Indian Economy - News & Discussion 27 May 2012

[Austin]

Do these babus even look at what's happening to the goddam rupee? Do they not know that even more deficit spending will drop the rupee into a spiral which in turn will raise fuel prices which in turn will raise food prices which in turn will force more people into malnourishment??

My god.

Babus do but politician do too but pretend they dont ..... Never Mind the Food Security Bill is the problem for the next government to solve

Rising Oil Prices need to watch would impact our CAD.

High oil prices: The last thing Asia needs right now

[vishvak]

Do these babus even look at what's happening to the goddam rupee? Do they not know that even more deficit spending will drop the rupee into a spiral which in turn will raise fuel prices which in turn will raise food prices which in turn will force more people into malnourishment??

My god.

Babus do but politician do too but pretend they dont ..... Never Mind the Food Security Bill is the problem for the next government to solve

Rising Oil Prices need to watch would impact our CAD.

High oil prices: The last thing Asia needs right now

We are stuck in chalta-he attitude of colonial era at time of elections where all shortcomings of the past is forgotten over FSB which is for the next govt to solve!!

[Austin]

The Great Gas Heist
One beneficiary, clear and corporate. How the UPA played for political positioning.

[prahaar]

High subsidy, PDS hurdles to food security plan: Ifpri

How did TN and Chatisgarh improved their PDS to minimise the leaks and why cant one implement in other PDS around india , irrespective of FSB this should improve PDS.

One specific step I recall from Raman Singh's interview: remove all individual private shops as outlets for ration. Only cooperatives and other local organizations granted ration outlet permits. Other step was to increase vigilance to check compliance with the policies to minimize leakage in the system.

Basically, things can be done (even in a backward state) if there is political will.

[ramana]

DNA'Conversations

Gemstone jewellery Rs 350,000 crore industry

Analysis

dna Conversations: Gemstone studded jewellery: A Rs.350,000 crore industry in India, and growing
Monday, Jul 8, 2013, 8:00 IST | Agency: DNA
R N Bhaskar

Barely 15 years ago, India was known only as the centre for cuting and polishing diamonds. It was known also for making gold jewellery, but mostly for traditional jewellery. Indian diamonds and gemstones then got embedded in gold as studded jewellery and got sold through retail stores overseas. India thus remained only a process house – the source of diamonds was controlled by others, as was the retail of branded jewellery.

But during the past 15 years, Indian jewellers have begun making quality gemstone studded jewellery. Suddenly, India has begun to become the bargain centre for such jewellery. Is this a flash-in-the-pan achievement, or is there a bigger, brighter future for Indian jewellery?

To discuss this dna colled togethwer a panel of experts comprising (in alphabetical order) Ishu Datwani - Partner, Anmol Jewellers; Sachin Jain - MD, Forvermark; Prasad Kapre - Director, Opulence Jewels; Shailesh Sangani - Director, Priority Jewels/Aspen; Pallavi Sharma - Platinum Guild International; and Rupak Sen - India Head, Gemfields

Given below are edited excerpts of the discussion moderated by dna's R.N.Bhaskar (with editorial support from Shraddha Shirodkar).

On the industry

Sharma: Platinum has been able to carve that niche with the younger audience, which is almost 60% of the population.

India is a young country and our TG [target group] is largely a younger audience, which buys platinum and is driven by design. It makes them feel different. It is something entirely individualistic. It’s about them and it’s about their relationships.

Platinum is a premium offering, which can be with diamonds, or without diamonds. It’s totally driven by design. I think over last year we had a 30% growth.

It’s 30 times rarer than gold.

According to the Director-General of Statistics the market absorbed apoproximately four tonnes during the financial year 2012-13. So the platinum market has been growing from where we’ve been, So, since 2000 when platinum accounted for sales of some 500 kg, we have come a long year.

Jain: India was a very gold dominated market. But, over the years, that has changed. We can see the pendulum shifting towards diamond and other rare stones quite dramatically. And what we now see coming true is – while consumers look at value investment, we are now also seeing expressions — expressions of love – which are becoming more meaningful. As a consumer, she wants to express her sentiments; she wants to wear the jewellery for 365 days than keeping in the locker for 360 days.

