Indian Economy - News & Discussion Oct 12 2013

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RamaY
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Re: Indian Economy - News & Discussion Oct 12 2013

Postby RamaY » 30 May 2015 17:43

A good data point on China Vs Indian GDP

http://blogs.economictimes.indiatimes.c ... and-india/

The reality is revealed by a careful appraisal of the real GDP of the two countries. The only way to compare the welfare of the people of different countries is in terms of their per capita GDP (income or consumption) in terms of Purchasing power parity(PPP). AS total GDP is population times per capita GDP(PcGdp) or PcGdp is derived from GDP by dividing it by population, GDP measured in purchasing power parity is also the logical way to compare the size of GDP. In 2013 India’s GdpPpp was 40% of China’s or inversely China’s GDP was 2.4 times that of India’s.

If China’s GDP was converted to USD in 2013 it would have got five times the US dollars that India would get from converting its 2013 GDP into USD. However, if these dollars were used by the Chinese to convert into to Indian rupees, it would be able to buy in India real goods & services equal to 2.4 times the real Goods and Services it could have bought in China. Similarly if India used its entire 2013 GDP to convert into Chinese Renminbi in 2013 it could buy Goods and services in China equivalent to 40% of what it could have in India, double the 20% suggested by 2013 exchange rates.

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Dipanker » 30 May 2015 20:22

Attaining a nominal GDP of $3.7 - 4 trillion by 2019 seems little bit too optimistic. Even if we assume a totally conducive growth environment, it would still require a growth rate of ~ 12.5% to 14.5% from the current ~ $2.3 trillion.

A growth rate of 8% to 10% is probably more realistic, in that case by 2019 the nominal GDP will be likely be in the $3.1 - $3.3 trillion range.

Of course , bad monsoons, rise in oil prices, slow down in international economy etc. will somewhat dampen the growth rate, so we should keep our fingers crossed, and knock on wood!

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby sivab » 30 May 2015 21:02

Dipanker wrote:Attaining a nominal GDP of $3.7 - 4 trillion by 2019 seems little bit too optimistic. Even if we assume a totally conducive growth environment, it would still require a growth rate of ~ 12.5% to 14.5% from the current ~ $2.3 trillion.

A growth rate of 8% to 10% is probably more realistic, in that case by 2019 the nominal GDP will be likely be in the $3.1 - $3.3 trillion range.

Of course , bad monsoons, rise in oil prices, slow down in international economy etc. will somewhat dampen the growth rate, so we should keep our fingers crossed, and knock on wood!


You are using real growth rates (at constant prices) for nominal GDP (at current prices)!! You should use nominal growth rates for nominal GDP. 8% to 10% real growth will translate to 13% to 15% nominal growth assuming inflation of 5%. Note that inflation will tend to go higher and rupee will appreciate in value as growth gets higher in sustained manner. 2014-2015 nominal growth rate estimate at current prices released by CSO yesterday was 10.5%, while it was 7.3% at constant prices(2011-2012). So 3.7 to 4 trillion nominal GDP by 2019 is not unreasonable.

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Dipanker » 30 May 2015 21:43

Yes, I do make rather simplifying assumption of "all else being equal" in my computations. Obviously the nominal growth will be higher if the rupee gains vis-a-vis dollar and lower if it loses against dollar but if we go by the long term trend of dollar appreciating vis-a-vis rupee then there is more likelihood of nominal gdp ending up lower than the estimates.

In any case important thing is to maintain a sustained growth rate to attain the long term goal, we can not go back to hindu rate of growth!

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Satish » 30 May 2015 22:22

There is nothing Hindu about 2-3% growth rate driven by socialist policies aped from the west. Get yourself educated before you use Hindu to describe a negative performance of the past.

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby uddu » 30 May 2015 22:24

Which according to you is the Hindu rate of growth? The above 10 percent growth rate achieved in the BJP states and especially in the state of Gujarat by the Hindu nationalist BJP which is trying to do the same at the national level or the Commie Congress model of 3 percent growth rate?
COCO Secular model is 3 percent. Hindu growth rate is 10 percent.

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Suraj » 30 May 2015 22:43

Dipanker wrote:Attaining a nominal GDP of $3.7 - 4 trillion by 2019 seems little bit too optimistic. Even if we assume a totally conducive growth environment, it would still require a growth rate of ~ 12.5% to 14.5% from the current ~ $2.3 trillion.

A growth rate of 8% to 10% is probably more realistic, in that case by 2019 the nominal GDP will be likely be in the $3.1 - $3.3 trillion range.

Of course , bad monsoons, rise in oil prices, slow down in international economy etc. will somewhat dampen the growth rate, so we should keep our fingers crossed, and knock on wood!

As sivab mentions - and you're making a mistake many people repeatedly claim here - GDP does not grow on the basis of reported real growth rates. It growth through a combination of real growth and the effect of inflation. For example, though the GDP grew 7.3% last fiscal year in real terms , the GDP itself didn't grow from Rs.100 to Rs.107.3 . Rather, it grew in nominal terms by over 10%, i.e. from Rs.100 to Rs.110.x .

