Indian Economy - News & Discussion Oct 12 2013

Austin · Post by **Austin** » 29 Jan 2014 15:48

http://news.xinhuanet.com/english/busin ... 076489.htm

Among BRICS 2013 FDI Stastics

Brazil - $63 billion

Russia - $94 billion

India - $28 billion

China - $127 billion

South Africa - $10 billion

Christopher Sidor · Post by **Christopher Sidor** » 29 Jan 2014 18:35

Suraj wrote:
Christopher Sidor wrote:What Modi has said does not inspire confidence. It is as if he is playing to the gallery and not giving any concrete solutions.
Let's keep the politics of the matter to the Modi thread, but I'll comment on this here - his fundamental credibility is not about his words, but his record.

Is it as extraordinarily spotless as some sources might make it out to be ? No. I don't necessarily believe every glowing statement about Gujarat. There's clearly a lot still to be done, after 12 years of his rule.

Being a native of gujarat, I can attest to the work done by him. We suffered under Vaghela and Chimanbhai. But this guy knows the basics. He has improved roads. He has made sure that power cuts are a minimum. I remember before him having 3-4 hours of power cuts daily in Vadodara, once in the afternoon and another in evening. Not many people know, but gujarat was a highly corrupt state under previous governments, BJP included, before Modi arrived. He has not eliminated corruption, but significantly decreased it.
His practical approach to problem solving, look at the Ahmedabad BRTS and compare it to the mess which is Delhi BRTS, is known and well appreciated. No b***s**t about deep thinking or system change.

The problem is that Modi has attacked Congress, which is fine. But simply attacking is not enough. One has to lay out an alternative. Our current problems can be largely laid at the feet of supply side constraints. I have not seen Modi saying that he will encourage building cold storage facilities, so that we can be saved from vagaries of our monsoons. Modi has done fantastic work with drip water irrigation in Gujarat. I have not seen him say that he will carry that throughout India, after all Agriculture is one of the biggest consumers and one of the most inefficient users of water.

I have not seen him articulate how he will clean up our air and reduce the ground and water pollution. I have not seen him articulate how he will take forward the mid-day meal to its logical conclusion and improve the education which our villagers receive.

Suraj · Post by **Suraj** » 29 Jan 2014 21:27

Austin wrote:http://news.xinhuanet.com/english/busin ... 076489.htm
India - $28 billion

Indian FDI data is available in the first post of this thread:
ComMin/DIPP Indian FDI statistics
Total FDI in a 5 month period between April and October was $19 billion. Extrapolating, and taking into account that Q4 data is typically higher, leads to an estimate of $36-38 billion. For example, reported official FDI data for the previous financial year was $37 billion.

The Xinhua data uses round-tripping/reinvested FDI data for China but not for India (and maybe not for others too). This is expected, considering who the source is.

Austin · Post by **Austin** » 29 Jan 2014 21:28

Suraj . here is the UNCTAD report

http://unctad.org/en/PublicationsLibrar ... 4d1_en.pdf

Suraj · Post by **Suraj** » 29 Jan 2014 21:41

Christopher Sidor wrote:The problem is that Modi has attacked Congress, which is fine. But simply attacking is not enough. One has to lay out an alternative.

I have not seen him articulate how he will clean up our air and reduce the ground and water pollution. I have not seen him articulate how he will take forward the mid-day meal to its logical conclusion and improve the education which our villagers receive.

*Anyone* can attack anyone else. But why is just one person so extraordinarily popular ? He's not popular because he's talking a big talk, in the mould of TN film star politicians. His popularity is due to the fact that his record presents him as a credible threat. Thank you for your on the ground report on GJ development, which only buttresses his case.

When he makes a political campaign, he has to target the failures of the existing regime. His own accomplishments largely speak for themselves at this point - he's not an unknown commodity as the most prominent development-oriented CM. He's doing the right thing here. There's no need to give Rajiv Gandhi-styled banana republic speeches ('humko yeh banana hain! humko wo banana hain!')