I think “useable” will be the defining characteristic.

What we also see happening is that a design is also now turning to a story. So the meaningfulness of a design category becomes important. Say, for example, as Forvermark we have the design line ‘Millemoi’.which tries to to capture the woman who stands for various aspects in her life. So she represents 'family'—she is a child, she is a mother, she is a lover and in the centre of it is the diamond.

Datwani: Basically we are a retailer. We do fine jewellery. We do have gold jewellery. We have diamond jewellery. We have platinum. We have Forevermark. We have gems, emeralds.

The last one year was a little bit of a challenge. But this year we see it reviving.

But the segment growing the fastest is studded jewellery. However, I think the geographical significance is important in this market. For example, in the south, gold does very, very well. For us, you know our outlet is in Bandra [a tony suburb iof Mumbai] we deal with the more upscale area and the more elite class of customers. So for us diamonds has always been the driver.

Sangani: Basically, I’m a jewellery manufacturer. And I also run a brand called Aspen. So from a manufacturer's point of view, we work all over India.

Business was not so good last year, because of governmental issues, excise duty related issues – some new rules were to be introduced – and the market had gone on a strike…

Kapre: Took away one month from us.

Sangani: And we were not able to catch up in the remaining eleven months, so that has slowed down the industry a little bit.

Kapre: And actually just to add there, losing one month business is actually losing your entire gross margins.

You typically make about 8 to 10% on gold jewellery. So when you lose one month of business, the whole profits for the year are gone.

Sangani: But the first quarter of this year – in fact from January to May – has been good. But again I think we are forecasting some problems. Anyway the marriage season has just got over, all across the country.

Sen: Well, I think we are the newest among all the people here. We are into mined and very old [gem]stones…

Gemfields has been in existence since 2008, so fairly new compared to our partners and De Beers or the Platinum Guild or the World Gold Council. We're miners for gemstones. And unfortunately for us most of the gemstones were found in areas which had conflict.

And as a result there was a dampener on marketing diamonds [lest diamonds from conflict areas would also benefit]. And it was only in 2008 that Gemfields got the whole thing organized in Zambia – listed itself on the London Stock Exchange – and started mining for emeralds from that country. And since 2009 we've come a long way. I think the prices of such stones have gone up by about 10 times in the last four years, which has translated into retail prices going up by about 150% in the last four years.

Thus, the market has been growing at about 100% year-on-year for us. Coloureds are coming back into fashion.

Yet, when we sell a piece of jewellery we're not selling a coloured stone, we're selling diamonds, we're selling platinum …

Kapre: This is a huge industry.

The domestic market for jewellery is close to $30 billion, it's anywhere between $30 billion and $35 billion. So that's about Rs.1,75,000 crore plus. Add to this exportswhich are close to $40 billion. That makes it a Rs.350,000 plus crore industry.

Secondly, over the last seven years – except for 2011, '12 and '13 when we experienced a bit of a slowdown – till about 2011 the industry has grown at a CAGR of around 18% that too on a large base of almost $60 billion. This is phenomenal.

Moreover, the entire jewellery market accounts for 300,000 retailers across the country - the largest number in the world, anywhere.

In 1995, the diamond jewellery domestic market was only $400 million – I cannot recall the exact figure then of the total gold jewellery market. The diamond jewellery market is worth around $7 billion in India. . So there's a phenomenal jump in just the last 15-20 years.

And, currently, it’s India and China driving the jewellery market globally.because consumers are definitely getting more affluent, they’re getting more educated.
And so it’s all about endowment, it’s all about indulgence. It’s definitely something which is not going to be kept in the lockers. Every woman wants to adorn herself with whatever she buys.

Sangani: The industry began to change in 1991.

There was the Gold Control Act in our country, which got abolished in 1991. So gold became free in the country. Otherwise only if you had a gold license could you do gold business. So, a new generation of jewellers came into the picture with new ideas, and bigger plans.

