Indian Economy: News and Discussion (Jan 1 2010)

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vera_k
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by vera_k »

Is the Indian state flirting with danger?

Nice graphic showing that the expenditure/gdp ratio is back to where it was in 1991-92 and 2002-03. Going by past record, there should be a change in government coming up if a viable alternative is available.
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by joshvajohn »

Agri inflation: What can't be cured must be endured
http://www.dnaindia.com/money/report_ag ... ed_1344736

If the government allows the petrol prices to increase automatically the agri-products price will go up.

There are possibilities of allowing retail shops which are unsustainble from a long term perspective and also are corrupt that the supply never reaches the intended people below poverty line. Make the railway transport for goods at a very low prices then the cost for the movement of the goods could be reduced and possibly the prices of the goods as well. It is impossible to contain the prices at one sector while allowing another sector to increase.

Regarding swiss bank I think there is a need for pressure from Indian Government or get the CDs to bring down many political leaders (including the ruling parties) and their chief ministers' and central ministers' jobs. Anyway at one point of time the names will be out including the Indians.
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Nihat »

Posting in full because it has some vital info. on what is probably the most effective way of reducing Fiscal deficiat.

Selloff parade may fetch Rs 30,000 cr in 2010-11


THE government plans to raise about Rs 30,000 crore next financial year from stake sale in public sector firms to meet a significant part of the revenue shortfall, as it looks to bring down fiscal deficit from the 16-year high of 6.8% recorded this year.

The disinvestment department is currently working on its provisional estimates. The final figure will be sent to the finance ministry, which is preparing the Budget for 2010-11. The proposal envisages divestment of stakes in 12-15 firms in the forthcoming year. “We are suggesting a target of Rs 30,000 crore for the next fiscal,” said an official with the department.

The divestment target for next year is lower than the Rs 32,569 crore, expected to be raised this year. The year to March 2010 is seen as the best year for the government in terms of divestment proceeds.

While a final list of PSUs that will hit the market next fiscal year will be compiled only by March, the department is already firming up plans to divest stakes in Steel Authority of India (SAIL), Hindustan Copper, Manganese Ore India (MOIL) and MMTC.

Sale of stakes in SAIL and MMTC is expected to bring big money to the government, while Hindustan Copper and MOIL are expected to fetch between Rs 2,000 crore and Rs 3,000 crore.

“Ideally, only one PSU should hit the markets every month. The follow-on and initial public offers need to be spaced in such a manner that there is enough investor appetite,” the official said, requesting anonymity.

The government has already decided to defer the initial offer of Satluj Jal Vidyut Nigam to late April or early May to avoid a glut in the market. A 10% stake sale in the company is expected to fetch the government Rs 1,200 crore.

While the disinvestment department wants the government to divest its stake in the stateowned telco BSNL in the coming fiscal, it is as yet unclear whether the plan will actually fructify. Coal India is another company that could come to the market next year. The government is banking heavily on disinvestment proceeds for financing its fiscal deficit in 2010-11.

PSU IPOs fetch Rs 4,260 crore


THOUGH finance minister Pranab Mukherjee had estimated that the fiscal deficit would be reduced to 5.5% of the GDP this financial year, indications are that it could be a little higher than his estimate. The government is worried about the fiscal deficit, the amount it needs to borrow to meet excess of expenditure over its receipts, as high borrowings next year could crowd the market for funds, pushing interest rates higher.

The country’s GDP grew 6.7% in 2008-09 after recording 9%- plus growth in the three preceding years. Three stimulus packages announced by the government put the economy back on track, but pushed fiscal deficit to record levels. Barclays Capital had, in a recent report, projected that the government could earn Rs 25,000 crore next fiscal from divestments in BSNL, PowerGrid, SAIL and MMTC.

“There is an increased momentum in announcements of equity offerings in public sector units, which suggests upside risks to our estimate of fiscal divestment proceeds of Rs 25,000 crore in the next fiscal,” the report had said. The Economic Survey for 2008-09 had suggested that the government should sell a minimum 10% stake in all unlisted public sector units (PSUs), but kept disinvestment target at just Rs 25,000 crore every year.

The 2009-10 Budget had estimated that disinvestment proceeds would fetch around Rs 1,120 crore. But the government has earned Rs 4,260 crore from initial public offers of NHPC and Oil India. The recent follow-on public offer (FPO) of National Thermal Power Corporation (NTPC) is expected to bring the government at least Rs 8,300 crore. The other two remaining FPOs in the fiscal — Rural Electrification Corporation and NMDC — are likely to bring in another Rs 20,000 crore. India’s stalled disinvestment programme got a fresh lease of life with the Congress-led UPA government getting a clear mandate in the 2009 parliamentary elections. Privatisations were rife under the BJP-led government before the Congress-led UPA came to power in 2004, but was put in deep freeze in the past five years, as its then allies, the Left parties, were opposed to the idea.

Consequently, in the five years preceding the current one, the government raised just Rs 13,287 crore from disinvestment as against Rs 28,000 crore raised by the BJP-led government in the preceding five-year period. A sum of Rs 38,795 crore was billed as disinvestment receipts in the 2007-08 Budget. This was largely on account of a book transfer of stake in SBI from RBI to the government.

http://epaper.timesofindia.com/Daily/sk ... ult&pub=ET
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Suraj »

The advance estimate of the GDP growth for the current fiscal year has been released. Note, this is an estimate that the CSO makes every February, not the official GDP figure for the fiscal year, which does not end until March.. Two trends are clear so far: agricultural output did not fall as much as originally estimated, and industrial growth, including core sector, has been much higher than originally estimated.
Official Release: Advance Estimate of National Income, 2009-10
2009-10 GDP growth estimate: 7.2%
Estimated 2009-10 GDP: Rs. 61,64,178 crore (approx $1.35 trillion at Rs.46/$)
Estimated investment/GDP: 32.5%
I expect the revised estimate in May 2010 (which is the first official data, as opposed to the current estimate) to report figures slightly higher than these estimates, based on the slightly underestimated AE figures reported in previous years, so that GDP is approc $1.4 trillion.

Therefore FM Pranab Mukherjee states:
India Growth To Accelerate for First Time Since 2007: Pranab
India’s economic growth may accelerate this year for the first time since 2007, giving Finance Minister Pranab Mukherjee room to withdraw fiscal stimulus.

Asia’s third-largest economy will probably expand 7.2 percent in the year ending March 31 from a year earlier after growing 6.7 percent in the previous 12 months, the Central Statistical Organisation said in a statement in New Delhi today.