People have heard about what needs to be done, before. By targeting the fact that the existing regime has not done certain things, and describe what he has done, he's just presenting his case as not necessarily knowing everything that needs to be done already, but that he will find out and more importantly, has a proven record of doing it and then talking about it. This may sound simple, but it's an extraordinarily rare commodity in India.

I value that kind of meritocratic CPC-like elevation of a performer into a top role. If we have a bunch of state CMs as well as a cabinet composed of people like this, it would be an extraordinary situation for India political economy. There's no remotely credible challenger in this regard. Give me a bunch of proven performers on the administrative front and I'll vote for them any day.

Suraj · Post by **Suraj** » 29 Jan 2014 21:47

Austin wrote:Suraj . here is the UNCTAD report
http://unctad.org/en/PublicationsLibrar ... 4d1_en.pdf

If Xinhua is quoting UNCTAD, then clearly the problem lies with the rigor of UNCTAD's data collection. I'm just stating that Indian figures are about 25% less than reality. We've been consistently receiving $35-50B FDI for the past few years now.
2012-13: $37 billion
2011-12: $47 billion
If there had been a significant fall from this level, there'd have been an article in the press about it, but there's been none. So far we're following 2012-13 figures, and with good numbers between Nov-Mar, may finish between the figures of the previous two fiscals - maybe around $38-40 billion.

I'm surprised by Brazil's number. I thought they were in some kind of economic funk, with Eike Batista going bankrupt and everything.

Gus · Post by **Gus** » 29 Jan 2014 22:48

Christopher Sidor wrote:The problem is that Modi has attacked Congress, which is fine. But simply attacking is not enough. One has to lay out an alternative.

He will not be the one to draft a nuts and bolts policy work. in massa like countries, there already exists a set of people for every governing philosophy who can be tapped to hash out a working policy statement. i don't think we have such people on the ready, who can be trusted to put out a policy that namo can speak about.

given his track record, i trust him to find such people to put out policies based on the high level view that he has talked about. right now he has an election to win and there is no time to get sidetracked into policy statements and the defense of it.

disha · Post by **disha** » 29 Jan 2014 23:39

Christopher Sidor wrote:... Our current problems can be largely laid at the feet of supply side constraints. I have not seen Modi saying that he will encourage building cold storage facilities, so that we can be saved from vagaries of our monsoons. Modi has done fantastic work with drip water irrigation in Gujarat. I have not seen him say that he will carry that throughout India, after all Agriculture is one of the biggest consumers and one of the most inefficient users of water.

I have not seen him articulate how he will clean up our air and reduce the ground and water pollution. I have not seen him articulate how he will take forward the mid-day meal to its logical conclusion and improve the education which our villagers receive.

Modi has clearly articulated and enunciated all of the above. Problem is he has not said the words you [rhetoric you - the "you" of the reader - not targetted to a particular poster - the third person "you" - the RaGa you if you may] want to hear, and since hearing him in his own words and translating it in your own is work, which you do not want to do - and thus hanging our own failings in understanding of him on him.

Problem is that everybody wants to hear their own favourite solution and anything which is a little tangential or parallel to it, is cause for extreme disappointment and dejection leading to rejection. Why?

nawabs · Post by **nawabs** » 30 Jan 2014 03:12

Up to 3,000kg of gold being smuggled in a month, admits Chidambaram

http://timesofindia.indiatimes.com/busi ... 460490.cms?

Austin · Post by **Austin** » 30 Jan 2014 07:58

nawabs wrote:Up to 3,000kg of gold being smuggled in a month, admits Chidambaram

http://timesofindia.indiatimes.com/busi ... 460490.cms?

Thanks to your Policy PC

Not sure how much of that black money from Gold smuggling will end up supporting terrorism against us and make D richer.

Rahul Mehta · Post by **Rahul Mehta** » 30 Jan 2014 08:59

Christopher Sidor wrote: What Modi has said does not inspire confidence. It is as if he is playing to the gallery and not giving any concrete solutions.

GDP * 10 = Rs 1000,00,000 crore worth observation.

