Indian Economy: News and Discussion (Apr 1 2011)

vina · Post by **vina** » 23 Jun 2011 12:52

Suraj wrote:I've seen some curious changing dynamics w.r.t India and Singapore from a business perspective. Back in the 1990s, SG used to have the APAC/ASEAN head offices of several MNCs operating in India, as a result of which the Indian division was hierarchially below APAC head office in SG (or in some cases HK). As the Indian market grew bigger, companies realigned upper management to have Greater India reported directly to HQ, as a result of which SG was downsized to ASEAN HQ, making them peers. In some cases they became subordinate, all in a matter of years. Some takleef and echandee loss of face was observed

Indeed it has. In fact, the trends were visible even back in 1995 or so. One of my pals there was a pretty senior guy at IBM Singapore and he told me something. That year, it seems that SAP's license revenue in India was more than the entire Asean put together! Think of it. I for one wouldn't be surprised if India got a totally India focused management reporting directly to German HQ and not be a side show to some "Asean" type.

Also long term "Regional HQ" business, I am not sure of it. It is incredibly expensive. One of my mom's cousin and her husband (they were settled in the US since 60s) got moved to Singapore (I think her husband was head of Digital in Singapore). The deal is that for such kind of moves the companies try to equate the life style to what they had in the US + additional hardship allowance. Their house was uber TFTA. It was right on Orchard road (at the end there is a heavily wooded area with a complex of villas , close to the Istana), they had a "Tudor Style" villa, which could have been plucked out of Cupertino /Los Altos (just a lot little more posh) and dropped right into the heart of poshest singapore (imagine the value of the land there), and rent upwards of USD $15k per month.. plus utlitities (the A/C ran 24 hrs in all rooms.. it had to be like US in a tropical climate see ?),car, more.. this that... All in all, incredibly expensive. And another one, there was a relative of mine who moved to Bangalore when IBM opened shop here in mid 90s, was drawing "hardship India pay" while livingwith his father in law's house in High Grounds/Palace Road/Jayamahal thereabouts, drove around in a Mercedes Benz and sold like 1000 IBM PCs total for the 2 years or whatever he was here (and oh, I forgot to mention. IBM had a 2crore or such insurance for him (remember early 90s!). India dangerous onree no, tauba tauba if something happens ..err. was his FIL going to bull cattle him I wonder) !

I wonder what will happen if someone at HQ calls the bluff of that rubbish and tell, WTF, 'em SDREs are in most cases better managers than the over paid and pampered Goras. Hire them instead! They are lower maintenance, will work for daal chaawal and a few dollars and do much less nakhras.. And from there, it is a very short route to say.. Wait a min.. WTF am I hiring SDRES and moving them to Singapore. Move to Bangalore Kerala! In fact, I rememeber back in those days, folks like Infineon and others were putting out adverts in news papers in India for analog /mixed signal YinJin Ears in Bangalore. Guess what has happened now. The entire centers in Singapore are probably closed and moved to Bangalore Kerala!

Singha · Post by **Singha** » 23 Jun 2011 13:15

thats good . as you know before independence, only british were allowed to run tea gardens, trading houses (kolkatta still has a line of buildings down the hooghly with their names embossed) and coffee plantations. after indepdence the products of elite metro public schools (modern school , cathedral, st xaviers, bishop cottons, doon, mayo, lawrence) were preffered for these and any high profile corporate job. these gents knew how to knot a silk tie and use cutlery. later on the products of normal schools, tier2 rajma-chawal, idli-dosa towns began to proliferate and glass ceilings were broken. even women (shock horror) were allowed into the plush executive suites and lunch rooms with turbaned waiters.

its important to keep breaking these class barriers and rubbing noses in the dirt, so that each generation gets more opportunities than the one before.

somnath · Post by **somnath** » 23 Jun 2011 13:35

Suraj wrote:Jamnagar I has been in operation since 1999, and Jamnagar II was under construction since before the SEZ Act took shape and came into effect. Your viewpoint suggests that the macroeconomic value add question wrt SEZ related exemptions was a consideration in their conception, but it was not. They got breaks, no different from the form of targeting GoSG does in supporting the Port of Singapore and assorted targeted industries, latest being their biotech initiative, as I recall, as well as the rather ghastly focus on gambling that's turning the place into another Macau.

Jamnagar I was setup as a domestic refinery, to supply finished products to the Indian market...As RIL did not have any retail distribution then, there was a standing arrangement to sell the output to PSU OMCs, at "market" prices, ie, divorced from any quasi-APM shenanigans of ministers...

Jamnagar II was always supposed to be an EOU..But as I had mentioned before, the plan was to get EOU status while substantially supplying petrol/diesel to the domestic market - best of both worlds...When rising oil prices and quasi-APM scuttled that, SEZ happened, virtually overnight...

the issue isnt whether it was a good deal for RIL, or whether RIL runs an effiicnet refinery..The issue is whether there is large macroeconomic value (commensurate to "costs") being added to the economy by importing crude from Iran, refining it in India and exporting petrol to Germany...GRMs are an indication of that...The Indian trade policy itself sets the benchmark of "value addition" higher than what is systemically possible in doing this trade...

I have no idea what tax breaks SG gave on biotech, but value add to the local economy on biotech is higher than oil refining by an order of magnitude running into the tens..

Net net, the issue of whether export oriented oil refineries add value to the economy is an open question - the jury is out on that...Its an energy economics question...

I see however, that some more supercilliousness borne out ofd nothing but google search have come on..

vina wrote:case in point, Oil Bonds being = = to GOI T bonds

I am still waiting for a rationale of how oil bonds represent an inferior credit exposure to the sovereign than normal G-secs...For someone ho doesnt know what Indian T-bills are "called", its quite funny to see "knowledge" borne out of google searched 5 year old news reports...

vina wrote:Singapore gets Indonesian crude refines it and exports it as well

Indonesia exports crude! they got kicked out of OPEC in 2008, having turned a net importer back in 2005!

vina wrote:Singapore and Malaysia are "developed" or caught in the middle income trap

Singapore "middle income"!? A country with a per capita income of USD 45000 is "middle income", hmm..

vina wrote:Singapore's financial sector was something they hoped to build, but could never really rival Hong Kong and longer term, I think Dalal St will be lot more bigger financial market than Singapore can ever be.

