Indian Economy News & Discussion - Nov 27 2017

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Rahulsidhu
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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Rahulsidhu » 04 Sep 2019 09:09

suryag wrote:
Sir - over years i have learnt from our trashy newspapers that FIIs tend to pull money based on sentiment. For instance if the fiscal deficit goes higher then the FIIs feel the GoI doesnt have the economy in control. Not sure if it is true or it is quarter truth from our bone brained BA pass journos writing about economics. The other concern as you mentioned is also that the rating agencies(FWIW) downgrade the country's rating leading to pull out of money.


Best is to listen to what the investors are saying themselves. An example is to look at is what's happening right now - investors have been fleeing over the last month, and its not because of looser fiscal policies. It was triggered by the FPI tax but they failed to return even after the tax was rescinded - the main concern is growth.

Rating agencies btw also pay a lot of attention to growth. And ratings upgrades/downgrades don't affect flows as much as you think.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Rahulsidhu » 04 Sep 2019 09:14

For those who are interested in what I have said, I will leave you with links to a couple of good posts by the economist Sri Thiruvadanthai:

https://macromyths.blogspot.com/2018/02 ... india.html

One of the most striking things about India was that the gross public sector deficit (the public sector includes the central and state governments, departmental enterprises, and public sector corporations; deficits are gross investment less gross saving) scaled to GDP has been permanently higher since 1980 (chart below). Only in one year, 2007-2008, did it fall below the peak of the pre-1980 range; in every other year since 1980, it has been higher than the peak of the pre-1980 range. Yet, this period has also coincided with the takeoff in the India's GDP from the previous Hindu rate of growth.


https://macromyths.blogspot.com/2018/12 ... risis.html

One of the persistent myths about India's 1991 BOP crisis is that the event was caused by profligate government deficits and the buildup in government debt.
The fact is that most of the evidence for linking the 1991 BOP crisis to fiscal deficits is hand-waving post hoc ergo propter hoc kind of arguments. The econometric evidence is inconclusive. One of the better studies of the crisis--Cerra and Saxena (2000)--does find a statistically significant relationship running from fiscal deficit to the current account deficit (the so-called twin deficits hypothesis). Other studies have been contradictory. Some of these are summarized and critiqued in my draft paper. I find no econometric evidence of the twin deficit hypothesis in India's case.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Kati » 04 Sep 2019 10:57

President Trump ordered US firms to ditch China, but many already have and more are on the way

A very detailed reporting.... and Bharat doesn't figure in US executives' radar. I wonder what our babus are doing. They should be
making sales pitch to steer some of the productions to Bharat.


https://www.cnbc.com/2019/09/01/trump-o ... -have.html

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby JayS » 04 Sep 2019 15:29

Rahulsidhu wrote:
Dilbu wrote:If any one is taking a hit to keep the economy running, it should be the government



Exactly.

The govt has again and again taken the opposite approach. Note how with GST, they started off with very high rates to avoid loss, and then brought down the rates as revenue grew. The right approach would have been to start with low rates (ensuring better compliance as well as promoting growth) and take a fiscal hit for a couple of years. The extra money in the hands of the pvt sector would have placed them better to deal with downturns such as this one.

The fiscal deficit should not be a target. It is a control variable, used to adjust the economy towards desired path - if slowing down, increase it, if overheating, reduce it.


I have asked this question at least twice in the thread but have never got any response. Please can you point out which key items have seen larger tax incidence (i.e. not the absolute rate but considering impact of ITC) post GST compared to the taxes in pre-GST taxation system..?

Re starting with too low taxes - remember the very reason why GST was possible was because states accepted it only with the assurance that their share of revenue will not only not reduce but will grow with a CAGR of 14%..!! No one really had an idea how much will be the revenue and as the results started showing the GST council has been reducing GST rates steadily. There are really only a handful items which have not seen tax reduction so far.

A lot of pvt businesses chose not to transfer benefits of ITC to consumers and simply pocketed the difference as profit, to reduce which, govt had to bring anti-profiteering measures. That should count for money in hands of pvt players no..?

Though I agree to the larger point that GOI should not be so much worried about Fiscal deficit and concentrate of rapid infra build up instead to push the economy into high gears. And the FM should totally refrain from socialistic steps like rich-tax especially when its done for puny gains. No need to kick the economy when its already down. Sentiments do matter.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby A_Gupta » 04 Sep 2019 17:52

Why would have FIIs pull out of India if fiscal deficit was higher?


Presumably because the Foreign Investor expects the rupee to depreciate against their currency faster than the investment grows in India.

Is that a valid concern? Do we have data? e.g., percentage depreciation of the rupee that year vs fiscal deficit that year for a whole bunch of years.

PS: I imagine that Foreign Investors pull out of India whenever

(risk free return rate - say US treasury bond) + (risk premium for investing in India) becomes greater than (expected return rate of investment in rupees) - (fall in value of rupee relative foreign currency).