But if I comment here, I am sure anti-RM-elements will accuse me of brining politics in economic thread !!! Everyone else is allowed, but not me

. So I have replied here

http://forums.bharat-rakshak.com/viewto ... 1#p1586011

Austin · Post by **Austin** » 30 Jan 2014 19:35

Some data on India Debt External and Internal as of Sept 2013 ( via MOF )

The outstanding internal debt of the Government at 4158084 crore increased to 38.7 per cent of GDP

At end-September 2013, Indias external debt stock stood at US$ 400.3 billion, recording a decline (US$ 9 million) over the level at end-March 2013.

Suraj · Post by **Suraj** » 30 Jan 2014 19:54

Recent posts have been moved to the Modi thread.

Aditya_V · Post by **Aditya_V** » 30 Jan 2014 20:53

Back to the 70's, atleast GOI could have earned CD at 2%, now all of it is coming in through smugling. Expect Rupee to tank when a lot of ECB need to be repaid in March 2014

putnanja · Post by **putnanja** » 30 Jan 2014 21:17

Why does the government care about gold smuggling? Granted, it loses some taxes. However, the bigger thing is that that much amount of official foreign exchange is saved and affects the CAD. Most of the money that goes out through smuggling is black money anyway and doesn't significantly affect the foreign exchange as it off the books. At least the black money is being put to some use.

Is there something that I am missing here?

Supratik · Post by **Supratik** » 30 Jan 2014 21:25

No you are right. But it is not a good long-term solution as it criminalizes society. Much of the coast around Mumbai was known for gold smuggling from the Haji Mastan/Karim Lala days and ultimately led to D-gang which we are still suffering.

Rishirishi · Post by **Rishirishi** » 31 Jan 2014 03:25

Supratik wrote:No you are right. But it is not a good long-term solution as it criminalizes society. Much of the coast around Mumbai was known for gold smuggling from the Haji Mastan/Karim Lala days and ultimately led to D-gang which we are still suffering.

Well the profits are not that great, as long as the price difference is not that much. The real problem is all the corruption which leads to gov. officials requirement of a safe haven, as well as public who needs to hedge against tax. India need swiss like policy and enforcement Inshallaaaa.

Rahul Mehta · Post by **Rahul Mehta** » 31 Jan 2014 06:58

putnanja wrote:Why does the government care about gold smuggling? Granted, it loses some taxes. However, the bigger thing is that that much amount of official foreign exchange is saved and affects the CAD. Most of the money that goes out through smuggling is black money anyway and doesn't significantly affect the foreign exchange as it off the books. At least the black money is being put to some use.

Is there something that I am missing here?

Gold smuggling doenst save forex.

One cam travel to Dubai or Thailand . And one can get as much forex from Govt of India as one get for rupees to spend in Dubai\Thailand. And while coming back, I can bring gold and evade duty !! So govt lost forex as well as duty.

The only problem is --- getting dollars from Govt of India requires white money. And when smuggled gold is brought and sold, one gets black money. So eventually one needs to launder the rupee-dollars. This is done in many ones. One way is follows

1. Say official rate is $1 = Rs 60

2. A travel agent will sell Ahmedabad-Dubai-Ahmedabad plan for say Rs 30000

2. The travel agent offers discount of Rs 5000 if customers gives him $2000 for Rs 120,000 black cash from travel agent. So travel agent gave his black Rs 120,000 to customer and customer gave him equivalent dollars. Customer had white of Rs 120,000 which has now become Rs 120,000 black. But such small black money can be used for expenses.

3. The travel agent uses $2000 to buy and smuggle in gold.

IOW, govt lost forex of $2000 and didnt get duty either. And criminals strengthened, officers became corrupt etc etc

Solution I propose is to remove custom duty of gold and that govt should stop taking loans of payment liabilities in dollars. Once that happens, Rs-$ true rate will come , something like $1 = Rs 120 !! Then we can fix local administratin so that manufacturing increases, import reduces, and exports increases. After that, Rs - $ rate will improve.

