Indian Economy: News and Discussion (Apr 1 2011)

[Prem]

India Steps Up Plan to Lure $75 Billion in Investments
http://www.bloomberg.com/news/2012-05-0 ... ments.html

India widened efforts to lure $75 billion to its capital markets to include investors in at least 10 countries from the U.S. to Russia, signaling increased urgency among policy makers to bolster growth and stem the rupee’s drop. Government and central bank officials will embark next month on an overseas trip to woo foreign asset managers and high-net worth investors, Thomas Mathew, joint-secretary for capital markets in the finance ministry, said in an interview in New Delhi. The tour, aimed at stoking demand for equities and bonds, had initially been limited to the Middle East. Foreigners have only invested about 6.26 trillion rupees ($117 billion) in stocks and bonds since they were allowed into the country in 1993, according to data from the Securities & Exchange Board of India. This year, the total has been about $11.2 billion, the data show.
Economic Affairs Secretary R. Gopalan will lead a group of officials from the finance ministry, central bank and capital markets regulator on the trip, according to Mathew, to tout reforms such as eased limits on foreign investment in bonds, and rules that let qualified foreign investors buy shares directly. Company executives won’t be present at the proposed meetings, which will be held in the U.K., Hong Kong, Japan, Saudi Arabia, Kuwait and the United Arab Emirates. “It’s high time we did this,” Mathew said on May 8. “We believe that India’s strong fundamentals and opening up of capital markets in the last 18 months should be brought to the notice of investors all over the world.”

[Prem]

India eyes govt deals to shift wheat surplus
http://www.livemint.com/2012/05/1015243 ... shift.html

New Delhi: India is considering selling wheat to states in Africa, the Middle East and neighbors such as Afghanistan and Pakistan, the food minister said, to cut its huge stocks as lower global prices deter exports and keep the domestic market in surplus.India, the world’s second-biggest wheat and rice producer, lifted a ban on exports in September, as bumper harvests filled warehouses to overflowing.
Since then, Indian traders have exported 4.2 million tonnes of rice, mainly to the Middle East and Africa, but have not sold much wheat given unattractive international prices.There are some countries like Uganda, the Gulf, Afghanistan and Pakistan which need wheat,” food minister K.V. Thomas told reporters on Thursday.
India had around 19.9 million tonnes of wheat in government warehouses on 1 April, nearly five times the official target of 4.0 million tonnes for the quarter ending 30 June, government sources said last month.Rice stocks for the same period were 33.3 million tonnes against a target of 12.2 million tonnes.

[shyamd]

Wow - A lot of anti TN stuff being written here.

For the record - "North Indians" have been an essential part of the TN fabric for decades and there has been little backlash. Most of the anti "north" stuff is just rhetoric from the politicians. Even today shop assisstants, chefs, labourers mostly come from outside the state. There has been little backlash despite the rising immigration and migrants from other states will continue to be an essential part of TN and its economy. Last I checked Maharashtra have their own pro-marathi movements.

But, it should be said that tamils in general dislike being forced to speak Hindi - but did want to learn the language to make it easier for themselves to migrate back in those days.

Just to narrate to you an incident - CISF officer in airport asks for passport before entering Chennai airport in hindi - then says you are indian - why dont you speak hindi? - Naturally individual said "F off! You are in chennai, we speak tamil here, if you dont like it, F off" (all in hindi btw). CISF officer was embarrased. Such Incidents will piss people off.

[Suraj]

Please stick to economic issues, instead of anti-Hindi, anti-TN or other topics.

[SaraLax]

Deleted. Please see previous post.

[nawabs]

Factory output slumps 3.5% in March

http://www.thehindubusinessline.com/ind ... epage=true

Pulled down by poor manufacturing and mining sector performance, India's factory output recorded a negative growth of 3.5 per cent in March.The country's factory output had recorded 9.4 per cent growth in same month last year.

For the entire 2011-12, the Index of Industrial Production (IIP) registered a 2.8 per cent increase, lower than the previous year's factory output growth of 8.2 per cent.

While mining output contracted 1.3 per cent in March, the manufacturing sector declined 4.4 per cent for the month under review. However, electricity output grew 2.7 per cent. In use-based classification, there has been negative growth in capital goods (-21.3 per cent) and intermediate goods (-2.1%).

There has been positive growth in basic goods (1.1 per cent), consumer durables (0.2 per cent) and consumer non-durables (1 per cent) in March, according to Mr Srikant Jena, Minister of State (independent charge) for Statistics and Programme Implementation.

For 2011-12, the cumulative growth in mining, manufacturing and electricity was (-) 2 per cent, 2.9 per cent and 8.2 per cent respectively.

In capital goods, the items that showed robust growth in March are electric motors, cement machinery, drilling equipment and machine tools. However, there was sharp contraction in output of inverters, transformers, heat exchangers, insulated cable and ship building.

India's factory output registered a less-than-anticipated 4.1 per cent growth year-on-year in February.