Thus e.g., an increase in US interest rates could cause a foreign investor to pull out of India.

Fiscal deficits could play into either side of the equation - the rupee is expected to depreciate or the risk premium for investing in India increases when there are persistent fiscal deficits.

PPS: "persistent fiscal deficit" because a one-time increase in fiscal deficit will be interpreted as "stimulus".

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Supratik » 04 Sep 2019 18:50

Another big issue is formalization of economy. With formalization of economy many will not survive. It is like asking people used to playing gully cricket to start playing IPL in stadiums. The economy will start bouncing back once those who survive get used to the new rules of the game and start delivering.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Supratik » 04 Sep 2019 20:00

Here is an example of not coping with formalization. Textile industry in Bhilwada, RJ. It is in Hindi. Summary is that GST is killing their business. In all probability they set up their business without paying or minimally paying tax and are unable to survive in new regime.

https://youtu.be/ycPdNrGVR7o

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby vijayk » 05 Sep 2019 16:55

https://www.livemint.com/market/mark-to ... 80118.html
What are the key reasons behind India’s rising electronic exports?
Amid the gloom in India’s economic data, one bright spot that has emerged is the rising trend in exports of electronics. Total production of electronic goods in value terms more than doubled from $31.2 billion in FY15 to $65.5 billion in FY19, led by mobile phones, shows data from the Reserve Bank of India’s annual report issued on 29 August.

Value of domestic manufacturing/assembly of mobile phones has jumped nearly eightfold from $3.1 billion in FY15 to $24.3 billion in FY19 (see chart).


Image

Although the export numbers look impressive, analysts at Spark Capital Ltd point out that value addition is limited. “India has become the 2nd largest producer of mobile phones, replacing Vietnam. Notably, we reckon that the net value add is only in the high single-digits at present, since most of components of mobile phones are imported, and only assembling takes place in India. However, some companies have started manufacturing printed circuit board assembly (PCBA) units in India, taking the value add to ~15%," they said in a report on 28 August.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Suraj » 06 Sep 2019 00:25

A_Gupta wrote:
Why would have FIIs pull out of India if fiscal deficit was higher?

Presumably because the Foreign Investor expects the rupee to depreciate against their currency faster than the investment grows in India.

Like most things with investing, this isn't a straightforward calculus. Here are two opposing views depending on type of investor:

* A high fiscal deficit is bad to an equity investor who thinks this leads to a higher interest burden on the government who therefore cannot invest productively and drive long term growth and return on investment.
* A debt investor particularly in gilts likes the high yields because he's buying low, gaining access to sovereign guaranteed debt with much higher coupon vs risk free US treasuries, but with potentially exchange rate risk.

There's often a tendency to view foreign portfolio investment solely as equity investment, but that's only half the picture. There's been substantial growth in debt investment, particularly foreign interest in rupee denominated debt issued within India (not masala bonds issued elsewhere). There's been sustained pressure to raise the limit of foreign holdings of Indian rupee-denominated debt within the Indian securities market, with the previously established limits being repeatedly saturated by growing foreign investor demand:
RBI raises FPI investment limit in G-Secs
The Reserve Bank of India, on Wednesday, upped the investment limit for FY2019-20 for foreign portfolio investors (FPI) in Central government securities (G-Secs) to 6 per cent of outstanding stock of securities from 5.5 per cent in FY2018-19.

The limit for FPI investment in State development loans (SDLs) and corporate bonds has been left unchanged at 2 per cent and 9 per cent of outstanding stocks.

As against the current limit of ₹6,49,900 crore, the revised limit for FPI investment in debt for FY2020 has been set at ₹6,98,300 crore for the first half, and ₹7,46,500 crore for the second half of the financial year.

The allocation of increase in G-Sec limit over the two sub-categories – ‘general’ and ‘long-term’ – has been set at 50:50 for the year 2019-20. The entire increase in limits for SDLs has been added to the ‘general’ sub-category of SDLs. The RBI said the coupon reinvestment arrangement for G-Secs shall be extended to SDLs.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby A_Gupta » 06 Sep 2019 17:52

Suraj wrote:
A_Gupta wrote:Presumably because the Foreign Investor expects the rupee to depreciate against their currency faster than the investment grows in India.

Like most things with investing, this isn't a straightforward calculus. Here are two opposing views depending on type of investor:
...


Since the Foreign Investor is not investing to lose money, they will withdraw their investment if they now expect to lose money or else if their investment is liquid and some other opportunity somewhere else in the world appears more attractive.

I agree the calculus of how the Foreign Investor computes or intuits their expectation of loss/gain is enormously complicated. I'll also note that an increase in say, US interest rates, will likely make the Indian rupee depreciate against the US dollar even if nothing else changes in India's financial and economic outlook.