Equity markets = Financial markets - typically amateurish, or maybe pink paper-ish...

One of the funny things about some discussions is how the real point made is taken onto completely unrelated grounds...Now we have an "I was in Singapore in the '90s" exposition of the industrial progress of the place...Something like "I know what impact SEZs have because I drove through Mahindra SEZ" that we have seen before...Of course, how is that related to the "qulity of India's export basket" is well, unknown...

somnath · Post by **somnath** » 23 Jun 2011 13:42

Suraj wrote:I've seen some curious changing dynamics w.r.t India and Singapore from a business perspective. Back in the 1990s, SG used to have the APAC/ASEAN head offices of several MNCs operating in India, as a result of which the Indian division was hierarchially below APAC head office in SG (or in some cases HK). As the Indian market grew bigger, companies realigned upper management to have Greater India reported directly to HQ, as a result of which SG was downsized to ASEAN HQ, making them peers. In some cases they became subordinate, all in a matter of years. Some takleef and echandee loss of face was observed

For most companies (outside IT), India still reports to APAC (it was never ASEAN)...Some companies have started treating India as a "region" by itself - it will accelerate...However, never discerned any "loss of face" etc - people do jobs tht they are asked to, its not personal property! In any case, most APAC honchos have been Indians for some time now - its the same guys who move back to India now..

Singha · Post by **Singha** » 23 Jun 2011 14:34

>> but value add to the local economy on biotech is higher than oil refining by an order of magnitude running into the tens..

how exactly do you prove that. both employ people. both feed downstream industries. both need raw materials both local and foreign. both need imported and local machinery. biotech does not need a township, oil refinery usually has a huge township attached to it, that drives the development of the surrounding area. the biotech hub of bommasandra in blr with biocon et al do you think the local people are holding the 1 cr /annum scientists jobs there? its mostly NRI Phds who r2i'ed.

growth and money is just that - there is no point pinpricking things looking at "quality" of growth and saying "10% growth of gujarat" is not as high quality as 7% in maharashtra.

nothing has stopped GOI from giving out benefits to any industry incl biotech and indeed these have also been given.

RIL with whatever profits it makes is not stashing it into a swiss account, these profits are being used to reward shareholders (not sure if they pay dividends), growing the business, entering new markets, ..... which create jobs in turn.

nobody in beijing had a loss of face when the "quality" of china's initial growth based on cheap plastic toys, household utensils, shoes, rugs and low quality tools was put up for discussion.

sugriva · Post by **sugriva** » 23 Jun 2011 14:47

vina wrote:...."We promise to pay the bearer Rs X ", and in other worlds, also IOU and also called Wampum!

WOW, so there is no difference between currency and bonds

Isn't the point about bonds about taking away the hard earned khota sikkas of the citizens of Bangalore Kerala and giving them nice A4 size JK bond paper promissory note in return. So bonds is A4 sized paper for hard earned khota sikkas. Net effect is to reduce khota sikkas. Printing currency is about releasing Gandhi picture cloth paper promissory note to the market through banks. So how are the two same.
Incredible that you should be trolling on the forum about this for 1 full day and no one calls you out.

somnath · Post by **somnath** » 23 Jun 2011 14:56

Singha wrote:growth and money is just that - there is no point pinpricking things looking at "quality" of growth and saying "10% growth of gujarat" is not as high quality as 7% in maharashtra.

The whole discussion started with that...Pink papers concentrate on headline numbers...Policymakers look closely at "quality"...Greater incentives are given for sectors that have higher value additions, sectors with lower value additions are adjusted downwards in terms of incentives and so on...Especially exports, where there are a plethora of exemptions, tax credits, breaks and the like...

Its not any "loss of face" or "pinpricking" - the discussion started with an enumeration of what people in the "real" world(read, people who make policy, and not just read pink papers, or drive through SEZs) look at while evaluating a country's export performance...

somnath · Post by **somnath** » 23 Jun 2011 15:04

sugriva wrote: So how are the two same.
Incredible that you should be trolling on the forum about this for 1 full day and no one calls you out.

Well, I asked that question about thrice, each time got "aloo" answers, and gave up!

Theo_Fidel · Post by **Theo_Fidel** » 23 Jun 2011 19:03

Singapore in particular has had an odd relationship with India. There used to be a time when the highest aspiration for a Indian city was to be like Singapore. AMMA used to proclaim that she would create a 'Singara Chennai' and all to mirror the Singapore look. There used to be Tamil films with slack jawed locals wandering around the 'posh' parts of Singapore. Not anymore though.

The big change is the arrival of Dubai. I guess it is even more TFTA and completely put Singapore in the shade. Now we go straight to Switzerland and 'Narrway' even, for Tamil film locales.

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WRT the Singapore India HQ business, the big selling point was nothing happened in India while Singaps was all slick and organized. I personally worked through those connections a couple of times and the Singapore connection was easily the most annoying. They repeatedly seem to have a low opinion of others work and this includes Americans. Their lack of knowledge and local connections in India was very tedious as well. Over our recommendation they issued a global online bidding system that the Indian contractors promptly rigged and we ended up getting inflated bids. Second time around they open up the contract online and we got 58 bids! This was their only job and they managed to screw it up. And this has been the experience of several engineers I've worked with. They are the only place we did not get paid for a project we did on the strength of a telephone conversation and a handshake. They used the lack of written contract like a weapon against us though it was for a measly $120,000. Their standard tactic was to call the work useless, even though they then hired a local engineer to complete the project using our material. I couldn't believe it, and even their managers acted like this was normal and how they treated each other.

