Indian Economy News & Discussion - Nov 27 2017

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Nikhil T
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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Nikhil T » 09 Dec 2019 06:17

Rishirishi wrote:
Labour market is growing at 1.3-1.5% not 2%.

They are probably thinking of raising GST rates to compensate for the coming IT tax changes. I think this is not the right time to tinker with GST rates. Better to curtail expenditure for at least a year. In India the govt is obsessed with govt led growth.

Borrowing more to maintain fiscal deficit targets is a bad idea as once you start going that route there is no end to it. We are not America or China who can live with it.

This is a difficult balancing act as govt mainly media-led is under pressure to do something quickly to fix growth. Formalization of economy is not going to yield results in a day. It will take sometime.



Taxation needs to be incread dramatically to invest in infrastructure, law and order, education and rural development.

Low tax only serve the rich. The notion that money "tricle down" is just a hoax. While villages see vegitables rot, becase of lack of roads, millions of Indians are taking foreign holidays. IT is PATHETIC. A tourist tax of Rs 25 000 should be put on each outbound flight.


We don’t need more taxes, but better implementation of existing taxes. I was in India recently for a family wedding (both groom and bride are Fauji children) and was close to the arrangements. The hotels where the wedding and engagement ceremonies were held - all four star hotels - were openly saying we will prepare a bill for 1/4th the actual cost of the ceremony and the rest is paid in cash with no bill. And willingly, we all agreed to this arrangement because who wants to pay unnecessary taxes. They did this by showing far fewer guests.

I thought a lot about this - how’s it possible that the local Sales Tax Deptt wouldn’t know that it’s very unlikely that just 50 people showed up to a wedding? They can easily demand to see the footage or pictures from the event. They aren’t stupid to not realize that a hotel is renting out 300 capacity hall consistently for 50 - 100 people events. While not absolving willing people like us from the blame, I wonder how much tax would we collect if we just ended some of these obvious leakages.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Rahulsidhu » 09 Dec 2019 07:21

People repeating tired old shibboleths about "needing tax money to finance infrastructure" don't understand the first thing about money and finance, I'm afraid.
I'll give a brief example: say the govt wants to build a new road project. It decides to fund it by issuing govt bonds for 1000 crore. Here is what the govt. balance sheet would look like:

Code: Select all

     A   |       L
----------------------------------------
New Road | 1000 crore bonds outstanding.


These bonds are transformed into new rupees via repo on the RBI balance sheet. For the economy as a whole, the balance sheet looks like:

Code: Select all

     A   |       L
----------------------------------------
New Road | 1000 new rupees.


So the key q is - is the new road project worth the 1000 crores spent on it? If yes, the real assets/productive capacity of the economy has gone up by more than the new money "printed" to finance it. Which means it will not cause inflation, and indeed, suppress it.Which makes it totally worth it.

And remember, a bulk of the 1000 crore "spent" on the project will flow to the private sector as salaries, corp profits, some of which will flow back to the govt as taxes too. All this will boost the economy further.

In India, there is no shortage of such projects - so called "bankable projects" - to finance. The govt. should go bigly on a deficit funded infrastructure binge. AND cut taxes while they are at it.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Deans » 09 Dec 2019 10:35

Nikhil T wrote:We don’t need more taxes, but better implementation of existing taxes. I was in India recently for a family wedding (both groom and bride are Fauji children) and was close to the arrangements. The hotels where the wedding and engagement ceremonies were held - all four star hotels - were openly saying we will prepare a bill for 1/4th the actual cost of the ceremony and the rest is paid in cash with no bill. And willingly, we all agreed to this arrangement because who wants to pay unnecessary taxes. They did this by showing far fewer guests.

I thought a lot about this - how’s it possible that the local Sales Tax Deptt wouldn’t know that it’s very unlikely that just 50 people showed up to a wedding? They can easily demand to see the footage or pictures from the event. They aren’t stupid to not realize that a hotel is renting out 300 capacity hall consistently for 50 - 100 people events.