The rupee return on the Indian investment must be greater than or equal to the sum of the risk-free rate of return plus the investor's demanded risk premium over the risk-free rate of return plus the depreciation of the rupee. When GoI runs persistent deficits, the last two terms are likely to increase.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Suraj » 06 Sep 2019 22:40

Turnover in debt funds tends to be lower than in equity funds for tax optimization reasons. FPI investment in Indian debt (G-Secs, SDLs and corporate) tends to be more sticky than equity inflows that are a lot more volatile. There's particular interest in piling in when there's a sentiment that rates are peaking and headed down, since that's the best time to get into bonds in general.

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Indian Economy News & Discussion - Nov 27 2017

Postby Peregrine » 07 Sep 2019 19:08

Meagre fare

India’s government is scrambling to revive the economy

What it has offered may keep businesses on their feet—for a while

For decades Kwality restaurant has served spiced chickpeas and fried flatbreads to traditionalists and tourists amid the colonnades of central Delhi. One prominent fan was Arun Jaitley, a former finance minister and foodie, who would drop in for an impromptu lunch when parliament was disrupted. It is fitting, therefore, that Kwality’s wood-panelled shelves hold bound copies of Excise Law Times, a journal about some of the country’s Byzantine taxes.

When Mr Jaitley died on August 24th after a long period of ill-health, the great and good from across India’s fierce political divides joined in praising his intellect and civility. But the economy he presided over for most of Narendra Modi’s first term as prime minister has shown no such sense of decorum. Figures due on August 30th are expected to show growth of less than 6% year-on-year for the second quarter in a row. India has not had such a poor run since early 2013 (see chart), during a period of policy paralysis that helped destroy the previous government.

Image

In the years since, economists have waited with growing exasperation for investment spending to stage a decisive recovery. The capital-expenditure cycle has always been about to turn, without ever quite doing so. And now consumer spending has faltered. Car sales plummeted by over 30% in the year to July, the fastest drop in 19 years. Nor were small-ticket items spared. Parle, the country’s largest biscuit-maker, has warned that it may have to lay off up to 10,000 people thanks to poor demand. Its rival, Britannia, complains that rural consumers are hesitating to buy even a five-rupee ($0.07) packet of biscuits.

During Mr Modi’s first term, investors also waited anxiously for India’s banks to recover from the reckless lending of the boom years before 2012. But just as their non-performing assets began to fall (from over 11% of the total in March 2018 to 9.3% a year later), trouble befell another group of lenders, non-bank financial companies (NBFCS). These raise money from the capital markets, among other sources, and lend it to households and companies ill-served by deposit-taking banks.

A year ago Infrastructure Leasing and Financial Services, a sprawling, strongly rated NBFC with 348 subsidiaries, defaulted. That spread alarm through the financial system. Other lenders found it harder to roll over the short-term debt with which they had financed their rapid growth. Dewan Housing Finance Corporation, which lent to homebuyers and property developers, defaulted in June, complaining that it could not raise fresh funding after its credit rating fell. “Illiquidity is turning into insolvency,” said Rajiv Kumar, head of NITI Aayog, a government think-tank, at a recent conference. “The entire financial sector is in a churn and nobody is trusting anybody else.”

This financial churn has exacerbated the economic slowdown. Notably, it has interrupted the flow of credit to car buyers. But some economists think the problems run deeper. Goldman Sachs, for example, traces the deceleration back to the start of 2018 or even earlier. Mr Jaitley’s signature achievement as finance minister may bear part of the blame. His negotiating nous helped secure the introduction of the Goods and Services Tax, a levy on consumption, in 2017 (forcing a companion journal to Excise Law Times to change its name to GST Law Times). Intended as a radical tax simplification, it has proved complex and cumbersome in practice. The biscuit-makers blame it for putting off customers. Small companies complain about long waits for refunds of the GST they pay on their inputs.

The government has been slow to acknowledge the severity of the slowdown. The July budget, which imposed a higher tax (or “enhanced surcharge”) on foreign investors, was not calculated to revive animal spirits. When the stock market subsequently dropped, Nirmala Sitharaman, Mr Jaitley’s successor as finance minister, said she did not let it “affect her calms”.

Perhaps sensing that this lack of alarm was having the opposite effect on everyone else, the government has unveiled a plethora of measures intended to revive the economy. It relaxed a local-sourcing requirement for foreign retail brands like Apple and IKEA. It un-enhanced the foreign-investor surcharge and removed an “angel tax” on the funds raised by start-up firms. It will try to revive the car industry by buying more vehicles for its departments. It will urge public-sector enterprises to pay suppliers more punctually and cough up GST refunds within 30 days.

To help non-bank lenders, it will enable them to offload more of their assets by guaranteeing a greater quantity of loans that are bundled into securities and sold. Its National Housing Bank will give extra support to illiquid housing lenders. Aided by the handover of 1.7trn rupees ($24bn) in profits and excess capital from the central bank (see article), it will also hasten to inject a previously announced sum of 700bn rupees of fresh capital into public-sector banks. That would, according to S&P Global Ratings, be “sufficient for now”.