Approx 12% nominal annual growth is easily achievable, and in fact has been achieved consistently by India for several years in a row. During the mid 2000s boom years we were running at 15-16% nominal growth rate per year, and ~9.5-10% real growth. In fact in 2013-14 we had real growth of 6.9% and nominal growth of 13.4%. The corresponding figures in 2014-15 were 7.3% and 10.5% as sivab mentions , due to subdued inflation.
Dipanker wrote:Yes, I do make rather simplifying assumption of "all else being equal" in my computations. Obviously the nominal growth will be higher if the rupee gains vis-a-vis dollar and lower if it loses against dollar

Nominal growth here has nothing to do with the dollar. Real growth rate and nominal growth are entirely Rupee denominated creatures. The rupee to dollar conversion is the last step of the calculation, that is applied to nominal GDP.

I'm not making a pie in the sky argument. The estimates uses somewhat conservative metrics from past achieved performance. Of course factors like drought (which in any case is not new) or global crises can affect the numbers, but there's really no extra meta information in stating that a projection about the future may not play out. That holds for all things about the future...

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Prem » 30 May 2015 23:18

Trillion Here and Trillion there will only mean Yindians are realistically on the tail of Pekingian Yuanadoons with full force with will to catch up Soon to split the Moon as sign of miracle.

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Dipanker » 31 May 2015 00:03

Satish wrote:There is nothing Hindu about 2-3% growth rate driven by socialist policies aped from the west. Get yourself educated before you use Hindu to describe a negative performance of the past.



Now Mr. Satish I did not coin this phrase "Hindu Growth Rate", this was by used economists to describe India's growth rate pre-liberalization era. As a hindu myself my find the term humorous and am not offended by it at all.

Get yourself educated before you use Hindu to describe a negative performance of the past.


I find that rude and offensive. May be you need and education in etiquette and manners so that next time you can make post without being rude and offensive.

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby hanumadu » 31 May 2015 00:05

Complete economic freedom in 5-7 years: Rajnath

"Prime Minister Narendra Modi has laid the foundation stone for economic freedom one year ago. We will get the complete economic freedom in 5-7 years. But people will get the feeling of economic change in three years," he said.


What does he mean by economic freedom?

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Suraj » 31 May 2015 01:28

Dipanker: the use of 'Hindu Rate of Growth' is not very welcome here. It sticks in the craw of too many people, regardless of your personal feelings about it. As a moderator, I'd rather not see people wasting their energy fighting over a controversial but not substantial term, here. I'll leave your and Satish's posts as they are, as an example that the use is not appreciated, but please don't continue with the issue.

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Dipanker » 31 May 2015 04:26

Suraj wrote:
Dipanker wrote:Attaining a nominal GDP of $3.7 - 4 trillion by 2019 seems little bit too optimistic. Even if we assume a totally conducive growth environment, it would still require a growth rate of ~ 12.5% to 14.5% from the current ~ $2.3 trillion.

A growth rate of 8% to 10% is probably more realistic, in that case by 2019 the nominal GDP will be likely be in the $3.1 - $3.3 trillion range.

Of course , bad monsoons, rise in oil prices, slow down in international economy etc. will somewhat dampen the growth rate, so we should keep our fingers crossed, and knock on wood!

As sivab mentions - and you're making a mistake many people repeatedly claim here - GDP does not grow on the basis of reported real growth rates. It growth through a combination of real growth and the effect of inflation. For example, though the GDP grew 7.3% last fiscal year in real terms , the GDP itself didn't grow from Rs.100 to Rs.107.3 . Rather, it grew in nominal terms by over 10%, i.e. from Rs.100 to Rs.110.x .

Approx 12% nominal annual growth is easily achievable, and in fact has been achieved consistently by India for several years in a row. During the mid 2000s boom years we were running at 15-16% nominal growth rate per year, and ~9.5-10% real growth. In fact in 2013-14 we had real growth of 6.9% and nominal growth of 13.4%. The corresponding figures in 2014-15 were 7.3% and 10.5% as sivab mentions , due to subdued inflation.
Dipanker wrote:Yes, I do make rather simplifying assumption of "all else being equal" in my computations. Obviously the nominal growth will be higher if the rupee gains vis-a-vis dollar and lower if it loses against dollar

Nominal growth here has nothing to do with the dollar. Real growth rate and nominal growth are entirely Rupee denominated creatures. The rupee to dollar conversion is the last step of the calculation, that is applied to nominal GDP.

I'm not making a pie in the sky argument. The estimates uses somewhat conservative metrics from past achieved performance. Of course factors like drought (which in any case is not new) or global crises can affect the numbers, but there's really no extra meta information in stating that a projection about the future may not play out. That holds for all things about the future...


I realize that I loosely used nominal growth rate and nominal GDP interchangeably, my bad. They are of course apple and oranges!

However, my calculations were based on converting $2.3 trillion to $3.7 - $4 trillion in 4 years using simple compounding formula ( F = P(1+r)^n ) and I came up with the rate of 12.6% - 14.8% respectively. I understand for real GDP growth these have to be inflation adjusted rates, and thus to me they sound a bit on the higher side.

But if we do attain those GDP figures I won't be complaining!

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Suraj » 31 May 2015 05:41

Dipanker wrote:I realize that I loosely used nominal growth rate and nominal GDP interchangeably, my bad. They are of course apple and oranges!

However, my calculations were based on converting $2.3 trillion to $3.7 - $4 trillion in 4 years using simple compounding formula ( F = P(1+r)^n ) and I came up with the rate of 12.6% - 14.8% respectively. I understand for real GDP growth these have to be inflation adjusted rates, and thus to me they sound a bit on the higher side.