The slump in factory output in March 2012 has heightened expectations that the Reserve Bank of India will go in for further repo rate cut at its next policy review meeting in June. The central bank has already indicated that the interest rates will be trending downwards in the coming days.

[Prem]

http://online.wsj.com/article/SB1000142 ... 88440.html
India Takes New Steps to Boost Sagging Rupee

MUMBAI—India's central bank Thursday gave local exporters 15 days to convert half their onshore foreign-exchange holdings into rupees, a move aimed at stopping a slide in the currency that is worsening trouble spots in the nation's economy. The measure helped the rupee gain 1.6% against the U.S. dollar at one point Thursday in anticipation of the estimated billions of dollars that Indian exporters will have to convert into rupees later this month. The order doesn't affect foreign companies based in India.

( is Soros playing the currency game in India)

[chola]

http://online.wsj.com/article/SB1000142 ... 88440.html
India Takes New Steps to Boost Sagging Rupee

MUMBAI—India's central bank Thursday gave local exporters 15 days to convert half their onshore foreign-exchange holdings into rupees, a move aimed at stopping a slide in the currency that is worsening trouble spots in the nation's economy. The measure helped the rupee gain 1.6% against the U.S. dollar at one point Thursday in anticipation of the estimated billions of dollars that Indian exporters will have to convert into rupees later this month. The order doesn't affect foreign companies based in India.

( is Soros playing the currency game in India)

This the RBI jumping the gun. Putting that conversion order of 50% would bring some short term infusion of hard currency into the system but it would be an investment killer in the long term.

There is nothing wrong with allowing the rupee to depreciate. Most of our wealthier neighbors to the East deliberately undervalue their currencies.

A weaker rupee over time should make Indian manufacturing more competitive and bring in more investment into the sector as exchange rates and wages in the Far East rise.

Saying the order won't affect foreign based companies in the India is the worst of all worlds. This will put local exporters at a disadvantage to foreigners but won't provide much of a calming effect. Any kind government directive whether directed only at locals or not affects the investment sentiment of MNEs.

[chola]

( is Soros playing the currency game in India)

First of all, you don't need a Soros to exploit an account deficit. Secondly, there are nations around the world who would take full advantage of a depreciated currency why shouldn't India?

The GOI should use the depreciation instead of fighting it. Battling it would drain the reserves and, even if the RBI won, it would just puts us back where we are for the next round of pressure.

When SE Asia went through their financial crisis in 1998, the Koreans, Thais and Malays piled up mountains of forex that incidentally came from exports that suddenly became more competitively from that very crisis.

If we allowed the rupee to reach a state where it is cheap enough compared to the Far East we could very well enter into a virtuous circle of investment and export that can wipe out our account deficit.

Fighting to keep the rupee at the current level does nothing for us. True, inflation would be a problem because of imported energy but as a larger and more self-sufficient nation, India really should do even better with a depreciated currency than those hit by the 1998 crisis.

[gakakkad]

I am not particularly a fan of RBI regulations . But this time I believe they are doing something alright. Unlike SE-Asia , depreciating currency can be a double edged sword for India. A substantial portion of Indian exports depend upon exporting finished raw material. Like for Instance our gem stone and jewellery Industry. A depreciating currency would not make them any more competitive .Because India imports gold/raw diamonds/gemstones and exports finished jewellery ...

Like wise a portion of our exports are refined petrochemical products .. Again a depreciating currency would not benefit them in anyway .

Even back in 1998 , the SE Asean countries and SoKo had a substantial consumer goods and electronics exports business. Indian exports in these segments are not as substantial even today.. This is one of the sectors in which a depreciating currency would benefit the country. But since they form a somewhat less significant part of Indian exports , it would not matter.

The biggest benefit would come to the service sector ..But if the inflationary trend continues , the rising salaries would nullify the depreciated currency ..

Health tourism would benefit greatly... So a depreciating currency would be in my families interests .

Overall , RBI has no option but to check the currency dep. the the extent it can , and hope that the civilian leadership grow some brains...

If we had a cooperative government , than RBI would never need to do what it is doing presently.. We might criticize the Indian bureaucrats for many reasons. But there are somethings they have consistently done well... Managed Indian finances regardless of the nut heads running the government. Over the past 6 decades they have prevented the country from insolvency countless number of times.If any other country had the kind of government we have , it would have long been bankrupt and split into pieces. India did not end up that way. Credit goes to the Babus .both RBI and vitt mantralay..

JMT

[vera_k]

The government would want to check the depreciation to control inflation and stand a chance of staying in office. Plus a lot of private debt is at increasing risk of default the more the Re falls.

Hence the RBI has to step in and do what it can.