Personally I would never recommend going through Singapore again. Get a written contract even for $1000 and never turn your material over to them. India has similar problems but not at the management levels. I have completed a couple of recent projects there on just a handshake from professional top management, contracts take too much time, and we eventually got paid. Lower levels is another matter.

The American base company just observed and did not say anything during these proceedings but 6 months later we heard the India HQ was opened and the India rep/division in Singapore got 'moved on'. India no longer reports to Singapore. I get the feeling that US & India are not as important anymore for Singapore as Pandaland. The old Chinese connection and all...

They are busy burning a lot of bridges on the personal level at the moment.

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Biotech is very labor intensive and where india excels. I fail to see the value add. Most of the products are essentially manufactured from scratch or through DNA/Genetic manipulation. The real money in bio-tech is in branded products but that is as yet out of our and most of ASEANS reach as well.

The real beauty of Jamnagar is that it is built to operate on the worst forms of sludge crude there is in the world. It is a bottom feeder type refinery, often taking stuff others won't touch and turning it into gold. Now that's what I would call value add.

Suraj · Post by **Suraj** » 23 Jun 2011 19:48

somnath wrote:For most companies (outside IT), India still reports to APAC (it was never ASEAN)...Some companies have started treating India as a "region" by itself - it will accelerate...However, never discerned any "loss of face" etc - people do jobs tht they are asked to, its not personal property! In any case, most APAC honchos have been Indians for some time now - its the same guys who move back to India now..

It's a personal anecdote. YMMV.

PS: You really need to lighten up a bit instead of picking on every post and constituting half the posts in a single thread all by yourself to take on everything everyone says, like Rahul Mehta, even if it is just to say "my anecdotal view is better than your anecdotal view"

Theo_Fidel wrote:The real beauty of Jamnagar is that it is built to operate on the worst forms of sludge crude there is in the world. It is a bottom feeder type refinery, often taking stuff others won't touch and turning it into gold. Now that's what I would call value add.

Absolutely. In relative terms when it comes to crude refining, RIL Jamnagar provides better value-add than any other place on its scale.

Singha · Post by **Singha** » 23 Jun 2011 19:59

panda will play nice with singapore only so far as it has some use for it. after that the gloves will come off. panda does not believe in win-win form of any game, its always eventually a zero sum.

to their credit I think the singapore leadership atleast realizes they have a better chance at feeding on growth in india than in pandaland. there are plenty of other feeders like vietnam, cambodia, laos, philipines, taiwan and japan closer to pandaland, while singapore has india all to itself mostly...so they better get used to stepping over piles of cow dung and hearing the blare of loudspeakers from religious places and the not so propah ways here if they want a share of the pie.

vina · Post by **vina** » 23 Jun 2011 20:49

sugriva wrote:
vina wrote:...."We promise to pay the bearer Rs X ", and in other worlds, also IOU and also called Wampum!
WOW, so there is no difference between currency and bonds

Su -Grieve -Aaahh.. Good grief. Did you take your brains off along with your crown and forget to put it back on at Kishkinda before swinging over ? Why this has sunk to the comprehension levels of the "Super Comprehension" man!

You said that "they stopped using the printing press and now do OMO" .

All I pointed out was that the the printing press never stopped , but they were printing a different kind of paper to tackle the deficit, and you make a giant "Sugriva leap " straight to, " hence currency == bonds ", just like Super Comprehension man did and threw big words like "Monetary Policy" , "Velocity" and "Impact" and gobbledycock then I told him about buy 1kg of "Aloo" and he still doesn't get it!

How about this? In a printing machine that was used to print on paper, they were earlier printing on newsprint and made something called a Newspaper, but now they switched to printing on toilet rolls and make something called toilet paper. However both are still paper!

So now by your logic, "toilet paper is the same as newspaper" ?

(well, I wouldn't advise you to the newspaper instead of the toilet paper, unless you want a bad case of hemorrhoids down under).

Isn't the point about bonds about taking away the hard earned khota sikkas of the citizens of Bangalore Kerala and giving them nice A4 size JK bond paper promissory note in return. So bonds is A4 sized paper for hard earned khota sikkas. Net effect is to reduce khota sikkas. Printing currency is about releasing Gandhi picture cloth paper promissory note to the market through banks. So how are the two same.

This deserves a response in Haiku . It is quite profound.

"Promissory notes in return for hard earned khota sikkas - Bonds.
But when no khota sikkas exchange?"

Incredible that you should be trolling on the forum about this for 1 full day and no one calls you out.

Incredible innit? Maybe the others do bother to actually read and comprehend?

vina · Post by **vina** » 23 Jun 2011 21:05

Theo_Fidel wrote:Biotech is very labor intensive and where india excels. I fail to see the value add. Most of the products are essentially manufactured from scratch or through DNA/Genetic manipulation. The real money in bio-tech is in branded products but that is as yet out of our and most of ASEANS reach as well.

This Sinagpore Biotech business is just a wet dream. They simply dont have the scientific, educational, human resource , population or any base of consequence for it. It is one of those top down "Planning Commission" like models imposed because it looks great in paper (high value add and all that nice cool-aid the e-Con-o-mists and Management Con Sultans will push to Singapore as the Nirvana for growth and escaping commoditization and head on competition in it's traditional areas of strengths) .All they can put up is fancy buildings and equipment, and buildings and equipments dont make products, people do. Kiran Majumdar Shaw said the exact same thing about the Singapore Biotech stuff . In fact, only the likes of "uber Comprehender" can drink that Singapore Biotech Kool Aid . I have seen a very similar thing before in Malaysia in the mid 90s. Under Mahatir there was massive Hoo-Ha in the mid 90s in Malaysia about their spanking new capital called "Putra Jaya" and a whole now godzilla like "Cyber Jaya" and a "Multi Media Super Corridor" which they were supposed to pour some $40000000B and have everyone in the world shivering in the Dhotis and Silicon Valley would be swept away and all that (1995, US was just recovering from a severe recession). The rest as they say is history. Look what Silicon Valley and it's openness did and look where the Godzilla "Cyber Jaya" and "Multi Media Super Corridor" ended up and the kind of folks who ended up working even at whatever rump came up there! To imagine that Singapore is going to create something like a Genentech is simply stretching it to say the least.