They're actually on the lower side. Nominal GDP growth rate figures for the past decade:

Code: Select all

Year      Growth%
2005-06   13.9
2006-07   16.3
2007-08   16.1
2008-09   12.0
2009-10   17.3
2010-11   20.3
2011-12   15.7
2012-13   11.7
2013-14   13.4
2014-14   10.5
10Y_avg   14.7

References:
2010-11 Economic survey, pg 2
CSO 2012-13 data
The data for 2013-14 and 2014-15 are in the news reports posted within the last 2 days.

In other words, the 10 years average, including the 2008 crisis slowdown and the recent slowdown, still gives 14.7% nominal growth for the Indian economy, which is at the upper end of the CAGR figure ranges you calculated from my estimates. And that is why I stated that:
a) My estimate is conservative and reasonable
b) If an investment cycle does take hold, we'll probably see better than 15% nominal growth, based on numbers seen during the last investment boom between 2004-2010. The nominal growth during that boom phase was 16% . The nominal growth in the last four years was 12.8%. The range of numbers I suggested is in the lower half of 12.8-16%

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby gakakkad » 31 May 2015 09:43

this is probably the 10th time we are going over this...but if the proposed investments of smart cities , HSRs , industrial corridor go as planned 20-30% CAGR may be possible for a decade...

I think we should put this in FAQ somewhere...Whenever a muj newly enters this dhagaa , this inflation , real, nominal growth rate misconception comes up...it has almost become an initiation ritual..

Investment GDP ratio in 2005-7 frame was 40% yielding 15-20% nominal for 5 years....

the proposed investment in smart cities , HSR , industrial corridors are in the tune of 1-2 trillion at least .... when something similar was done in PRC it yielded 25% cagr for sustained periods....and our results would be better if we can keep the NPAs down....key lies in implememtation....

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Suraj » 31 May 2015 11:02

Yes, this has been repeated in the past, but on the other hand, this thread has been dormant for some time thanks to the stagnation during the UPA years causing a loss of interest, and the topic has only recently regained greater enthusiasm . It helps to go through this again, to rekindle interest and encourage greater participation in tracking economic news, digging up stats etc. It's only recently that more folks have started posting news and useful tidbits here again, and that's a good start.

Meanwhile Nomura projects 8% real GDP growth this year, and bets on RBI cutting rates on June 2:
Economy at early stages of recovery, GDP to rise to 8%: Nomura
Talking about the GDP numbers, the Japanese brokerage house said one can paint both a bearish or bullish picture, but it's in the "glass half-full camp".

"Despite the scepticism, we are optimistic and continue to believe that the Indian economy is at the initial stages of a business cycle recovery," Nomura said in a research note, adding that lower inflation, easier financial conditions, policy efforts and rising profit margins are expected to back up a cyclical recovery.

Pegging the GDP growth at 8% this fiscal, Nomura said key risks to this assumption are a bad monsoon and weak global demand.

On policy rates, the report said: "We expect RBI to cut the repo rate by 25 basis points to 7.25% on June 2, in line with the consensus, followed by a pause until end-2016."

GoI continues to be focused on boosting core sector and investment:
India douses century-old coal fires as Modi seeks output boost
Prime Minister Narendra Modi is determined to move more than 100,000 people living near coalfields in eastern India to new homes, making it easier to douse underground fires that have burned for a century and mine huge reserves of premium coal.

Reviving output from India's nationalised coal sector has been one of Modi's most tangible achievements during his first year in office, one that he hopes will secure continuous power to all and eat into an annual coal import bill of $15 billion.

The burning deposits of Jharia, in Jharkhand state, are particularly prized because they are the only source of top quality steelmaking coal in the country. India spends $4 billion a year on importing that grade alone.

Modi travelled to Jharkhand in February and urged the chief minister to speed up work on putting out the fires and shifting the people living there.

"The fact that the prime minister is directly involved shows that the government is very serious about it," Coal Secretary Anil Swarup said in New Delhi. "It's a huge task but the good news is that we have started moving in the right direction."

Delhi-Mumbai corridor gets Rs 4,300 crore
The Cabinet Committee on Economic Affairs approved works worth Rs 2,784.83 for the first phase of the Dholera Special Investment Region (DSIR) in Gujarat and Rs 1,533.45 crore for the Shendra Bidkin Industrial Area (SBIA) in Maharashtra. Both these efforts form part of the Delhi Mumbai Industrial Corridor (DMIC) project.

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Austin » 31 May 2015 16:24

Total banking assets in India is expected to cross US$ 28.5 trillion in FY25.

http://www.ibef.org/industry/banking-india.aspx

Image

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Hari Seldon » 31 May 2015 16:36

The DMIC makes complete sense. Just like PRC started off with a Guangzhng next to HK as the spark plug of a wider ecnomic conflagration (in a positive sense), the DMIC can play the role of a guangzhing for us.

Sadly, DMIC cutting across multiple states also means lotsa variance in governance quality along the stretch. Luckily for now, all except Delhi are with one party, so no excuses on delivery.

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby gakakkad » 31 May 2015 16:52

interestingly neither dilli nor mumbai form an important component of DMIC... it is the ones in between that are important..

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby RamaY » 31 May 2015 17:38

Austin wrote:Total banking assets in India is expected to cross US$ 28.5 trillion in FY25.

http://www.ibef.org/industry/banking-india.aspx

Image


Are these new "deposits" every year? What is the underlying information behind this data? Can we glean some knowledge from this or it is just data?