The response was piecemeal, lacking a grand plan, strategic vision or large-scale mobilisation of public money. But for now, corporate India will settle for a government that has belatedly seen fit to respond to its complaints. In terms Mr Jaitley might have appreciated, this was not a slow-cooked feast that anyone would savour, but a thali, a platter of mixed dishes, offered in the hope of keeping everyone going.

Cheers Image

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby tandav » 07 Sep 2019 19:49

WhatsApp Fwd which claims that GST introduction has reduced travel time drastically and therefore increased asset utilization of existing assets reducing the demand. Posters with more domain expertise may want to weigh in.

Message Fwd below: Message from Mr R S MOHAN Ex Leyland FYI (While talking to one of my clients a Transport company owner in the industry since past 70 years. I asked him about lorry business, he told me that they are facing a very peculiar problem. Before GST, a lorry to say, from Chennai to Mumbai it takes 5 to 6 days and a to and fro Chennai Mumbai Chennai it will take 10 to 12 days, with all check posts. But after GST there is no check post, Chennai to Mumbai is only two days, up and down is only 5days. So a lorry that was making two trips up & down is now making 6 trips.
Before GST we engage 300 lorries and now same load is moved by 100 lorries.
After GST lorry trips had increased. One lorry doing the job of three lorries.
And, this had created a new problem, many lorries, particularly small lorry businessman with one to 5 lorries are getting out of business.
All our life we have lived under license and check post Raj and now being liberated out of it, we face new problems.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby isubodh » 07 Sep 2019 20:25

tandav wrote:WhatsApp Fwd which claims that GST introduction has reduced travel time drastically and therefore increased asset utilization of existing assets reducing the demand. Posters with more domain expertise may want to weigh in.

Message Fwd below: Message from Mr R S MOHAN Ex Leyland FYI (While talking to one of my clients a Transport company owner in the industry since past 70 years. I asked him about lorry business, he told me that they are facing a very peculiar problem. Before GST, a lorry to say, from Chennai to Mumbai it takes 5 to 6 days and a to and fro Chennai Mumbai Chennai it will take 10 to 12 days, with all check posts. But after GST there is no check post, Chennai to Mumbai is only two days, up and down is only 5days. So a lorry that was making two trips up & down is now making 6 trips.
Before GST we engage 300 lorries and now same load is moved by 100 lorries.
After GST lorry trips had increased. One lorry doing the job of three lorries.
And, this had created a new problem, many lorries, particularly small lorry businessman with one to 5 lorries are getting out of business.
All our life we have lived under license and check post Raj and now being liberated out of it, we face new problems.


The proof of the pudding is in the eating. If it was reality, the business would have made handsome profits or passed on that profits with business to whom they provide service, resulting in cheaper products.In any case it would have been pushing the economy higher.
Well some increase can be seen in GST collections even with rate cuts and I would have expected higher exports too as it make you competitive. But it isn't all that rosy.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby yensoy » 07 Sep 2019 21:33

tandav wrote:WhatsApp Fwd which claims that GST introduction has reduced travel time drastically and therefore increased asset utilization of existing assets reducing the demand. Posters with more domain expertise may want to weigh in.


That should be rather obvious. I said that earlier in my post https://forums.bharat-rakshak.com/viewtopic.php?p=2222483#p2222483 that with abolition of GST, trucks would be saving time; and I am sure it was observed by anyone who had seen the long lines of trucks detained at state borders.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Bart S » 08 Sep 2019 01:14

yensoy wrote:
tandav wrote:WhatsApp Fwd which claims that GST introduction has reduced travel time drastically and therefore increased asset utilization of existing assets reducing the demand. Posters with more domain expertise may want to weigh in.


That should be rather obvious. I said that earlier in my post https://forums.bharat-rakshak.com/viewtopic.php?p=2222483#p2222483 that with abolition of GST, trucks would be saving time; and I am sure it was observed by anyone who had seen the long lines of trucks detained at state borders.


It has improved a bit but not a lot as most state borders still have checkposts where people are harassed for bribes under some pretext or the other. Excise etc used to be the excuse earlier, GST has reduced that but the corrupt state govt ecosystems still need to make their money.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby vijayk » 08 Sep 2019 04:54

I am seeing a lot of stuff being shipped from Amazon are made in vietnam. Unbelievable that Modi & co let this opportunity slip by. Do they have any clue what is going on between China & Vietnam?

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby tandav » 08 Sep 2019 09:00

Au contraire I felt that as a consequence of the Ecosystem change (such as GST which apparently has drastically reduced transit times) there will immediately create excess capacity in the market and everyone will scramble to reduce prices to a point where Transport companies will make losses until there is market consolidation.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby NRao » 08 Sep 2019 09:04

Bart S wrote:
yensoy wrote:
That should be rather obvious. I said that earlier in my post https://forums.bharat-rakshak.com/viewtopic.php?p=2222483#p2222483 that with abolition of GST, trucks would be saving time; and I am sure it was observed by anyone who had seen the long lines of trucks detained at state borders.