The problem is that the small organised sector in India is over regulated and overtaxed, compared to the unorganised sector. In the example you mention, a luxury hotel has to charge 28 GST on its services (I think its 18% for catering), while the unorganised sector - like a farmhouse wedding in NCR, will charge no GST. The `farmhouse company' employees will also not get overtime, PF etc. The hotel cannot compete with that kind of cost differential and will go out of business if it is inflexible about accepting cash. Unfortunately, the GST reforms of the last 2 years have resulted in FEWER businesses getting into the GST net, which negates its purpose. The raids of the tax dept should really be against the caterers and farmhouse owners operating in black (who typically have political connections or bribe)

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby vera_k » 09 Dec 2019 10:59

^ Good point in spirit, but agricultural income is tax exempt.

Given such deep rooted resistance to change, perhaps going on a drive to reverse falling fertility is required to buy more time for transitioning to a modern economy.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby yensoy » 09 Dec 2019 20:40

Rishirishi wrote:I would say it depends on the governmnet. Any country needs Defence,infrastructure, education and law & order. How do you get the private sector to finance that ?
People here envy China with its 250 dollars per month manufactuing jobs. Indian companies are crying for good quality graduates for 1500 dollar per month jobs. The brightest are leaving India, to escape from the Indian cities that have become a living hell. How do you expect the next Samsung or Google come from India, when the brightes pack up and leave?
Imagine what type of comapneis Mumbai and Bangalore could have if the cities would had been as organised like Singapore or Frankfurt. It is not as expensive or difficult as it may seem.


This is exactly it. Nothing to add here. Just a note that China jobs are closer to $550 per month, especially in manufacturing which is repetitive, boring and with little career prospects. In fact the youth don't want to take such jobs anymore and would prefer reselling on taobao.

We need to massively invest in our cities. Private sector can build flats, roads, schools and hospitals, but the govt has to come up with a master plan, acquire the land, figure out the drainage and water supply and then hand off work orders to private parties to fill in the rest. Unfortunately, our governments at both the state and central levels are (currently) appear to be unwilling or incapable of this although there have been some fantastic projects done in the past including New Delhi, Chandigarh and localities in various cities.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby VenkataS » 10 Dec 2019 07:30

yensoy wrote:
Rishirishi wrote:

We need to massively invest in our cities. Private sector can build flats, roads, schools and hospitals, but the govt has to come up with a master plan, acquire the land, figure out the drainage and water supply and then hand off work orders to private parties to fill in the rest. Unfortunately, our governments at both the state and central levels are (currently) appear to be unwilling or incapable of this although there have been some fantastic projects done in the past including New Delhi, Chandigarh and localities in various cities.


Amaravati capital city was supposed to be this. But the project was probably not conceived for totally altruistic reasons. However it may not be realized now because of the govt change.

We need Modi/Shah to come up with master plans for such planned cities through the country and guide executions of such projects. The current big cities are woefully underfunded infrastructure wise and in most cases there is no space to build additional infrastructure (wider roads/flyovers etc) or simply not enough space to build new roads.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Supratik » 10 Dec 2019 22:01

IMO the main stumbling block for interest rates to fall further are retirees or senior citizens savings. In the absence of a social safety net they are forced to park their money in various savings schemes. The number one issue that people above 65 years face is health and hospitalization. However, a growing economy needs lower interest rates. To make it less difficult for them and to sell it politically one thing that can be done is to extend the Ayushman bharat scheme to all citizens above 65 years including medication.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Rishi_Tri » 10 Dec 2019 22:59

Many here may have seen the Commerce Minister Shri Piyush Goyal's reply in Rajya Sabha on RCEP and Trade Balance today, but still posting here.



The trade imbalance with RCEP countries is $100 BN i.e., 700,000 lakh crores, annually. Over a five year period it shall total to $500 BN.. Half a Trillion Dollars :shock:

In essence glad to see the government realize the detrimental affects of imports on Indian Economy and Piyush Goyal said so. The minister also acknowledged that in many cases the imported maal is of way inferior quality and also lesser than cost of raw material. The minister said that steps are going to be taken to correct this imbalance and should impact the larger economy positively.

Hopefully the realization shall translate into action on ground soon. Realization is first step to redemption.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby isubodh » 10 Dec 2019 23:06

Supratik wrote:IMO the main stumbling block for interest rates to fall further are retirees or senior citizens savings. In the absence of a social safety net they are forced to park their money in various savings schemes. The number one issue that people above 65 years face is health and hospitalization. However, a growing economy needs lower interest rates. To make it less difficult for them and to sell it politically one thing that can be done is to extend the Ayushman bharat scheme to all citizens above 65 years including medication.