[Prem]

Hakim Shateem Greem Breem
Ask NRIs to increase remittances: Assocham

[quote]New Delhi: Increasing internal demand and motivating expatriates to send home more remittances may solve the Indian economy's problems due to a depreciating rupee, an industry lobby said Sunday."At present, NRI deposits are between USD 52 and USD 55 billion, which needs to be pushed up to an ambitious level of USD 75-80 billion," said Assocham (Associated Chambers of Commerce and Industry of India) President Rajkumar Dhoot. "We will strongly recommend that high-level teams comprising of senior RBI officials, executive directors of banks and chairpersons and senior officials of the finance ministry do roadshows in areas such as the Middle East, South-East Asia and Europe where there is a concentration of Indian expatriates," he said.According to a survey conducted by economists and bankers, he said, remittances from NRIs had to be mobilised like never before. While a handful of banks have increased interest rates on NRI deposits, these seem to be piecemeal efforts, which need to be intensified, the survey said. The rupee has touched an all-time low of moving closer to Rs.54 per dollar and the pressure on the Indian currency increases each time there is a percentage point drop in the BSE Sensex. Dhoot said the NRIs must be given assurances that given the global uncertainties investing back home makes better business sense."NRIs should invest in India not only because of the motherland connection but also because India has a market of 1.20 billion people which will continue to grow," he said. NRI deposits in the country can be raised by at least USD 10-15 billion in the short term by taking confidence-building measures and offering attractive interest rates, the survey said. "The outflows by the foreign institutional investors (FIIs) are not the result of only the so-called policy paralysis, but mostly because of risk aversion by the global investors into the equity markets," it added. Dhoot also said once the internal demand was generated, the FIIs would return to the Indian markets which would soon have attractive valuations again.On reviving internal demand, the survey said moderating interest rates would send a strong signal and boost consumer confidence. Also, the investment climate should be improved soon.[/quote

[Amitabh]

^^ Boss , the data upto 2003 is correct in the article..Gujarat grew at 3.6 in 01-03 ...due to the earth quak and riots 01 and 02 were not good..but from04 Guj has never looked back as reflected in the data..data from 04 onwards is falsified.. in some state it matches the planning commission data..in some states if is grossly different..

one more interesting thing in stats..


average real growth from 2004-2012

Code: Select all

                               Gujarat   Mahashtra    India             

agro                           7.46          5.91        3.06
industrial                     12.25         9.24        8.54
overall                        10.08         10.7         8.5

Gujarat has the fastest agricultural growth in the country... Barring the smaller states like andaman island , chattisgarh , Gujarat has the fastest growing industry...yet why does the overall growth become lesser than Mahashtra even though its industry and agro are growing much fast than Maha ?

1) Some statistical artefact ? ( like the ones created by getting construction in service..)

2)upward skewing of Maha growth by generation of small number of very high paying jobs in the service sector especially IT/ITES...
That means that gujarat growth creates better livelihood for more people..maha growth is skewed upwards by small number of very high paying jobs..

3) lagging behind of service sector in Guj is a possible explanation..unlike Bangalore /gurgaon/mumbai/poona/bangalore/chennai Guj has not had IT/ITES industry in a big way yet..Modi is working on it however..

one thing is clear , growth in Guj has generated better livelihood for aam aadmi as it is mostly from industry/agro...

Your conclusion is unwarranted. The services sector does not consist only of IT/ITES. It includes medical care, education, transport, communication, recreation etc. that comprise more than a quarter of the consumption basket according to the new Consumer Price Index.

[gakakkad]

Your conclusion is unwarranted. The services sector does not consist only of IT/ITES. It includes medical care, education, transport, communication, recreation etc. that comprise more than a quarter of the consumption basket according to the new Consumer Price Index.

not come to any conclusion..just hypothesis... if you look at the data you ll be astonished yourself.. TN/Maha and haryana have a growth rate similar to that of Guj.. But Gujarat has much faster industry and agriculture than these two...Communications/education and healthcare are extremely well developed in Gujarat. I am unable to find any explanation for the discrepancy .Real estate and construction too is listed as a service. And in most of Gujarat prices have not gone to the gurgaon/mumbai level.. Ahmedabad /baroda/surat still have cheaper real estate than comparable cities in Mha/Haryana...Though the data is still a mystery...maybe a greater portion of Gujarat is in the underground economy than these states..

[chola]

I am not particularly a fan of RBI regulations . But this time I believe they are doing something alright. Unlike SE-Asia , depreciating currency can be a double edged sword for India. A substantial portion of Indian exports depend upon exporting finished raw material. Like for Instance our gem stone and jewellery Industry. A depreciating currency would not make them any more competitive .Because India imports gold/raw diamonds/gemstones and exports finished jewellery ...

Like wise a portion of our exports are refined petrochemical products .. Again a depreciating currency would not benefit them in anyway .

Even back in 1998 , the SE Asean countries and SoKo had a substantial consumer goods and electronics exports business. Indian exports in these segments are not as substantial even today.. This is one of the sectors in which a depreciating currency would benefit the country. But since they form a somewhat less significant part of Indian exports , it would not matter.

The point is to develop a manufacturing sector by leveraging a depreciated rupee for export. India's biggest problem right now is the account deficit which in turn fuels the unstable rupee which in turn fuels inflation.