I know we cannot take this number as absolute savings but $1.3T deposits in a $2 economy? Does it mean only 65% economic activity going thru banks (these deposits need not remain in FDs) or does it mean we have 65% GDP as savings, indicating the actual GDP of the nation to be somewhere $3.5-4T (30% savings/GDP ratio).


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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Vamsee » 31 May 2015 20:06

Government contains fiscal deficit to 3.99% of GDP in FY15 to Rs 5.01 lakh crore :twisted: :twisted: :twisted:

Beating its own financial target, the government has contained the fiscal deficit at 3.99 per cent of GDP in 2014-15 to Rs 5.01 lakh crore.


Fiscal deficit, gap between government's expenditure and revenue, at 3.99 per cent of GDP is lower than the downwardly revised estimate of 4.1 per cent provided in the government's first full Budget announced in February.


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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Dipanker » 31 May 2015 20:51

Suraj wrote:
Dipanker wrote:I realize that I loosely used nominal growth rate and nominal GDP interchangeably, my bad. They are of course apple and oranges!

However, my calculations were based on converting $2.3 trillion to $3.7 - $4 trillion in 4 years using simple compounding formula ( F = P(1+r)^n ) and I came up with the rate of 12.6% - 14.8% respectively. I understand for real GDP growth these have to be inflation adjusted rates, and thus to me they sound a bit on the higher side.

They're actually on the lower side. Nominal GDP growth rate figures for the past decade:

Code: Select all

Year      Growth%
2005-06   13.9
2006-07   16.3
2007-08   16.1
2008-09   12.0
2009-10   17.3
2010-11   20.3
2011-12   15.7
2012-13   11.7
2013-14   13.4
2014-14   10.5
10Y_avg   14.7

References:
2010-11 Economic survey, pg 2
CSO 2012-13 data
The data for 2013-14 and 2014-15 are in the news reports posted within the last 2 days.

In other words, the 10 years average, including the 2008 crisis slowdown and the recent slowdown, still gives 14.7% nominal growth for the Indian economy, which is at the upper end of the CAGR figure ranges you calculated from my estimates. And that is why I stated that:
a) My estimate is conservative and reasonable
b) If an investment cycle does take hold, we'll probably see better than 15% nominal growth, based on numbers seen during the last investment boom between 2004-2010. The nominal growth during that boom phase was 16% . The nominal growth in the last four years was 12.8%. The range of numbers I suggested is in the lower half of 12.8-16%



I found out my mistake, I had this faulty notion: Nominal GDP = Real GDP in $$.

So while I have been talking all along about real GDP growing from $2.3 trillion in 2015 to $3.7 - $4 trillion in 2019 (assuming that exchange rate will be more or less same) , I have been using the wrong nomenclature, hence the confusion.

But for real GDP to grow form $2.3 trillion in 2015 to $3.7 - $4 trillion in 2019 it would still require a inflation adjusted real growth rate of 12.6% - 14.8% ( all else being equal including exchange rate ), right? Of course in real world all else are never same so the answer can't be a simplistic/deterministic one.

In any case as long as the we can keep the economy growing at 8% or higher in real terms we should be o.k.

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Suraj » 31 May 2015 21:50

Dipanker wrote:I found out my mistake, I had this faulty notion: Nominal GDP = Real GDP in $$.

So while I have been talking all along about real GDP growing from $2.3 trillion in 2015 to $3.7 - $4 trillion in 2019 (assuming that exchange rate will be more or less same) , I have been using the wrong nomenclature, hence the confusion.

There's no 'nominal GDP' and 'real GDP'. All reported GDP is a nominal figure, i.e. in current dollars. Nobody reports a 'real GDP' in inflation adjusted dollars, because you can't go to a shop and buy something with '2004-05 rupees'. All current transactions are conducted with the current value currency.

What you have are real and nominal GDP growth, because growth rate is reported either including the effect of inflation (nominal) or without (real). The economy grows in nominal terms as we see it with our own eyes . In other words if India was a tiny microcosm you saw around you last year and you could calculate the increase in activity, it would add up to 10.5% increase to you. But out of that 10.5%, ~3% is inflationary growth, so that 'real' growth is 7.3% .
Dipanker wrote:But for nominal GDP to grow form $2.3 trillion in 2015 to $3.7 - $4 trillion in 2019 it would still require a inflation adjusted real growth rate of ~7-10% ( all else being equal including exchange rate ), right? Of course in real world all else are never same so the answer can't be a simplistic/deterministic one.

Fixed that for you.

Summary: There is no 'real GDP'. All the GDP data you see reported in either rupees or $s (except PPP) is nominal, i.e. includes inflation within it. It grows at the nominal GDP growth rate, which between 2005 and present day has averaged 14.7% for India. During strong growth years (2005-11), we averaged 16%, during weak years (2011-15) we averaged 12.8%.

Therefore, when I estimate 12-6-14.7% nominal CAGR (corresponding to nominal minus ~5% real GDP growth rate) for the next 4 years, at the beginning of a new investment cycle that can push up growth rate significantly for the next 5-8 years, I'm not being optimistic, but conservative, based on a fairly long series of data over 10 years.

