something the CBI might say, since it seems today to be the Official Spokesdummy of the GOI. Are elections approaching or what?

Added: Have they actually put out the histogram? did they completely omit the families making, say, less than Rs. 1000 in a year? Are those people not Indian citizens?

[Prem]

http://www.livemint.com/2010/08/0120485 ... l?atype=tp
New projects worth record Rs6.5 trillion this year

According to data from the Centre for Monitoring Indian Economy’s capex (capital expenditure) service, the industry is expected to commission fresh projects worth Rs6.5 trillion in 2010-11, the highest in a single year. That compares with Rs3.7 trillion of projects last year.In April and May alone, some Rs1.7 trillion of projects were commissioned in the power sector and Rs60,000 crore in the steel sector, it said in its June economy review report.“The domestic economy is in a better shape. Disposable personal incomes are rising and a genuine capex cycle is under way,” said Abhay Laijawala, head of research at Deutsche Equities India Pvt. Ltd.Going by the estimate of the Reserve Bank of India (RBI), the Indian economy is expected to expand at least 8.5% this fiscal. As RBI’s recent review of the economy puts it, “overall, private consumption and investment demand would be the two major drivers of growth during 2010-11. Production trends in capital goods point to continuation of the strong investment activities in the near-term.”

[Prem]

India manufacturing output rose for 16th consecutive month in July
The seasonally adjusted HSBC Purchasing Managers’ Index (PMI) – a headline index designed to measure the overall health of the manufacturing sector in India – climbed fractionally in July to 57.6, after slipping to 57.3 in June. The rise in the index signaled a faster improvement in operating conditions across India’s manufacturing industry.Indian manufacturers raised output during July, extending the current sequence of growth to 16 months. The latest expansion was sharp and the most pronounced since March, with one-third of respondents noting a rise.
Supporting higher activity levels was another substantial inflow of new business. Despite a noticeable acceleration in new export order growth since June, data continued to imply that domestic demand was stronger than foreign demand. Panelists commented on an improved economic environment, successful advertising campaigns and reputations for high-quality goods.

http://www.reliableplant.com/Read/25830 ... utput-rose

[SwamyG]

What is it about India that we have prioritized economic interest over almost everything else. Could this change?

I think it is MMS. His focus is heavily on the economy. One reason why I think he should have been Minister of Finance and not PM of India. I wish Pranab and he would trade their jobs.

[Suraj]

What is it about India that we have prioritized economic interest over almost everything else. Could this change ?

I would hope not. If anything, I see it as a reflection of the fact that the economic reforms have popular support to the exclusion of a lot else, including the security and strategic issues we discuss on BR.

There are hundreds of millions of people in India who neither know of, nor care about, cashmere, aksai chin etc. They want their basic needs sated first. If you want a strategically aware and motivated population, the first step is to give them all their basic needs and a decent modern standard of living (not OECD level, but at least solidly middle-income country territory), and then some. The second step is to then tell them these newly earned standard of living is under threat from external threats, whether military or from the existing western capitalist system.

Until that time, keep a low profile, avoid loss of territory and strategic space, bide your time, and focus on year after year of 9% GDP growth.

[Prem]

What is it about India that we have prioritized economic interest over almost everything else. Could this change?

I think it is MMS. His focus is heavily on the economy. One reason why I think he should have been Minister of Finance and not PM of India. I wish Pranab and he would trade their jobs.

Gawd forbid, national security could have been worst If P was PM.
Anyway , we should expand strategically onlee after having all the cards in hand and with minimum internal disturbance.

[SwamyG]

Suraj: The American population, whose standard of living is one of the best in this World, yet are not strategically aware and motivated, no? Why haven't the American leaders been able to talk straight to their people and talk about its strategic interests?

[Suraj]

Of course they are - they fought and finished on the winning side in two world wars and the Cold War. Both were a period when they were building their might, not having entirely taken over as the primary global superpower. Their behavior after this period is not related to what I mentioned.

My own case above is similar to the progression of Chinese nationalism - subdued during the earlier years of economic development, but more overt now, when they have enormous economic clout and rising personal wealth, and the desire to perpetuate it.

[Prasad]

Wouldn't the population also think why rock the boat when we've been through so much to get this far? Why risk war and misery after struggling so much to get to this level? Just wondering.

[nachiket]

Wouldn't the population also think why rock the boat when we've been through so much to get this far? Why risk war and misery after struggling so much to get to this level? Just wondering.