Fighting the decline of the rupee simply drains our forex reserves while still leaving the rupee at a vulnerable level that our fundamentals don't support.

Once you can create an advantage over other manufacturers through a lower valued currency then you can take away manufacturing from SE Asia and South Korea. As I stated earlier, once you enter the virtuous circle of rising exports begetting more investment which begets more forex, you can begin to wipe out the account deficit.

Defending the rupee at the current level gives us nothing but more of the same instability.

The biggest benefit would come to the service sector ..But if the inflationary trend continues , the rising salaries would nullify the depreciated currency ..

Salaries in India are already many times lower than most of the other manufacturing centers in SE Asia and the Far East. Our salaries for unskilled workers -- ideal for repetitive manufacturing work that provides many jobs -- are several times lower than even China's. So no amount of salary increases in India will take away our advantage in salary. The problem is the rupee which is currently at a level that is too high to compete.

Now salary increase in the BPO and high tech servicing sectors is a problem. But that is because educated workers with high fluency in English are at a premium. But those are no more than a million or two jobs for India at the most and are dependent on the willingness of the Anglo-phone world to keep sending them to us.

The manufacturing sector would provide tens -- if not hundreds -- of million of jobs. Here is where India has a massive advantage in low wages if only the GOI can take advantage of it.

[gakakkad]

Chola , the problem is that using a declined currency as a leverage for manufacturing , can only be done by the government ...not the RBI ...The RBI is well aware of the fact that the guber-mint is unlikely to act in that direction... No "reforms" are likely as elections are near..

RBI can either sit and do nothing . or try preventing a BOP crisis..it does not have the power to improve manufacturing...and it is well aware that government wont take any such measures..

[Advait]

I just checked the rates and they stand:
1 USD = Rs. 53.91
1 USD = Yuan 6.32
So, Yuan to Rupee is 8.5

But still lots of Chinese stuff comes to India and of course they export huge quantities to Western countries. So just having a falling rupee is not enough. There's no shortcut here to becoming a big exporter. Besides with rupee falling, petrol will become more expensive which will affect everyone more than a few exporters of goods and services benefiting.

[Suraj]

A declining currency is an enabling factor in exports, but it requires a manufacturing base in the first place. The Chinese can continue to dump products despite a mildly strengthening currency because they have a massive idle manufacturing base with declining orders and built up inventory. It is poor policymaking on our part to permit cheap low/mid-range product import from PRC. These are the industries where we can devote to building our own manufacturing capabilities, instead of being merchants importing and selling it to our people. The problem dovetails somewhat with shiv's discussion topic in the LCA thread.

[Gus]

^ oh it annoys me to no end when I go to any 'fancy store' as they call it here in Chennai. every damn thing is shipped from there. I really don't understand how a plastic toy can be cheaper shipped from China vs something that can be made in a few kms.

Electrical and Hardware stuff are still majority Indian made though. Once you get into the 'white goods' segment, there is tough competition between Samsung, LG and other 'established' foreign brands and the new entrees like Haier etc who compete on price and the old Indian brands who I feel have no coherent strategy and are retreating..

[Theo_Fidel]

^^^
It is not cheaper. The problem is said plastic toy technology is not available in India hence toy itself is not available. It may seem like an easy thing to make a plastic toy for Rs 5, but I can assure you it is not easy, esp. in volume of Millions with six sigma rejection rate type quality control. While GOI can help, the ability to manufacture in such floods can come only from organized manufacturing sector employing risk capital. Nokia in Chennai for instance manufactures on order of 150 Million handsets annually. Yes, 150 million. For this they use roughly 3,000 employees in-house. There are about another 20,000 other employees at local parts manufactures supporting them, including Foxconn.

That is the sort of scale even that cheap plastic toy requires. That particular toy is being manufactured in the 100 million per year range. When you manufacture at such scale you can invest in the very latest technology and QC process. Indian manufacturing is too fragmented to deal with such volume. Hence is unable to generate the technology required.

For every successful Chinese company another 10 have perished. Indians need to take more risk. Esp. in the blue collar(dirty) sectors.

[Prem]

India Inflation Quickens, Curbing Room for Cutting Rates

Indian inflation unexpectedly accelerated in April, crimping the central bank’s scope to bolster economic growth by extending interest-rate cuts. Stocks fell, reversing earlier gains. The benchmark wholesale-price index rose 7.23 percent from a year earlier, after climbing 6.89 percent in March, the Ministry of Commerce and Industry said in a statement in New Delhi today. The median of 32 estimates in a Bloomberg News survey was for a 6.67 percent gain. Reserve Bank of India Governor Duvvuri Subbarao signaled last month that inflation might limit the room for further cuts after he slashed the benchmark rate by half a percentage point, flagging price risks from the fiscal deficit, energy costs and a weaker rupee. Greece’s political turmoil and a deepening debt crisis in Europe are increasing pressure on Asian nations to support growth as exports falter from Taiwan to Malaysia. China cut banks’ reserve requirements on May 12 to revive demand. Credit Suisse predicts India will cut its repurchase rate by another 125 basis points by March 2013, Prior-Wandesforde said today. Still, the central bank’s scope to cut interest rates further to boost growth is constrained by the threat of price increases, Ashima Goyal, a member of the bank’s technical advisory committee, said in an interview in Mumbai last week. While the wholesale price gauge has cooled after the Reserve Bank raised rates by a record 3.75 percentage points from mid-March 2010 to October last year, India still has the highest inflation in the so-called BRIC group of biggest emerging markets that also includes Brazil, Russia and China.