I doubt they can come up with something even half as entrepreneurial and grounds up innovative as say a Biocon or even a Shanta Biotech or Serum institute who come up with innovations in vaccines and stuff and the entire world (including Bill Gates Foundation) makes a beeline to them when they want innovations in those areas with respect to costs and process and delivery . Even in drug discovery, the Indians have been pretty active lately.

ramana · Post by **ramana** » 23 Jun 2011 22:36

You know any plant biotech guys. Transgenic in particular!

Theo_Fidel · Post by **Theo_Fidel** » 23 Jun 2011 22:57

Vina,

You are absolutely right that the whole T-Bill thing is smoke and mirrors. It's all been monetized.

The way I understood it is that the RBI is monetizing a large chunk of it in the foreign currency market. At about $30-$40 Billion per year, that is about 3% deficit right there. This keeps the Rupee deliberately weak and increases the costs of our imports. The big item is oil imports become expensive. Of course we get to boast that our Forex reserves increase every year and that it now $320 Billion despite the trade deficit.

Also this distorted mechanism actually doubles the inflation effect as cash is released into the system and then high import costs further push up inflation. Helps exports though, wheels within wheels and all that...

somnath · Post by **somnath** » 24 Jun 2011 05:52

Theo_Fidel wrote:The way I understood it is that the RBI is monetizing a large chunk of it in the foreign currency market. At about $30-$40 Billion per year, that is about 3% deficit right there.

RBI buying forex in open market releases liquidity in the system, and is part of the overal monetary management of RBI...In the last many years, typically RBI targets broad money (M3) growth of 16-17% every year..There are multiple tools to achieve that - repo/reverse repo, fiat ratios like CRR AND foreign exchange...It is very far from "monetising" deficits...In fact when forex flows become excessive, requiring very high level of intervention, RBI issues bonds to suck out the liquidity created (called MSS bonds in India)...In the last few years, the overall level of forex reserves has hardly budged- from 300 odd in 2008 to ~320 today...It had gone down to about 250-260 in late 2008/2009, before recovering...With a large CAD, the net accretion anyway isnt much - I think it was about 10-11 billion dollars last year...

Net net, this is another of the pink paper theories that dont stack up in terms of theory/data..

vina wrote:In a printing machine that was used to print on paper, they were earlier printing on newsprint and made something called a Newspaper, but now they switched to printing on toilet rolls and make something called toilet paper. However both are still paper

Interesting, so the monetary impact of holding a 100 rupee note is the same as holding a 100 rupee 10year GSec! Barring the colour of print, issuance of ccy notes = issuance of bonds! Hmm...

sugriva · Post by **sugriva** » 24 Jun 2011 07:09

^^^^ somnathji,
dont feed the trolls. Anybody who says that bonds are equal to currency is simply trolling. People may or may not understand how budgets deficits are funded but they do understand that if they give their khota sikkas only then they get bonds. If everybody, Tom, Dick, Harry , Ram and Shyam and why even the forum troll gave up their khota sikkas for A4 sized paper bonds then a lot of khota sikkas go out of circulation. People also understand that they are induced to this in the expectation of a return. However the forum trolls will have you believe that currency is equal to bonds. Don't know about the trolls but normal hard working people get currency in return for services they render. The trolls probably eject them from their mussharafs and can reprogram themselves to eject bonds also. So for the trolls, bonds are equal to currency indeed.

About the GOI "monetizing" deficits in the foreign market, that is another piece of BS spouted by the maulanas of the learned school. Since the first spate of economic reforms in 1991, GOI hasn't funded budget deficits from external sources. BTW if the maulanas are so confident of this one then should post links that say so or STFU.

somnath · Post by **somnath** » 24 Jun 2011 07:22

sugriva wrote:About the GOI "monetizing" deficits in the foreign market, that is another piece of BS spouted by the maulanas of the learned school. Since the first spate of economic reforms in 1991, GOI hasn't funded budget deficits from external sources

Indeed...But to be fair to Theo, what he mentioned (or I think he did) wasnt funding the deficit out of external sources, but RBI "monetising deficits" through buying Fx in the market...Its nonsense (definitionally wrong in fact), of course, but a point that a few pink papers have brought up in the past..I was only clarifying that...

vera_k · Post by **vera_k** » 24 Jun 2011 12:06

Fundamentals to blame for costlier food

My anecdotal observation with two data points spread across 5 years, is that food inflation has been running at 22%. Lots of obviously malnourished people can be seen in the cities, and these are people holding down full time jobs.

I_Verma · Post by **I_Verma** » 24 Jun 2011 12:56

Hello all, I am a new poster. I've been coming to these boards for a while but I had an idea that I thought I should share.

I was thinking it would be in the country's best interests to focus on technology and export manufacturing out to countries such as Vietnam, Thailand, Cambodia etc. Is this a direction that businesses are going? I figured this would be a great way to 1. Become more R&D based (and thus less reliant on foreign technology), 2. Improve local business, 3. Improve foreign business, and 4. Improve relations with foreign nations

Singha · Post by **Singha** » 24 Jun 2011 14:41

this is from 2004
http://www.biocon.com/biocon_press_arch ... Fileid=129

Several recent studies say that among Asian governments, many have tried to build biotech sectors from scratch, but only Singapore has succeeded in a big way. Would you agree?
I beg to differ with your statement. Singapore has attained limited success in building a biotech platform. Singapore, no doubt, has invested an enormous amount in setting up their Biopolis and continues to pour unlimited funds and government incentives into the biotech sector with a single-minded determination to attain global leadership. The biggest challenge for Singapore has been to match their investments with skilled human resources. On the other hand, countries like India have leveraged their scientific skill to build their biotech sectors, but have been unable to match it with the required infrastructure. In the long term, a model based on human resources is far more sustainable than one based on hardware.