To some extent. But the threat of losing everything you have would be a more powerful motivator. For that to happen the common people must actually have something substantial to protect and they need time to think about such things rather than having to struggle 24X7 to put food on the table. Once that happens nobody will let the government score one own goal after another against our mortal enemy and get away with it.

[Suraj]

Interesting tug-of-war between FinMin and RBI on the broad contours of growth-targeting (former) vs inflation-targeting (latter) stances - the former is trying to create a separate Financial Stability and Development Council (FSDC), which RBI asserts must be under its authority. I'll try to find out more about what the stated goal of the FSDC is, since it would give a better idea why RBI opposes it being under the FinMin's ambit.
RBI wants super regulator status

The Reserve Bank of India (RBI) has shown a red flag to the finance ministry on the proposed Financial Stability and Development Council (FSDC).

The central bank has said the proposed FSDC should not try to be a super regulator but rather confine itself to financial literacy and inclusion. This is the second time in less than a month that RBI has objected to a government proposal. Last month, the central bank had opposed the Ordinance that, among other things, provided for the establishment of a committee to resolve regulatory disputes on hybrid financial products.

The latest letter was in response to a discussion paper from the finance ministry on FSDC. In this, RBI has also made a case for being designated the “systemic regulator”, a role it has already been performing. Mint Road is of the opinion that the central bank, being the monetary policy authority and the lender of last resort in the country, ideally placed to perform that role. It feels the responsibility for financial stability and macro-prudential regulation of the financial sector should “vest explicitly” with RBI.

The government’s proposal clearly impinges on regulatory autonomy and flexibility and would affect the ability of sectoral regulators to act in a timely manner, RBI has said.

RBI has also suggested that instead of the finance minister heading FSDC, it should operate through an empowered committee to be chaired by the RBI governor, with other regulators and the finance secretary as members. The government’s discussion paper suggested FSDC have two committees — the one on regulatory coordination be chaired by the RBI governor and the other, on financial stability, be headed by the finance secretary.

RBI also says the proposal, in its present form, exceeds the remit of the council envisaged in the Budget. “The proposed role focuses on a developmental agenda and carries with it the risk of dissipated focus on issues related to financial stability and systemic risk. This is also not in line with the role of similar councils/commissions for financial stability conceived internationally in countries where significant failure of micro and macro prudential supervision has been perceived,” it said.

Less than a month ago, RBI had opposed the Ordinance which sought to establish a joint committee on regulatory disputes. Following its opposition, the government was forced to make amendments to the proposal when the Bill to replace the Ordinance was introduced in the Parliament last week.

More on manufacturing data for July:
India's Manufacturing Growth Accelerated In July

India’s manufacturing growth accelerated in July, increasing pressure on the central bank to raise interest rates. Bond yields touched a three-month high.

The Purchasing Managers’ Index rose to 57.6 from 57.3 in June, HSBC Holdings Plc and Markit Economics said in an emailed statement today. A reading above 50 indicates expansion.

The data, along with rising bank credit and automobile sales, adds to evidence of strengthening consumer demand in Asia’s largest economy after Japan and China. Reserve Bank of India Governor Duvvuri Subbarao last week increased rates for the fourth time in five months and pointed to capacity constraints building up in industries.

“The economy was given another leg up in July as new orders continued to pour in,” said Frederic Neumann, a Hong Kong-based economist at HSBC Holdings. “The central bank will need to apply the brakes more forcefully and dampen demand with further interest-rate hikes.”

[Neshant]

Interesting tug-of-war between FinMin and RBI on the broad contours of growth-targeting (former) vs inflation-targeting (latter) stances - the former is trying to create a separate Financial Stability and Development Council (FSDC), which RBI asserts must be under its authority

No matter what committee is created, none will be effective in predicting a crisis until it has engulfed the system. That is because the system itself is based on the fraud of debasing money.

[vera_k]

The Reserve Bank of Stagflation

Article predicts imminent stagflation triggered by runaway inflation that is eroding consumer spending. Google with the title to read.

[Suraj]

Bad article. No description of what's driving primary goods inflation (lack of supply side investment and agricultural sector reforms, which the PMO is directly pushing to address now). No explanation of how growth could fall so much when both current growth and savings/investment metrics indicate far higher sustained growth in the next few years. No substance = not worth taking seriously.

[SwamyG]

^^^
LoL. And just think she is head of emerging markets analysts in Lombard.

[Sanjay M]

^^^ India is always a "nation of tomorrow" - everybody keeps banking on "future growth" rather than on achieved growth. No wonder so many Indians already tout their country as a "superpower" - as if projections are somehow guaranteed and in the bag.