It has improved a bit but not a lot as most state borders still have checkposts where people are harassed for bribes under some pretext or the other. Excise etc used to be the excuse earlier, GST has reduced that but the corrupt state govt ecosystems still need to make their money.


Digitization/digital money should solve the corruption problem?

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby vijayk » 08 Sep 2019 21:12

https://www.firstpost.com/world/chinese ... 06371.html
Chinese exports to United States fall by 16% in August as trade war with Washington takes toll

China's trade with the United States is falling as the two sides prepare for negotiations with no signs of progress toward ending a tariff war
Imports of American goods tumbled 22% in August from a year earlier to $10.3 billion, customs data showed Sunday
Exports to the United States, China's biggest market, sank 16% to $44.4 billion


Chinese exporters also face pressure from weakening global consumer demand. That hurts efforts to find markets to replace the United States.

"The tit-for-tat escalation shows how unlikely a trade deal and de-escalation have become," said Louis Kuijs of Oxford Economics in a report. "Meanwhile, the global trade weakness looks set to linger, which will continue to weigh on demand for China's exports."

The conflict has disrupted trade in goods from soybeans to medical equipment, battered traders on both sides and fueled fears in financial markets of a global economic slowdown.

China's politically sensitive trade surplus with the US narrowed to $31.3 billion in August from $27 billion a year earlier.

China's global exports fell 3% to $214.8 billion, while imports were up 1.7% at $180 billion. For the first eight months of 2019, exports were off 1% from a year earlier and imports were down 5.6%. China's global trade surplus rose 25% from a year earlier to $34.8 billion.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Shwetank » 08 Sep 2019 23:02

vijayk wrote:I am seeing a lot of stuff being shipped from Amazon are made in vietnam. Unbelievable that Modi & co let this opportunity slip by. Do they have any clue what is going on between China & Vietnam?

As mentioned earlier, why would the manufacturing move to India when ethnic Chinese owners can very easily move to Vietnam which is closer and long history of Chinese ethnic presence. When there is a massive infrastructure problem in India which by nature takes time to build up. When those countries have the entire state apparatus aligned to get these things done and streamlined processes. Instead India has ridiculous labor laws, a million interest groups with substantial influence and most of the system arrayed against doing this kind of work. It is simply more expensive and less convenient. Just what do you think Modi & Co. could have done short of martial law and complete dictatorial restructuring of society and economy where every single man, woman and child works only towards setting up a streamlined manufacturing ecosystem from morning to night (and it would still take a few years)? And why are you posting Chinese export data news in this thread?

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby kit » 09 Sep 2019 00:17

Image

As i suspected the chart shows India has an FTA with Vietnam enabling China to bypass any economic theat by India to curtail exports, besides manufacturing transfers to Vietnam allows them to have the cake and eat it too.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby M_Joshi » 09 Sep 2019 02:18

Vietnam's GDP is $250B & their exports are $214B & imports are $200B. EXPORTS/GDP : 0.83
Our GDP is $3000B & exports are $320B & imports are $540B.
EXPORTS/GDP : 0.11
Even Bangladesh with $161B in GDP has $50B in exports. EXPORTS/GDP : 0.35
There is something fundamentally wrong in our economic policy that repels manufacturers & exports. Modi 2.0 needs to work on it & take this ratio beyond 0.3
Last edited by M_Joshi on 09 Sep 2019 22:17, edited 1 time in total.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Anujan » 09 Sep 2019 02:27

High fraction of exports to gdp is not necessarily a good thing. The positives are that it attracts investments and technology. Negatives are that it makes those countries more susceptible to world economy and currency fluctuations.

India's GDP is primarily domestic consumption driven and is a more sustainable path.

That said, yes. More EEZ and friendly labor/investment climate is needed.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Rishirishi » 09 Sep 2019 04:11

Questions for the Economic gurus here.

1 Is not 5% growth pretty good by global standards ? Heck isin't even 4% is decent?
2 India seems to have one of the highest bank bad debt ratios in the world. It is close to 10%. Can the slowdown be explained by this ?

3 Do the ones who claim that GST is hurting the economy have a any proof for this? GST seems to be present in all the advanced economies.

4 Are Indian GDP figures manipulated ? Some claim they have been inflated by 2-3%.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Anujan » 09 Sep 2019 09:31

I can make some informed speculations: The economic slowdown is real and not bogus. Multiple sources of disparate data indicate this.

1) Demonetization caused more harm than good. Most of Indian economy is informal. Sucking out liquidity from MSME in one go will have ripple effects around the economy. What was the use anyway of 100% of India's population standing in queues for days? Anyone who had anything remotely to do with demonetization should be sent packing. Especially when GST and NPA recovery was in the pipeline. Yes, black money is bad, but to weed out black money you cant sent fire to the entire village. Leave alone my moral grouse with demonetization.