Do you think there are any Asian pharmaceutical companies that can grow to be a giant like Pfizer?
There are already Japanese pharmaceutical majors like Takeda, Fujisawa, Yamanouchi, Chugai and Sankyo that have the potential of becoming global giants. Ranbaxy and Dr. Reddy's are also aspiring to join the same league. In the biotech space, we [Biocon] also aspire to global leadership along with Genentech and Amgen.

--

Singha · Post by **Singha** » 24 Jun 2011 14:46

http://en.wikipedia.org/wiki/Biopolis

I wonder how they are doing at present . as expected very showpiece infra designed by zaha hamid....

here is a great rant about the putrajaya thing
http://blog.miragestudio7.com/putrajaya ... egion/705/

somnath · Post by **somnath** » 24 Jun 2011 18:01

This is a really good story - rise of Dalit entrepreneurism....

I have read of Chandrabhan Prasad's study that this article talks about - and I think I posted another reference here sometime back...Waiting for it to be completed...

http://business-standard.com/india/news ... og/440204/

the Centre for the Advanced Study of India (CASI) in the University of Pennsylvania has initiated a survey to count the Dalits who have a business of Rs 1 crore or more. So far, 500 or so have been profiled in the states of Maharashtra, Gujarat, Punjab, Haryana, the National Capital Region of Delhi and Uttar Pradesh

A recent study by Devesh Kapur (he heads CASI), Mr Prasad, Lant Pritchett and D Shyam Babu done in 20,000 Dalit households of Uttar Pradesh found that there has been a significant improvement in the socio-economic condition of the Dalits between 1990, the year before economic reforms were initiated, and 2008. Thus, they were found to (1) live in better houses, (2) eat better food, and (3) own more consumer goods. The material markers, says Mr Prasad, have overtaken the social markers in rural India. The study also showed that there has been a sharp fall in the number of Dalits working as farm labour, while there has been a perceptible rise in the number of Dalits running businesses. The societal damage done over centuries has been undone, to some extent, by economic reforms in two decades!

nandakumar · Post by **nandakumar** » 24 Jun 2011 18:41

somnath wrote:
sugriva wrote:About the GOI "monetizing" deficits in the foreign market, that is another piece of BS spouted by the maulanas of the learned school. Since the first spate of economic reforms in 1991, GOI hasn't funded budget deficits from external sources
Indeed...But to be fair to Theo, what he mentioned (or I think he did) wasnt funding the deficit out of external sources, but RBI "monetising deficits" through buying Fx in the market...Its nonsense (definitionally wrong in fact), of course, but a point that a few pink papers have brought up in the past..I was only clarifying that...

Right upto the outbreak of global financial crisis, India was receiving foreign exchange flows (both portfolio and direct investments) far more than what the private sector could spend in dollars or for that matter, what the Government could spend in purchasing fancy toys for the defence forces.
But the RBI was determined to keep these unspent dollars as a little nest egg and so unleashed corresponding rupees into the Indian economy. The Government's excess spending (over tax and other receipts) such as it was then, was useful in converting into securities whatever rupees that were unleashed by the RBI because of its policy sheltering these dollar flows so that it doesn't push the rupee value up. At the height of these flows the Government's deficit spending was still not good enough to soak up all the rupees unleashed into the economy because of the RBI policy of sterilising these dollar flows.
What the RBi did in consultation with the Government was to notionally make the Government use it up, not as additional deficit spending but an outgo nevertheless for the Govt. in the form of special deposit with the RBI.
It is as though the Government was borrowing money from the RBI not to blow it up on some PWD contractor payment (which would be the case if there was some bonafide expenditure) but use it to create a special depsoit with the RBI itself. Thus was born the Market Stabilisation Scheme. At the height of such flows the Govt. had as much as Rs 1,70,000 crore in special deposits with the RBI.
This is where the story gets more interesting. Over time, the Govt kept drawing down on this deposit in the last four years as its aggregate expenditure exceeded the receipts. Post global crisis the dollar inflows too began to slow down somewhat and the economy could comfortably absorb these flows without the RBI having to resort the accounting gimmickry of some additional deposits in the Government's name!
As early as June 2010, the Government used up all these dollar driven rupee deposits. So who funded these deficits that resulted in Rs 1,70,000 crore of cash lying in the Government's name getting completely wiped out? The California Public Employees Retirement System and other foreign investment funds whose search for 'value' brought them to India in the first place or the Government itself simply drew down on its excess balances with the RBI like a rich man drawing down on his past savings when down a little bit on his luck?
If you think it is the former then that is pretty much in line with Theo Fidel's argument that foreigners were funding Government's deficit.

uddu · Post by **uddu** » 24 Jun 2011 19:12

somnath wrote:I have read of Chandrabhan Prasad's study that this article talks about

You meant the person who calls English as the dalit Goddess.

chandrabhanprasad.com/index.aspx

Theo_Fidel · Post by **Theo_Fidel** » 24 Jun 2011 19:20

nandakumar wrote:As early as June 2010, the Government used up all these dollar driven rupee deposits. So who funded these deficits that resulted in Rs 1,70,000 crore of cash lying in the Government's name getting completely wiped out? The California Public Employees Retirement System and other foreign investment funds whose search for 'value' brought them to India in the first place or the Government itself simply drew down on its excess balances with the RBI like a rich man drawing down on his past savings when down a little bit on his luck?

Nandakumar,

It is technically not savings. If we had no capital controls, an equal amount of Rupees would have flowed out of the country and have become parked in foreign institutions. Just like Dollars do. But Babudom decided otherwise so we end up with both the dollars and the rupee amount floating around in the economy. We have our Forex hoard to show for it however. If dollars ever flow out of the economy that hoard will save our bacon.