Ayushman bharat is In-patient care. Elderly also need the Out-Patient care too as many have chronic diseases. In fact all above 65 should be covered with a fixed amount contributory scheme for complete health care. It is society's responsibility to care for elderly.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Prasad » 10 Dec 2019 23:33

Would having different rates for senior citizens work? Say a cutoff of age 50 (to cater to people nearing retirement not getting whacked too).

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Yagnasri » 11 Dec 2019 09:58

Supratik wrote:IMO the main stumbling block for interest rates to fall further are retirees or senior citizens savings. In the absence of a social safety net they are forced to park their money in various savings schemes. The number one issue that people above 65 years face is health and hospitalization. However, a growing economy needs lower interest rates. To make it less difficult for them and to sell it politically one thing that can be done is to extend the Ayushman bharat scheme to all citizens above 65 years including medication.


I agree with it. A good system wherein health issues are taken care with little amount of cost can be very useful. As of today public health care is no longer available. We need to seriously address this problem. Unfortunately there is no one looking into this matter.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby chetak » 11 Dec 2019 14:37

twitter

After Withdrawing From RCEP Agreement, India To Review Lopsided Pacts With ASEAN Countries To Secure Better Deals

India now mandates reciprocal access to countries for trade





Government to review free trade pacts with Asean countries





Government to review free trade pacts with Asean countries


Union Minister of Commerce and Industry Goyal cited growing trade deficit with ASEAN countries during 2010-11 until 2018-19 to state that the earlier trade pacts had been asymmetrical.


Dec 11, 2019

The government on Tuesday informed the Rajya Sabha that India would review lopsided trade agreements with Association of Southeast Asian Nations (ASEAN) and secure better deals and that the Regional Comprehensive Economic Partnership (RCEP) failed to address India’s concerns on trade deficit, which forced the country to not join the pact.

Union Minister of Commerce and Industry Goyal cited growing trade deficit with ASEAN countries during 2010-11 until 2018-19 to state that the earlier trade pacts had been asymmetrical.

“A major reason has been that India gave much larger market access to some of these countries but received less in return. For example, in the ASEAN-India FTA (AIFTA) we enabled greater market access by eliminating tariffs on 74.4% lines, however, some of the ASEAN countries eliminated tariffs on only 50.1 % and 69.7 % lines,” the Minister said.The trade deficit has reached upto ₹7 lakh crore and done a lot of damage, he said.

Goyal said that it was the government’s priority to correct the asymmetry in the existing pacts and maximise its export potential to benefit domestic industry and farmers. He said that to achieve this, the government was working with existing FTA partners like South Korea and Japan. “We have also secured an agreement to initiate a review of India-ASEAN Trade and Goods Agreement to make the AIFTA more user-friendly, simple and trade facilitative,” he said.


On November 4 in Bangkok, Prime Minister Narendra Modi took the call of not joining the RCEP agreement.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby kit » 11 Dec 2019 14:54

India is getting out of FTAs where there is no deal. Defence contracts will be considered as part of quid pro quo. Watch how this unfolds.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby chetak » 11 Dec 2019 18:48

Piyush Goyal demands reciprocal access for Indian companies abroad


Piyush Goyal demands reciprocal access for Indian companies abroad

Foreign cos won’t be allowed in local contracts unless India Inc gets to compete in those nations, said Goyal.

Dec 10, 2019,

NEW DELHI: Commerce and industry minister Piyush Goyal said the government will stop other countries from participating in local contracts unless Indian firms are given a similar opportunity.

“Unless we get reciprocal access to those markets, the government has decided that we will stop giving them an opportunity to participate in contracts in India. That is a part of the policy of the Narendra Modi government,” Goyal said at an event organised by Exim Bank on Monday. “Today, it is in our policy that if our companies are not allowed to do business or opportunities emerging in any country, I can assure you that we will not allow them to participate here.”

This policy had been introduced two years ago and is “fair by all global standards”, he said.

Goyal said this had been a “major stumbling block” in the RCEP negotiations.

“I had not heard that China ever opens up any of their government contracts… They are never opened up for international competition in the garb of being public procurement,” Goyal said.


India opted out of the RCEP last month after negotiating the pact with 15 other Asia-Pacific countries for seven years. China is part of the grouping.

