Indian Economy News & Discussion - Aug 26 2015

[vish_mulay]

http://m.economictimes.com/news/economy ... 823319.cms

View: What impending doom? Hard data shows India under Modi is flourishing

[Karthik S]

Article on min wage.

One of the truly puzzling things about the current debate over the minimum wage and the possibility of raising it is that so few people seem to be interested in looking at the actual evidence. And there is a great deal of evidence to look at too. Not just from hte US, it's possible to look at evidence from other countries as well. Which is what Scott Sumner has done here:

Regarding the minimum wage, here is some data for Western Europe:

There are nine countries with a minimum wage (Belgium, Netherlands, Britain, Ireland, France, Spain, Portugal, Greece, Luxembourg). Their unemployment rates range from 5.9% in Luxembourg to 27.6% in Greece. The median country is France with 11.1% unemployment.

There are nine countries with no minimum wage (Iceland, Norway, Sweden, Finland, Denmark, Austria, Germany, Italy, Switzerland.) Five of the nine have a lower unemployment rate than Luxembourg, the best of the other group. The median country is Iceland, with a 5.5% unemployment rate. The biggest country in Europe is Germany. No minimum wage and 5.2% unemployment.

Still want to raise our minimum wage to $10? Germany used to have really high unemployment. Then they did labor reforms to allow more low wage jobs, combined with subsidies for low wage workers. Now they don’t have high unemployment.

I've written a great deal here about the minimum wage over the past couple of years and worth perhaps reviewing what I've said. The mistake in the Card and Krueger paper was to assume that chain fast food restaurants are where we would expect to see a fall in employment if the minimum wage began to bite. It isn't, we'd expect to see it in the labour intensive, Mom and Pop side of the business. We can indeed see the unemployment effects of the minimum wage too. I’ve even pointed out that we do see the unemployment effects of the minimum wage in teen unemployment. As we can also see it in New Zealand and the UK. Again, here, for Europe.

The supposed benefits in staff retention of a higher wage are illusory when considering the minimum wage. For as Paul Krugman himself pointed out, it is the paying of a higher wage than everyone else that leads to the greater retention rates. If everyone's paying a higher one then they're not going to be there. Further, the claimed macroeconomic effects of a rise in the minimum will be tiny. So small that's we'll not be able to note them. And could we please get the story of Henry Ford's $5 a day right? It wasn't about paying enough so that his workers could afford his cars. It was to pay higher wages than the competition and thus be able to increase retention rates.

The real centrepoint of this story is that there simply is indeed a trade off between the price of labour and the amount of labour that people will want to employ. Raise that minimum wage too high (and what is "too high" should be discussed) and there will indeed be more people without a job at all. This is just one of those things about economics, there are very rarely solutions, there are only trade offs. And those arguing for a much higher minimum wage need to make the case for some people earning more money and others earning none.

https://www.forbes.com/sites/timworstal ... 20450b7cb3

[prahaar]

One technical comment about absence of minimum wage in some of the above countries. Agreed that the nine countries with relatively low unemployment do not have minimum wage. The unsaid part of the article is the massive unionization. Even those working in small companies are part of industry specific unions. The companies make wage agreements with these unions.

The right question is how to ensure that exploitation of labour does not happen while at the same time businesses have the capability to hire. I would like to know if the co-operatives for example, across rural India, provide the collective agreement platform that unions provide in Europe?

[yensoy]

Unfortunately we don't produce anything that is world class. Our "demand" is driven by remittance and IT exports( to some extend other exports).
...
Until we produce something worthwhile, there is no scope to growth. We have huge scope in defense production, ship building. Even a simple thing like toys. There is no harm in GOI funding a 1 billion dollar subsidy to companies producing toys and undercut the Chinese.

Not arguing with you about the main point of the post, which is have the government subsidize development of capabilities in select few areas to counter the Chinese, our own export basket isn't as dire as you are making it out to be. This visualization is a great summary of our goods export composition http://atlas.media.mit.edu/en/profile/country/ind/.

[rvishwakarm]

Looking at the following, it can be anything but economy slowing down.
I do have a feeling that last quarter numbers were the bottom and we are looking at better numbers during the course of next quarters.

• Demand for newly launched cars like Honda WRV, Tata Nexon, Baleno,Mahindra TUV and others(note that most of them are sub 10Lac car and for middle class

• HMSI registers sale of 52000 on first day of Navratra

http://economictimes.indiatimes.com/ind ... 796259.cms

• Jump in sales by both Amazon & Flipcart in comparison to last year during Big Billion day sales

http://economictimes.indiatimes.com/sma ... 820355.cms

[nam]

Thanks for the link, I did not have specific details of India's exports and after looking at the link, made me more depressed.