Mukherjee is under pressure from the central bank to raise taxes in the budget on Feb. 26 to check inflation in the world’s fastest-growing major economy after China. Companies including Hero Honda Motors Ltd., India’s biggest motorcycle maker, and Videocon Industries Ltd., a refrigerator maker, resist removal of tax support, saying demand hasn’t strengthened sufficiently.

Manufacturing output may rise 8.9 percent in the year through March after a 3.2 percent gain in the previous year, according to today’s report. Banking and insurance services may grow 9.9 percent, mining may gain 8.7 percent while electricity production will probably rise 8.2 percent, the report showed. Farm output may decline 0.2 percent.

Reserve Bank of India Governor Duvvuri Subbarao on Jan. 29 raised India’s growth forecast to 7.5 percent in the year ending March 31 and said the central bank will target inflation in the next few months. He estimated inflation to accelerate to 8.5 percent from 6.5 percent forecast earlier.
Stimulus drawback likely on higher GDP growth
Advance estimates of national income growth released today by the Central Statistical Organisation (CSO) project it at 7.2 per cent in 2009-10, pegging it a notch below earlier forecasts of the Reserve Bank of India (7.5 per cent) and finance ministry (7.75 per cent). With economic growth back on track the government may initiate a phased withdrawal of the fiscal stimulus package.

These growth projections for gross domestic product (GDP), however, come on a revised base of 2004-05. One consequence of this statistical change is that the fiscal deficit, calculated on a higher national income base, would be lower.

Further, with nominal GDP expected to grow 10.6 per cent at market prices against the Budget estimate of 10.05 per cent the fiscal deficit could come down by another 30 basis points compared to the 6.8 per cent estimated in the 2009-10 Budget. The fiscal deficit is the difference between the government’s total expenditure and receipts minus its borrowings.

“If market prices are considered the GDP of around 10.6 per cent will provide a cushion of 30 basis points to the fiscal deficit,” said Jyotinder Kaur, economist, HDFC.

The fiscal deficit as a percentage of GDP would then fall to about 6.1 per cent almost touching the 2008-09 level of 6 per cent.

Finance Secretary Ashok Chawla said the economy will outgrow the projection given by the advance estimates and we would be looking at a higher growth in the revised estimates. {as mentioned earlier.}
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Prem »

Suraj wrote:The advance estimate of the GDP growth for the current fiscal year has been released. Note, this is an estimate that the CSO makes every February, not the official GDP figure for the fiscal year, which does not end until March.. Two trends are clear so far: agricultural output did not fall as much as originally estimated, and industrial growth, including core sector, has been much higher than originally estimated.
Official Release: Advance Estimate of National Income, 2009-10
2009-10 GDP growth estimate: 7.2%
Estimated 2009-10 GDP: Rs. 61,64,178 crore (approx $1.35 trillion at Rs.46/$)
Estimated investment/GDP: 32.5%
I expect the revised estimate in May 2010 (which is the first official data, as opposed to the current estimate) to report figures slightly higher than these estimates, based on the slightly underestimated AE figures reported in previous years, so that GDP is approc $1.4 trillion.
On track to 5-6Trillion by 2020. Morgan Stanley predictions hold for Indian economy :D , 2021 Sri Ganesh of Indian strategic march .
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Prem »

http://www.businessweek.com/news/2010-0 ... tocks.html
Indian Insurers May Pump Record $21 Billion in Nation’s Stocks
Pooja Thakur
Feb. 8 (Bloomberg) -- Indian insurance companies may increase investments in the nation’s stocks by 24 percent to a record $21 billion next fiscal year as premium collections rise, according to India’s largest private insurers.That’s up from an expected $17 billion invested in the year to March 31, according to the average of estimates from ICICI Prudential Insurance Co., Bajaj Allianz Life Insurance Co., SBI Life Insurance Co. and Birla Sun Life Insurance Co.Record stock purchases by insurers may help absorb an estimated $20 billion of shares that are due to come onto the market from planned government sales of stakes in state- controlled companies and stock sales by non-state firms. The benchmark Sensitive Index, which rallied 81 percent in 2009 to be the third-best performing equity market in Asia, fell 8.9 percent this year
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Suraj »

Auto sales growth continues strongly in January, giving Q4 a good start:
Domestic car sales up 32%, bikes up 44% in January
Domestic passenger car sales have increased 32.28 per cent at 1,45,905 units in January from 1,10,300 units in the same month last year.

According to the figures released by the Society of Indian Automobile Manufacturers (SIAM) today, motorcycle sales in the country during the month was also up 43.69 per cent at 6,50,633 units, compared with 4,52,809 units in the corresponding month last year.

Total two-wheeler sales in January grew by 43.43 per cent to 8,34,383 units from 5,81,729 units in January 2009.

Sale of commercial vehicles rose over two-fold during last month to 53,447 units from 23,154 units in the year-ago period, SIAM said.

Total sale of vehicles across all categories increased 44.94 per cent to 11,14,157 units in January, against 7,68,698 units in the same month last year, it added.
And on the road side:
20km/day road construction by June: Kamal Nath
The ambitious target of building roads at the rate of 20 km a day will be achieved by June, Road Transport and Highways Minister Kamal Nath said today. He had earlier said this would be done by April.

“The target (of 20 km a day) will be achieved in June... We lost December and January due to dense fog; we are currently at 10 km per day,” Nath told said after a meeting with Turkish transport minister Binali Yildirim, who is on an official visit.

Soon after taking charge, Nath had set a target for increasing the pace of building highways from four km a day to 20 km a day. But, in a recent communication, the Planning Commission termed the 20 km target unachievable, given the circumstances. It advised the ministry to fix reasonable targets.

Meanwhile, after a meeting between Indian and Turkish transport ministers, it was decided to set up a joint study group to explore cooperation in the road sector. “We have decided to see where we can collaborate in terms of technology and best practices,” Nath said.

An official present at the meeting, who did not want to be identified, said the Turkish delegation was interested in taking on road projects here. Turkish companies had earlier built roads in the first phase of the Golden Quadrilateral project.
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by amit »

Suraj wrote: And on the road side:
20km/day road construction by June: Kamal Nath
Suraj,

In January when I was in Kolkata, I was talking to a relative of mine who is the financial controller of a medium-sized construction company which has done quite a few roads. Of course not in the same league as L&T.