Now we cant remove custom duty for everything. In fact, to promote local manufacturing, custom duty on ALL electronic items, cars etc should be raised at the rate of 5% a month till it reaches 300%. Now how to reduce smuggling? One is tagging --- i.e. every mobile, PC etc can be tagged. This will make it impossible for end user to use smuggled mobiles, cars etc. Next 1/3rd of customs duty collected should divided equally amongst commons via direct transfer. This will make every common hate every smuggler and every officer who assists smuggler. And finally, means like RTR/Jury etc can be used so that commons can keep custom officials in check. QED

Austin · Post by **Austin** » 31 Jan 2014 14:07

November FDI inflows up 55% to $1.64 billion
http://profit.ndtv.com/news/economy/art ... ome-latest

Foreign direct investment (FDI) inflows into India rose 54.8 per cent in November to $1.64 billion compared with $1.06 billion a year ago, a government statement said on Friday.

Total FDI inflows in the first eight months for the current fiscal year that ends in March were down 2 per cent from a year earlier at $15.46 billion, compared with $15.85 billion during the year-ago period, the statement said.

With a struggling economy, that grew at its slowest pace in a decade last fiscal year due largely to a lack of corporate investment, India desperately needs to attract foreign investments to regain its growth momentum.

Austin · Post by **Austin** » 31 Jan 2014 19:42

Chidambaram faces mounting deficit in election year

"The budget deficit had almost hit its full-year target by November and is unlikely to hold below the government's target shortfall of 4.8 per cent of GDP," Moody's Analytics said in a research note last week.

Officials say deficit would be met by cutting funds for ministries like rural, urban development, defence and education as India cannot afford a downgrade by ratings agencies. India's deficit is the highest among the BRICs nations of Brazil, Russia, India, China as well as South Africa.

The government also plans to defer some subsidy payments to next year, while focusing on speeding up the sale of stakes in state-run firms and minority stakes in some private companies.

It has raised only Rs. 5,098 crore so far this fiscal year from the share sales against a budgeted target of Rs. 54,000 crore.

Austin · Post by **Austin** » 31 Jan 2014 19:47

Raghuram Rajan slams lack of global monetary cooperation

"International monetary cooperation has broken down," Rajan, told a television channel in an interview broadcast late on Thursday.

"Industrial countries have to play a part in restoring that, and they cannot at this point wash their hands off and say we will do what we need to, and you do the adjustment you need to."

Austin · Post by **Austin** » 01 Feb 2014 08:55

Government lowers 2012-13 economic growth to 4.5 per cent from 5 per cent

The government on Friday said the economy may have expanded by 4.5 per cent in 2012-13, compared with the earlier estimate of 5 per cent, on account of subdued performance in agriculture, mining and manufacturing.

However, gross domestic product (GDP) growth in 2011-12 has been revised upwards to 6.7 per cent from 6.2 per cent, according to the estimates of National Income, Consumption Expenditure, Saving and Capital Formation.

"Gross domestic product at factor cost at constant (2004-05) prices in 2012-13 is estimated at Rs.54.8 lakh crore as against Rs.52.5 lakh crore in 2011-12, registering a growth of 4.5 per cent during the year as against a growth of 6.7 per cent in the year 2011-12," a press statement said.

Growth in 2012-13 is the lowest in a decade, with the previous low of 4 per cent recorded in 2002-03.

The estimates for 2012-13 were released by the Central Statistics Office (CSO) under the Ministry of Statistics and Programme Implementation, along with the second revised estimates for 2011-12 and third revised estimates for 2010-11.

Growth for 2010-11 was revised downwards to 8.9 per cent from 9.3 per cent earlier in the third and final revision.

According to the revised estimates for 2012-13, the primary sector, which includes agriculture, fishing, mining and quarrying, grew by 1 per cent against the earlier estimate of 1.6 per cent.

Growth in the secondary sector, including manufacturing, electricity, gas, water supply and construction, was 1.2 per cent, down from the original estimate of 2.3 per cent.

The 4.5 per cent growth rate in 2012-13 is on account of expansion in financing, insurance, real estate & business services (10.9per cent), transport, storage and communication (6 per cent) and community, social and personal services (5.3 per cent).