Our major export is Refined petroleum, diamonds/jewellery & medicine. Because of the drop in fuel prices, our value of export has dropped. Guess which is the other country with large export of refined petroleum? Greece!

There is a major push towards battery operated vehicles. Where does that leave our petroleum exports?

I had a look at US exports. There is a impression that US imports lots of stuff. The export list is a eye opener!
http://atlas.media.mit.edu/en/profile/country/usa/

So is China's.
http://atlas.media.mit.edu/en/profile/country/chn/

[Vayutuvan]

These are cries of lawless people being made law abiding by danda. It would be worrying if they didn't scream.

Succinct.

[Chinmayanand]

Deleted

[hanumadu]

^^^A congressi would have been proud of your list of evils under Modi. But then there is no way to say you are not a congressi.
What ever it is I am totally convinced that my vote this time should go to congress and I am sure, so would be many others on this forum.

[vina]

Deleted

[rkirankr]

How people who hide suddenly come out of wood works when there is a perception of things going work

[Prasad]

Irrespective of whether prices have increased or whether gst is being used to get greater amounts from public, perception of what matters for electoral success. There, jetli and his cess raj is dealing a heavy blow to re election prospects. Let's not paper over those. And despite opposition claims of media and image management, this govt has been terrible at it. Let's face the facts that as much as real structural reforms are important so is public mood without which even the best reforms will fail. Fuel prices are one such. Higher fuel prices are good for the environment no matter what anyone claims. Economic impact of this not withstanding, it will be a hard to sell point. Lack of visible progress in jailing PC, Karthi, Raja, Vadhra or fixing tax compliance etc visibly is the issue. People need the circus or they riot. No matter how patriotic or fervently they support you during election rallies. If the bjp losses all those votes gained on a vikas plank, we'll get a united front govt for sure in 19.

That said, vina saar, free connections not electricity is what I read. If they fix their mhrd and start meaningful reforms in the edu sector they'll do the economy a whole lot of good in the medium to long term including gaining jobs. Same with tourism sector. We're better off doing mass employment needing unskilled worked in services like that to improve short term employment numbers. Despite all the talk of go see india and learn your land we've seen nothing to improve tourism, hotels , meaningful connectivity, awareness, educative programs for the tourism sectors nothing. This is a big are and our inbound tourist numbers are pathetic. Singapore gets more than us in a year. Except for roads and power most ministries including defence have been on autopilot mode since UPA and importantly edu has been.

[Prasad]

A few pertinent points on mistakes so farhttp://www.livemint.com/Opinion/sprAUVoQWpbQaS ... =googleamp

[yensoy]

Irrespective of whether prices have increased or whether gst is being used to get greater amounts from public, perception of what matters for electoral success. There, jetli and his cess raj is dealing a heavy blow to re election prospects. ... If the bjp losses all those votes gained on a vikas plank, we'll get a united front govt for sure in 19.

There will be massive employment programs, government led investments, Mudra-type loans/subsidies, and key reduction of GST/cess (including price of petrol) prior to the election as required by code of conduct. Government will use all the money saved over the past 2 years to flood the system with cash and price cuts and people will quickly forget what irritated them.

But on the opposition side, they will still have nobody better to offer than RaGa, so that takes care of the other part of the problem.

Get used to BJP 2019, folks. Unless they really mess it up, I don't see how BJP can lose.

[vina]

Government will use all the money saved over the past 2 years to flood the system with cash and price cuts .

Saved ? Where ? We have been running deficits for the past two years and indeed are targeting a deficit of 3.2% of GDP this year.

[vina]

A few pertinent points on mistakes so far http://www.livemint.com/Opinion/sprAUVo ... =googleamp

Yes. Indeed , sums it up perfectly. Fiscal stimulus will fix NONE of the above problems. They are all structural in nature , benefits medium to long term in nature and will require expending serious political capital.

Modi Govt had none to expend, was focused on headline and "perception" management. Didn't want to do privatisation and structural reforms , thought that cleaning the 'clogged drains" would lead to growth and can do command and control , "better" than the Kangress.

Net result, you have a stalled economy and growing economy misery and unemployment.

[Marten]

Government will use all the money saved over the past 2 years to flood the system with cash and price cuts .

Saved ? Where ? We have been running deficits for the past two years and indeed are targeting a deficit of 3.2% of GDP this year.

To refresh your memory:

[Waylan]

Saved ? Where ? We have been running deficits for the past two years and indeed are targeting a deficit of 3.2% of GDP this year.

To refresh your memory:

Funny. You can't save the money you don't have.