http://www.bloomberg.com/news/2012-05-1 ... scope.html

[harbans]

I really don't understand how a plastic toy can be cheaper shipped from China vs something that can be made in a few kms.

There is a morbid fascination for the 'small scale' set up. Government initiatives are thrust solidly into Small scale set ups, industries. While it is good to be modest and humble in one's beginning's in the larger run with massive increases in populations and consumption patterns, small scale does not really work. Most end up in the disorganized set up.

Then there is an ideological prism with which a large number of us view investments. Instead of building efficiencies that require networking into and with global supply chains and fostering a best practices environ to build a large scale production setups that can be cost competitive, we tend to look through some ideological prisms and debate it through that. The debate itself kills initiative because the nature and subject of the debate itself has become retarded. So while opening up to retail allowed China to scale up production levels that transformed it's coastal regions, we still remain mired debating whether it is good for us or not. That mindset is still fascinated with the handicraft type small scale set up, while enhanced production levels attained by the Chinese setups bring about competition that we cannot match.

If i have a 5000 year old fragile pot of immense value and it needs to be on display 2000 km away, transporting it is not a big issue, finding someone that has done that and brings about expertize in every stage of handling, security, maintaining the right humidity, transporting with right packing material, training personnel about handling matters. Each in itself is not a high tech venture, but for the package to be handed over and returned safely after display requires an expertize that cannot be created out of the blue.

Opening up retail allows for that kind of integration into a lot of expertize areas. China's people have immensely benefited from that initiative. Many small scale setups turned into organized production hubs with compliant quality standards in the process driving a generational quantum leap in product quality. This has happened in Korea, Japan, Taiwan. This is a beaten path, except that ideology always beats common sense at times. While we debate, the cost is manifestated in eroding confidence, lakhs of crores of food, vegetables and grain rotting every year, Chinese industries of scale putting toys and hardware into our shelves etc. The cost of this debate and dithering is worth many many 2G scams every year on end. Let the debate go into the cost of debating basic tried and tested policy reform and initiatives instead. Only then we may have a chance seeing more Indian manufactured items on our toy shelfs for example..

[harbans]

The problem is said plastic toy technology is not available in India hence toy itself is not available. It may seem like an easy thing to make a plastic toy for Rs 5, but I can assure you it is not easy, esp. in volume of Millions with six sigma rejection rate type quality control.

Indeed, and the GoI/ SIDBI/ Small scale industry type set up that puts a biz plan of 500k type toys will not have production volumes and turnovers to fund technology costs or necessary moulds. In turn after a few years he starts losing to Chinese made cheap maal and has no clue on how to make good the investments. That creates a lobby for protection instead. The basic policies that hamper efficiency remain in place..but the protectionist lobby grows stronger..

[Austin]

Utilise forex reserves to contain rupee fall, says C Rangarajan

[vijayk]

http://www.firstpost.com/politics/lic-m ... 09545.html

LIC money: Is it for investors’ benefit, or Rahul’s election?

does the government use LIC as its piggybank? The answer is very simple. It spends more than what it earns. The difference between what the government earns and what it spends is referred to as the fiscal deficit.

In the year 2007-2008 (i.e. between 1 April 2007 and 31 March 2008) the fiscal deficit of the government of India stood at Rs 1,26,912 crore. For the year 2011-2012 (i.e. between 1 April 2011 and 31 March 2012) the fiscal deficit is expected to be Rs 5,21,980 crore.

Hence the fiscal deficit has increased by a whopping 312 percent between 2007 and 2012. During the same period the income earned by the government has gone up by only 36 percent to Rs 7,96,740 crore. The expenses of the government have risen more than eight-and-a-half times faster than its revenues.

What is interesting is that the fiscal deficit numbers would have been much higher had the government not got LIC to buy shares of public sector companies it was selling to bring down the fiscal deficit.

Estimates made by the Business Standard Research Bureau in early March showed that LIC had invested around Rs 12,400 crore out of the total Rs 45,000 crore that the government had collected through the divestment of shares in seven public sector units since 2009. The value of these shares in March was around Rs 9,379 crore. Since early March the BSE Sensex has fallen 7.4 percent, which means that the LIC investment would have lost further value.

Over and above this the government also forced LIC to pick up 90 percent of the 5 percent follow-on offer from ONGC in early March this year. This after the stock market did not show any interest in buying the shares of the oil major. The money raised through this divestment of shares went towards lowering the fiscal deficit of the government of India.