Datwani: I have a take on this. We run a first generation jewellery store.

We started in 1986 and of course, initially, we went through that same process where there was the difficulty of a gold licence, because we are not traditionally from a jeweller family. So we used to sell silver to begin with.

Subsequently when the Act was abolished, we started doing gold. And my jewellery can be quite different from what other family stores offer. Today, 80% of our sales being diamonds, and less than 20% is gold. From 75% gold – today its 20%.

In the past, purchase of gold jewellery was value-for-money. Today, the girl will tell her parents, “No, I want this because this is what is looking good, It might be more labour intensive [hence higher making charges], but it doesn't matter.” So the whole approach has changed.

Kapre: There has been a wealth effect; there has been a marketing effect. There has been a lifestyle effect.

And yet you have a polarized market. If you go to down south, what Shailesh said is absolutely true, 90- 95% of the market is only focused on gold. But go north, and you will have maybe 70% in diamonds and 30% in gold.

This also points to cultural differences – obviously. The north has more of a flash culture.

Sangani: You come to Bombay the emphasis is on quality and looks. But you go down south, the quality is even better. The design is not as important, but the quality is important. And the price ranges can be fantastic. So, you look at a standard small diamond, just to give you an example. So in the north that same thing could be sold at Rs.75,000 a carat. Carat is weight. Over here [in Mumbai] we would sell it at Rs.45,000-50,000 a carat and in the south it could be sold at Rs.20,000 a carat. So that’s the disparity.

Kapre: For gold, it’s much easier for a woman to justify its purchase at home; she can say she is investing. But for a diamond she has to justify its purchase a lot more and that’s where it gets tricky; it gets very difficult; because the justification for gold is that it’s an investment, so it’s for the entire family. Whereas when she buys diamonds it’s only for herself.

That’s the barrier which marketing has to address.

Challenges

Sangani: The finance ministry's restrictions on gold imports are going to create some problems eventually – maybe two, three months down the road. You will see some tight issues on that. So businesses will be in a kind of a limbo.

As of today, the government wishes that this industry does not exist in India because according to the Finance Ministry of India, the current CAD problem has occurred because India is importing so much of gold.

The answer should be to encourage exports.

This is happening because of several reasons.

First, India’s love for gold is not dying. It is ever increasing. Second, I think, somewhere in there is the declining confidence of Indians in the Indian currency and, therefore, people are not investing into anything else but gold. It is a hedge against inflation.

But the answer is not to stop gold. Currently, the government has banned loans on gold. In a business cycle you get gold on loan, which the government has stopped. You can now buy gold only against cash. The government is trying to squeeze supply. It could see a full stop to the trade.

Kapre: We are just one step away from Gold Control Act. The fact is that of the gold imported into the country, only 60% of that is going into the gem and jewellery industry. The remaining 40% goes into either ETFs or bullion holding.That should be discouraged. Not the industry; because jewellery is part of our culture, part of our nature. I mean, any girl who got married and has not received gold from her parents or in-laws, it’s not possible.

Jain: And employment as well.

Kapre: We employ more than 1 crore people.

Sangani: India’s position in the gold markets is tremendous because of the parallel economy. It is estimated that India has approximately 25,000 tonnes of gold somewhere or the other, if the total of every single household is taken in totality.
It is an estimate.

Suggestions

Sangani: There is a white paper just now with the government where we are saying that if the government can come up with a policy or scheme which allows you to declare your gold holdings, no questions asked, just put your gold with the government for three years, five years, pay a 10% tax on that and leave the gold with the government, you will get back an equal amount of gold after the stipulated period. Volume-to-volume five years down the road.

We have assured the government that if you are able to do this thing, we as an industry will tell you that you don't need to import gold, one ounce of gold, for the three years.

Prasad: We get a feeling that this industry is being targeted. For example, today, I have to give my PAN card if I buy worth Rs.5 lakh plus jewellery. But if I take the same Rs.5 lakh if I go and buy furniture, nobody is going to ask me for a PAN card. Now either you have this across the industry, or forget the rule.