[vish_mulay]

http://www.thedrum.com/news/2017/09/25/ ... nds-amazon

India's retail sector surpasses China after investments from international brands like Amazon and Gap

Boosted by the Indian government's push towards a cashless economy and Digital India initiative, India's retailing sector has surpassed China with an expected growth of $1.3tn by 2020, according to the latest report by Indian Brand Equity Foundation (IBEF).

[vish_mulay]

http://www.livemint.com/Politics/oxZBAT ... cious.html

Farm loan waiver: Maharashtra detects 1.5 million suspicious bank accounts
According to a senior BJP minister, a preliminary probe by the Maharashtra government identified these ‘bank accounts without a credible credit history’

It was tweeted before but got confirmation news today.

[vish_mulay]

Cant post Tweeter feed but have a look at how Stanley Pignal put MK Venu in his place. So called economy expert was paddling RBI data on SMEs.

[Prasad]

More prescriptions
http://indianexpress.com/article/opinio ... 1064/lite/

Steady bold steps needed to get things to ramp up again.

[Marten]

To refresh your memory:
<snipped>

Funny. You can't save the money you don't have.

Deficits are not going away by any means. Is that what you read from the graphic?

However, you can save (the economy) by NOT spending or by eliminating wasteful funding like digging holes + filling them up. Point is that the deficit is now 3.2% instead of 4-5% ranges earlier. That gives you some leeway and margin to spend on programs that boost the rural economy (other than MNREGA pitholes etc.).

[jpremnath]

I can see plenty of gloom and doom over here....things are looking bad, but i wouldnt go as far to say NDA2 mishandled the economy. That credit solely belongs to UPA1+2. Pretty solid work they did...I dont understand why people are alarmed seeing the economy slow down for the last couple of quarters. How could anyone think that DeMo and GST would not have an adverse impact on SMEs?..It definitely did; and a slowdown for this year was given,...just think about all those SMEs trying to recover from their disruptions to their supply chain and cancelled orders...first time with demo and then again with GST. They will recover, but will take time..probably back to full flow by next year end...its like how people scream murder during a bear run in stock market..thinking its the end of world, while the smart ones knows this will pass and use the opportunity for cheap pickings.

Is Modi & Co clueless on the economic front?..nope...Could they have done better..yes. They have avoided sorting structural issues which needed states' involvement. It is surprising since they were low hanging fruits as majority of the states had already been under NDA for atleast 2 years now. Except Rajasthan, i dont see any NDA states trying to implement structural reforms. This is clearly seen in industrial growth or lack of it. Its been in a rut for years now which is why there is practically no job growth with the IT also down from their peak recruitment drives...Atleast Modi could have gone all in on the DFCs and Infrastructure corridors..they have been on sloth mode on it ..these two corridors along with the DFCs cover 50% of the population and would have boosted demands for cement, steel and power like crazy.

They also failed the war of perception...Of all,I believe this could damage them the most by the time 2019 comes. You cant sell 'Ache Din aane vale he' for 5 years..There needs to be something visible for people to feel hopeful about..expressways, gleaming trains, better roads which will tell people their wretched lot is improving. The middle class and working class are taxed like never before now. They need to see those taxes spent somewhere. They know atleast 35rs out of 70 they pay for fuel goes to govt, but sees the same pot holed and shitty roads everyday. They saw swatch Bharath cess and plenty of noise in advrts, but our cities are the same cess pool like before. Believe it or not, the best roads and footpaths in the country now belong to congress ruled bangalore (just look upon TENDERSURE roads). The chinese knows how much looks matter to common lot and thats why they make sure their roads, train and pedestrian infra is all TFTA.

[yensoy]

Government will use all the money saved over the past 2 years to flood the system with cash and price cuts .

Saved ? Where ? We have been running deficits for the past two years and indeed are targeting a deficit of 3.2% of GDP this year.

Guys, make up your mind. If you are paying more in taxes and paying more for petrol, and the government has not particularly increased subsidies in any major way, they must be sitting on more money no?

Or is it that the realization of NPA losses and farm loan waivers (which is another form of NPA loss accounting in the farm sector) suddenly has emptied the government coffers? If so, these losses didn't happen overnight but were always building up in the system, so all the current government is doing is recognizing the losses. Which means that the deficit figures for years past, if corrected for immediate realization of NPA losses, would be far worse.

You can't have it both ways.

To refresh your memory:

Funny. You can't save the money you don't have.

You can't, I can't. But here is a secret - the government can. It can fudge, it can borrow, and it can print liquidity.

[A_Gupta]

Bloomberg reports:
https://www.bloomberg.com/news/articles ... 9-2018-5-8

The Asian Development Bank raises Developing Asia’s 2017 growth forecast to 5.9 percent from 5.7 percent in its latest Asian Development Outlook Update.