Read more at: http://indiatoday.intoday.in/story/econ ... 41070.html

Austin · Post by **Austin** » 01 Feb 2014 08:56

How much is the GDP Figures for 2013 in USD at todays rate for Rs.54.8 lakh crore ?

shyam · Post by **shyam** » 01 Feb 2014 12:10

Underground couriers rush to turn cash into gold

Austin · Post by **Austin** » 01 Feb 2014 12:58

Ok found out from the link
http://www.livemint.com/Politics/burPSw ... -2013.html

With the revised GDP numbers, the size of the Indian economy now stands at $1.6 trillion in 2012-13 at the rupee’s Friday value of 62.66 against the dollar.

So from being a $2 Trillion Economy a year or two back thanks to Rupee Fall and Low Growth we are now $1.6 Trillion Economy

http://businesstoday.intoday.in/story/g ... 02882.html

Per capita income at current prices is estimated at Rs 67,839 in 2012-13 as against Rs 61,855 in the previous year, a growth of 9.7 per cent as against an increase of 14.5 per cent during the previous year.

Per capita is also reduced to ~ $1085 compared to USD 1500

Austin · Post by **Austin** » 01 Feb 2014 18:48

Raghuram Rajan slams lack of global monetary cooperation

"International monetary cooperation has broken down," Rajan, told a television channel in an interview broadcast late on Thursday.

"Industrial countries have to play a part in restoring that, and they cannot at this point wash their hands off and say we will do what we need to, and you do the adjustment you need to."

If Janet Yellen ever reads this she would probably show the middle finger to Rajan.

QE was always done for the benefit of US/Euro economy and now when they find their economy getting the necessary growth they are withdrawing their QE , perhaps right decision for them.

I wonder why no body in Emerging Market ever complained when they were getting Cheap Money and Stock Market were getting flooded by FII ......at that time every thing was nice and dandy ...now they are feeling the heat or cold from industrialised nation.

svinayak · Post by **svinayak** » 01 Feb 2014 21:43

India vs. the U.S.: When Central Bankers Collide

Central banking isn’t a contact sport like football, or even cricket. But the head of India’s central bank, who until recently was living and working in the U.S., is throwing some sharp elbows at his counterparts at the Federal Reserve. This is as close to a brawl as you’re likely to see in the genteel world of official monetary policy.

In an appearance on Bloomberg TV India yesterday that made headlines around the world, Reserve Bank of India Governor Raghuram Rajan said “international monetary cooperation has broken down.” Lest there be any confusion about what caused the breakdown, Rajan said, “Industrial countries have to play a part in restoring that, and they can’t at this point wash their hands off and say, ‘We’ll do what we need to and you do the adjustment.’”

Rajan’s reference to “industrial countries” pertains mostly to the U.S., where the Federal Reserve announced yesterday that it would further taper its bond-buying. The Fed’s move puts upward pressure on U.S. interest rates. That in turn leads investors to snatch their money out of countries like India and put it in U.S. securities that suddenly offer more attractive yields. The result: downward pressure on India’s currency, the rupee. When the rupee falls, Indian imports get more expensive. That makes Indians poorer and raises the inflation rate, which is already running at around 10 percent a year.

VIDEO: Emerging Market Central Banks Steal Fed Spotlight
Rajan elaborated on his argument today. “The U.S. should worry about the effects of its polices on the rest of the world,” he told a group of students in Mumbai in response to a question about how Indian policies affect other countries. “We would like to live in a world where countries take into account the effect of their policies on other countries and do what is right, broadly, rather than what is just right given the circumstances of that country.”

U.S. authorities reject the notion that they should base their interest-rate decisions in part on how they will affect other countries, as Bloomberg reports. “What we’re trying to do with our monetary policy here—as I think my colleagues in the emerging markets recognize—is trying to create a stronger U.S. economy,” Bernanke said in a Sept. 18 press conference. “And a stronger U.S. economy is one of the most important things that could happen to help the economies of emerging markets.”