Kapre: Systems and Processors, you know. That is a big barrier. We need skilled people as well. These are the two big barriers. Now if the government can come up with some institutes, on the lines of Paris-based Essec or other institutes in Singapore who want to set up office in India as well. We don’t have a luxury school in India at all.

And once we have a luxury school, once we have these people graduating from there, I’m sure people like Ishu would be more than happy to welcome them in stores, or in the entire industry.

[Prem]

To save rupee, RBI may go for direct funding of crude buys, bond issue

http://economictimes.indiatimes.com/new ... 963442.cms

MUMBAI: The Reserve Bank of India may be forced to announce some measures in the next few days or weeks to arrest the rupee's slide, which is likely to worsen as the threat of the US Federal Reserve tapering bond purchases has triggered a flight of dollars back to America. Some of the steps may include the much-anticipated direct funding of crude oil purchase by IndianOil, floating NRI bonds, and reducing the overnight exposure of banks to curb speculation, said people familiar with RBI's thinking. Indeed, if interest rates in the US, which have risen by more than 100 basis points in past two months, continue to advance due to the strengthening economy, India may have to follow the example of Indonesia - which also runs a current account deficit - and raise interest rates. The extent of pressure on the rupee became clear when one month non-deliverable forwards (NDF) rose to Rs 61.35 on Friday afternoon in a market battling reduced liquidity, said a trader. NDF is a cash-settled, short-term forward contract where trades happen overseas. "We are in a situation where RBI could be looking at a few immediate steps," said Arvind Narayanan, executive director and head (sales, treasury & markets) at DBS India. "RBI could look at curbing discretionary non-trade payments overseas, or money retained outside may be ordered back into the country. RBI may also look at opening a special window from where oil companies could buy dollars, so that it does not disrupt the over-the-counter forex market." The rupee is the worst-performing Asian currency as foreign funds pulled out $5.4 billion from Indian debt in June. Foreign funds also sold Indian debt worth more than Rs 4,000 crore this month, data from the regulator shows. On Friday, the rupee closed at 60.24 to the US dollar. The government and the central bank have been trying to curb demand for gold, one of the main causes of aggravating external deficit, by imposing stringent cash conditions on importing the metal and also raising the import duty on it. But the pressure on the rupee continues because global investors, who were borrowing at zero interest rates in the US to invest here, are now selling assets in anticipation of higher borrowing costs in America. On Friday, US treasury yields jumped to 2.73%, their highest since August 2011. Topping the list of dollar consumers are oil companies, which require an average of $300 million a day. And the demand for dollars will only accelerate with nearly $172 billion of loan repayments coming up in the next one year. With the current account deficit at 4.8% of the gross domestic product and real interest rates remaining negative compared with the consumer price rise, the central bank may have to raise interest rates to attract flows. "To stem the rupee's fall, we may even need to raise short-term interest rates," said Srinivas Varadarajan of Mount Nathan Advisors, which advises hedge funds. "When rates are raised during times of outflows, foreign investors appreciate it as the right measure." Capital flows into emerging markets such as India may be reversing given that the US may start slowing $85 billion of monthly bond purchases. The fear of an imminent slowing has triggered a selloff in emerging markets.

[Prem]

The global economy has reached an inflexion point, India must find new ways to trigger a recovery
http://timesofindia.indiatimes.com/home ... 960617.cms