2) GST is the right thing to do, but will take time to get right. By itself, you can expect it to cause an impact on the economy, that coupled with Demonetization would have had terrible effects.

3) Contrary to what some posters here think, fiscal deficit beyond a particular level is not a good thing. Government debt by itself isnt bad. The question is: what is the money being spent on. It is like an education loan. Maybe you get a good education and maybe your salary increases for the rest of your life. In that sense, taking a loan is good. But what if you take a loan and spend it on horse race bets and buying diamond jewelry? Fiscal deficit is constraining the government's hands.

4) NPAs are a real problem. Public sector banks compound the problem, because these banks either lend based on crony capitalism or lend based on government priorities. I know this, my family used to work at high levels in banks. Regularly used to be pressurized to lend even while knowing the money will never be returned. That too in a big scale. If you turn around like RR did and ask banks to clean up the NPAs, they everyone is now terrified and not lending at all to anybody. NPA in vietnam is like 1.5% in India it is 9%, used to be 14%, some public sector banks have NPAs higher than that. Just imagine how massive the scale of unproductive lending is! NPA after so much fight is about 10 lakh crore now.

To put that in perspective, Government and RBI had a fight over 90,000 Crore payback. NPAs in 2019 were 10x the amount that government got from RBI after 2 directors were sent packing a commission created and public media hungama. And 9 lakh crore is about 130B USD. Rafale deal was 9B USD. We could have done 15 Rafale deals or sent 120 Chandrayaan missions. Or fund MNEGRA for the next 18 years.


The slowdown is real, has been going on for 6 quarters or so and is fairly serious. I do not think it is a downward spiral, hopefully low oil prices and the next election being far away will leave the government some leeway to make some hard choices.

Anecdotally, I think the current government has swung too much to the other side. In an effort to look clean and be different from the previous dispensation, they seem to not consult with the industry at all. There is a difference between getting inputs for policy decisions and crony capitalism.

We should divest a few public sector units, take the money and give out a stimulus to the economy, recapitalize the banks. Have 1-2 public sector banks, divest the rest of them so no babu or neta can ever force them to get into this kind of NPA nonsense again. That is easier said than done. PSU bank employees are famous for going on strikes at the drop of a hat. Government should find a way to slowly boil the frog.


That plus attracting foreign investment in a big scale into our MSME are possibly the two most impactful steps to take to get out of this mess.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby pgbhat » 11 Sep 2019 08:23

Anujan wrote:I can make some informed speculations: The economic slowdown is real and not bogus. Multiple sources of disparate data indicate this.

1) Demonetization caused more harm than good. Most of Indian economy is informal. Sucking out liquidity from MSME in one go will have ripple effects around the economy. What was the use anyway of 100% of India's population standing in queues for days? Anyone who had anything remotely to do with demonetization should be sent packing. Especially when GST and NPA recovery was in the pipeline. Yes, black money is bad, but to weed out black money you cant sent fire to the entire village. Leave alone my moral grouse with demonetization.


Anujan ji from this article. There is a counter claim that GST/Demonetization should not have this effect for this long a time.
Fall in GDP growth needs to be reversed before it becomes a sustained downward spiral
It is difficult to attribute the contraction in the last quarter to demonetisation or GST, as some observers have tried to do. There is no obvious one-to-one relation or a good research study showing this.

Most macro models typically see the effect of a shock fade away with time. The one we see, where the big impact of the shock happens after many quarters, would be very difficult to explain in standard macro models.

Alternative explanations attribute the slowdown to the reduction in finance for the automobile sector — for both consumers and dealers. While this may be part of the explanation, the broad-based decline in the growth of consumption expenditure, which fell to 3.1 per cent, is puzzling.


Either way article suggests the following quick fix.
The government should repeat the message given by former Union finance minister Jaswant Singh to tax officers — that no civilised country engages in raids to collect taxes.
Low tax rates
Reducing fear among businessmen and stopping tax raids needs to go along with a policy of cutting tax rates. This would increase compliance and reduce the need for tax raids. At the same time, the board tax cut for income tax, corporate tax and GST will provide a fiscal stimulus.

This will work much faster than infrastructure spending plans, which can take a long time to implement. By the time the government borrows and finds the right provider, contraction may set in.


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Re: Indian Economy News & Discussion - Nov 27 2017

Postby NRao » 11 Sep 2019 09:11

Rishirishi wrote:Questions for the Economic gurus here.

1 Is not 5% growth pretty good by global standards ? Heck isin't even 4% is decent?
2 India seems to have one of the highest bank bad debt ratios in the world. It is close to 10%. Can the slowdown be explained by this ?

3 Do the ones who claim that GST is hurting the economy have a any proof for this? GST seems to be present in all the advanced economies.

4 Are Indian GDP figures manipulated ? Some claim they have been inflated by 2-3%.


The fact you mention "global standards", you accept that there is another standard: that is an Indian standard. So, what is good for the global one may not be good for the Indian. On the flip side, it just may be good. What I have heard/read is that the "Indian standard" needs to be at 6% or greater. I have no clue (yet - on my 2do list) why.