The relationship between the U.S. and India has blown hot and cold over the decades, with India leading the movement of nonaligned nations and playing the U.S. and Soviet Union off against one another during the Cold War. But Rajan himself is hardly a fiery Third World activist. The 50-year-old is a former chief economist of the International Monetary Fund and has an endowed chair in finance at the University of Chicago’s Booth School of Business. Heeding the call of his homeland, Rajan became chief economic adviser to Prime Minister Manmohan Singh in 2012 and then, last September, took over as governor of the Reserve Bank of India. Though he’s on leave from Chicago Booth, he still has his chair there.

VIDEO: RBI Governor Rajan Warns of Global Policy Breakdown
One of Rajan’s Chicago colleagues, Randall Kroszner, a former governor of the Fed, rejects Rajan’s criticism of the U.S. “Countries that are being hit tend to be ones that have high current-account deficits, high fiscal deficits, and relatively high inflation, and the challenge is brought on by their own domestic policies,” Kroszner told Bloomberg Radio. “It’s unfair to say it’s all the Fed’s fault.”

The problem with this argument is that India cannot rely on Fed Taper policy and monitory policy since India has smaller global trade.
Effect of Fed Taper policy on India and India FII investment is not much since the trade volume between India and US is small for US economy.
India is not dependent on exports to US and hence Dollar should not be too much impact on Indian currency.

Austin · Post by **Austin** » 01 Feb 2014 22:31

^^ India US exports lists no 1 and Dollar is used for export by India with all trading partners , more ever the crises with Indian currency started when the first threat of full taper came ....which never materalised but did enough damage to our economy ....CAD and other things made it worse.

svinayak · Post by **svinayak** » 01 Feb 2014 23:01

India's external trade is a smaller component of the overall economy.
What I wanted to imply was - This flux in the exchange rate can only happen if some central bankers collude against the Indian Rupee.

svinayak · Post by **svinayak** » 01 Feb 2014 23:10

Austin wrote:^^ India US exports lists no 1 and Dollar is used for export by India with all trading partners , more ever the crises with Indian currency started when the first threat of full taper came ....which never materalised but did enough damage to our economy ....CAD and other things made it worse.

Here you are trying to justify the effect of Taper on Indian economy. The only effect is the some FII withdrawing money from short term investment.
The repeated news report trying to link Fed Taper policy with Indian market and Indian economic growth shows how weak that argument is.

Austin · Post by **Austin** » 02 Feb 2014 07:41

^^ Unless the fact is something else the taper was the genesis of Rupee fall or for that matter fall of many Emerging Market currencies .... Indias CAD , Budget Deficit and Short Term Debt makes it more vulnerable.

If Fed Taper is not an issue why is Rajan complaining about it ?

Vipul · Post by **Vipul** » 02 Feb 2014 18:20

India's trade jumps 5-fold to USD 792bn over 9 years.

India's merchandise trade rose over five-fold to USD 792 billion over last nine years, the Commerce Ministry today said.

"This was achieved through robust policy announcements, which provided crucial support to struggling enterprises, especially labour intensive industry to ensure their global competitiveness," the Ministry said in a statement.

It said that over the last nine years, the total merchandise trade increased to USD 792 billion from USD 142 billion.

"India's external economic engagement has been considerably enhanced over the last nine years. The Foreign Trade Policy is focused on arresting and reversing the decline in exports," it added.

The ministry said the market diversification strategy to enhance exports has yielded positive results.

Due to demand slowdown in its traditional markets, the government provided incentives to exporters to explore non-traditional destinations such as Africa, Latin America and Asia.

During April-December this fiscal, the country's exports aggregated USD 230.3 billion and imports USD 340.3 billion, translating to a trade deficit of USD 110 billion.

In 2012-13, exports stood at USD 300.6 billion as compared to USD 63.8 billion in 2003-04, it said adding that the total trade of goods and services stands at around USD 1 trillion annually, which comes to 56 per cent of the GDP.

Further, it said that exports from Special Economic Zones(SEZs) have increased to USD 87.55 billion in 2012-13 fiscal.

In the past four years, exports from SEZs have grown four-fold. SEZs at present are providing direct employment to about 11,50,000 persons, it said.

The Ministry said implementation of free trade agreements have also helped in boosting the country's total trade.

"We are at an advanced stage of concluding an ambitious Broad based Trade and Investment agreement with EU. We expect that as a result of these agreements, Indian exports will be able to gain significant market access in newer territories".