“Many other Asean countries, even Japan and Korea, the kind of conditionalities that are put, don’t allow too many of our Indian companies to participate in tenders in those countries,” he said.

The minister asked Exim Bank to study such conditions and give feedback so that the government can “stand up for your right to do business in those countries”.

If an Indian oil, coal or power company floats a contract, more often than not, the government allows international bidders to come in. He also said that India and its citizens want the rules of the game to change and corrupt practices to be eliminated.

“We would like to be recognised the world over as a country which focuses on ethical business practices and a country where every process is based on fair play,” he said.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby chaitanya » 12 Dec 2019 03:08

More signs of normalization?

November automobile retail marginally improves over last year

India's fuel demand growth hits 23-month high in November (Although the article says this is due to Diwali occurring in November last year)

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Vayutuvan » 12 Dec 2019 03:14

Rahulsidhu wrote:... so called "bankable projects" - to finance.


I heard this "bankable project" phrase before. What does it mean in practical terms? Does it refer to getting finance from a bank if one puts in 20% and bank gives a loan of 80% (sample percentages only). Could you please give a real life example, if you can?

TIA

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Kaivalya » 12 Dec 2019 04:31

Vayutuvan wrote:
Rahulsidhu wrote:... so called "bankable projects" - to finance.


I heard this "bankable project" phrase before. What does it mean in practical terms? Does it refer to getting finance from a bank if one puts in 20% and bank gives a loan of 80% (sample percentages only). Could you please give a real life example, if you can?

TIA


Vayutuvanji - Generally they are projects with assured fixed cashflow for a fix amount of time (both on the longer side - bankers love it for the low risk profile). For example a toll road, energy project with assured sales and sales growth typically outside of the market economy (less competition as well ). Someother examples could be Petrol bunks, Bus routes (because of monopoly) . Not to speak for rahulsidhuji- since these are investments into the economy the multiplier effect will be a lot more based on how many jobs it creates primary, secondary etc.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Vayutuvan » 12 Dec 2019 05:55

Kaivalya wrote:Generally they are projects with assured fixed cashflow for a fix amount of time (both on the longer side - bankers love it for the low risk profile). For example a toll road, energy project with assured sales and sales growth typically outside of the market economy (less competition as well ). Someother examples could be Petrol bunks, Bus routes (because of monopoly) . Not to speak for rahulsidhuji- since these are investments into the economy the multiplier effect will be a lot more based on how many jobs it creates primary, secondary etc.


Thanks Kaivalya ji.

So does it mean that it is easier to get financing from the banks with proper collateral and 20-25% money down?

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Rishirishi » 12 Dec 2019 06:14

Vayutuvanji - Generally they are projects with assured fixed cashflow for a fix amount of time (both on the longer side - bankers love it for the low risk profile). For example a toll road, energy project with assured sales and sales growth typically outside of the market economy (less competition as well ). Someother examples could be Petrol bunks, Bus routes (because of monopoly) . Not to speak for rahulsidhuji- since these are investments into the economy the multiplier effect will be a lot more based on how many jobs it creates primary, secondary etc.


As good as all experiance show that private/public partnership projects are a failiure.

Take roads for example. First issue are the extra costs related to margins to the private compaines, conflict of interestes, manuplation of contracts, opperational costs etc. Second issue is that a lot of people are not able to afford the roads, due to cost. Toll roads are simply inefficient.

Indias current taxrate is 16% ish. US has 34% and Turkey has 25%ish. If India could increase the taxation to 22% it would be 6% of GDP. 6% of Indias 3trillion dollar economy is 180 billion dollars. For that sum you could finance a 2 dozen world class universities and build 8 000 km of modern highway yearly and still have 5-6 billion dollars left to yearly upgrade the largest 12 cities. Imagine what all that will do to India in a 10 years timeframe. 80 000 km of expressways, 24 world class universities and 12 world class cities.

I feel too may here are influenced by Unkils less tax, less regulation = prosperity. I just say look arround you. Who are most sucessfull? What is your vision of India?
https://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_to_GDP_ratio

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Kaivalya » 12 Dec 2019 06:45

Vayutuvan wrote:
Kaivalya wrote:Generally they are projects with assured fixed cashflow for a fix amount of time (both on the longer side - bankers love it for the low risk profile). For example a toll road, energy project with assured sales and sales growth typically outside of the market economy (less competition as well ). Someother examples could be Petrol bunks, Bus routes (because of monopoly) . Not to speak for rahulsidhuji- since these are investments into the economy the multiplier effect will be a lot more based on how many jobs it creates primary, secondary etc.