The impressive performance of the Indian economy over the last two decades has been severely dented in recent years. Not only has growth decelerated to a decadal low, the promised recovery has proved elusive with the government focussed more on rolling out welfare programmes. Meanwhile, domestic barriers to growth have been accentuated by external sector developments, especially the decision of the US Federal Reserve to taper off quantitative easing sooner rather than later. Especially worrying are the surge in dollar outflows and the dip in rupee value, whipping up fears of another bout of severe inflation and monetary contraction. he end of easy money will have major repercussions on developing economies. They have no option left but to put their best foot forward to attract foreign investors and compete for dwindling capital flows. This is especially true for countries like India, whose large energy deficit makes it a net importer heavily dependent on foreign funds. The UPA government routinely blames global factors for the current slowdown. But what it has to accept is that the good times of high growth, which was propelled by excessive global liquidity that pumped in huge funds to developing economies, have finally ended.
The political class also broadly needs to accept the corollary of this development. If low growth and high inflation are structural rather than temporary blips we'll soon tide over, then India needs to sharply redraw its domestic policies. Otherwise we run the risk of falling by the wayside and letting competing economies forge ahead. Timid baby steps won't do, a second generation of reforms rivalling 1991 in their scope and comprehensiveness can't be forestalled any longer. The free ride is over, as is any generalised fad for emerging economies. The men are about to be separated from the minnows, and it's up to us to choose.

[Arjun]

Foreign retail majors ignore India invite for investment

[Austin]

The rupee's value, determined offshore by a market that never sleeps

[svinayak]

The rupee's value, determined offshore by a market that never sleeps

This article keeps comparing with yuan but does not show the fact that Chinese market is small for outside investors and bond market is also small. It is a state controlled market in PRC.

If the outside trading market for rupee is growing bigger then it means that trade is increasing.
India will not have much control over the outside market but India can create secondary market which is controlled and which can trade with global trade timings outside of India time zone.

[nachiket]

Foreign retail majors ignore India invite for investment

So a faltering economy is dissuading investors, while the lack of investment exacerbates the economic downturn. No way out?

[svinayak]

Foreign retail majors ignore India invite for investment

So a faltering economy is dissuading investors, while the lack of investment exacerbates the economic downturn. No way out?

This is a good thing for the current global situation

Global trading system is against Indian interest at this time

[KJo]

Chidambaram, Sharma rush to Uncle Sam to revive Indian economy
http://timesofindia.indiatimes.com/busi ... 997148.cms

WASHINGTON: Two very chastened Indian cabinet ministers arrived in Washington on Tuesday, looking for American investment and patronage to revive an Indian economy that has hit the skids and a rupee that is being decimated.


The swagger and self-importance that characterized Indian economic engagements with American business over the past few years has evaporated rapidly as finance minister P Chidambaram and commerce and industries minister Anand Sharma engage with US interlocutors over the next few days. In its place, there is despair at the nose-diving rupee and the drying up of foreign investment, leaving the Indian projection of becoming an economic powerhouse distinctly wobbly.

Not just the ministers, but everyday people in India also had acquired a swagger. In 2008, in every conversation I would be asked by friends and family about how the American economy was doing, how things were "booming" there, and people had the "we don't need you, you need us" attitude. Kinda Paki-ish, I thought. How soon things have changed.

Lesson is to enjoy the good times, but be wary, ready and be watchful instead of indulging in excesses when things are going good.

[Austin]

Reserve Bank and SEBI step in, apply brakes on Indian rupee free-fall

Measures and Impact

* RBI asks oil companies to buy dollars from single state-owned bank: Will ease pressure on oil firms that have a monthly dollar requirement of over $ 8 billion

* RBI bars banks from trading on their own in rupee currency F&O: Expected to help prevent rupee volatility

* SEBI tightens exposure norms for currency derivatives: Will help curb speculation that has eroded rupee value

[Austin]

Not sure how Chidu and Sharma running to America would solve Indian Economic Problem when the ability to solve it is in their hands , American Congressmen have clearly stated they want trade barriers to reduce in India and the famous arm around the shoulder to drag India along.

If I am not wrong Chidanand Rajghatta is based out in the US so its quite clear from his writings where his loyalties are.

[Aditya_V]

Chidambaram, Sharma rush to Uncle Sam to revive Indian economy
http://timesofindia.indiatimes.com/busi ... 997148.cms

WASHINGTON: Two very chastened Indian cabinet ministers arrived in Washington on Tuesday, looking for American investment and patronage to revive an Indian economy that has hit the skids and a rupee that is being decimated.