- China growth forecast raised to 6.7% y/y from 6.5%
- South Korea growth forecast raised to 2.8% y/y from 2.5%
- India growth forecast cut to 7% y/y from 7.4%
- Indonesia growth forecast maintained at 5.1% y/y
- Thailand growth forecast maintained at 3.5% y/y
- Philippines growth forecast raised to 6.5% y/y from 6.4%

[A_Gupta]

ADB report:
Asian Development Outlook 2017 Update
PDF file: https://www.adb.org/sites/default/files ... update.pdf

Transitory challenges temper India’s strong growth prospects. With sluggish consumption and dampened business investment, GDP growth is now expected to dip from 7.1% in 2016 to 7.0% in 2017. Demonetization last November suppressed small businesses and private credit, and adjustment to the new national goods and services tax muted manufacturing. However, short term disruption is expected to dissipate, allowing these initiatives to generate growth dividends over the medium term. Expansion is forecast to accelerate to 7.4% in 2018.

Despite the revival in trade:

Yet the regional current account surplus is set to contract. Developing Asia’s
current account surplus is forecast to narrow from 2.3% of GDP in 2016 to 1.5% in
2017 and 1.4% in 2018. This is because the regional rebound in import values so
far in 2017 has been higher than that of exports. In particular, imports to the PRC
and India, which together receive 38% of developing Asia’s total, grew by 23% in
the first 5 months of 2017. However, the projected moderate rise in oil prices will
help net oil importers in the region keep external balances under control.

Many Asian economies are in an accelerating phase of the business cycle. Knowing where an economy is in its cycle helps determine whether macroeconomic stimulus is needed or if it would cause overheating. Analysis of emerging Asian economies with sufficient data shows that since 1993 all have experienced multiple cycles, defined as fluctuations in output around the trend. The duration of the current upturn, which started after 2013, has so far been shorter than past episodes for Malaysia and Taipei,China, but has already stretched beyond the past average for the Republic of Korea (ROK), the Philippines, India, Indonesia, and Thailand. However, the pace is slower than the average in previous episodes for all economies except the Philippines.

South Asia’s economic recovery is delayed until 2018. The subregional growth
forecast is downgraded to 6.7% in 2017, 0.3 percentage points lower than envisaged in ADO 2017 but the same rate as in 2016. Growth remains strong in India despite temporary drag from adjustments to policy reform. Manufacturers there sold off inventory in response to a goods and service tax introduced in July 2017, which moderates growth in that sector. Most other South Asian economies are expected to meet or exceed April growth forecasts, but not Sri Lanka, because of adverse weather, or Bhutan, where geological problems have constrained construction on two large hydropower projects. Growth in Nepal surged in fiscal 2017 on earthquake recovery but is slowing as the pace of reconstruction eases and agriculture struggles following floods. In 2018, a pickup in Indian growth to 7.4% will buoy expansion in South Asia to 7.0%, which is still 0.2 percentage points off the earlier forecast. The subregional inflation forecast is lowered to 4.2% for 2017 and 4.7% for 2018. Expectations of favorable global commodity prices, generally good harvests, and prudent macroeconomic are all in play.

The downgraded forecast for India reflects an unexpectedly weak first quarter in FY2017, in which growth was unsettled in the run-up to the July implementation of a goods and services tax while the economy was still recovering from a surprise demonetization last November. Weaker manufacturing and softer credit growth add to the tepid outlook for 2017

India’s economic performance has been rockier so far in FY2017 (ending 31 March 2018) than in recent years as shocks from a series of reforms hit production and investment, particularly manufacturing. The forecast for GDP growth in FY2017 is revised down by 0.4 percentage points to 7.0%, though this is still one of the highest growing rates in developing Asia. The underlying growth driver, as forecasted in ADO 2017, is consumption. On the positive side, a healthy monsoon, buoyant consumer confidence, and a strong pickup in trade bode well for FY2017.

On the other hand, the introduction of a goods and services tax has significantly hit manufacturing orders. The Nikkei purchasing managers’ index dipped in July to 47.9, its lowest since the global financial crisis of 2008–2009 and well into contraction territory below 50 (Figure 1.1.10).

Industrial production has also been volatile, ticking up earlier in the year but then
falling in the second quarter, in contrast with other major Asian economies. This possibly reflects firms’ destocking and reductions in production over concerns about the goods and services tax. Still, it is possible that, with greater clarity about the tax implications for manufacturers, the outlook may improve by the end of FY2017.