In 2014 I had expected India to clip at 10+% by the end of the first 5 years. I think the $5 trillion is still achievable. The first step is to get back to 8%. Then tp 10 and finally to 12ish. I think it can be done.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby yensoy » 11 Sep 2019 09:15

M_Joshi wrote:Vietnam's GDP is $250B & their exports are $214B & imports are $200B. EXPORTS/GDP : 0.83
Our GDP is $3000B & exports are $320B & imports are $540B.
EXPORTS/GDP : 0.11
Even Bangladesh with $161B in GDP has $50B in exports. EXPORTS/GDP : 0.35
There is something fundamentally wrong in our economic policy that repels manufacturers & exports. Modi 2.0 needs to work on it & take this ratio beyond 0.3


Large economies will have this kind of behaviour; coupled with the fact that Vietnam and also to some extent Bangladesh rely more on trade.

Imagine the world has only one country. What will its exports/imports be? Zero, right?

Imagine a world with 2 countries, one of which is 95% of the size/population and other is only 5%, what do you think will happen? Let's say trade is balanced between both i.e. imports=exports, and say both have same per-capita GDP. The ratio of exports/gdp of the smaller nation will be 19 times that of the bigger nation.

Look at EU - the internal EU trade is huge, but net/net imports into/out of EU is relatively small (more than ours, but still small).

So let's not get caught up with ratios. But the point that our trade is small in the absolute sense is very correct and must be addressed.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby ricky_v » 11 Sep 2019 19:26

https://www.moneycontrol.com/news/india/fm-nirmala-sitharaman-auto-sector-sales-slowdown-ola-uber-4422241.html
inance Minister Nirmala Sitharaman said that the "millennial mindset" of relying on taxi services, besides the upcoming stricter emission norms, are responsible for the auto sector slowdown.

“The automobile and components industry has been affected by BS 6 [norms] and the mindsets of millennial, who now prefer to have Ola and Uber rather than committing to buying an automobile,” Sitharaman told reporters in Chennai, according to ANI.

She added that millennials do not want to commit to taking an equated monthly instalment

buy more vehicles for existing cramped infrastructure and zero parking spaces, not to mention the lakh rupee fine for any non-compliance on road and zero government encouragement towards si/ci auto instead of electric ones, and the problem lies with the millennials, flawless reasoning.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Zynda » 11 Sep 2019 20:01

Well, she is right about changing mindsets of folks about committing hard earned money on an EMI for a new car when it is more convenient to use Uber/Ola services to get around but she did not get in to why such a mindset is present in the first place.

- Failing infrastructure in metro cities
- poor last-mile connectivity which results in many people avoiding usage of public transport services if they can
- the above leading to horrendous traffic which results in spending hours long commutes
- Damage to health due to long driving hours due to excessive usage of clutch, break & accelerator pedals and mental agony
- Excessive wear & tear of vehicles
- Fuel expenses & god forbid, if vehicle is involved in an accident...running around the police (bribes may be involved), insurance & get it repaired
- Not to mention, the auto companies themselves have made cars a very expensive. Many vehicles have moved upward a segment compared to few years ago with only bells & whistles features being the only change. Just doesn't justify the price increase but all these years, the auto companies were happy increasing the prices by 20-30 K at least once a year if not more, citing rise in input costs.

So for many people, it is no brainier why they would chose some one else to drive them around the city at an affordable costs while still enjoying the comforts of a car. Many people I know are either deferring or cancelling purchase of cars. Most of them have a car in the family for emergency needs but prefer to get around in a cab as much as possible.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Prasad » 11 Sep 2019 20:39

Much of the demand in 2018 came from rural areas. A dampening there would cause a drop in overall demand.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby astal » 11 Sep 2019 22:56

NRao wrote:
Rishirishi wrote:Questions for the Economic gurus here.

1 Is not 5% growth pretty good by global standards ? Heck isin't even 4% is decent?
... clip


The fact you mention "global standards", you accept that there is another standard: that is an Indian standard. So, what is good for the global one may not be good for the Indian. On the flip side, it just may be good. What I have heard/read is that the "Indian standard" needs to be at 6% or greater. I have no clue (yet - on my 2do list) why.
... clip


GDP in India is expected to grow at a higher rate than 'higher income' countries due to low base income. If a country starts with a lower per capita income, as it opens up to international markets, incomes should converge at a faster rate (limited by barriers to trade in goods and services and how much capital is invested). Since Europe, the US and East Asian countries already have higher income levels, it is more difficult to grow GDP as fast as it is for India.