I did not realize the MSS is completely drawn down. I thought only 50% or so was targeted for monetization. Ho can they do that without telling anyone? That partly explains the roaring 10-15% inflation we saw/see in 2010 and now 2011 despite good/bumper harvests.

Where is Rahul Mehta when you need him.

He would go on and on about how M2 growth was out of control and M3 growth was even more damaging and had all the numbers to show as well. I'm sure he would have caught the MSS thing by now.

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WRT Malaysia a less known fact is that it is quite simply an oil state. They don't advertise it but roughly 50% of their government revenues comes from Petroleum. On the order of $40 Billion+ per year from about 1 Million barrels of oil production. This would the equivalent of India getting a bonanza of $2 Trillion for its budget every year. It is the oil money that allows them to pretend they are an advanced state though one should give them credit for putting the oil money to good use esp. educating the population and for tax subsidies to companies. They havn't really built anything sustainable or long term though. Once the oil gives out they will be even more dependent on Singapore and likely to slide rapidly.

somnath · Post by **somnath** » 24 Jun 2011 19:56

nandakumar wrote:If you think it is the former then that is pretty much in line with Theo Fidel's argument that foreigners were funding Government's deficit

I dont think thats what Theo was saying....He was referrign to monetisation of deficits...

Theo_Fidel wrote:You are absolutely right that the whole T-Bill thing is smoke and mirrors. It's all been monetized.

The way I understood it is that the RBI is monetizing a large chunk of it in the foreign currency market

Anyways, on the broader point of MSS....First, RBI/GOI wsnt Robinson Crusoe in using bonds to sterilise excess forex flows, most Asian countries did/do that...Crucially for India, the impertive was greater as we ran a current account deficit, and all the forex surpluses were being created by large capital account flows, inherently thought to be volatile...Therefore, letting the rupee appreciate on account of capital flows that could reverse in a jiffy would be a strategy bad from very angle...

To the extent that govt borrowing programme could not "auto sterilise" the extra liquidity injection, MSS bonds were issued...That ostensibly borrowed "money" had to be parked somewhere..As bankers to the govt, it was parked with RBI...

Now, foreign flows into India that is not purchasing GOI bonds or loans do not create "debt obligations" on GOI, beyond the limited responsibility of ensuring "convertibility solvency"...

Therefore, I dont understand this..

nandakumar wrote:The California Public Employees Retirement System and other foreign investment funds whose search for 'value' brought them to India in the first place or the Government itself simply drew down on its excess balances with the RBI like a rich man drawing down on his past savings when down a little bit on his luck

Actually neither...Foreign investment in debt is very tightly controlled, more so for Gsecs..Calpers would have invested in Indian equities...GOI, in order to prevent INR from appreciating, kept the "excess" liquidity out of the system...when the forex supplies eased out, the same liquidity could be freed up for the system....Not much unlike OMO that the RBI does to manage liquidity within the system, basically like an OMO for non-INR currencies...

Ergo, it is neither an example of deficit monetisation, nor an example of "foreign funding" of deficits...

somnath · Post by **somnath** » 24 Jun 2011 20:07

Of course, nothing stops anyone from peddling voodoo theories...Ah for capital accunt convertibility...

Theo_Fidel wrote:If we had no capital controls, an equal amount of Rupees would have flowed out of the country and have become parked in foreign institutions.Just like Dollars do. But Babudom decided otherwise so we end up with both the dollars and the rupee amount floating around in the economy.

The excess dollars are bought up by RBI, releasing rupees, and the rupees are in turn bought up again by issuing MSS bonds..Assets with RBI is "floating around" in the economy! "Uncle told me" economics...

Theo_Fidel wrote:I did not realize the MSS is completely drawn down. I thought only 50% or so was targeted for monetization. Ho can they do that without telling anyone? That partly explains the roaring 10-15% inflation we saw/see in 2010 and now 2011 despite good/bumper harvests

Hmmm, so drawing down on MSS reserves = monetisation of deficits? And that explains inflation? Great...Poor Subbarao garu has been spending his breath neeedlessly on suplpy side constraints and attemting demand side cooling off through rate hikes...they should just stop drawing down of MSS rserves!

Theo_Fidel wrote:He would go on and on about how M2 growth was out of control and M3 growth was even more damaging and had all the numbers to show as well. I'm sure he would have caught the MSS thing by now

Sure - M3 is "more damaging" - didnt know M3 was a four letter word...I am sure with such terrific grasp of basics, something would have been "caught"

Gus · Post by **Gus** » 24 Jun 2011 20:08

icevermin wrote:Hello all, I am a new poster. I've been coming to these boards for a while but I had an idea that I thought I should share.

I was thinking it would be in the country's best interests to focus on technology and export manufacturing out to countries such as Vietnam, Thailand, Cambodia etc. Is this a direction that businesses are going? I figured this would be a great way to 1. Become more R&D based (and thus less reliant on foreign technology), 2. Improve local business, 3. Improve foreign business, and 4. Improve relations with foreign nations

Welcome to BRF. You have not read the guidelines I suppose

...some admin is going to change your username to a human sounding one.