Consumption is expected to remain buoyant following a wage hike for government
workers in 2016. Total private consumption contributed 3.6 percentage points to growth in the first quarter FY2017, while investment contributed 2.9 points.

The demonetization of about 86% of Indian currency in circulation, by value, was successfully completed despite a very short period between the announcement of the policy and its implementation. The surprise demonetization targeted off-the-books cash transactions, but the results of the exercise suggest that most were legitimate. At the end of August, the Reserve Bank of India reported that 99% of the old bills had been deposited into the banking system by the December 2016 deadline. Nevertheless, the government is convinced that a long-term benefit will be the formalization of the economy, as many small merchants were forced to open bank accounts to make the deposits necessary to redeem their old cash.

A slow adjustment to the national goods and services tax temporarily disrupted firms’ credit and investment plans, including many tied to small suppliers, which affected manufacturing output.

Nonetheless, unexpectedly strong tax revenues reported midyear suggest that simplified administration helped improve collections. The effect of the tax on growth seems to be temporary, and it could have positive effects on long-term growth trends. Now that the tax implementation is behind them, the owners of small businesses may become more confident. Over the medium term, the government has stated its commitment to structural reform, which will help to maintain or lift potential GDP growth.

[A_Gupta]

continued:

Subregional inflation in South Asia is downgraded to 4.2% from 5.2% in April and to 4.7% in 2018, in both cases largely reflecting a huge downward revision in India.

Inflation in India is now forecast to rise by only 4.0% in 2017, a large downgrade from April, on sharp decreases in food and other prices and on the lingering effects of demonetization.

Concerns over the possible inflationary impact of the implementation of the landmark national sales tax begun on July 1, and salary hikes for state employees later in the year that have yet to be announced will push prices in 2018 to 4.6%, but still less than forecast in April.

[A_Gupta]

continued:

Table 1.3.2 shows the duration of the current upturn in comparison with the historical average for each economy.

Malaysia, Singapore, Taipei,China, and Hong Kong, China have been in upturns for 5 quarters, all starting in the fourth quarter of 2015. History suggests that these economies are still several quarters away from the peak of their cycles.

In other economies, the current upturn has exceeded the average duration by more than a year, though there are some differences.

From a trough in the second quarter of 2014, Thailand started experiencing an upturn that has continued for 11 quarters, well above its historical average of 5.3 quarters.

In Indonesia as well, the current upturn has, at 8 quarters, lasted beyond the average of 6.3 and become the longest on record.

Current upturns in the ROK, the Philippines, and India are protracted but not beyond precedent.

While these upturns are long, their generally weaker pace of growth means that average quarterly gains in output have been comparatively small. So have accumulated gains.

In Thailand, seasonally adjusted real GDP increased by 9.1% in the 11 quarters of the current upturn, but the upturn that lasted the longest before this one, at 7 quarters from the third quarter of 1998 to the second quarter of 2000, yielded a real GDP gain of 10.5%.

In economies with a cycle hovering near a likely tipping point, this observation has implications for policy decisions. Additional support from accommodative policy would be welcome to spur activity and prolong the upturn phase.

Some economies—Indonesia, Malaysia, Thailand, and Taipei,China—retain room for policy maneuver. Where inflation rates are falling and currencies are appreciating, maintaining easy monetary conditions is consistent with the objective of boosting growth.

In the ROK, the Philippines, and India, however, the case for stimulus is less clear because the upturn has lasted longer than average and price pressures are building.

One way to strengthen and prolong economic upturns is to try to lift the output trend. This can be done by investing in sectors that address constraints on productivity growth, in particular the existing infrastructure gaps found in many developing economies in Asia. Government initiatives are necessary, but they can do only so much when they depend heavily, or even entirely, on public funds for investment into public infrastructure and the public services that depend on it. Governments need to encourage private sector involvement in infrastructure development by, among other avenues, establishing proper mechanisms to incentivize partnerships with the public sector.

[Suraj]

This thread is increasingly overrun with far too many noisy rhetorical posts bordering on being more suited to political thread. I'll use my discretion to delete or move posts of such a nature to focus this thread better. As a guideline, if you're making an argument, please find reference material to support your statements. Unreferenced rhetorical arguments will probably be deleted. Posters are welcome to report such posts so I can clean up better ; please don't disrupt the thread more by responding in kind.

[A_Gupta]

This European investor company:
https://www.ceicdata.com/en/indicator/i ... ity-growth

India's Labour Productivity improved by 5.59 % YoY in Dec 2016, compared with a growth of 5.48 % in the previous year.