I was telling him about Kamal Nath's ambitious target of 20 km per day and asked him if that's achievable. He gave an interesting perspective. He told me that his company could easily ramp up construction to 10 km per day right away. However, the problem is, according to him, is that the entire system needs a overhaul in order to get to 20km per day or even 10km per day.

First of all the payment system is such that contractors are paid in stages. He was talking in technical language and I don't remember all of it, but essentially what he was saying was that there are several layers that go into the ground before the bitumen or concrete is layed for the road surface. The payments are done according to certain layers. That apparently slows down the process, especially for smaller contractors who don't have the financial muscle to pay from their own pockets. So work is done till the stage for which payment has been made. And the cycle continues. This system is unviable if faster progress is required.

The other point he emphasised on is the fact that bigger and better road building machinery needs to be imported in order to ramp up the speed. And these machines don't come cheap and on top of that the Govt imposes tax on the import. So there's not much incentive to import them. He suggested a tax break or soft loans kind of facility for the express purpose of bringing these machines into the country.

In response to a question he noted that probably big companies like L&T may not face these two problems but he countered that if we are to keep on building at 20km per day for the whole year, medium sized companies like his would also have to be able to build at that rate and that would only be possible if there's help from the govt.

Now take it for what it worth. But I would think that these are valid issues. I wonder if Kamal Nath is looking into these. I would reckon that these can cause more delays than just Dense fog. :roll:
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by wrdos »

Deleted
Last edited by Suraj on 09 Feb 2010 13:19, edited 1 time in total.
Reason: This is not the India vs China pissing thread
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Suraj »

Amit, I agree that Nath's reference to fog sounded really bizarre. However, he was entertaining a guest, not giving a real status update. As for funding and technology, I'll keep this brief since a more detailed discussion should go into the roads thread: the initial problem was a chicken or egg one. No one would invest in NHDP because they were not sure if it was viable. For the first GQ phase back in the late 1990s, GoI had to put in the money itself, drive roadbuilding, and show that money could be made. Private players took up projects in small batches, unsure of viability.

However, as the GQ project started to show how commercially viable roadbuilding was, the nature of the problems themselves changed - private players now wanted to be able to bid for long stretches, but the NHAI tendering process did not keep up. Further, as you mentioned, duty free capital goods import was not available, though this article indicates otherwise. Nath's first few steps were focussed on attracting private financing (domestic and foreign), as well as the participation of bigger players from within and outside the country, the Turks being the latest.

I used to track the road sector in detail a few years back, but have since lost track. The original 2-phase NHDP project has now become a lot more complicated, with a much greater emphasis on expressway construction through the NEAI. There are obviously a lot of logistical and organizational issues to be addressed in this sector, some of which have been handled, some not. If you or anyone else can collect information on the progress of these phases, and various important events and changes, that would be very helpful.
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by amit »

Thanks for your reply Suraj. Your idea of trying to collate information about road building progress is good. Let me see if I can pitch in but perhaps the Roads thread would be more appropriate.
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Nihat »

The CSO is being incredibly conservative with it's outlook , even more so than RBI which has been known to be historically conservative. We are yet to get data for 3rd and 4 quarter and if the second quarter results are anything to go by then we are in for staggering growth. IF I remember correctly we recorded 7.9% for the 2nd Quarter ended. The 3 rd Quarter has shown us Record IIP data , exports have turned +ve for first time in 13 months , Imports are up , little upping of Inflation would have helped. The only downside being Agro growth but even that could not have been so bad with Monsoon picking up late on.

If anything all the +ve data would offset Agro and we shoudl expect around 8% in 3rd quarter too.
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by amit »

Pranab Mukherjee predicted 7.75 per cent in the Dec-Jan timeframe. See here

CSO is just being extra cautious I suppose. The Babu mantra is to err on the side of caution. But the point which cheers me up is that despite the worst Monsoon in 37 years Agri output is just marginally down, that too after 5 years of 4 per cent (or thereabouts) growth - which means high base effect. Is the sector finally being weaned away from Monsoon dependence? More likely explanation, I would think, is that the districts affected were less dependant on rainfall. Nevertheless good news! Now let's see what 2010-11 fiscal looks like.
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Chinmayanand »

Indian Insurers May Pump Record $21 Billion in Nation’s Stocks
Indian insurance companies may increase investments in the nation’s stocks by 24 percent to a record $21 billion next fiscal year as premium collections rise, according to India’s largest private insurers.
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Prem »

Tata Faces ‘Heat’ From Daimler, Volvo as India Paves Its Roads
By Subramaniam Sharma
Feb. 9 (Bloomberg) -- India’s aim to pave 20 kilometers of highway a day for the next five years is stoking demand for heavy trucks to carry freight, and overseas makers Daimler AG and Volvo AB are jockeying to challenge dominant Tata Motors Ltd.Asia’s third-biggest economy is spending about $53 billion to build and upgrade 54,454 kilometers (33,836 miles) of highway. The roads carrying 65 percent of India’s cargo are plagued by single lanes and irregular surfaces, slowing trucks to an average speed of about 20 kilometers per hour, a 2009 study said.

Improvements begun in 2000 for the “Golden Quadrilateral” project linking New Delhi and Mumbai triggered a shift from trucks weighing less than 16 tons to those weighing up to 49 tons, a segment where sales grew 8 percent from April to December. Volvo, Tata Motors and Mahindra Navistar Automotives Ltd. featured heavy trucks at the Delhi Auto Show in January.

http://www.businessweek.com/news/2010-0 ... roads.html
(The road efficency will add mobility, integration as well addition to GDP growth)
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Suraj »

Amit: Thanks. It would be very helpful to have posters who could keep track of the news in the road sector - not just the highway programs whose construction is planned 20km/day, but also the rural and other accessory road programs, such as under the Bharat Nirman project, through which roads are being built at an even faster pace, since they are easier to construct. Now that we have an enthusiastic minister at the helm, I hope we'll have members who can keep the news up to date too. Please feel free to post more insights from your source, or just have him join and participate in the roads thread :)

Something I've been thinking of is the relationship between our roadbuilding program and GDP growth. Yes, it seems obvious, that the former would assist the other. But what would be more interesting is not such a superficial approach, but a more detailed answer to the question of how much. Are there studies that quantify this for other nations ? In India's case, it is not a coincidence that the rapid growth phase of the Indian economy began just as the golden quadrilateral program reached its final stages. Further, the growth plateaued during the next few years when NDA's Khanduri was replaced by a largely incompetent UPA-1 minister. Now that we have another dynamic person at MORTH, I hope the current roadbuilding program will again accelerate growth. But I would like to be able to quantify how much it can contribute to future economic growth. If anyone is familiar with research on the positive economic externalities and linkages associated with roadbuilding, please post it here (as well as in the roads thread if you like).
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Suraj »

News roundup:
January export growth estimated at 8%
This is for the third month in a row that exports have registered growth, following a decline since October 2008 on the back of a global economic slowdown. However, exports during April-December 2009 fell 20 per cent to $117.6 billion, from $147.6 billion in the corresponding period of the previous financial year.