[Vipul]

Direct tax revenue doubled to Rs 4.46 lakh cr in 5 yrs to FY11.

The government's revenue from direct tax collection rose by 94% to Rs 4,46,935 crore in 2010-11, from Rs 2,30,181 crore in 2006-07, Parliament was informed today.

Meanwhile, indirect tax collection rose to Rs 3,45,127 crore from Rs 2,41,538 crore during the same period, Minister of State for Finance S S Palanimanickam said in a written reply to the Rajya Sabha.

The revenue from tax collection rose due to "increase in GDP, changes in tax legislation and improved efficiency of tax administration," he said.

He added that for the five year under review, the number of tax assesses fell in 2008-09 and 2010-11 from the previous years.

During these years, the number of income tax assesses were: 3.19 million (2006-07); 3.37 million (2007-08); 3.27 million (2008-09); 3.41 million (2009-10) and 3.37 million (2010-11), he said.

[Theo_Fidel]

Opening up retail allows for that kind of integration into a lot of expertize areas. China's people have immensely benefited from that initiative. Many small scale setups turned into organized production hubs with compliant quality standards in the process driving a generational quantum leap in product quality. This has happened in Korea, Japan, Taiwan. This is a beaten path, except that ideology always beats common sense at times. While we debate, the cost is manifestated in eroding confidence, lakhs of crores of food, vegetables and grain rotting every year, Chinese industries of scale putting toys and hardware into our shelves etc. The cost of this debate and dithering is worth many many 2G scams every year on end. Let the debate go into the cost of debating basic tried and tested policy reform and initiatives instead. Only then we may have a chance seeing more Indian manufactured items on our toy shelfs for example..

Harbans,

How come our domestic Big Bazaar type companies have been unable to get the domestic production pipeline going. The easy answer is it is easier to source Panda maal at low cost. For Panda retailers there was no competing source for cheap maal hence the push to develop domestic industry. Wal-Mart for instance has made it clear it has no intention of manufacturing or sourcing from India other than agriculture. GOI tried to get them to commit to 30% local maal and they said no and would rather stay out. The tough answer is it is quite complicated. We have world class car industry. We have a world class cellphone industry. We have a world class automotive parts industry. We don't have a world class toys & trinkets industry. Opening retail is not going to change this. Still I must admit that I'm slowly changing over to open retail POV. Just don't let Wal-Mart in. Let in the Safeways and Targets and TESCO's in, no Wal-Mart.

[chola]

We have world class car industry. We have a world class cellphone industry. We have a world class automotive parts industry. We don't have a world class toys & trinkets industry.

We do not have world class cellphone, auto or auto parts industries. If we do we would not be running an account deficit. Those industries would be competitive on the world's stage like Japan, Taiwan and South Korea who maintain massive forex surpluses on exactly those industries.

This is why using a depreciated currency is important. Japan, Taiwan and South Korea all developed on a depreciated currency until the day their industries have caught up and were able to innovate.

[chola]

I just checked the rates and they stand:
1 USD = Rs. 53.91
1 USD = Yuan 6.32
So, Yuan to Rupee is 8.5

But still lots of Chinese stuff comes to India and of course they export huge quantities to Western countries. So just having a falling rupee is not enough. There's no shortcut here to becoming a big exporter. Besides with rupee falling, petrol will become more expensive which will affect everyone more than a few exporters of goods and services benefiting.

1 USD = 84 Yen. Is the Japanese yen weaker than the Yuan and the Rupee? Of course not.

A currency's weakness or strength is dependent on its trend not on its base denomination. The Yen is more like an American cent but the currency is strong and expensive at the moment. That's because the Yen used to be over 200 to a dollar.

Assuming that the Yuan is more expensive than the Rupee just because it is 6.2 to the dollar is completely wrong. The Yuan is considered universally to be worth far more than 6.2 to the dollar (based on China's growth over the last decade) and therefore where it stands now constitutes massive cheating.

In the ideal world, the Chinese Yuan should be at 4 to USD while the rupee would be around 57/58 (popular support on the international market without RBI intervention.)

This is where we could see a reverse flow of manufacturing investment from China and the rest of the Far East to India.

It cannot happen if the chini continue cheating with a weaker exchange rate and the RBI keeps defending at the current unsustainable rate for the rupee.

[paramu]

JIM ROGERS: Here's What Would Cause Gold To Dive 40% To 50%

There's some movement in India to really curtail the purchase of gold. Some people in India say we should stop importing gold period which would be draconian.
...

...There's an element in India in the last several months which is very strongly saying we've got all this money tied up in gold which is not good for the economy. If we could just get the money into circulation instead of locked up on Indian wives or Indian vaults it would be good for the economy. And there's also a huge group saying is that one of the big reasons we have this huge balance of trade deficit is because we buy all this gold and put it in the closet. Let's stop that. Now if they did that it would be devastating for gold. Gold would certainly go down 40% - 50% from its top. I doubt they would do anything that dramatic that quickly, if Europeans suddenly said they were going to dump their gold, or if they were forced to, that too would put a big drop on gold.