China raised the income of its citizens by exporting goods made with their labor to open international markets for an extended period of 20+ years. They also managed to use international capital to complement Chinese labor. During this time China had very high growth rates of GDP, as income to Chinese labor was provided by the international market. Similarly, Taiwan, Korea and Japan had high growth periods in the decades before the 2000's.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby kit » 12 Sep 2019 14:39

https://player.fm/series/steve-forbes-whats-ahead/s1e24-why-gdp-fails-to-accurately-measure-economic-health-mark-skousen


While analysts traditionally look to gross domestic product (GDP) as the ultimate economic indicator, Skousen argues that its narrow focus obfuscates the real drivers of growth. Instead, he champions gross output (GO), which measures spending throughout the entire production process—not just the final output—as he believes it’s a far more comprehensive and accurate indicator of economic health

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby kit » 12 Sep 2019 14:44

astal wrote:
NRao wrote:
The fact you mention "global standards", you accept that there is another standard: that is an Indian standard. So, what is good for the global one may not be good for the Indian. On the flip side, it just may be good. What I have heard/read is that the "Indian standard" needs to be at 6% or greater. I have no clue (yet - on my 2do list) why.
... clip


GDP in India is expected to grow at a higher rate than 'higher income' countries due to low base income. If a country starts with a lower per capita income, as it opens up to international markets, incomes should converge at a faster rate (limited by barriers to trade in goods and services and how much capital is invested). Since Europe, the US and East Asian countries already have higher income levels, it is more difficult to grow GDP as fast as it is for India.

China raised the income of its citizens by exporting goods made with their labor to open international markets for an extended period of 20+ years. They also managed to use international capital to complement Chinese labor. During this time China had very high growth rates of GDP, as income to Chinese labor was provided by the international market. Similarly, Taiwan, Korea and Japan had high growth periods in the decades before the 2000's.


Might be a radical solution but India is big enough to bring in economies of scale , so why not produce enough for its own requirements along the entire area of consumables ? Once it reaches an area of peak efficiency they can compete globally. This idea was there long back but indian industry was shielded but a new approach needs to come across to build up internal resources to provide capital and tech support to local industries and for them to become profitable , what kind of mechanisms need to be in place to prevent abuse ?

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby A Nandy » 13 Sep 2019 00:13

Profit will usually mean getting economies of scale, which means labour laws have to be corrected to allow 100+ employees easily, which means the labour unions have to be convinced which requires political will.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby krisna » 13 Sep 2019 00:55

https://www.indiatoday.in/auto/latest-a ... 2015-09-11

Mahindra Group chairman Anand Mahindra today opined that taxi-hailing apps like Uber and Ola are the biggest potential threat to the automotive industry, which must create new products that customers love to own and not just use as a means of transport.
"The age of access being offered by taxi-hailing apps like Uber and Ola is the biggest potential threat to auto industry. Since these apps operators have made transpiration a commodity, (auto) sales could be hit and volumes get impacted," Mahindra said here.




Mahindra said the problem gets confounded as "a lot of youngsters who can own vehicles today don't want to own one, but only need access to transportation ."



This was in 2015.

Finance ministry just echoing industrialists words

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Rishirishi » 13 Sep 2019 03:44

I think it is a good thing that people are using Ola in stead of purchasing their own cars.

1 Less cars means less parking space demand.
2 Less use of energy and materials in making the cars.
3 It could be interesting to investigate if it would make economic sense to invest in Battery operated taxi fleet. The high cost may offset the higher cost of battery cars.

Less demand for cars, need not translate in slowdown of economy. The important thing is what people spend the saved costs on.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby A_Gupta » 13 Sep 2019 04:16

The Quick Estimates of Index of Industrial Production (IIP) with base 2011-12 for the month of July2019 stands at 131.1, which is 4.3 percent higher as compared to the level in the month of July 2018. The cumulative growth for the period April-July2019 over the corresponding period of the previous year stands at 3.3percent


http://mospi.gov.in/sites/default/files ... july19.pdf

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby VenkataS » 13 Sep 2019 05:57

krisna wrote:https://www.indiatoday.in/auto/latest-auto-news/story/anand-mahindra-says-uber-ola-could-eat-into-auto-sales-262387-2015-09-11

Mahindra Group chairman Anand Mahindra today opined that taxi-hailing apps like Uber and Ola are the biggest potential threat to the automotive industry, which must create new products that customers love to own and not just use as a means of transport.
"The age of access being offered by taxi-hailing apps like Uber and Ola is the biggest potential threat to auto industry. Since these apps operators have made transpiration a commodity, (auto) sales could be hit and volumes get impacted," Mahindra said here.


Mahindra said the problem gets confounded as "a lot of youngsters who can own vehicles today don't want to own one, but only need access to transportation ."


This was in 2015.

Finance ministry just echoing industrialists words


Slowdown in buying cars in India is not due to Ola/Uber alone. I think it is primarily because of inadequate road infrastructure and less to no parking spaces. It takes forever to drive anywhere in the big cities. Driving in big cities most times of the day is not a pleasant experience. If that changes people will start buying more cars. We need to expand the road network in our cities dramatically.


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