“I expect exports in January to be around $14 billion… Total exports could be around $165-170 billion for 2009-10. The finance and commerce ministers are scheduled to meet later this week to decide on the extension or withdrawal of stimulus packages for exporters,” Commerce Secretary Rahul Khullar said here today.
70% of India's trade in next 2-3 years to come from free trade agreements
More than 70 per cent of India’s exim trade would come from foreign trade agreements (FTAs) in the next two-three years, as over 12 countries would collaborate with India, a senior government official said.

This presently stood at 10 per cent and was expected to jump to 70 per cent in the next 2-3-years, the official said.

At present, India’s exim trade stands at $500 billion, of which exports stand at $200 billion and imports at $300 billion.
CalPERS looks at investing in Indian infrastructure sector
California Public Employees Retirement System (CalPERS), one of the largest public pension funds in the US, is looking at infrastructure investments in India, a senior official of the fund said. It is also looking at increasing India allocations. CalPERS already has investments worth $1 billion (Rs 4,600 crore) in Indian equities.

“CalPERS has $200 billion in assets under management globally, half of which is invested in equities. "We have a positive outlook on India, but there are certain structural impediments, particularly with regard to the infrastructure sector. Indian equities are richly valued at this point in time. So, one has to be cautious in deploying capital," Farouki Majeed, Senior Investment Director at CalPERS said.
Portents of Rupee appreciation, possibly related to money being pulled out of Eurozone:
Capital inflows faster than expected: Finance ministry
Capital flows are coming into India at a faster pace than expected, and in such a situation, liberalising the use of funds raised in the overseas market becomes a challenge, said C S Mohapatra, director, capital markets department of the finance ministry.

“Inflows are coming back to India and they are coming at a much faster pace compared to the expectation of the government or the market,” he said. On whether rising capital flows were a concern, and would the government consider some curbs on portfolio investments, Mohapatra refrained from comment.

He, however, said the capital flows would be managed efficiently. Analysts and market players have pointed out the challenges the government and Reserve Bank of India (RBI) will face in the wake of rising capital inflows into India, as global investors seek high yielding assets.

The RBI top brass has also, time and again, said there was a risk of capital flows rising sharply going forward.
Morgan Stanley's Roach bullish on India
Financial services company Morgan Stanley’s Asia chief Stephen Roach is more bullish on Indian economy than China. He thinks the Indian government will be able to deliver on fiscal consolidation, disinvestment, tax reforms and infrastructure.

“In the near term, I am more bullish on India than China as I see the Indian government fulfilling our budget expectations,” Stephen S Roach, chairman of Morgan Stanley Asia, told reporters today. Finance Minister Pranab Mukherjee will present the Budget on February 26.

Roach’s expectations include cut down on fiscal deficit by 1.3 per cent to bring it 5.5 per cent of Gross Domestic Product (GDP).

“In infrastructure, Minister of Road Transport and Highways Kamal Nath has set a goal of investing $20 billion in road construction in the next five years. It may sound ambitious, but shows the intentions of the government,” said Roach. He expects more government companies to be divested to raise resources and rollout fast-paced tax reforms.

On public sector companies (PSUs) up for stake sale and the poor response some of them have received from institutional investors in the past, Roach said there will always be demand for quality PSUs.
Economic Advisor C Rangarajan advocates stimulus withdrawal
A day after advanced estimates by the Central Statistical Organisation pegged growth at 7.2 per cent for 2009-10, Prime Minister’s Economic Advisory Council (PMEAC) Chairman C Rangarajan today made a strong case for withdrawal of fiscal measures by the government to stimulate the economy.

Rangarajan’s recommendations are in line with those of top officials like Planning Commission Deputy Chairman Montek Singh Ahluwalia, Finance Secretary Ashok Chawla and Commerce and Industry Minister Anand Sharma, who suggested fiscal consolidation in the General Budget, to be presented on February 26.

“A 7.2 per cent growth rate (projected by CSO) for the current financial year indicates that growth impulses are strong. Process of fiscal consolidation must start and some steps can be taken in the Budget,” Rangarajan told reporters at a book launch organised by the Indian Council for Research on International Economic Relations (Icrier).

Suggestions for beginning the process of fiscal consolidation came from other quarters as well. Chief economics commentator for the London-based Financial Times, Martin Wolf, also emphasised that India should start fiscal consolidation and lower its deficit and debt levels.

“To recover and grow, it is essential for India to have fiscal room to manoeuvre accordingly…moreover, India should more and more focus on the domestic market economy as the trade is more or less satisfactory as of now,” Wolf said.
Govt mulls Rs 50,000-cr ($11.2 billion) debt fund for infrastructure projects
The government is considering a proposal to set up Rs 50,000-crore India Infrastructure Debt Fund to meet the long-term needs of public private partnership projects by tapping foreign and domestic pension and insurance funds, sovereign funds and multilateral institutions.

The fund will lend to infrastructure projects that have begun commercial operations and is intended to take over commercial bank lending to these projects.

The fund is intended to address a critical need of infrastructure companies in India, which currently lack access to 10- and 20-year funds for long-gestation projects like airports or roads. Most commercial banks lend for less than 10 years. The government-promoted India Infrastructure Finance Company (IIFCL), which was set up to facilitate lending for infrastructure projects, lends funds for roughly the same time period, since it works in consortium with banks.

Government estimates put the debt requirement for infrastructure sector at Rs 988,035 crore ($220 billion) during the eleventh plan. Though IIFCL could set up the fund, the government-owned company’s role could be limited to that of a general partner. The fund in itself can be an independent legal entity, said the official. IIFCL could put in Rs 5,000 crore as its contribution.
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by krisna »

http://timesofindia.indiatimes.com/indi ... 553859.cms
The UNDESA data estimates that the number of India's poor was 33.6 million higher in 2009 than would have been the case if the growth rates of the years from 2004 to 2007 had been maintained.
The numbers come from revised per capita income estimates for 2009. The report uses the World Bank's
definition of poverty, which is people living on less than $1.25 per day in 2005 Purchasing Power Parity (PPP) dollars.