Who is really behind this movement?
People who make argument against gold doesn't say anything about money that is getting tied up in real estate, creating speculation and distortion in the market.

[abhischekcc]

hahahaha. Indians will never stop buying gold. Even if they ban imports, it will be smuggled in. The talk of bringing gold into the 'productive' economy will continue for as long as their are mouths. It has been a recurring theme fot the past 20 years. It has not happened and it will not happen.

[RamaY]

First Post on LIC Downgrading

In the year 2007-2008 (i.e. between 1 April 2007 and 31 March 2008) the fiscal deficit of the government of India stood at Rs 1,26,912 crore. For the year 2011-2012 (i.e. between 1 April 2011 and 31 March 2012) the fiscal deficit is expected to be Rs 5,21,980 crore.

Hence the fiscal deficit has increased by a whopping 312 percent between 2007 and 2012. During the same period the income earned by the government has gone up by only 36 percent to Rs 7,96,740 crore. The expenses of the government have risen more than eight-and-a-half times faster than its revenues.

What is interesting is that the fiscal deficit numbers would have been much higher had the government not got LIC to buy shares of public sector companies it was selling to bring down the fiscal deficit.

Estimates made by the Business Standard Research Bureau in early March showed that LIC had invested around Rs 12,400 crore out of the total Rs 45,000 crore that the government had collected through the divestment of shares in seven public sector units since 2009. The value of these shares in March was around Rs 9,379 crore. Since early March the BSE Sensex has fallen 7.4 percent, which means that the LIC investment would have lost further value.

Over and above this the government also forced LIC to pick up 90 percent of the 5 percent follow-on offer from ONGC in early March this year. This after the stock market did not show any interest in buying the shares of the oil major. The money raised through this divestment of shares went towards lowering the fiscal deficit of the government of India.

News reports also suggest that LIC was buying shares of ONGC in the months before the public issue of the insurance major hit the stock market, in an effort to bid up its price. Between December and March before the public offer, the government first got LIC to buy shares of ONGC and bid up the price of the stock from around Rs 260 in late December to Rs 293 by the end of February. After LIC had bid up the price of ONGC, the government then asked it to buy 90 percent of the shares on sale in the follow on public offer.

This is a unique investment philosophy where an institutional investor managing money for the small retail investor first bid up the price of the stock by buying small chunks of it, and then bought a large chunk at a higher price. Stock market gurus keep repeating the investment philosophy of “buy-low-sell high” to make money in the stock market. The government likes LIC to follow precisely the opposite investment philosophy of “buying high”.

Estimates made by Business Standard suggest that LIC in total bought ONGC shares worth Rs 15,000 crore. The stock is since down more than 10 percent.

...
Gentlemen prefer bonds: As of 31 December 2011, the ratio of government securities to adjusted shareholders’ equity in LIC was 764 percent. This is understandable given that the subsidy-heavy budget of the Congress-led UPA government has seen its fiscal deficit balloon by 312 percent over the last five years. Again, basic investment philosophy tells us that having a large exposure to one investment isn’t really a great idea, even if it’s a government.

The Rahul factor: But the most basic issue here is the fact that the government is using the small savings of the average Indian who buys LIC policies to make loss-making investments. This is simply not done.

LIC has turned into the behemoth it has become over the years by offering high commissions to its agents over the years. It sells very little of “term insurance”, the real insurance. What it basically sells are investment policies with very high expenses which are used to pay high commissions to it’s the agents. The high commissions in turn ensure that these agents continue to hard-sell LIC’s extremely high-cost investment policies to normal gullible Indians.

The premium keeps coming in and the government keeps using LIC as a piggybank.

The high front-loading of commissions is allowed by The Insurance Act, 1938. The commission for the first year can be a maximum of 40 percent of the premium. In years two and three, the caps are 7.5 per cent, and 5 per cent thereafter. These are the maximum caps and serve as a ceiling rather than a floor.

read it all....

[Supratik]

We do not have world class cellphone, auto or auto parts industries. If we do we would not be running an account deficit. Those industries would be competitive on the world's stage like Japan, Taiwan and South Korea who maintain massive forex surpluses on exactly those industries.

I think Theo meant the MNCs who have invested in these industries and some domestic like Bharat Forge, Tata, etc. One thing you are missing that J, T and SK did a lot of reverse engineering before becoming innovators. Innovation is happening in India but the scale is still small. The artificial controls need to go before we become manufacturers of toys and trinkets. The last time major changes in labor laws and SSI limits were done was in the 90s.

[Supratik]

First Post on LIC Downgrading

So it is back to pre-liberalization days. Robbing Peter to pay Paul.

[RamaY]

^ Those were the days when INC had no alternative. By returning to those areas, people are hoping to get preeminence... i presume

[nachiket]

Who is really behind this movement?
People who make argument against gold doesn't say anything about money that is getting tied up in real estate, creating speculation and distortion in the market.