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby RamaY » 01 Jun 2015 01:42


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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Suraj » 02 Jun 2015 13:05

As predicted, RBI cuts rates again:
RBI cuts repo rate 25 bps to 7.25%
In keeping with demands and expectations by industry, the Reserve Bank of India on Tuesday cut the benchmark repo rate, or the rate at which banks borrow from the central bank, by 25 basis points to 7.25%. The latest action takes the number of rate cuts this calendar year to three; the central bank had cut the repo rate by 25 basis point cut earlier in January and March; the total reduction in interest rate is now 75 basis points. One basis point is one-hundredth of a percentage point.

Both CRR and SLR rates have been left unchanged.

Manufacturing PMI highest in four months at 52.6 in May despite stagnant hiring
Manufacturing activities in May grew at the fastest pace in four months, showed the widely-tracked HSBC Purchasing Managers’ Index (PMI).

Manufacturing PMI rose to 52.6 points in May from 51.3 in April. This was the highest PMI reading in 2015, but for January’s 52.9.

A PMI reading above 50 shows expansion, while one below that indicates contraction.

Gross domestic product (GDP) figures on Friday showed that manufacturing activity rose 7.1 per cent in 2014-15, against 5.3 per cent in 2013-14. The outlook for 2015-16 remained uncertain as April data showed moderation in manufacturing growth compared with March, and May showed high growth recovering somewhat. Manufacturers did not hire additional hands due to the uncertainty of continuing growth.

A commentary associated with the PMI survey joined the chorus for a rate cut by the Reserve Bank of India on Tuesday, even as input inflation was higher in May.

Core sector disappoints, contracts 0.4% in April
Output in the eight key infrastructure industries declined in April for a second month in a row, by 0.4 per cent this time, posing a question over the recovery in manufacturing shown by the official gross domestic product (GDP) data. This rate of fall was the steepest in 18 months, since October 2013.

The eight industries, termed the core sector, have about 38 per cent weight in the Index of Industrial Production (IIP). None of the sectors, except coal, showed remarkable growth. While five recorded a decline in output, the growth in steel was almost flat, only 0.6 per cent.

The eight industries grew 5.7 per cent in April 2014 and fell 0.1 per cent in March 2015.

Core sector industries and the IIP do not necessarily show one-to-one correspondence. For instance, IIP rose to a three-month high of 4.9 per cent in February, when core sector growth was only 1.4 per cent. In March, the eight industries contracted but IIP rose 2.1 per cent.

For the IIP to rise, the remaining 62 per cent of the segment has to show quite remarkable growth. Besides, electricity production undergoes one more revision between core sector data and IIP, and there is a mismatch between steel data.

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby vina » 02 Jun 2015 14:47

Suraj wrote:As predicted, RBI cuts rates again:
RBI cuts repo rate 25 bps to 7.25%

Both CRR and SLR rates have been left unchanged.


Yawn.. And as I said earlier, the 25 bps cut saw a massive sell off in the bond market and "buying bonds because of falling interest rates" didn't make sense again. The 8.40 GS 2024 bond saw yields rise by close to 15bps today and it lost around 87 paise from open .

The RBI is cutting rates, but yields are not dropping. Even the latest 7.72 GS 2025 bond are at yields of 7.22,dropping around 50 paise from open.

Yields don't drop, interest rates don't drop. And again, monsoon forecast was downgraded, Nifty lost some 2.65% and BankNifty 4% , all sitting and watching action today onree.


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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Suraj » 02 Jun 2015 20:01

vina wrote:Yields don't drop, interest rates don't drop. And again, monsoon forecast was downgraded, Nifty lost some 2.65% and BankNifty 4% , all sitting and watching action today onree.

You are trolling. For someone who claims to be a money management type, you make a lot of assertions on the basis of one day's movement in the market that only serve to make you look not very good at your trade, while simultaneously putting you on the watchlist for another warning for thread disruption.

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Suraj » 02 Jun 2015 21:10

Meanwhile for the first time, a number of banks immediately cut lending rates, something that didn't happen during the last 2 rate cuts:
SBI, Allahabad Bank, Dena Bank cut interest rate
In a big relief to home and auto loan borrowers, several banks led by market leader SBI today slashed lending rates by up to 0.3% after RBI cut key policy rate.

State Bank of India (SBI) reduced its base rate or minimum lending rate to 9.70% from 9.85% effective June 8. This is the second rate cut by SBI in about two months.

While the Reserve Bank of India (RBI) has cut its lending rates by 75 basis points (0.75 percentage point) in three installments since January, the SBI has done so by 30 bps (0.30 percentage point) in two tranches.

Meanwhile, another state-owned lender Allahabad Bank cut base rate 0.30% while Dena Bank, Punjab & Sind Bank reduced their base rate by and 0.25% each.

The base rate has been be reduced to 9.95% from 10.25%, effective June 8, Allahabad Bank said in a filing to the BSE.

At the same time, Dena Bank and Punjab & Sind Bank lowered their base rate by 0.25% to 10%.

With the reduction, all loans linked to the base rate will come down proportionately.

IDBI Bank, however, has reduced bulk deposit rate, a move which is a precursor to a cut in lending rate.

Other banks are likely to follow suit in the next few days.

BHEL gets largest-ever order worth Rs 18,000 cr ($3 billion) from TSGENCO
Bharat Heavy Electricals Limited (BHEL) secured single-largest order in its history for setting up a 4,000 Mw (5x800 Mw) supercritical thermal power project from Telangana State Power Generation Corporation Limited (TSGENCO). The order is valued at at Rs 17,950 crore

The company in its statement said this is also one of the highest value orders ever placed in the capital goods sector in India.