[A_Gupta]

https://thewire.in/180706/scaling-effec ... nvestment/

In this regard, a new working paper at the National Bureau of Economic Research (NBER) – a leading economic research organisation based in the US – shows a worrying trend: Sliding research productivity across all major industries in the US despite exponential increases in research effort. What does this mean? More and more research is being required to maintain the same level of economic growth.

India, on the other hand, has been recently on a path of rising total factor productivity growth (TFP). This makes it extremely important for India to step up its R&D spending and improve its R&D infrastructure in order to provide a sustainable path to a long-run economic growth trajectory.

[nam]

Even if GoI pushes in a stimulus, most of the money could go in increasing Chinese imports

Infra: Chinese steel, cement products undercutting local companies
Power: nothing to say... majority of the solar cells are from China.
Telecom: again Chinese options
Manufacturing?
etc

There might be increased demand and taxes.. however paid on Chinese goods with no increase in Indian employment.

We needs to reduce the Chinese imports by hook or crook. Else we will be killing our economy. We cannot be just middleman peddling Chinese stuff.

[nam]

I am listing China's top exports based on this link:

http://atlas.media.mit.edu/en/profile/country/chn/

Computers
Broadcasting Equipment
Telephones/Mobiles
Integrated Circuits
Office Machine
Microphone & headphones
Electric Transformers/Power transmission
Semiconductor devices
Insulated Wires
Video Displays
Electric Motors


It is dominated by electronics & electrical goods. Tech probably provided by Taiwan, Japan & South Korea.

If we do some a** kis*** of Taiwan, Japan & SK and loads of tax breaks to electronic companies, we can be an alternate to the Chinese.

How much difficult is to produce microphones. Chinese exports $16 billion!

[arshyam]

Even if GoI pushes in a stimulus, most of the money could go in increasing Chinese imports

Infra: Chinese steel, cement products undercutting local companies

FYI

India slaps countervailing duty on some Chinese steel products - DNA

India has slapped countervailing duty for a period of five years on certain Chinese flat steel products to guard domestic players from imports that are subsidised by the exporting nation, a decision hailed both by the industry and steel ministry.

[Waylan]

I can see plenty of gloom and doom over here....things are looking bad, but i wouldnt go as far to say NDA2 mishandled the economy. That credit solely belongs to UPA1+2. Pretty solid work they did...I dont understand why people are alarmed seeing the economy slow down for the last couple of quarters. How could anyone think that DeMo and GST would not have an adverse impact on SMEs?..It definitely did; and a slowdown for this year was given,...just think about all those SMEs trying to recover from their disruptions to their supply chain and cancelled orders...first time with demo and then again with GST. They will recover, but will take time..probably back to full flow by next year end...its like how people scream murder during a bear run in stock market..thinking its the end of world, while the smart ones knows this will pass and use the opportunity for cheap pickings.

Is Modi & Co clueless on the economic front?..nope...Could they have done better..yes. They have avoided sorting structural issues which needed states' involvement. It is surprising since they were low hanging fruits as majority of the states had already been under NDA for atleast 2 years now. Except Rajasthan, i dont see any NDA states trying to implement structural reforms. This is clearly seen in industrial growth or lack of it. Its been in a rut for years now which is why there is practically no job growth with the IT also down from their peak recruitment drives...Atleast Modi could have gone all in on the DFCs and Infrastructure corridors..they have been on sloth mode on it ..these two corridors along with the DFCs cover 50% of the population and would have boosted demands for cement, steel and power like crazy.

They also failed the war of perception...Of all,I believe this could damage them the most by the time 2019 comes. You cant sell 'Ache Din aane vale he' for 5 years..There needs to be something visible for people to feel hopeful about..expressways, gleaming trains, better roads which will tell people their wretched lot is improving. The middle class and working class are taxed like never before now. They need to see those taxes spent somewhere. They know atleast 35rs out of 70 they pay for fuel goes to govt, but sees the same pot holed and shitty roads everyday. They saw swatch Bharath cess and plenty of noise in advrts, but our cities are the same cess pool like before. Believe it or not, the best roads and footpaths in the country now belong to congress ruled bangalore (just look upon TENDERSURE roads). The chinese knows how much looks matter to common lot and thats why they make sure their roads, train and pedestrian infra is all TFTA.

It was net export that did q2 gdp in. Yes both demonetization and gst had impact. Service and construction, both cash reliant, came out relatively strong. At the same time, there still is a short fall of INR 2.3 trillion to get back to Oct level cash in circulation. By last numbers available, RBI has injected back up to 87% of Oct level. Q1 government consumption was so high, being the last quarter of the previous fiscal, there might have been a rush to spend it all, even though normally fiscal spending are front loaded in the first quarter, which was the Q2, so that was a bit of puzzle.
INR is getting stronger vis a vis other EM currencies REER wise, though we won't see nothing in next Wednesday RBI meeting.