The swagger and self-importance that characterized Indian economic engagements with American business over the past few years has evaporated rapidly as finance minister P Chidambaram and commerce and industries minister Anand Sharma engage with US interlocutors over the next few days. In its place, there is despair at the nose-diving rupee and the drying up of foreign investment, leaving the Indian projection of becoming an economic powerhouse distinctly wobbly.

Not just the ministers, but everyday people in India also had acquired a swagger. In 2008, in every conversation I would be asked by friends and family about how the American economy was doing, how things were "booming" there, and people had the "we don't need you, you need us" attitude. Kinda Paki-ish, I thought. How soon things have changed.

Lesson is to enjoy the good times, but be wary, ready and be watchful instead of indulging in excesses when things are going good.

KJoishy, it was working 2 ways, people in America in yourself did not like the upturn at that time in India.

Truth is you have been exposed to UPA laws and workings as Iam, you would see how Indians have sunk themselves by voting the Ghandis. Today we are paying for the UPA mistakes in 2008-12 period.

As long the G's and thier coterie are near power India will be in a pile of s****. If the Indian voter understands that, give 20 years and we will have a reasonable swager and not property bubble based swagger which was in 2008.

[Suraj]

Aditya_V: Keep the politics out of this thread. There are enough threads in GDF to direct those posts into.

[Gus]

Foreign retail majors ignore India invite for investment

So a faltering economy is dissuading investors, while the lack of investment exacerbates the economic downturn. No way out?

we have no reason to cry at retail majors ignoring us, when we do all kinds of antics when some of them wanted to come in.

most of the print media, talkshows, politicians etc were all mortally against MNC retails...

[nachiket]

most of the print media, talkshows, politicians etc were all mortally against MNC retails...

As were several posters here, from what I remember.

[Abhijeet]

India has consistently dithered too long and missed windows of opportunity before they closed.

- Mass manufacturing, obviously
- Building up global airlines through rules like requiring 5 years of operation before flying abroad. By the time domestic airlines satisfied this requirement, the global recession had hit.
- Large foreign investment, from Laxmi Mittal preferring to invest outside India to retail companies changing their minds

The existing sentiment in India is so anti-business that this will happen repeatedly till the average urban person in India realizes how much opportunity cost they are incurring by not welcoming good investment when there is a chance to get it.

[ramana]

Business Standard reports that the upcoming meeting between MMS and India Inc later this month will be stormy as his govt is being blamed for all the economic ills.

[Arjun]

Fantastic article from Pratap Bhanu Mehta. Time for all thinkers to make their voices heard if the country is to be saved. See the parts in bold for sections relevant to this thread:

While we were silent
Pratap Bhanu Mehta : Thu Jul 11 2013, 04:26 hrs


A story of destructive governance and citizens who did not speak out

First, the UPA came for the roads sector. They destroyed contracting. They slowed down road construction. They left highways half built. We did not speak out. After all, the only reason the NDA could have started the golden quadrilateral is because they wanted to spread Hindutva.

Next, they came for the airline sector. They let Air India suck more money from taxpayers. They let bad regulation destroy the private sector. They let crony banking sustain bad bets. They ensured India would never be an aviation hub. We did not speak out. After all, flying is what birds do, not humans. Besides, aviation is bad for climate change.

Then they came for the power sector.They confused creation of mega capacities with actual generation. They had no rational pricing plans. They were arbitrary in the awarding of licences. They could not make up their mind whether they wanted to protect the environment or destroy it. We did not speak out. After all, the only power that matters is political. Electricity be damned.

Then they came for education. They promulgated the RTE after 100 per cent enrolment. They expanded capacity, but cut-offs still rose. They regulated in such a way that there was a glut in some subjects and a shortage in others. They confused university buildings with building universities. We did not speak out. After all our, our low quality education left us incapable of speaking out.

Then they came for industry. They turned the clock back in every way and waged open war. Ensure that regulations become more complex and uncertain. Ensure that input costs rise. Ensure crummy infrastructure. Promulgate a land scam policy known as SEZ and sell it as industrial policy. They encouraged FDI. But they forgot which one they wanted: outbound or inbound. But we did not speak out. After all, India is a rural country.