With decades of foot-dragging, it's not clear that fundamental supply side constraints will be overcome anytime in the near or medium term future.

[Nihat]

I assume that in supply side constrains you are only speaking in refrence to Agricultural products?

[vera_k]

No, there must be supply side constraints in other areas. Take real estate for example.

[svinayak]

http://www.bloomberg.com/news/2010-07-2 ... -says.html

Goldman-Backed India Bourse May Seek Anchor Investor
By Madelene Pearson - Jul 28, 2010 11:36 PM PDT
Email Share Print
India’s National Commodity & Derivatives Exchange Ltd., partly owned by Goldman Sachs Group Inc., is considering taking an anchor investor, Chief Executive Officer R. Ramaseshan said.

“We are keeping that option open and we are actively looking at what could be the contribution of an anchor investor,” he said in an interview in Mumbai yesterday. “There’s nothing conclusive at this point in time.”

Buying a stake in a commodity bourse in India, the top user of gold and the second-biggest grower of wheat and rice, will let an investor tap a market where turnover is forecast by the industry regulator to rise 20 percent in the year to March 31 from 77.65 trillion rupees ($1.7 trillion) a year earlier. NYSE Euronext, Bank of America Merrill Lynch and Fidelity International are among holders in the Multi Commodity Exchange of India Ltd., the nation’s largest such exchange.

Jaypee Capital Services Ltd., a financial services company in New Delhi, is considering acquiring a stake, Ramaseshan said, adding that the exchange isn’t necessarily talking with Jaypee about it being an anchor investor.

“That issue is wide open at this point of time,” he said.

Jaypee Managing Director Gaurav Arora confirmed talks with the exchange by phone from Delhi. He declined to provide details.

Turnover on commodity bourses in India jumped 57 percent to 24.6 trillion rupees in the quarter ended June 30, the regulator Forward Markets Commission said on its website July 7.

The National Commodity & Derivatives Exchange had a daily average turnover of 27 billion rupees in the three months ended June, up from 22 billion rupees a year ago, Ramaseshan said.

Stakeholders

Goldman Sachs, Intercontinental Exchange Inc. and Shree Renuka Sugars Ltd., India’s biggest refiner, each hold a 4 percent stake in NCDEX, according to the exchange’s website.

Indian rules allows an anchor investor to hold as much as 26 percent in a commodity exchange. Ownership by foreign funds has been capped at 5 percent for a single investor.

The National Stock Exchange of India Ltd., which holds 15 percent in the National Commodity exchange, needs to lower the stake to 5 percent by the year end, according to amended rules published this month by the regulator.

“The National Stock Exchange as a shareholder will have to take a call on how they will go about it,” said Ramaseshan. “ NCDEX as an exchange is watched by others, so I am sure there should be interest,” in the stake, he said.

Life Insurance Corp. of India and the National Bank for Agriculture and Rural Development each own 15 percent of NCDEX. Crisil Ltd., a unit of Standard & Poor’s, and Indian Farmers Fertiliser Cooperative Ltd., each hold 12 percent, according to the exchange’s website.

[Suraj]

http://www.bloomberg.com/news/2010-07-2 ... -says.html

Turnover on commodity bourses in India jumped 57 percent to 24.6 trillion rupees in the quarter ended June 30, the regulator Forward Markets Commission said on its website July 7.

April-June quarter turnover of Rs.24.6 trillion = $530 billion

Therefore annual commodity market turnover is around $2.15 trillion, probably more (say around $2.3 trillion), assuming commodity trading patterns follow similar seasonal trends as GDP, where the April-June quarter is the quietest and smallest contributor to annual output.

It's very interesting to see that MCX and the much smaller NCDEX mentioned here, have increased their turnover so much - just two years ago they generated an annual turnover of approximately $1 trillion.

[svinayak]

April-June quarter turnover of Rs.24.6 trillion = $530 billion

Therefore annual commodity market turnover is around $2.15 trillion, probably more (say around $2.3 trillion), assuming commodity trading patterns follow similar seasonal trends as GDP, where the April-June quarter is the quietest and smallest contributor to annual output.

It's very interesting to see that MCX and the much smaller NCDEX mentioned here, have increased their turnover so much - just two years ago they generated an annual turnover of approximately $1 trillion.

The question is why are foreign companies owning these exchanges.
This needs to change. Indian controlled market

[Suraj]

NCDEX is not owned by Goldman Sachs; they are a minor shareholder. There are no norms that permit majority foreign holding of these bourses.