Austin · Post by **Austin** » 02 Feb 2014 19:26

Exports Growth is the most positive news for the year ....we would be similar to Brazil in total trade volume of ~ $1 trillion.

$110 CAD for April-Dec is worrisome though , may be Jan - March they can reduce that further.

Why were they stating of $50 billion as CAD few days back ?

I see a lot of Congress Advert in news paper these days on all topics ..... more like trying to give a positive spin to all statistics in past 9 years of UPA1 & 2

Singha · Post by **Singha** » 02 Feb 2014 22:01

^ and RaGa is notable by his absence from all of them. only Maam and MMS.

sivab · Post by **sivab** » 02 Feb 2014 22:43

Austin wrote:Exports Growth is the most positive news for the year ....we would be similar to Brazil in total trade volume of ~ $1 trillion.

$110 CAD for April-Dec is worrisome though , may be Jan - March they can reduce that further.

Why were they stating of $50 billion as CAD few days back ?

I see a lot of Congress Advert in news paper these days on all topics ..... more like trying to give a positive spin to all statistics in past 9 years of UPA1 & 2

I think you are confusing trade deficit with current account deficit. Trade deficit was ~$110billion for April-Dec. CAD is expected to be ~50 billion for entire year.

nawabs · Post by **nawabs** » 02 Feb 2014 22:53

Investment atrophy

http://www.thehindubusinessline.com/opi ... 645880.ece

The scaling down of last fiscal’s GDP growth to 4.5 per cent, from the earlier 5 per cent estimate, could well be the precursor to an equally depressing set of national income data figures for 2013-14. But even the 4.5 per cent number, low though it is, fails to capture the real crisis that relates to gross capital formation (GCF): the stock of fixed assets added to an economy and contributing to its future production growth. A characteristic feature of any dynamic emerging economy is that the accumulation of such capital stock — from factories to roads and power plants — by it increases at a faster rate than GDP.

The period from 2004-05 to 2010-11 for India witnessed an average annual GCF growth of 15.2 per cent, well exceeding the GDP increase of 8.5 per cent a year. This trend has, however, reversed subsequently. The dip in GCF growth to 6.4 per cent in 2011-12 and a mere 2.4 per cent in 2012-13 has been more than the corresponding fall in GDP rates to 6.7 and 4.5 per cent. But the actual extent of drying up of investments can be gauged only from examining the components within GCF. Most significant is decline in fixed capital formation by the corporate sector in real terms, by 0.1 per cent in 2011-12 and 3.6 per cent in 2012-13. Equally revealing is that GCF in manufacturing has recorded negative growth of 17.5 and 13.2 per cent respectively. It is mainly sectors such as trade, road transport and real estate that have posted high or reasonably positive growth in capital formation. These, unlike manufacturing, don’t require much by way of machinery and capital stock. Besides, there is enough evidence now of the slowdown in growth and investments spreading to even services; this might well show up in the data for 2013-14.

The short point that emerges from all this is that the current slowdown is primarily about a collapse of investments. When corporates began going slow in putting up new manufacturing facilities around mid-2011, the effects of it were felt on job creation, incomes and consumption over time. We are clearly in a situation where no growth pick-up is possible without a resumption of the stalled capital accumulation process. The Centre has a crucial role in this respect and it is not limited merely to expediting statutory clearances, important though this is. What it must do is invest directly in select railway, roads and other infrastructure projects that have a high multiplier effect. The money can be found if there is a more serious attempt to rationalise subsidies and place a firm check on wasteful consumption expenditure. The savings from this are best directed towards growth-promoting investments.

svinayak · Post by **svinayak** » 03 Feb 2014 03:36

http://www.bloomberg.com/news/2014-01-3 ... ative.html

Then there is the complaint about the asymmetry of cooperation. Emerging markets had supported global growth through huge fiscal and monetary stimulus in the aftermath of the Lehman Brothers Holdings Inc. crisis. However, as emerging markets experience volatility today, action or concern from industrial countries isn’t forthcoming. The problem with this nonreciprocal argument is, simply, that the stimulus enacted in 2008 and 2009 was entirely self-interested. The Fed may not be internalizing the objectives and constraints of other countries today, but neither did emerging markets act on the behalf of the Fed then. It isn’t convincing to cloak self-interest as unselfish cooperation.