In December 2014, TSGENCO placed the order of setting up Telangana’s first supercritical thermal power plant of 800 Mw to BHEL, followed by an order for the 4x270 Mw Bhadradari TPS at Manuguru in Khammam district in March 2015.

Govt approves 40 electronics manufacturing proposals worth Rs.9,600 crore
According to data by the department of electronics and information technology, under the Modified Special Incentive Proposal Scheme (M-SIPS) proposals worth Rs. 289.39 crore were cleared in January to March 2014 while the number went up to proposals worth Rs. 3,059 crore in January to March 2015. Officials are attributing the jump to the Make in India campaign which has become one of the flagships projects of the Narendra Modi led NDA government and the culmination of the past government's efforts to boost electronic manufacturing in the country.

According to a separate set of statistics, the government has received a total of 63 proposals under the policy which are worth Rs. 20,825 crore. Out of these proposals, 40 proposals worth Rs. 9,565 crore have been already approved while the remaining ones are currently under consideration. Out of the 40 proposals approved, 8 of them worth Rs. 1,152 crore were approved before May 2014. The NDA government came into power in May last year and has been celebrating its first year in office.

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby VinodTK » 03 Jun 2015 04:31

Watch Out, China: Why the 'Asian Century' Might Just Belong to India
With the conclusion of his three-nation tour of China, Mongolia and South Korea last month, Prime Minister Narendra Modi capped a frenetic first year of diplomacy. It is becoming apparent that the emphasis on the Asian region will continue to be an imperative for the rest of his term. In this past year alone, the Indian Prime Minister has invested about twice as many days visiting the 'east' — Asia, the Indian Ocean Region and the Pacific — as against his 'westward' travels.

Is this a reinvigoration of India's Look East policy? Does it mean relatively less importance to the West? And, what are the drivers of this policy? Barring the notable absence of West Asia from his travel schedule, it is clear that 'Engage Asia' has been the predominant mantra of Modi's early days in office.

This Asian focus is decidedly different from previous efforts by Indian leaders to integrate with the neighborhood. Those efforts were driven by the idea of demonstrating Indian leadership in a particular geography, or they were manifestations of south-south solidarity, or they were necessitated by security concerns emanating from across the border.

The current effort is something more. It is primarily aimed at completing two specific national projects, while at the same time positioning India at the helm of global affairs.

The first national project is to complete '20th century India': future-proofing Indian infrastructure; installing enough energy to power the nation; connecting the country with its periphery and beyond via roads, rail, ports and airports; developing manufacturing bases to employ the millions entering the job market each year; and investing in housing, agrarian and other social infrastructure that most developed economies take for granted.

Modi's Asian thrust is designed to find partnerships, technology and funds to complete this 20th century project. The Atlantic countries do not have the financial capacity to invest in large infrastructure and energy projects. They do not have the political room to commit to carbon-intensive industrialization. And they no longer have the wherewithal to offer 20th century inputs (equipment, energy and technology) for an insatiable India.

All of these are readily available to the east of India. Consider this: China, Japan and Korea between them have close to US$5.5 trillion in foreign exchange reserves, funds desperately needed for this 20th century project.


There is a coincidence of needs as well. Each of these economies needs to invest in new geographies. They need to generate wealth out of what are now stagnant reserves. These are countries that have successfully completed their industrialization projects and need to find outlets for investment in the industrialization of others. That's why China has become the biggest provider of energy-generation equipment to India and wants to build high-speed trains here. It is why South Korea wants to build nuclear reactors and ports in India. And it is why the Japanese want to set up industrial corridors in India. Asia is also the source of most of the energy needs that are indispensable to this national project. Be it gas, uranium, coal variously sourced from Australia, Mongolia, Central Asia and the Middle East, this region offers India plenty of energy opportunities.

When Modi travels to these countries, it is tacit recognition that the response to Indian requirements carried forward from the last century reside there.

Then there is India's '21st century project', driven by innovation, based on new technologies, located within digital economies and fueled by enhanced human capacity. This is the service-sector paradigm that India is already experiencing, and for which India needs high-end solutions at rock bottom prices. For example, most of the 6 million new internet users India adds each month operate on handheld devices priced around the US$50-100 range on connections priced at a fraction of a dollar. Here too it is Asian countries —China, Taiwan and South Korea—that dominate the market. The expansion of this market, which will happen in tandem with the Digital India, Make in India, Skilling India and Smart Cities initiatives, will only see the market dominance of these Asian countries increase.

However, here is the poser: can India manage this Asian engagement while balancing an increasingly expansive China? This is the second element of the 'Engage Asia' mantra that Prime Minister Modi seeks to address.

Most Asian economies have their largest partnership with China and will always be looking over their shoulder as they define new partnerships with others. China's soft expansionism is being driven by its economic weight and through its pursuit of creating new political and economic governance institutions, like the AIIB, that will offer it a new dimension of power. Its One Belt, One Road project seeks to redefine and recreate Asia's geography.

In India's sense of its own role and position in global affairs, such Chinese dominance is unacceptable. New Delhi's running dispute over the 4000km border with China also complicates the bilateral relationship. India's existential dilemma for the 21st century, then, is to 'stare down the dragon while embracing it'.