The estimates assume that there has been no change in income distribution. If inequality grew in India in 2009, the number of poor would be even higher than these projections.
At the end of the article-
There is no agreement yet on the number of poor people in India. The last official (National Sample Survey) household expenditure figures are for 2004-5 and the next round (2009-10) is yet to be completed. Further, the definition of poverty remains disputed, the Suresh Tendulkar committee's recommendation that India move away from calorific norms being the latest iteration. This committee pegged the number of poor in India at 408 million in 2005.
:?:
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Suraj »

As posted here a couple of days ago:
Growth will exceed 7.2% early estimate: Finance Minister
Finance Minister Pranab Mukherjee today said economic growth for the current financial year would be higher than the advance estimate forecast of 7.2 per cent. The advance estimates released by the Central Statistical Organisation (CSO) on Monday pegged economic growth at 7.2 per cent, lower than the 7.75 per cent estimated by the finance ministry in its mid-term review released earlier.

Such a forecast is in line with that of the Reserve Bank of India (RBI) which has pegged economic growth at 7.5 per cent in its third quarter monetary policy review. The Centre for Monitoring Indian Economy (CMIE) has projected the GDP growth at 7.75 per cent for the current financial year.

“The economic survey 2008-09 had indicated that the upper band of growth in real GDP for the 2009-10 will be around 7.75 per cent…. I expect the growth to be higher than what has been estimated by CSO… last year also this was the case,” said Mukherjee at a meeting of the Colombo Plan, which is a group of Asian countries aimed at fostering economic and social development in South and Southeast Asia.
Industry to pay Rs.21000cr ($4.5 billion) more if excise duty increases in budget
Corporate India will have to shell out an additional Rs 21,000 crore if the 2010-11 Budget increases the excise duty by 2 per cent. A study by the Business Standard Research Bureau shows that 1,278 manufacturing companies (excluding oil and gas) accounted for 8.13 per cent, or Rs 86,314 crore of the gross revenue for the year 2008-09. So, a 2 per cent increase in the excise duty on gross sales of Rs 10,64,865 crore will fetch Rs 21,200 crore more revenue for the government.
Since this is BR:
MoD scraps Raksha Udyog Ratna plan
The MoD has decided to retain decades-old barriers against allowing India’s private sector a meaningful role in defence production. Minister of State for Defence Production MM Pallam Raju has revealed that the MoD had scrapped its plan to nominate leading defence players from the private sector as Raksha Udyog Ratnas (RuRs), or Champions of Defence Industry, thus granting them the same status as Defence Public Sector Undertakings (DPSUs) and Ordnance Factories (OFs).

The highly-regarded Vijay Kelkar Committee on Private Sector Participation in Defence Sector had recommended in 2005 that selected private sector companies should be permitted to build major defence platforms like tanks, aircraft and ships, effectively allowing them into an inner circle that had been reserved since independence for DPSUs and OFs. In June 2007, the MoD-appointed Prabir Sengupta Committee finished examining more than 40 private sector applicants and recommended about 15 of them for RuR status.

Nothing has been heard of that report since then, and Business Standard can now confirm the burial of that proposal. Pallam Raju has told Business Standard that small private sector companies, which would have been ineligible for RuR status, opposed this initiative.

The MoS said, “I don’t want to give any details, since my minister has not spoken on this issue yet. But this idea was opposed by small companies who don’t have deep pockets, but have vertical capabilities. They protested and said why should we be discriminated against when we have better capabilities? Taking their views into consideration, better wisdom prevailed. We (the MoD) said, why should we discriminate? We should let everybody have an equal opportunity; why should we give preferential treatment to the big players?”
An obituary to one of the authors of the first five year plan. Please don't turn this into a whinefest about central planning, but see it as a perspective of what they were thinking right after independence, right or wrong in hindsight:
Obit: Nehru's planner who saw tomorrow
Kakkadan Nandanath Raj was all of 26 when he was summoned by Prime Minister Jawaharlal Nehru to help write the first chapter of India’s first Five-Year Plan for 1951-56.

“The central objective of planning in India”, wrote Raj in the opening paragraph of the First Plan, “at the present stage is to initiate a process of development, which will raise living standards and open up to the people new opportunities for a richer and more varied life.”

A contemporary of K R Narayanan, former President of India, Raj earned a scholarship that took him to the London School of Economics (LSE), where he wrote his doctoral thesis on the monetary policy of the Reserve Bank of India. He was awarded the PhD in 1947, after which he went to Colombo to work in a newspaper owned by his classmate, Vijaya Wardhane. On returning, Raj worked initially at the RBI, from where he was summoned by Nehru after Panditji had received a letter from Harold Laski, the distinguished political scientist and director of LSE, advising Nehru to utilize the services of this “bright young economist”.

Raj presided over the Delhi School of Economics at a time when his colleagues included Amartya Sen, I G Patel, Manmohan Singh, Jagdish Bhagwati and a legion of distinguished economists and social scientists. After a brief stint as vice-chancellor of Delhi University, Raj moved to Thiruvananthapuram where he set up the Centre for Development Studies (CDS). In its prime, the Centre had economists like Joan Robinson and John Hicks as visiting fellows and I S Gulati, A Vaidyanathan and T N Krishnan as senior faculty. It brought to global attention the famous “Kerala model” of development, with emphasis on human development.

After his initial brush with planning in the 1950s, Raj left his imprint on policy in the 1970s, chairing a famous committee on taxation of agricultural income. Raj became a legend among economists, mainly for his ability to think ahead of his times. He shared Nehru’s enthusiasm for industrialisation, took a keen interest in the development of China, was among the first to draw attention to industrial slowdown in India in the 1970s and commented on the coming crisis of Europe’s centrally planned economies.