[Manish_Sharma]

Apologies if posted before:


https://swarajyamag.com/economy/heres-w ... ef-in-2014


Here’s What Bibek Debroy Would Have Told Modi If He Had Been EAC Chief In 2014

| R Jagannathan - Sep 26, 2017, 11:59 am |

Here’s What Bibek Debroy Would Have Told Modi If He Had Been EAC Chief In 2014
SNAPSHOT
It is obvious that Debroy’s advice at the beginning of Modi’s tenure would have been substantially different from what he may give now, but it is unlikely he has completely changed his views between February 2014 and now.

The appointment of Bibek Debroy, currently member of NITI Aayog, as Chairman of the PM’s Economic Advisory Council (EAC) is an indirect acknowledgement that even politically astute leaders could do with the right economic advice when things go wrong. Narendra Modi could not have found a better choice than Debroy, who will be assisted in his job by four other part-time members, including Surjit Bhalla, Ashima Goyal, Rathin Roy and Ratan Watal.

With the economy on a structural slide since the first quarter of 2016-17, at least two quarters ahead of demonetisation, the PM clearly needs to know what needs to be done to fix things. What the creation of the EAC signals is that he is willing to listen.

The question is what kind of advice will Debroy give now? To find an answer, we can look at what he was saying in 2014, well before Modi came to power.

In February 2014, I had requested Debroy to write a wish-list for the next government in terms of economic priorities. This was published in Firstpost.com (read the full wish-list here). At the top of his list was the need to restate the budgetary accounts after former finance minister P Chidambaram’s fiscal fudges, allotting higher amounts for banks recapitalisation, privatisating loss-making public sector units, deregulating oil prices, and winding down the Planning Commission, among other things.

While Modi has done some of these things and ignored others, the biggest mistakes obviously relate to his failure to restate the Union budget after removing Chidambaram’s efforts to show a lower fiscal deficit by postponing 2013-14’s expenditures to the following year and bringing forward revenues due the next year to 2013-14. Unfortunately, Finance Minister Arun Jaitley chose to present Chidambaram’s basic budget with a few cosmetic changes. As Swaminathan Anklesaria Aiyar put it, it was Chidambaram’s budget with saffron lipstick. United Progressive Alliance’s misstatements were digested in the National Democratic Alliance’s first budget and carried forward.

Modi and Jaitley needed to change the fiscal roadmap in 2014-15 after restating the real fiscal deficit at a higher level than the 4.1 per cent Chidambaram had penciled in his interim budget after a lot of fiscal legerdemain.

That mistake would have set a different fiscal roadmap. By agreeing to proceed with Chidambaram’s fudges and broadly sticking to his fiscal consolidation roadmap, Modi and Jaitley bought a pup. This is why we now have to ease the fiscal targets this year – with only one regular budget to go before the general elections. It is this original mistake Debroy will now have to correct, even while recommending sensible economic revival strategies for the remaining 20 months of Modi’s government.

It is obvious that Debroy’s advice at the beginning of Modi’s tenure would have been substantially different from what he may give now, but it is unlikely he has completely changed his views between February 2014 and now.

But, all things considered, Debroy as head of EAC is the right choice. More important, the PM may have more confidence in his advice than what has been proffered by others.

The reason why politicians tend not to listen to economists flows from one simple fact: politicians are accountable, and need to win elections. Economists are unaccountable, and can say anything they think is right.

It is not as if Modi received no advice from economists earlier. From Raghuram Rajan to Arvind Panagariya, from Jagdish Bhagwati to the Finance Ministry’s Chief Economic Advisor, he has seldom lacked advice. The problem with taking such advice is this: it is useless unless the economist consents to wear two hats: political and economic.

Except in times of crisis, as in 1991, politicians find it tough to take economic medicine without political goals thrown in to sweeten the mixture. This implies that the best economic adviser to a prime minister or even a chief minister is one who understands political sensibilities while giving economic advice.

It is from this context that Debroy’s elevation as the PM’s EAC chief is laudable. Having been in government for long, and also as someone who had some good things to say about Gujarat’s growth under Modi, Debroy can afford to give economic advice that does not ignore Modi’s political situation.

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[vina]

I Need To Speak Up NOW

Yashwant Sinha writes: The economy is on a downward spiral, is poised for a hard landing. Many in the BJP know it but do not say it out of fear

There Boyz. One of your own, with the Cojones to speak up has done so. Now wake up and smell the coffee.