This is where the U.S., a predominant Asian power, comes into play. It offers India two playing cards. First, it encourages others in Asia, such as South Korea and Japan, to participate in the India story in all sectors without the fear of China. In fact, this U.S. gambit of midwifing Asian middle-power cooperation from arm's length is a seminal arrangement for the 'congagement' of China. Second, the unassailable U.S. lead in security, defense and other high technology segments gives India a qualitative edge in its bilateral negotiations with China.

When Prime Minister Modi landed in Mongolia and South Korea on his way back from China, he was signaling that he intends to challenge the narrative of the Asian century as being a Chinese century. He was signaling that he intends to break the Chinese stranglehold in the Asian imagination of its future. He was signaling that here is an India willing to live up to expectations and take its rightful place as a major Asian power. Put simply, he was embracing the dragon while staring it down at the same time.

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Sanjay » 03 Jun 2015 05:03

Suraj, what is your view on the skepticism over the GDP growth rate ?

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Suraj » 03 Jun 2015 08:25

Base year revisions result in this period of noise each time. To be ignored until the dust settles down.

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby nandakumar » 03 Jun 2015 10:30

On the controversy over lead contamination in Maggi noodles, there has been a number of posts in the politics thread. That may be because a lot of posters saw it through the prism of politics and speculated on motives for it coming into limelight. I see this purely as an issue in manufacturing economy and hence the post in this thread. I think ever since GM discovered that the addition of lead in gasoline reduced engine knocking, the world had to reckon with lead pollution in the atmosphere. Though technology has helped mitigate the quantum there should be lot of lead in the atmosphere as there are still quite a few vehicles on the road that run on leaded fuel both diesel and petrol. Even today the unleaded petrol is actually not totally free of lead. Human beings absorb it through inhalation and ingestion. The latter obviously through particulate matter falling on cereals and other food items. So lead may be contained in the flour used for making noodles. Secondly edible fat is another key ingredient in noodles. Manufacturers typically use hydrogenated vegetable oil. The process of oil extraction from seeds requires the use of a petroleum based solvent and that could be a source of lead contamination. Secondly hydrogenation itself requires such solvents. So that could be a factor. As I see it, this could be a problem for not just Nestle but the entire processed food industry itself.
My technical knowledge is rather limited. I have put together what I could gather from publicly available information. So feel free to respond with your comments/ criticisms.

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby amit » 03 Jun 2015 11:37

Sanjay wrote:Suraj, what is your view on the skepticism over the GDP growth rate ?


Sanjay,

IMO this skepticism is just another stick to beat Modi with. Look, I know Suraj does not want politics on this thread and rightly so, but let me just say this. A lot of class and religious tensions were expected because everybody thought that the more fundamentalist elements within the Right would raise up the ante. (Remember the setting up of the Berkeley Group?)

That hasn't happened and on the contrary there has been a pretty dramatic turnaround in the economy - not just in numbers but in things like power generation and big infra investment roadmap. The national narrative is going back to economic growth as it should.

There is a small window of opportunity to cast doubt on the new economic direction before the tangible benefits of these economic growth measures begin to take effect. The idea is to cast aspersions in order to scare foreign investors.

It has been proven that good growth rates translate into votes nowadays - one reason why the UPA government got elected the second time because elections coincided with good growth. The fear is that if the economy takes off then 2019 is in the bag for BJP.

Regarding the GDP number revisions two things have happened. One is the base year change as Suraj mentioned. But less discussed but IMO more impactful has been the use of market prices instead of factor prices to calculate GDP. Every one of these "eggspurts" who are questioning these numbers know or should know that every major economy, including Bric nations like China and Brazil, also use market prices rather than factor prices. So, those who are acting like shills are either ignorant or have an agenda.

There is also a school of thought which thinks that the manufacturing sector has seen a small but significant rise in productivity.

As Suraj said the dust will soon settle and and all these articles would be recognised for the "farticles" that they are.

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby vina » 03 Jun 2015 11:58

There is also a school of thought which thinks that the manufacturing sector has seen a small but significant rise in productivity.

Well, trouble is top lines have been in trouble. Profitability has been poorest in a long time. We are probably at the bottom of the cycle, and one just hopes that it is upwards from here.

Credit Growth is at an all time low. Exports are stressed, okay that is putting it mildly , coz global economy is stressed. Globally there was a "deflationary" problem for the past decade or so, but in India, we somehow stunningly managed 10% inflation on an average for close to 10 years (talk about that for achievement. Next time Jairam Ramesh shoots his mouth off about how for an economy growing at 8.5% , this "increased" social sector outlay was nothing, please play back that rant of an interview from that time, someone needs to remind him, dude, the avg growth was 5% and the only thing double digit was inflation, no wonder UPA got booted out).

There are huge legacy issues. The congress left a scorched earth, with no fiscal elbow room to try to kickstart growth (Kangress already "spent" the next few years bonanza already via NREGA and the handouts per NAC). With these kind of constraints, the only way to have squared this circle was massive structural reforms. Unfortunately, the commodity price drop gave unexpected elbow room for the govt and they went for some creeping incrementalism.

India reforms only under duress. I sincerely hope for a global macro crisis. Only then will we see real reforms on the ground. Modi's forte is execution. We need spades of that in all directions. To be fair, it is happening in coal & power, and will happen over time in rails and roads and the improvements will be starkly visible on the ground in 2 to 3 years. I grant that.