Thanks Kaivalya ji.

So does it mean that it is easier to get financing from the banks with proper collateral and 20-25% money down?


From a finance perspective- yes sir. Please keep in mind these have higher political risk for exactly the same reason. It attracts political sharks too. Rahulsidhuji's comment was on a macro economic view and government policy - your mileage might vary based on local conditions

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Kaivalya » 12 Dec 2019 07:37

Rishirishi wrote:
Vayutuvanji - Generally they are projects with assured fixed cashflow for a fix amount of time (both on the longer side - bankers love it for the low risk profile). For example a toll road, energy project with assured sales and sales growth typically outside of the market economy (less competition as well ). Someother examples could be Petrol bunks, Bus routes (because of monopoly) . Not to speak for rahulsidhuji- since these are investments into the economy the multiplier effect will be a lot more based on how many jobs it creates primary, secondary etc.


As good as all experiance show that private/public partnership projects are a failiure.

Take roads for example. First issue are the extra costs related to margins to the private compaines, conflict of interestes, manuplation of contracts, opperational costs etc. Second issue is that a lot of people are not able to afford the roads, due to cost. Toll roads are simply inefficient.

Indias current taxrate is 16% ish. US has 34% and Turkey has 25%ish. If India could increase the taxation to 22% it would be 6% of GDP. 6% of Indias 3trillion dollar economy is 180 billion dollars. For that sum you could finance a 2 dozen world class universities and build 8 000 km of modern highway yearly and still have 5-6 billion dollars left to yearly upgrade the largest 12 cities. Imagine what all that will do to India in a 10 years timeframe. 80 000 km of expressways, 24 world class universities and 12 world class cities.

I feel too may here are influenced by Unkils less tax, less regulation = prosperity. I just say look arround you. Who are most sucessfull? What is your vision of India?
https://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_to_GDP_ratio



Sir - I cannot profess deep policy experience. But looking at the % of people who are income tax assessees even after the tremendous policy nudges by NDA we are still talking close to what could be 10%. In my opinion, Unkil, Thatcher, Singapore, South asian tigers, harvard, R3, nobel laureates - nothing offers parallels/insights as to what we need to do. Let alone how to do it...Taxing the same 5-10% harder is dubious by results and morally depleted

These 10 points in government data show what India pays in taxes - The Economic Times https://m.economictimes.com/wealth/tax/these-10-points-in-government-data-show-what-india-pays-in-taxes/articleshow/52053092.cms

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby JayS » 12 Dec 2019 15:19

MOD NOTE - I have deleted last couple of low quality posts. Please post only something that adds value to the disucssion here. - jayS

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby siddhu » 12 Dec 2019 17:19

Rishi_Tri wrote:Many here may have seen the Commerce Minister Shri Piyush Goyal's reply in Rajya Sabha on RCEP and Trade Balance today, but still posting here.



The trade imbalance with RCEP countries is $100 BN i.e., 700,000 lakh crores, annually. Over a five year period it shall total to $500 BN.. Half a Trillion Dollars :shock:

In essence glad to see the government realize the detrimental affects of imports on Indian Economy and Piyush Goyal said so. The minister also acknowledged that in many cases the imported maal is of way inferior quality and also lesser than cost of raw material. The minister said that steps are going to be taken to correct this imbalance and should impact the larger economy positively.

Hopefully the realization shall translate into action on ground soon. Realization is first step to redemption.


He mentions that some offers are made at the time of negotiations? What are these offers?
Does it mean japan is providing us loans for less interest because of FTA?

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby kit » 12 Dec 2019 18:10

siddhu wrote:
Rishi_Tri wrote:Many here may have seen the Commerce Minister Shri Piyush Goyal's reply in Rajya Sabha on RCEP and Trade Balance today, but still posting here.



The trade imbalance with RCEP countries is $100 BN i.e., 700,000 lakh crores, annually. Over a five year period it shall total to $500 BN.. Half a Trillion Dollars :shock:

In essence glad to see the government realize the detrimental affects of imports on Indian Economy and Piyush Goyal said so. The minister also acknowledged that in many cases the imported maal is of way inferior quality and also lesser than cost of raw material. The minister said that steps are going to be taken to correct this imbalance and should impact the larger economy positively.