Raj had a wide range of friends cutting across professions and generations around the world and in India. He engaged Kerala’s Communist Party ideologue, E M S Namboodiripad, in a series of debates on Indian economic policies and trends. He was a staunch critic of the Emergency in 1975-77 and a defender of central bank autonomy. Raj took keen interest in appropriate and environment-friendly technologies long before this became a fad, commissioning Gandhian architect Lawie Baker to build the CDS campus using brick and mud. Baker’s architecture has become world famous since. In January 2000, childhood friend K R Narayanan conferred a Padma Vibhushan on K N Raj.
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by ashish raval »

Regarding Disinvestment of GoI owned companies, GoI should setup State of the Art R&D facilities which are at par with Western countries and produce some outstanding research in the field. Once the facility is self-sustainable, if GoI wishes to make profit they can sell it to private sector. Every facilities should be set up with this idea in mind and new the HR laws which allows such provision should be made. Apart from this, there should be open technological challenges in-between GoI owned laboratories too. Those laboratories which perform better gets payed better and higher ranks while the poor performers shuts itself down after certain loss. This will create good Project Leaders. We have good engineers/scientists but poor Project leaders. ISRO is exception. Currently, we face a lot of attrition and opposition once the word Disinvestment is mentioned. In west, it is a standard norm to sell Government laboratories at high profit. All the labour is protected more or less as it is a very high Intellectual Capital.
I guess we need more reforms to speed things up.
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Singha »

I did not know that Subir Gokarn is a board member (deputy governor) of RBI which means he is a full time employee. I thought he was a writer in the mould of bibek
debroy but apparently not.

http://www.rbi.org.in/SCRIPTs/AboutusDisplay.aspx#CB

three surprises:

Shri Azim Premji
Chairman,
WIPRO Limited
Doddakannelli,
Sarjapur Road,
Bangalore – 560033

Dr. D. Jayavarthanavelu
Chairman & Managing Director
Lakshmi Machine Works Limited
34 A, Kamraj Road
Coimbatore -641018

Prof. U. R. Rao
Chairman, Physical Research Laboratory
Department of Space,
Government of India
Antariksh Bhavan, New BEL Road
Bangalore – 560 094

there are 5 full time directors, headed by Dr Subbarao himself and Dr Gokarn
is one.
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Suraj »

You've been spending too much time in the nukkad thread Singha :) Gokarn's appointment was late last year, and multiple quotes by him in his new capacity have been posted here in the last few months. Gokarn used to be at CRISIL, and subsequently as chief economist at S&P India.
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Rampy »

Ek zimple question for experts

Last time when I was planning to inverset some amounts in FD in India I realized that Long term interest rates were lessser than short trem interest rates.
If I remember some economics this is not a sign of growth as Banks are expencting the int rates to fall or need to release more money into market..but than govt shows growth ..Am i missing something :?:
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Suraj »

Low interest rates offered on fixed deposit suggests banks aren't getting much term loan demand, and find more incentive in increasing their deposit base through savings accounts.

January export data exceeds initial estimate:
January exports up 11.5%
The country’s merchandise exports have reached $14.34 billion (about Rs 66,680 crore) in January, up 11.5 per cent from $12.86 per cent (nearly Rs 59,800 crore) in the same month a year ago, even as Commerce and Industry Minister Anand Sharma has recommended a “cautious” exit from export sops.

Exports grew by 18.2 per cent at $11.16 billion and 9.3 per cent at 13.36 billion in November and December, respectively. Total exports for 2009-10 is expected to be $165-170 billion.
Please follow the link below to see more details in tabular form:
Centre ties JNNURM funding to state reforms
A peeved Finance Minister Pranab Mukherjee, at his recent pre-Budget meeting with the Union urban development ministry made it clear that he would not give a penny of the JNNURM money to the states if they failed to fulfil their promises on reform. Under JNNURM, the states get central assistance for infrastructure projects in select cities only if they carry out major policy reforms.

Urban Development Secretary M Ramachandran told Business Standard he would send letters and urge state governments to expedite pending reforms. “We feel that the states are just sitting on the money and not carrying out the reforms they are bound to do according to the agreements with the Centre. We have to ensure that these are carried out before we release the next instalments.”

According to Ramachandran, this is an even bigger problem than the fact that states are not spending the fund allotted for JNNURM schemes.

A total of 23 reforms are envisaged for JNNURM under two heads — mandatory and optional. The mandatory section contains e-governance, municipal accounting, property tax, rationalization of stamp duty, community participation law, public disclosure law, among others. The optional category includes reforms in introducing computerised registration of land and property, encouraging public-private partnership projects, revision of by-laws to make rainwater harvesting mandatory, reuse of wastewater, etc.

States like West Bengal and Jharkhand are yet to repeal the Urban Land Ceiling and Regulation Act that is necessary for availing of JNNURM grants.

JNNURM also requires certain reforms to be undertaken by states or cities in the levy of user charges on different municipal services, with the objective of securing effective linkages between asset creation and asset maintenance and ultimately leading to self-sustaining delivery of urban services.

According to Ramachandran, the pace of reform at the urban local body level is more encouraging than at the state level. “In many cases, you may say there is a lack of political will, especially where the state needs to raise taxes.” In many cases, two instalments have already been given to the states, but now the finance and urban development ministries want to tighten their grip.

According to the latest data available in the ministry, the Centre has approved projects worth Rs 41,000 crore and released more than Rs 24,000 crore as Additional Central Assistance (ACA).

The government launched JNNURM on December 3, 2005, for seven years with a total planned investment of Rs 1 lakh crore, with a committed central government share of Rs 50,000 crore. The states, along with the urban local bodies, are required to cough up the other half.
This should lead to faster FDI approval:
FIPB can now clear FDI upto Rs.1200 cr ($260 million) without cabinet approval
At present, all project proposals that involve investment of above Rs 600 crore are put up before the Cabinet Committee of Economic Affairs (CCEA) for approval.

Announcing the CCEA decision today, Home Minister P Chidambaram said the relaxation would expedite FDI inflow. “The Rs 600-crore cap was fixed in July 1996. Considering the investment requirement and the inflation factors, it has been decided that it should be increased to Rs 1,200 crore,” Chidambaram said.
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Nihat »

http://ibnlive.in.com/news/industrial-p ... 032-7.html :eek: :eek:

Mind boggling growth in Industrial Production , never expected it to go beyond 16% or for manufacturing beyond 18% .
Theo_Fidel

Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Theo_Fidel »

vera_k wrote:Is the Indian state flirting with danger?

Nice graphic showing that the expenditure/gdp ratio is back to where it was in 1991-92 and 2002-03. Going by past record, there should be a change in government coming up if a viable alternative is available.
This is not a worry at all.

Many economically advanced countries support rates of 40% and above without real punishment.

It used to be a worry because the revenue base of GOI was so weak that higher expenditure resulted in printing of notes, i.e. inflation.

This not true anymore.