Well I don't know of any movement, but I had posted on this thread when Suraj/Theo posted our annual import numbers about this same issue. The amount of foreign exchange we lose in importing all that gold is staggering. And what do we get in return? Nice looking expensive jewellery which is completely useless as far as the economy is concerned (except for jewellery exports). I'm not saying we should not buy gold at all, but we are certainly buying too much and our fascination with it is hurting our economy. We cannot reduce our oil import bill because oil is an essential commodity. Gold is not.

[Prem]

As funds flee, India's pain is Southeast Asia's gain

HONG KONG (Reuters) - Southeast Asian nations are swallowing an outflow of money from India, as foreign investors lose patience with its policy paralysis and slowing growth and aim instead for more promising emerging markets such as Indonesia.Corruption scandals and high inflation have added to India's woes, which have seen growth slow to a three-year low while the fiscal deficit widened to 5.9 percent of GDP in the last financial year."India was sold on the promise of high growth which simply hasn't panned out over the past four years," said Gautam Prakash, founder of U.S. based hedge fund Monsoon Capital.Foreign investors pulled a net $540 million out from India in March and April, compared with $13 billion in inflows in January-February.
Foreign portfolio flows into Indian stocks have dropped 99 percent to just 5.17 billion rupees ($96.5 million) since a March budget that largely disappointed investors, compared with 427.36 billion rupees in 2012 before the budget.Among the most significant developments from the shift has been the direction in which money is headed - with a big chunk flowing to Jakarta and other Southeast Asian capitals.Two provisions put forward in the budget to tax indirect investments and combat tax evasion were the last straw for some global mutual funds, prompting an acceleration of money leaving India.While the provisions were later put on ice, the prospect that such a tax could be proposed in India was enough for some investors to send their Asia-allocated money further east."You're seeing a situation where the 'I' in BRIC is being replaced by Indonesia," said Tim Condon, head of research and strategy for Asia at ING.

http://www.cnbc.com/id/47424056

[Suraj]

That CNBC article is typically sensationalist and serves as a means for FIIs to pressurize GoI to relax hot money inflow channels, and doesn't really reflect the title.

The text itself says that for the current year, there were $13 billion in FII inflows in Jan/Feb, followed by $540 million in net outflows in March/April, which indicates a net inflow of $12.5 billion for the first four months. Even the figure is puny. $540 million may be a large 2-month outflow from Indonesia, but not India - just the FDI + remittance inflows are $120 billion annually. Hardly anyone is 'fleeing'; it is merely hot money doing exactly what it does. If someone sneezes in Indonesia, the recent outflows will just come running back and the author of article above will conveniently forget what he wrote.

Like I said before, money will go where there's money to be made. A $2 trillion economy presents enough a business opportunity to enough people. Thinking on foreign investor engagement that mattered 5 years ago no longer matters now. GoI doesn't really bother what the ratings agencies think anymore, or what some stud investor says. Articles like this used to sound ominous half a decade ago. Not anymore.

[Prem]

In CNBC world every thing is obseved from the broker's perspective. They are WS guys doing Psy op. The fleeing of short term investor is good sign. These kinds are leeches and not healthy for the economy any how.
However GOI needs to put the house in order and show some signs of leadership.

[Theo_Fidel]

I think the coming impact of the coming NIMZ's is being under appreciated.

http://www.business-standard.com/india/ ... re/474285/

The proposed manufacturing zone near Chennai, to be developed by business space provider Ascendas and a consortium comprising top Japanese corporate finance providers, is expected to attract investments to the tune of around Rs 15,000 crore.

The Tamil Nadu industries department said that its guidance bureau, Ascendas and the Japanese consortium had recently signed a memorandum of understanding to set up an integrated industrial township on around 1,500 acre at the Old Mahabalipuram Road near Chennai with an incremental investment of Rs3,500 crore over the next five years.

“The manufacturing zone will come up within the township and will attract an additional investment of Rs 15,000 crore with an employment potential of about 40,000,” the department said.

The township is being promoted by Ascendas and a consortium comprising Japanese corporate finance providers Mizuho Corporate Bank and JGC Corporation.

Earlier, Chong Siak Ching, chief executive officer and president of Ascendas Pte Limited, said that the state government will allot the land to the company by the second quarter of 2012. “This will be one of the largest investments for us and our tenth project in the country,” she added.

The township will be developed by a joint venture between Ascendas India Development Trust (AIDT), the private property development fund spearheaded by Ascendas, and IREO, along with the Japan consortium. Located 50 kilometre south of Chennai, the project will encompass industrial, business, commercial and residential elements with lifestyle amenities.

The 1,500-acre township will provide eco-friendly infrastructure for the growth of Japanese and international businesses and support a community of more than 40,000. Of the total 1,500 acre, 400 acre is reserved for industrial development and will create employment for around 200,000 people.