[SwamyG]

Our kiranas deserve better, including a ministry of their own by R.Vaidyanathan {a BRFite right}
I have said in this dhaaga several times on India achieving a balance between organized and unorganized sectors. The unorganized sector can be used to hedge against the organized sector. The unorganized way of doing business can stop dominoes effects and act as a cushion when the organized sector, which is globalized and sometimes in the hands of foreigners, takes a hit. The debate should not be if we need one or the other, it should be about how we effectively use both to society's advantage.

[Suraj]

Interesting article, but there's not a single mention of the word 'tax' in it. Effectively, this sector is outside formal revenue collection ambit. It's not a surprise that they're also at the mercy of various agents of the state - it's an effective tax on them. It would be interesting to know what the average kirana owner thinks about being treated as a formal taxable business entity. Also, how exactly does the 'organized sector take a hit', and how does the unorganized sector act as a hedge ?

[Rahul M]

Suraj, what kind of revenue ? most operate with trade licenses and pay sales tax/VAT.

[SwamyG]

Suraj: Chain stores is one manifestation of retail sector. Unorganized sector, or mom-n-pop stores by nature are not chain stores. The chain stores are dependent on the parent company (even if one were to take into account the franchising). They will pass both the goods and bads. There are efficiency benefits, which nobody can deny. Their financing needs and modes are different,over a period of time Conglomerates & cartels form. The organized sector rapidly can become part of a local, regional, national and international network. Having a mom-n-pop stores helps us keep the balance, the society will not place all eggs in one basket (organized or unorganized). The society will not be at the mercy of the "big guys" alone.

[Suraj]

RahulM: I'm not familiar with how the average kirana works within the financial system. Any gyan and data on how many of them record revenues, report and pay taxes, and how these are enforced ? This is not a criticism, as much as an attempt at a diagnosis: the classic symptoms - lack of access to credit, and rent-seeking state officials - point to them not being sufficiently integrated to the formal economic system, forcing them to resort to unofficial sources of capital, and interacting with formal authorities on an ad hoc basis.

SwamyG: yes I'm aware of the 'walmart effect'. But you said formal sector may take a hit. What hit is that, and how does an unorganized sector act as a cushion in such a hit ?

[SwamyG]

Suraj: Chain stores is one manifestation of retail sector. Unorganized sector, or mom-n-pop stores by nature are not chain stores. The chain stores are dependent on the parent company (even if one were to take into account the franchising). They will pass both the goods and bads. There are efficiency benefits, which nobody can deny. Their financing needs and modes are different,over a period of time Conglomerates & cartels form. The organized sector rapidly can become part of a local, regional, national and international network. Having a mom-n-pop stores helps us keep the balance, the society will not place all eggs in one basket (organized or unorganized). The society will not be at the mercy of the "big guys" alone.

For example ramifications from globalization. The retail players would depend on larger funds to grow themselves into even larger organizations. Apart from the domestic financing, foreign financing could be utilized. Apart from it, foreign corporations will strive to create stores. Britain is asking India to open up finance and retail sector even more. Here is a link that talks about fresh FDI helping retail:http://www.merinews.com/article/fdi-to- ... 7544.shtml; it is evident in the diminishing of FDI retail sector will feel the heat. A quote from the above link:

Notably, last year the organised Indian retail sector had to suffer a huge loss of 1,400 crore and around 2000 stores had to be closed down.

Here is use case of Subhiksha getting into trouble: http://knowledge.wharton.upenn.edu/indi ... cleid=4355, the article illustrates the problems, among several as 1) lack of demand 2) real estate pricing 3)Finance. This is a quote from the article

Gibson Vedamani, director of the Retailers Association of India (RAI), adds: "Like everyone else, the business groups in modern retail have been hit by the global recession by way of a credit squeeze [and a lack of] funding and working capital. The slump in real estate has been a big issue. Those who had big expansion plans had [acquired] real estate earlier at much higher prices.

This link talks about how US recession impacted Indian Real Estate and Retail: http://www.prlog.org/10207794-real-esta ... ector.html

The 'hit' is very much possible. As a society we need big and small players; it might not be the most efficient way of conducting economy/business but it is a pragmatic approach to leading life.

Shopping at a big retail store has its own ambience and experience. I am not against big retail stores in India, I welcome them as they bring enormous benefits. I do not downplay the value. Certainly not. But from the point of a country it pays to think about the risks in overly depending on any one sector.

Some more references.
1. http://retailrise.com/
2. http://retailrise.com/content/indian-re ... ail-part-i
3. There is plenty more