Hopefully the realization shall translate into action on ground soon. Realization is first step to redemption.


He mentions that some offers are made at the time of negotiations? What are these offers?
Does it mean japan is providing us loans for less interest because of FTA?


No, Japan is providing low interest loans to finance projects that are sourced from them , they do it with other countries as well

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Kaivalya » 13 Dec 2019 01:19

^
To the earlier comments on doing large bankable investments, please refer to a recent update on NIIF created in the 2016 timeframe with a capital of 3B$ from GOI and several large partner investors

https://www.infrastructureinvestor.com/indias-niif-puts-public-back-ppp/

I am looking for performance numbers from NIIF for a couple of years...Will update later

Please note that this keeps GOI babus 1 step away without turning it into another LIC but still provide a backstop for large infrastructure investments. Also this brings larger investors to the table...There was a similar idea for financial institutions as well...not sure where it landed

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby kit » 13 Dec 2019 09:50


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Re: Indian Economy News & Discussion - Nov 27 2017

Postby nandakumar » 13 Dec 2019 12:36

kit wrote:
siddhu wrote:
He mentions that some offers are made at the time of negotiations? What are these offers?
Does it mean japan is providing us loans for less interest because of FTA?


No, Japan is providing low interest loans to finance projects that are sourced from them , they do it with other countries as well

The model is something like this. The linkage of purchase of Japanese equipments to financial aid is applicable for long duration (30 years) loans. Even that is restricted to 30% of the Japanese aid component in the project. It is applicable to loans on concessional interest rate (0.1%) terms. Every tendered item is subject to international competitive bidding. If the price quoted by the Japanese supplier is higher by more than 10% of the lowest bidder, the project authority can source equipments from somewhere else. All in all, not a bad deal for borrowers.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Kaivalya » 13 Dec 2019 18:15

Good sign : if the b2b startup is seen as successful, it means that the 1500 design,forge,fabricate small to medium manufacturer ecosystem is getting healthier. Hope this is replicated in more manufacturing segments.

https://techcrunch.com/2019/12/10/zetwerk-b2b-manufacturing-items-india-seriesb/

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby csaurabh » 13 Dec 2019 21:30

India's online B2B market currently is just rubbish. The two best sites ( indiamart and industrybuying ) are so bad that sometimes it is easier to ship things directly from China by buying through Aliexpress.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Uttam » 13 Dec 2019 21:44

What is there a slowdown in the Indian economy?

Here is my attempt to understand why there is a slowdown in the Indian economy. The purpose is see what can and should be done and predict when will economy will turn around.

1) Legacy of hawkish monetary policy: The central bankers' urge to reduce inflation expectation has kept the real interest rate for far too long https://www.theglobaleconomy.com/India/Real_interest_rate/

The real interest rate was 5.06% at the end of 2018. With population growing at about 1.1%, and increase in labor participation slightly more than that, the real interest rate of 5% is too high. It did a great job in lowering inflation expectation but crippled the economic growth. Now again I fear the RBI turning hawkish just looking at food inflation.

2) GST and demonetization: GST and demonetization led to formalization of the economy. Unorganized or less organized Businesses who were not used to paying any taxes, now have to pay taxes, and thus compete against more organized businesses. This took the air out of these organized businesses. Now these effect are likely to be short-term and things should bounce back in a couple of quarters or so. However, it did exert pressure for slowdown.

3) The legacy of NPA and IBC : The NPA problem was created over a decade. Before the great financial crisis of 2008, banks were under BASEL 2, where the capital requirements were not as stringent and risk-weighting was very relaxed. Things changes drastically with BASEL 3. Now the risk-weighted capital is now >8%. By some calculation, if you apply the same formula to bank capital in the pre-2008 era, then their risk-weighted capital was close to zero. The changes in the risk-weighted in good for the long-term health of banks, however, this led to massive cleanup of bank balance sheets. A lot more NPAs were recognized, leading to less capital on bank balance sheets. It also reduced risk-appetite of banks. IBC is great effort in improving the system. It will help increase banks' risk-appetite. Further, the government is very responsive and is changing IBC as well as recapitalizing banks. I again expect things to show significant improvement over the next two quarters.