Prem · Post by **Prem** » 25 Jun 2011 03:42

http://economictimes.indiatimes.com/new ... 970799.cms

MUMBAI: Private banks and local wealth management firms will have more affluent clients to serve in the coming years. India's population of HNIs surged 21% to 1,53,000 in 2010, according to the Merrill Lynch-Capgemini World Wealth report released on Thursday.
This is the second straight year in which India's HNI population growth has been among the top gainers, the report said. India pipped Spain to gain entry into the 'top 12 league' of countries which have highest number of rich people. "Indian HNIs continue to benefit from a robust economy and asset classes like equities and real estate," said Atul Singh , managing director and head, Merrill Lynch Global Wealth Management-India. Relatively high GDP growth rates along with higher market capitalisation helped Indian HNIs to generate more wealth, Mr Singh said. While GDP grew over 9%, market capitalisation surged 24% to reach $1,631.8 billion at the end of 2010. Property prices rose 1.9% during the year. As per Merrill Lynch-Capgemini report, Asia-Pacific posted the strongest regional rate of HNI population growth in 2010. HNI wealth in Asia-Pacific gained 12.1% to $10.8 trillion, exceeding Europe's HNI wealth of $10.2 trillion in 2010. Asia-Pacific is now the second-largest region for both HNWI wealth and population, second only to North America, the report said.

somnath · Post by **somnath** » 25 Jun 2011 09:43

Infra Debt fund regs finally taking shape....Its a good start, but taxation will determine its success...

http://business-standard.com/india/news ... es/440364/

somnath · Post by **somnath** » 25 Jun 2011 10:28

uddu wrote:
somnath wrote:I have read of Chandrabhan Prasad's study that this article talks about
You meant the person who calls English as the dalit Goddess.
chandrabhanprasad.com/index.aspx

Yes...He might be stretching the optics, but the principle (of giving primacy to "English" education for upliftment) is unesceptionable..

somnath · Post by **somnath** » 25 Jun 2011 11:12

NSSO (large sample) survey done for 2009-10 is coming out in various reports..We had the poverty data released sometime back...Now, unemployment data has been released..

http://economictimes.indiatimes.com/new ... 984301.cms

The survey reveals that unemployment rate under the broadest definition of employment, usual status, declined to 20 per 1000 from 23 per 1000.

This of course, refers to the change between 2004-05 (the last large sample survey) to 2009-10...

The previous time series data is here...
http://www.igidr.ac.in/pdf/publication/WP-2011-009.pdf
(Table 2.3 - the 2007-08 numbers given are from the "narrow sample" survey)

The report mentions the 2004-05 number as 2.9%, comapred to 2.3% referred to in the news article - I am a bit confused with that..

In any case, it only means that after the seeming blip in 2004-05 (when it went up from 1.9% in 1993-94), there is an improvement...

The biggest challenge is the stubborn stagnancy in organsied sector employment (Economic Survey has the numbers) - which is stuck @ 27-28 million...The prime reason of course being labour laws....

apoorv · Post by **apoorv** » 25 Jun 2011 13:58

Continuing with NSSO report:

http://www.livemint.com/2011/06/2500560 ... ss-gr.html

UPA has not created much jobs compared to a much larger number during NDA.

nandakumar · Post by **nandakumar** » 25 Jun 2011 16:57

somnath wrote:Of course, nothing stops anyone from peddling voodoo theories...Ah for capital accunt convertibility...

Hmmm, so drawing down on MSS reserves = monetisation of deficits? And that explains inflation? Great...Poor Subbarao garu has been spending his breath neeedlessly on suplpy side constraints and attemting demand side cooling off through rate hikes...they should just stop drawing down of MSS rserves!

Sure - M3 is "more damaging" - didnt know M3 was a four letter word...I am sure with such terrific grasp of basics, something would have been "caught"

Somnath, True there were supply side constraints especially on the food side which have pushed up prices. But that doesn't mean that monetary factors were completely absent or were not at least a contributory factor.
In the period since fiscal 2005-06 there has been a disproportionate growth in money supply relative to the growth in the nominal value of GDP. M3 grew on an average between 18 to 19 per cent. The nominal GDP grew by 15 per cent. The RBI rule of thumb on M3 growth had been that it shouldn't be more than a percentage point or two relative to the nominal GDP growth. But this could not be sustained as the dollar flows during the boom years were of an exceptional magnitude and RBI's effort at sterilising them wasn't 100 per cent successful.
My submission is that the cumulative effect of excess money supply relative to the trend line did play a part in the unbridled inflation that the economy witnessed in the last two to three years.
Theo Fidel, the RBI did disclose the phenomenon of the Govt drawing down of balances held as MSS deposits. The weekly statistical supplement did give details of movements in the MSS account.

somnath · Post by **somnath** » 25 Jun 2011 17:00

apoorv wrote:Continuing with NSSO report:

http://www.livemint.com/2011/06/2500560 ... ss-gr.html

UPA has not created much jobs compared to a much larger number during NDA.

Its a funny report - doesnt say what it means by "jobs created"...

There are three different measures of measuring unemployment...On all three, the unemployment rate shows an increase between 1993-94 and 2004-05...(IGIDR report)...

And the "Usual Status" number is reported (incl in the BS report below) to have declined between 2004-05 and 2009-10...Ergo, the point made in that Mint report doesnt add up to the numbers being reported...

http://www.business-standard.com/india/ ... ry/440392/

thats the problem with the media - it seldom substantiates properly the numbers it picks up, it becomes dififcult therefore to know what they are really referring to...

somnath · Post by **somnath** » 25 Jun 2011 17:20

nandakumar wrote:In the period since fiscal 2005-06 there has been a disproportionate growth in money supply relative to the growth in the nominal value of GDP. M3 grew on an average between 18 to 19 per cent. The nominal GDP grew by 15 per cent. The RBI rule of thumb on M3 growth had been that it shouldn't be more than a percentage point or two relative to the nominal GDP growth. But this could not be sustained as the dollar flows during the boom years were of an exceptional magnitude and RBI's effort at sterilising them wasn't 100 per cent successful.
My submission is that the cumulative effect of excess money supply relative to the trend line did play a part in the unbridled inflation that the economy witnessed in the last two to three years.

Sure, as the sage himself said, "inflation everywhere is a monetary phenomenon!" I have myself said that this RBI guv has been strangely ambivalent about his inflation combating strategy - combining rate hike decisions with strangely queasy "I cant do much to combat inflation" kind of statements...The specific discussion here however was different - whether RBI has been "monetising" deficits (factually wrong), or doing so by stealth (a bit preposterous)...