The victimhood narrative is further misplaced for two broader reasons. Many large emerging-market countries have consciously and enthusiastically embraced financial globalization. Yes, the foreign finance fetish reigned as the prevailing ideology in the run-up to the Lehman crisis. But there were no domestic compulsions forcing these countries to so ardently woo foreign capital. Last summer, when a bout of volatility hit the fragile five -- Brazil, India, Indonesia, South Africa and Turkey -- many of them responded by trying to open up their economies and enact policies to attract even more capital.

Over the last five years in India, every episode of rupee pressure has provoked a relaxation of regulations on foreign inflows, which has rendered the economy vulnerable to the next rupee shock, which, in turn, provokes the next liberalization and so on. In Turkey, policy makers spun a tale of invulnerability to shocks and contagion even as the economy’s growth was driven by a flood of short-term capital inflows. China provides an instructive contrast. China has chosen to insulate itself from foreign capital and has correspondingly been less affected by the vagaries of Fed actions and the fickleness of foreign finance. Chinese policies aren’t blameless, but their economic insulation has afforded them the luxury of being the recipient of complaints rather than the distributor.

Why inflation

Suraj · Post by **Suraj** » 03 Feb 2014 11:39

Austin wrote:Ok found out from the link
http://www.livemint.com/Politics/burPSw ... -2013.html
With the revised GDP numbers, the size of the Indian economy now stands at $1.6 trillion in 2012-13 at the rupee’s Friday value of 62.66 against the dollar.
So from being a $2 Trillion Economy a year or two back thanks to Rupee Fall and Low Growth we are now $1.6 Trillion Economy

The numbers reported are from two years ago - for the fiscal year ended March 2013. I'm not sure how much sense it makes to re-evaluate older year GDPs with present exchange rates. That economic activity is essentially the past; even 2013-14 will be over next month.

In any case, if you do so, the change in exchange rates in the last year lowers the figure from $1.8T to $1.6T. The advance estimate for the current fiscal year will not be out until late February. However, the RBI's half yearly report provides some information on the first half of this fiscal year (April-Sept 2013). See Table I.1 . The biggest hole in in manufacturing, which contracted in the first 6 months, and single-handedly caused breakeven industrial output. Mining is also a weak performer, while electricity/gas/water growth was strong. It's interesting that these core sector inputs were strong but manufacturing output was negative. Agriculture was also strong at 3.6% growth. Services could have done better, but was still decent at 6% growth.

Essentially the entire problem lies with the manufacturing sector today, even though exports have been strong this year, and would have been even stronger but for the unscheduled maintenance on Reliance Jamnagar refinery, which made the difference between 3-5% export growth in Nov-Dec, and potentially 15-20% growth in those months had that not happened. Looking ahead, with Jamnagar back onstream, export growth in Jan-Mar 2014 should be strong.

Suraj · Post by **Suraj** » 03 Feb 2014 12:12

sivab wrote:
Austin wrote:Why were they stating of $50 billion as CAD few days back ?
I think you are confusing trade deficit with current account deficit. Trade deficit was ~$110billion for April-Dec. CAD is expected to be ~50 billion for entire year.

We run a $50+ billion services trade surplus. See this post.

tarun · Post by **tarun** » 03 Feb 2014 18:49

Some food for thought here

http://ajayshahblog.blogspot.in/2013/10 ... count.html
We should run a non-profligate government & allow deep linkages between international finance & India. Funding CAD is no longer a problem then via a deep open market ( it is not easy to play a 2 Trillion USD market ) is not a problem then.

http://capitalmind.in/2014/02/its-not-t ... pullbacks/
Why were we so intent on paying more Rupees when all the hot money came in, we should have just let the Rupee appreciate & let the treasury operations of vulnerable firms learn hedging against forex exposure. Let the INR real convertibility instead of de-facto convertibility.