4) Infrastructure investment: The current government has taken a lot of infrastructure investments that have very long gestation periods. For example: dedicated freight corridors, Building expressways, waterways. These are likely to pay dividends over the next couple of decades. The problem with these investments is that these investment take long time to materialize and they don't earn anything till they are complete. For example the dedicated freight corridors will be game changers but only after they fully operational. Till then these are not so productive assets. Again, many of these investment should be complete over next couple of years. Therefore, I expect them to help in economic turn around over the 1 year horizon.

Thanks


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

Postby Rishirishi » 14 Dec 2019 04:11

4) Infrastructure investment: The current government has taken a lot of infrastructure investments that have very long gestation periods. For example: dedicated freight corridors, Building expressways, waterways. These are likely to pay dividends over the next couple of decades. The problem with these investments is that these investment take long time to materialize and they don't earn anything till they are complete. For example the dedicated freight corridors will be game changers but only after they fully operational. Till then these are not so productive assets. Again, many of these investment should be complete over next couple of years. Therefore, I expect them to help in economic turn around over the 1 year horizon.

Thanks


Sir, the government spending itself creates some momentum in the economy. A downturn can be used for many things. One of them being to print money and spend on infrastructure. It is ok, as long as the investments result in long term growth. Printing money to spend on walfare or suport unfrofitable PSU's can be a disaster.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Uttam » 14 Dec 2019 04:30

Rishirishi wrote:
Sir, the government spending itself creates some momentum in the economy. A downturn can be used for many things. One of them being to print money and spend on infrastructure. It is ok, as long as the investments result in long term growth. Printing money to spend on walfare or suport unfrofitable PSU's can be a disaster.



Agreed. But in this case these very long-term infrastructure projects were not funded by deficit spending. The Fiscal deficit over this period has been coming down. At the margin, these projects do contribute in increasing velocity of money, but their full benefit is realized only after project completion, when the logistics cost will come down significantly.

I am not arguing against these projects, just making a case to be patient.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Kaivalya » 14 Dec 2019 10:38

csaurabh wrote:India's online B2B market currently is just rubbish. The two best sites ( indiamart and industrybuying ) are so bad that sometimes it is easier to ship things directly from China by buying through Aliexpress.


Agreed sir- hence the anamoly of zetwerk is noteworthy along with some more like them getting vc money. It is a consolation that we are improving. Here is forbes calling out 3 steps within manufacturing - to solve for bridging the gap between few large players and 1000s of small players.This eco system has to mature by becoming a deeper market with all kinds of sizes and shapes

https://www.forbes.com/sites/michaelmandel1/2019/09/05/digital-manufacturing-3dprinting-make-in-india-modi-asia-industry/

Till then we have to be patient...

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Rahulsidhu » 14 Dec 2019 10:53

Vayutuvan wrote:
Rahulsidhu wrote:... so called "bankable projects" - to finance.


I heard this "bankable project" phrase before. What does it mean in practical terms? Does it refer to getting finance from a bank if one puts in 20% and bank gives a loan of 80% (sample percentages only). Could you please give a real life example, if you can?

TIA


Bankable literally means a project for which a bank might extend financing. In other words, a project which might be estimated to have a +ve NPV, i.e. the risk-adjusted rate of return exceeds the opportunity cost of financing.

However, I was using this term in a more general way.
* for a bank or commercial lender, the sole criterion would be if the project can generate enough cashflows to overcome the risk-adjusted cost of capital.

* for a development lender (such as World Bank, JICA, EIB), it's not just about the cashflows but also about the societal impact. So they only fund projects which create the impact they are targeting and in return offer a lower-than-commercial rate financing for it.

* for a sovereign govt, the bar for funding should even be lower, as the govt. can "print money" for this purpose. The criteria for evaluating a project should not be whether the project can generate cashflows, but whether the overall societal impact is +ve enough.

Infrastructure projects can benefit society in two ways:
1. create the physical infrastructure for use. This will help boost economy but also lower transport costs and help lower inflation.
2. generate jobs, income, skill development, help form the infra industry in the building phase. In fact the second is just as important as the first.

My gripe with the current govt. is that it is thinking too much like a commercial entity and not enough like a sovereign that it actually is. In India we have a combination of
1. High population Density
2. Domestic industry in several infra sectors, also domestic raw materials industry such as steel and cement
3. Mature financial sector and relatively strong institutions, large economy in an absolute sense.