On the broader point, to be honest, I am a bit sceptical about this monetary argument too much...First, the overhang (M3 v/s nominal GDP growth) was hardly chart-busting..Second, if that was the reason, the problem should have been licked way before - RBI has raised reserve ratios and policy rates more than 10 times over the last 2 odd years now - any overhang should have been sucked out a lot earlier...Third, a lot of the excess liuidity should have also been sucked out by large capital outflows in the last 3-4 years, as Indian companies invested big time abroad...This year, outward FDI is supposed to be equal to inward FDI (I know "outward FDI" a slightly "pseudo" number, but still, as an indication)...

The fact is that massive liquidity injection in the US has been exporting inflation to most Asian countries, especially as all of them (barring Singapore) have consciously tried to prevent wholesale appreciation of their currencies...Especialy in light of obstinate Chinese insistence of maintaining the CNY valued where it is...Inflation is therefore a problem everywhere in Asia...Add to that special supply side inefficiencies in India, and the problem is compounded...

Over the last 6 months or so, the RBI approach seems to be a bit perverse, cant do anything about supply side bottlenecks, so lets clamp down on demand by raising rates...Nothing wrong in that, barrign the fact that by giving out ambivalent signals, it is stretching the pain more than what is perhaps necessary...

nandakumar wrote:Theo Fidel, the RBI did disclose the phenomenon of the Govt drawing down of balances held as MSS deposits. The weekly statistical supplement did give details of movements in the MSS account

I have long stopped giving out primary document references to Theo - they are all "snake oil" stuff..the only thing that matters are theories that say M3 growth is "damaging"..

Theo_Fidel · Post by **Theo_Fidel** » 25 Jun 2011 20:37

Nandakumar,

Supply side doesn't make sense anymore. We have had massive bumper food harvests yet the prices of food items is not going down. In fact food prices are surging again at 10% officially and increasing. One the ground it is much higher. Coconut prices have doubled despite a bumper harvest. Yet people are willing to pay the price.

A lot of money has been released into the system which the RBI acknowledges by raising interest rates and trying to squeeze some of it out. Who cares if investment and private sector borrowing is destroyed. Not important.

uddu · Post by **uddu** » 26 Jun 2011 06:04

somnath wrote:Yes...He might be stretching the optics, but the principle (of giving primacy to "English" education for upliftment) is unesceptionable..

Somnath, there is a tenancy to believe that it's English that brought progress. It's not. The success of China and Japan was not because of English. Similarly is not that for India. If you talk about the call centers, it's not necessary that only English language call centres can bring money to India. It can be Japanese, Mandarin, French, Spanish, Portuguese and even Zulu. India being a big market the Domestic call centers are also doing well. Now this language, which is the standard now helped to communicate with the outside world. It did. It's nothing more than that. But we have failed to communicate much more effectively with a large part of the world that still don't use English. We need to expand our knowledge of more languages as the foreigners are busy learning Hindi and Mandarin.

Pranav · Post by **Pranav** » 26 Jun 2011 06:45

Enough is enough : someone should call the bluff on the government about oil pricing in this country NOW
Author: Rajesh Prabhu-Salgaonkar Date: 6/25/2011 5:42:37 AM
Indian petroleum companies have never posted loss till date

Is anyone out there who will clear the doubts about the fuel pricing in India? Does anyone have studied the balance sheets of the state owned oil companies for good? How the fuel is more costly here than the USA? How on earth, when the crude oil prices go down, the government every time somehow fails to revise the prices to lower them; but doesn’t fail ANYTIME to hike the prices against the slightest upward fluctuation? Isn’t there a single accounting genius in this country, who will call the bluff on the government?

News Bharati has learnt that there are not actual loses the state owned oil companies are facing. It’s like this: - As India is following the “Export Parity” policy, the retail prices of fuels are compared with the global highest fuel prices (in whichever country they are highest). Then, how much would their profit be “if” the companies were allowed to export to those countries, is calculated. That price is thrown on the face of people & the imaginary losses are presented as if they are actually posted ! The whole thing is actually imaginary. The theory is flawed & fraud. The companies may still earn the profits amounting to millions of Rupees, if they are not allowed to hike the retail sales prices & government need not subsidise them.

This is a kind of fraud the government & the state run oil companies are engaged in for decades now. Someone has to call the bluff of the entire pricing system of the fuels, which are so important for the growth of Indian economy.

Nowhere, in the world, this illogical pricing system is being followed. There were emails being circulated showing the high difference in the fuel rates in different countries around the world vis-a-vis India. Yes, there is some substance to it.

Has anyone – (Read any Member of Parliament) - asked the government how the fuel prices are calculated? Has anyone dared to ask those companies, which are incidentally government owned and listed on the stock exchanges, that how they are able to post profit worth billions of dollars, despite crying for decades that they are facing losses? How is this loss disappearing in actual balance sheets of these companies? From where comes the extra ordinarily high profit posted in those balance sheets? Does the government thinks that they can make fool all the people, all the time?

May be one reason that our democratically elected representatives don’t ask such questions in parliament, cause they can’t understand how to read a balance sheet ! They are basically illiterates in majority, whom the administration can fool easily. May be few in the government are part of them. They don’t ask because they don’t understand. And they can’t study too.

Fuel Price hike chart

Is government waiting for a France like revolution? Or, maybe this government has really lost mental balance. Otherwise one can’t explain the series of blunders this government is committing. First it was lathee charge on Ramleela ground at the midnight on the people demanding black money to be returned to the public exchequer. So now we know that this government is protecting the black money & the corruption. Though, whom they are shielding, is yet to be disclosed.

Now this fuel hike so steep & second in a month’s span, that will surely fuel the inflation by many points.

What the balance sheets of the oil companies are yelling?
Last fiscal (ended march 2010)
Indian Oil Corporation : Posted highest net profit of Rs. 10,220.55 crores.
Hindustan Petroleum : Posted highest net profit of Rs. 1,301.37 crores.
Bharat Petroleum : Posted highest net profit of Rs. 1,537.62 crores.
(source : the websites of those companies)

http://www.newsbharati.com/Default_en.aspx#