But we need absolute deep reforms in the agri sector. The entire agricultural economy is shot. Cold chains, storage, marketing tie ups , etc. etc.. But then we have legacy political issues of the BJP about FDI in retail ! The business model of big retailers and food producers is to be vertically integrated. If the Govt wants a different business model, with common 3PL like back end and logistics, and the usual tell walas and neighborhood dookanwalas getting supplied via those chains, cutting out the APCM Mandis (which are dens of local vested interests,thugs and rent seeking dada's who collect hafta) then they need to do the investments and set it up.

But which govt arm will do it . Historically it was tasked to the FCI. another AAI like parasitical sloth ! There we go again to step 1. That is the trouble.

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby amit » 03 Jun 2015 12:03

vina wrote:But we need absolute deep reforms in the agri sector. The entire agricultural economy is shot. Cold chains, storage, marketing tie ups , etc. etc.. But then we have legacy political issues of the BJP about FDI in retail ! The business model of big retailers and food producers is to be vertically integrated. If the Govt wants a different business model, with common 3PL like back end and logistics, and the usual tell walas and neighborhood dookanwalas getting supplied via those chains, cutting out the APCM Mandis (which are dens of local vested interests,thugs and rent seeking dada's who collect hafta) then they need to do the investments and set it up.

But which govt arm will do it . Historically it was tasked to the FCI. another AAI like parasitical sloth ! There we go again to step 1. That is the trouble.


Here, here! Exactly my thoughts!

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Suraj » 03 Jun 2015 12:23

GoI's approach to address corporate indebtedness is to invest in infrastructure to a dramatic extent. We added 18GW just between January and April. For a long time we did less than that in a year. Last years annual addition was 23GW. For comparison, Pakistan's entire installed capacity is 22GW. The railway budget plans an investment of $140 (not $14, but $140) billion over the next 5 years, almost 70% going into double/triple/quad tracking, signaling, electrification and general improvement. Road projects, likewise, are being approved on a large scale. PSU and state owned insurance companies are being squeezed for the capital to kickstart these, the gamble being that once the investment cycle gets going, they'll gain a substantial return on this investment, and in the process, be able to line up successive rounds of investment.

There's significant agricultural reform falling into place, through a combination of actions, whether it's the PMJDY accounts, food parks, and more. As to privatization, I mentioned this in the politics thread in the past, but from every action I've seen of his, Modi supports private enterprise, but he does not view privatization as synonymous with that. 'Privatize it and it'll work' sounds good in a powerpoint, but Modi's approach is more deliberate. Usually, with significant actions, he uses the laboratory approach. For example, labour laws are tested at state level in a BJP state. The best practices and then taken up at the national level. This isn't necessarily unique - it follows a very similar approach the Chinese took. But it's a very intelligent approach, because it gives the chance for a theory to apply itself in practice, before it is expanded.

Over the past 60-70 years, we've dealt with a lot of 'sounds good on paper' ideas. All that really matters is effectiveness in practice. In other words, if Modi feels he does not have the time or the ministerial or bureaucratic expertise to implement something he wants of, say FCI or AAI, nothing will happen on that front for that period of time. He doesn't do the 'do something radical by diktat and turn away, and later handle the consequences as they happen'. That is a common approach in past politics, where some grand initiative is announced without careful study into consequences, and it usually runs aground while political attention is diverted elsewhere. At the end of term, there are then several stillborn initiatives that never quite got the careful shepherding that would have enabled them to work.

From what I've seen, Modi's approach is not like that. He doesn't like announcing something he cannot carry through, which means he first wants to stack the decks with people whom he knows will carry it out, and then carry out tasks one by one. Take financial inclusion. Indira Gandhi nationalized banks back in 1971, and yet, ~200 million people still didn't have a bank account in 2014. PMJDY was announced on I-day 2014, with a target of 75 million accounts by R-day 2015, and currently 160 million new accounts are open, progressively are being funded and the zero-balance account ratio falling, while the same accounts are now being used to implement the DBT cash transfer system. That's the kind of implementation he pursues. In the process, he repeatedly shuffles bureaucrats, like he just did today: 17 top level changes in govt: aviation, commerce, power get new secretaries

If one skips over the political noise and follows these appointments, you get a better idea of where the next reforms efforts are going to be in. In the above, one can see that aviation, commerce and trade, and power will get special attention in the near future.

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Singha » 03 Jun 2015 12:27

agriculture is dependent on the one thing no govt can control - monsoon. and we may be entering a cycle of bad monsoons next few years.

that being said, steps to recharge the water table incl even ancient techniques like tanks , better usage of river water and mandatory rainwater harvesting to get building permits down to tier4 town level would also help.

even if a pipeline of large diameter is laid from north bengal and assam to carry surplus river water into central india and recharge a series of lakes and underground acquifiers there, it could help large swathes. california grows way more per acre in what is essentially a barren scrubland the central valley.

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Re: Indian Economy - News & Discussion Oct 12 2013

Postby Picklu » 03 Jun 2015 19:24

^^ I believe the agri sector is deliberately left out. NaMo does not want that sector to be reformed without the socio economic changes ushered in before hand.

Agri reform(technology, infrastructure, capital) at this level will perpetuate the 70% of population depending on farming scenario because the gains in productivity will simply take away the motivation to get out of farming for small farm holders and share croppers.

Already a huge chunk of this community are depending on a second job for livelihood (most of the construction workers in urban India falls in that category). With Make in India gathering steam, this segment will only grow and then the job migration will be far easier.

Agri reform at that point of time, will also provide consolidation and reduce subsidy burden.


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