1 - means there are enough project opportunities that 'if you build it, they will come'.
2 - means that the funds poured into the project will circulate locally rather than flow abroad.
3 - means our currency/govt is strong enough to raise this financing on its own balance sheet.

The real risk is not that the govt is spending too much, rather that it is not spending enough. The top priority should be growth and - as the US President is fond of saying - JOBS JOBS JOBS.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Rahulsidhu » 14 Dec 2019 10:59

^^^ Note that the above does not mean any and all projects can be funded. There are conditions to be met:

1) It is possible to overbuild and come to a point where you are building 'roads-to-nowhere'. Japan ran into this problem. China is beginning to run into this too. India is far from this point.
2) Bulk of the funds have to flow domestically. CPEC or OBOR projects don't work for precisely this reason and are nothing but debt traps.
3) A small economy or one not diverse enough is inherently less stable w.r.t deficit financing. India is large enough at ~$3T
4) Corruption is a risk - building a poor quality infrastructure that collapses in six months is no good. Obviously the way to tackle this is to prevent the corruption. Not building at all is not the right approach.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby tandav » 14 Dec 2019 22:05

Outcome oriented tenders are not being floated. L1 CAPEX cost with no regard to quality, defining outcomes or giving proper O&M funds is completely neglected. Sizing of these projects is a dark art which makes no sense and is designed to nameplate throughput that contractors know will never be stress tested in any reasonable time line. After such projects are implemented and time comes for these assets to deliver they fail so completely that it is embarrassing. This is the case with waste water infrastructure, roads, power.

1)I can guarantee that India roads per sqft are by far have the worst throughputs compared to any other nation of comparable economic development . They are cheap in terms of cost per sqrt as compared to international standards but Indian citizens pay for such poor design, implementation, materials, signage, exits, safety, camber, drainage with their blood, time, money due to far higher maintenance on vehicles using the carriage ways.

2) Waste Water treatment plants are promising the moon in tender stage but are designed and executed by folks knowing that design for ultimate load in 2040 will never come so we have a large majority of treatment plants with very large nameplate values where contractors have washed their hands off stating that they cannot operate unless 30% flow comes. Given sewage networks are non existent the flow never crosses 20% in 5 years after construction and the merry loot keeps on happening

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby tandav » 14 Dec 2019 22:25

csaurabh wrote:India's online B2B market currently is just rubbish. The two best sites ( indiamart and industrybuying ) are so bad that sometimes it is easier to ship things directly from China by buying through Aliexpress.


I agree Indiamart and Industrybuying are very bad, very poor interface and delivery. I avoid them like the plague myself.
But why is the Indian B2B sector rubbish. Is it a platform/ecosystem issue or the inherent quality of the business that inhabit the ecosystem

India operates on the Caveat Emptor! principle whereas more mature ecosystems The USA / China operate on Caveat Venditor! Which makes it stress free to buy stuff instead of over thinking about failures.

What else needs to change?

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby tandav » 14 Dec 2019 23:16

From what I can see this year our company, like many others will see a significant decrease in revenue close to 30%-50% in FY 2019-20 as compared to FY 2018-19. Most of this is because our govt sector and real estate clients have defaulted/delayed payments or are bankrupt. I am looking for ways to deploy my staff into other revenue generating activity but it's not easy

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby tandav » 14 Dec 2019 23:24

Kaivalya wrote:
Vayutuvan wrote:
I heard this "bankable project" phrase before. What does it mean in practical terms? Does it refer to getting finance from a bank if one puts in 20% and bank gives a loan of 80% (sample percentages only). Could you please give a real life example, if you can?

TIA


Vayutuvanji - Generally they are projects with assured fixed cashflow for a fix amount of time (both on the longer side - bankers love it for the low risk profile). For example a toll road, energy project with assured sales and sales growth typically outside of the market economy (less competition as well ). Someother examples could be Petrol bunks, Bus routes (because of monopoly) . Not to speak for rahulsidhuji- since these are investments into the economy the multiplier effect will be a lot more based on how many jobs it creates primary, secondary etc.


Only works for centrally funded entities/PSU. God forbid you take up a PPP from a municipal authority. They will most definitely default on "assured payments"


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