Also, saw another datapoint somewhere today. All indirect taxes TODAY are at a HIGHEST % of GDP since Rajiv Gandhi days. The GST has actually seen an increase in indirect taxes from 12 to 14% to 18%. No wonder you get a sticker shock when you go eat at a restaurant today.

Higher taxes --> lower demand. Rupee strength --> Higher imports --> displaces local goods & manufacturing.

Jaitley was, to begin with, a lucky finance minister, luckier than any in the post-liberalisation era. Depressed global crude oil prices placed at his disposal lakhs of crores of rupees. This unprecedented bonanza was waiting to be used imaginatively. The legacy problems like stalled projects and bank NPAs were no doubt there and should have been managed better like the crude oil bonanza. But the oil bonanza has been wasted and the legacy problems have not only been allowed to persist, they have become worse.

Exactly what I had written here in this thread as well. Yashwant Sinha has put it far better than I did. The oil bonanza has been spent & wasted . I would lay the blame for that squarely on the lack of political will do any structural reforms and indeed a belief by Modi & Co that they can do command and control better than the Kangress windbags.

What we desperately needed was a Indian Treuhand . Arun Shourie did that with great finesse during the Vajpayee years (Maruti, VSNL and others..he wanted to do Air India, but alas , was stymied by the politicos.. if only.. sigh), and should have been put in charge of a huge re-org and industrial reconstruction effort right when this govt came to power and told him to clean up the PSU/Govt Companies and NPA mess. But no, they actively antagonised him. What Narasimha Rao couldn't do in 1991, Vajpayee & Arun Shourie did partially and one hoped Modi could have done it fully. But No. He turned to the same set of folks who stymied Shourie earlier, and had ideological blinkers against "privatisation" and refocusing of Govt. Basically Kushabau Thakre Dattopant Thengadi strikes back from the heavens.

[nandakumar]

From the Swarajya article penned by Jagannathan:
"Modi and Jaitley needed to change the fiscal roadmap in 2014-15 after restating the real fiscal deficit at a higher level than the 4.1 per cent Chidambaram had penciled in his interim budget after a lot of fiscal legerdemain."
I don't understand what would have been achieved in terms of GDP growth rate in 2017-18, by restating fiscal deficit numbers of 2013-14 or restating the numbers for interim budget of 2014-15. Let us take the fiscal deficit numbers in the interim budget 2014-15. It had really no meaning- a formality to be gone through with due to constitutional compulsions of keeping the bare minimum expenditure going till the new government presented a regular budget and got parliamentary approval.It might as well have not existed. Now if we take the case of restating the numbers of 2013-14, let us assume just for the sake of argument that the real fiscal deficit was 8.5% but for accounting judges by Chidambaram, does it give Jaitley to run up a fiscal deficit of 7% in 2014-15? People who are crucifying Jaitley for even contemplating some relaxation on deficit spending in 2017-18 because growth is slowing down would have accused him of fiscal recklessness then. But there is a far more compelling argument. It has to do with the fundamental incapacity of the governmental machinery to scale up development expenditure. It has always been last year plus 15% type of performance that you can expect from the bureaucracy. Just to take an extreme example, can we seriously expect that the atomic energy commission could have installed 5000 mw of additional nuclear power generation in the last two years if the government had made more money available to it?

"allotting higher amounts for banks recapitalisation, privatisating loss-making public sector units, deregulating oil prices, and winding down the Planning Commission, among other things."
It is true that the Govt allocated only a small sum towards bank capitalisation. It did not result in depositors losing faith in the banking system and cause a run on the banks leading to a collapse of the system and starving the industry of credit. If industry is queuing up at the bank's doors and bankers are turning them away how does one explain the fact that bank's have put lot more money in govt securities than what the RBI mandates them to do? Jaitley could have pumped in fresh money to SBI that would have made its 'capital ratio to loans' at 25% and still not made SBI lend an extra rupee than what it ended up doing in actual terms. So much for bank capitalisation and what it could have done to GDP growth rate now. Hastening the privatization of loss making units is again the victim of how decision making happens in bureaucracy which is an intrinsic part of the Government. Midi doesn't have the plenipotentiary power to decree that as of this day the ITDC is the lawful owner of the land on which Hotel Ashoka in New Delhi stands? (Yes, that is one reason why disinvestment in ITDC' s Ashoka Hotel is stuck. There are no title documents to show that ITDC is the legal owner!)

"should have been put in charge of a huge re-org and industrial reconstruction effort right when this govt came to power and told him to clean up the PSU/Govt Companies and NPA mess."
If the argument is that Arun Shourie would have made a difference to the GDP growth rate why stop with making him the minister in charge of disinvestment? Let us make him the PM.

[Austin]

India improves on WEF’s global competitiveness rankings