Its obvious this guy is a glass half empty type living in the past. Ignore. :evil: :evil:
Last edited by Theo_Fidel on 12 Feb 2010 23:42, edited 1 time in total.
Theo_Fidel

Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Theo_Fidel »

Nihat wrote:http://ibnlive.in.com/news/industrial-p ... 032-7.html :eek: :eek:

Mind boggling growth in Industrial Production , never expected it to go beyond 16% or for manufacturing beyond 18% .
The 9% growth in mining is heartening. It shows our industrial base is growing at a staggering rate.

Anyone have the breakdown for the 18.5% manufacturing basket. Would be curious to see what included and excluded. Duck eggs anyone. :twisted:
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Suraj »

Welcome back Theo_Fidel! Please stick around, but don't go down the duck egg and keo karpin route again - some things have not changed :oops:

The latest IIP data will revise up Q3 GDP projections significantly, since the monthly IIP breakdown is:
October: 10.5%
November: 11.7%
December 16.8%
This gives an unweighted industrial growth of 13% for the quarter

My estimate is that, including an approximate -0.5% agricultural output estimate, Q3 GDP growth will be between 8-8.25% . The wild card is services sector growth, since it is not officially reported as a single metric; I used an approximate growth figure of slightly over 9%, similar to Q2 figures.
Theo_Fidel

Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Theo_Fidel »

Suraj wrote:but don't go down the duck egg and keo karpin route again
Well, wasn't that the big controversy last time.

That hair oil of some kind accounted for a big chunk of the manufacturing growth.

But wait, Hang on, Hang on, this is looking more and more like a base effect as Dec 2008 was -2%.

http://mospi.nic.in/iip_table3.htm

The Apr-Dec number is just 9.6%. That is probably more realistic.

Dash it. :oops:
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Suraj »

Note the 1.2-1.3x ratio between rate of growth of cement demand and GDP growth rate:
Cement companies plan Rs.50000cr ($11 billion) capacity expansion
The cement industry is poised for expansion on the back of a reasonable recovery in the domestic economy and demand for cement hitting double-digit growth trajectory. The industry is undergoing expansions worth Rs 50,000 crore to take the overall capacity to close to 300 million tonnes (MT) by 2012.

Industry analysts say new cement plants take two-three years to start production. “If the companies do not start planning for a demand of over 9 per cent on a year-on-year basis, there will be capacity constraints by 2014,” said an analyst with a broking house.

Industry experts say the growth of the cement industry is in correlation with the growth of Gross Domestic Product on a factor of 1.2-1.3x. With the economy expected to grow at over 7 per cent, cement demand is likely to rise more than 9 per cent.

By the end of this financial year, cement consumption will be close to 205 MT, while capacity will stand at 250 MT. Since, several of the fresh units may not run at full capacity, 2011 financial year may see a good demand- supply match. “There will be an effective surplus of 30-35 MT in 2012,” said sources in the industry.
India Rejects IMF Suggestion To Allow Greater Foreign Access to Govt Debt
India may not allow more foreign investment in its government debt as the high-yielding assets could attract excessive demand and spur capital inflows, central bank Deputy Governor Shyamala Gopinath said.

“Indian government debt is risk-free, it’s like jam and can encourage more carry trades,” Gopinath said in an interview with Bloomberg News in Mumbai today. “It’s very easy for people to borrow at low rates and invest in these risk-free bonds. And then we have to manage capital flows.”

Gopinath’s comments came after the International Monetary Fund yesterday said that India should ease restrictions for foreign investors in its debt market to boost trading and lower borrowing costs. The Reserve Bank of India is wary of the move as it runs the risk of higher overseas inflows, which could strengthen the currency and hurt exports.

India caps foreign investments in government debt at $5 billion a year.

The yield on the 10-year government paper in India currently trades at 7.87 percent, compared with 3.7 percent in the U.S. and 1.3 percent in Japan for the same maturity, according to Bloomberg data. A carry trade involves borrowing from countries with relatively low interest rates and buying higher-yielding assets elsewhere.

“Increasing foreign participation would provide additional liquidity and more robust pricing of local bond-market issues,” John Lipsky, the IMF’s first deputy managing director, said in a conference in Mumbai yesterday. “A recent IMF study of 10 emerging markets suggests that foreign participation has lowered borrowing costs.”

Gopinath said India wants to encourage more foreign investments in corporate bonds to help fund new roads, ports and other infrastructure in the country. India has set a ceiling of $15 billion for overseas investments in local corporate bonds.

“Let’s have people who are willing to take credit risk also,” Gopinath said. “That’s why we have a higher limit for corporate bonds.” The outstanding foreign investment in government bonds is $10 billion as of Feb. 10.
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by AjayKK »

DNA Edit - When unions talk sense and the government doesn't

Some excerpts.
Three events of the last fortnight bring to light what is wrong with the government’s handling of the public sector.
One event was the death of Subir Raha, former chairman of Oil and Natural Gas Corporation (ONGC), India’s premier oil producer. Raha was the last public sector manager with the gumption to stand up to babudom and fight for autonomy. He fought the minister, he fought the bureaucrats, and as long as he was there, ONGC had a fighting chance of retaining its operational autonomy.

In a report last year, Goldman Sachs put a figure to the loot of ONGC. “Since 2003-04, the promoter (i.e. the government), which owns a 74% stake in the company has taken away cash from the company on a quarterly basis for subsidising loss-making state-owned downstream companies. So far, ONGC’s promoters have taken cash of almost $20 billion from the company without consulting the minority shareholders,” Goldman Sachs said.

Raha’s comment: “Public-sector companies cannot be treated as government departments. Companies are expected to make profits, departments are not.
The second event —- the underwhelming response to the public issue of NTPC Ltd (formerly National Thermal Power Corporation) —- is a telling example of Raha’s comment in action.

The Rs 8,300 crore issue was rescued by two public sector companies —- Life Insurance Corporation (LIC) and State Bank of India (SBI). This is a ringing vote of no-confidence in the government’s intentions vis-a-vis NTPC.
The issue —- force-fed to the market by the finance ministry to raise resources before the Union budget —- merely ended up transferring ownership of 5% of NTPC from government to government-owned companies.
Government department won over commercial enterprise.
The third event is a letter written by two public sector employee unions to the prime minister for bringing in an outside management team for Bharat Sanchar Nigam (BSNL). Normally, unions are the first to fight on behalf of internal candidates and oppose outsiders. But ...Their letter was bitterly critical of the management.
Sure, there is nothing wrong in any disinvestment programme or sharing public sector wealth with the people of the country. But the critical question is: how can public sector managers create wealth when they work for their bosses rather than the enterprises they run?

The finance minister’s rush to disinvest public sector shares is all about selling family silver, not about creating wealth. The NTPC issue that nearly failed is a case in point. The 5% disinvestment brought no money to NTPC; Pranab swallowed it all. Not only that, the wealth of two other public sector enterprises — LIC and SBI — was used to feed that bottomless pit called government. This is the kind of servility the BSNL employees are talking about. Why should the shareholders of SBI pay for plugging Pranab Mukherjee’s fiscal deficit? Why should taxpayers allow him to transfer money from LIC’s pockets to his, when LIC could use the resources for its own growth? How is Pranab helping create wealth in SBI and LIC when these two public sector financial giants are being denuded of it? Quite clearly, their servile leaders have been armtwisted to invest in a power company owned by government. They had to put their money where their boss’s mouth was.
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Neshant »

Deleted. Questions about domestic arms production should be in the military forum.
Last edited by Suraj on 16 Feb 2010 03:46, edited 2 times in total.
Reason: Please refrain from posting acerbic one-liners in thread after thread.
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by vera_k »

SwamyG
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by SwamyG »

Indian economy overview
A good read; outlines the 3 sectors of the Indian economy and lists some of the trends. It is dated, 2008 article, but nevertheless gives an idea about the sectors.

Theo: Good assessment; there are plenty of glass half-empty articles these days about India. Long time no see, please do write often. I am a fan of your posts.
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Chinmayanand »

India, EU free trade pact by end 2010: Envoy
A far-reaching free trade agreement will be "ready to be signed" between India and the European Union by the end of this year even as child labour and intellectual property rights regime in this country remain sore points, EU ambassador here Daniele Smadja has said.
"European pharmaceutical companies, for example, want to export medicines and equipment to India, but want lower tariff," he said, adding India's average applied tariff on medicines is 14.5 percent compared to 4.1 percent for EU.

On marine exports from India, Smajda said fair trade required respect for the health concerns of people and said the new certification norms required by EU were solely targeted at adherence to proper standards.

"Even Indian experts have accepted there are antibiotics, residues found in perishables exported from India. It is not about our government. If our people, our independent experts, are not satisfied, we cannot accept it," he said.

"But we know India's marine export industry has taken swift action towards compliance."

Smajda said genetically modified food was a major concern in Europe as it has been in India -- the latest case point being the moratorium by India's environment ministry on allowing commercial sowing of Bt Brinjal.
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Hari Seldon »

^^^ I would take the EU commissar's protestations and offensive charm with a tablespoon of salt only.

It is no secret that EU customs have repeatedly seized desi pharma exports to the eurozone with zero explanation. Of course, our generics are lower in cost and as good in quality as the gold plated stuff the oiros appear to be institutionally able to churn out.

And after supporting and pushing the global warming scam in order to be able to impose carbon tariffs and taxes and other non-tariff barriers, too bad that scheme of theirs fell flat on its arse at Copenhagen.

Now the moment they start harping about 'child labor and other standards' here, can't say we haven't been warned about whats coming.

The oiros can trade all they want with PRC then, which appears to meet these stiffnecked standards of the EU. Too bad MNCs in general don't make money in the domestic mkt of china though, eh?

Bottomline: let Yindia play her cards well, and patiently. EU's on the wane, and their posturing of talking down to us from some imaginary moral high ground is all bs.
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Abhijeet »

Very interesting. We need a solid decade or more of investment-heavy, rather than consumption-heavy, growth -- the China model -- to reduce our massive infrastructure deficit. Growth should automatically swing back to consumption-led once the screaming infrastructure needs have been addressed.

http://m.livemint.com/s/6608/8?htmlUrl= ... &itemPos=1
The structural change in the Indian economy
The ongoing recovery from the current downturn will be driven by investment-that's the message that comes through from the gross domestic product (GDP) growth estimates put out by the Prime Minister's economic advisory council (EAC). The numbers show that the Indian economy is going through a structural change, with the share of consumption in the economy declining, while that of investment rises. Five years ago, in 2004-05, the share of investment in GDP at market prices was 32.7%, while that of consumption (both private and government) was 70.5%. Of this, private consumption was 59.5% of GDP, while government consumption was 11%. By 2007-08, the share of investment had increased to 37.7%, while the share of consumption dipped to 67.5% (57.1% private consumption and 10.4% government consumption).
EAC predicts that in 2011-12, investment will rise to a new high of 38.2% of GDP, while consumption will fall to 65.8% of GDP. Interestingly, the share of investment in 2011-12 is projected to be even higher than its 37.7% share of GDP in 2007-08, at the height of the last boom. The share of investment in India is now approaching that of China's, which invested an average of 40.7% of its GDP in the five years ended 2008.That will help reduce the huge infrastructure constraints the country faces.
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Re: Indian Economy: News and Discussion (Jan 1 2010)

Post by Suraj »

Some of that data doesn't quite state the even greater change - 2004-05 was the first year of the current phase of >30% investment/GDP. Until 2002-03 the ratio was in the low 20%s, except for a few exceptional years. However, there was never a sustained period of time during which investment/GDP exceeded 30%. The current period began around the time two important administrative changes took place - the FRBM Act, and the 12th Finance commission. The fortuitous economic year of 2003-04 first put savings/GDP and investment/GDP into the 30% range, and it has never fallen lower since.

Remember two-three years ago people spoke of 7-8% being 'overheating'. That was based on historic wisdom, because a mid-20% investment/GDP cannot sustain 8% growth, but the current 32-35% can, which is why I have repeatedly posted that our economy was not overheating, and that the most important barometers to watch is savings/GDP and investment/GDP - as long as those stay high, a one year fall in GDP is irrelevant, because the continued investment will push up GDP the next year, exactly what's happening this fiscal after the blip in 2008-09.

What we do have, though, is a case of the tail wagging the dog - lack of significant agricultural reforms and investment in production, distribution and warehousing/supplychaining has meant that food supply shocks are amplified in effect, and the only effective measure is an interest rate hike, which is the equivalent of using a sledgehammer on a mouse, affecting other sectors that were not overheating. Massively investing in widening the irrigated land base and food supply chains will allow us to grow faster at a sustained rate; money no longer spent on debt repayment due to higher rates will instead go into investment.
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