Then they came for employment. There was some growth. But they decided that the only good employment is that which has the hand of the state. So the NREGA’s expansion was seen as a sign of success, not failure. By its own logic, if more people need the NREGA, the economy has failed. But we did not speak out. After all, the more people we have dependent on government, the more we think it is a good government.

Then they came for agriculture. First, they create artificial shortages through irrigation scams. Then they have a myopic policy for technology adoption. Then they decide India shall remain largely a wheat and rice economy; we will have shortages for everything else. Then they price everything to produce perverse incentives. But we did not speak out. After all, why worry about food production when the government is giving you a legal right? Is there anything more reassuring than social policy designed by and for lawyers?

Then they came for institutions. They always had. This has been Congress DNA for four decades. They drew up a list of institutions that remained unscathed: Parliament, the IB, bureaucracy and you name it. They then went after those. They used institutions as instruments of their political design. They demoralised every single branch of government. But we did not speak out. After all, this was reform by stealth. Destroy government from within.

Then they came for inflation. They confused a GDP target of 10 per cent with an inflation target. Inflation will come down next quarter, we were told. Then they tried to buy us out. Inflation: no problem. Simply get the government to spend even more. Then they pretended inflation is a problem for the rich. Then they simply stopped talking about it. We did not speak out. After all, for some, inflation is just a number.

Then they came for the telecom sector. They got greedy and milked it. They got arbitrary and retrospectively taxed it. But we did not speak out. After all, new communication can be a threat to government. Besides, we can always revert to fixed lines. More digging is good.

Then they came for financial stability. They produced a large deficit. They brought the current account deficit close to an unsustainable point. They nearly wrecked the banking sector. They created every macro-economic instability you can imagine, which makes investment difficult. But we did not speak out. After all, what would you rather have: macro economic stability or a free lunch?

Then they came for regulation.It was back to the 1970s. More arbitrary regulation is good. More rules are good. Uncertainty makes business more adept. The answer to every administrative problem is enacting a new law. Multiple regulators are good because they represent the diversity of India. We did not speak out. After all, just like the religious confuse piety with mere ritual, the virtuous confuse regulation with outcomes.

Then they came after freedom. They promulgated more restrictive rules for everything: freedom of expression, right to assembly and protest, foreign scholars. They used sedition laws. They kept the architecture of colonial laws intact. They said they stood against communal forces. But then they let Digvijaya Singh keep the communal pot boiling. They matched BJP’s communal politicisation of terrorism at every step and then some. We did not speak out. After all, if they are not Hindutva forces, they cannot be a threat to peace and liberty.

Then they came for virtue itself. They preached, from the very summit of power: avoid responsibility. It will always be someone else’s fault. They legitimised being corrupt: you are entitled to it if you are the party of the poor. They encouraged subterfuge to the point that members of the cabinet were subverting each other. They pretended that integrity is a word that does not mean anything. To independent thinkers, they said: why think when there is 10 Janpath? We did not speak out. After all, virtue and thinking can both be outsourced.

Then they came for the poor. They visited their houses and slept in their homes. They liked the experience so much they decided to become growth sceptics. Enact policies that keep India in poverty a little longer. But we did not speak out. After all, once the poor have been used as an argument, all else is immobilised.

Then they came for the citizens. They used the secularism blackmail to reduce our choices. If you are not with us you are evil they said. Then they infantilised us. You are not capable of exercising choices so we will make them for you. They acted as if we were so stupid that the three topmost leaders felt no need to justify themselves to us. But we did not speak out. After all we do have the vote.

http://m.indianexpress.com/news/while-w ... t/1140199/

[Cosmo_R]

I 'misposted' in the India-US strategic thread"

As others have pointed out, Indian pols have consistently resisted any form of investment-domestic or FDI.

1. Steel: POSCO still staggers along. I'm surprised at how patient the SOKOs are give there is a 200MM steel overcapacity globally.

2. Coal India cannot charge prices that support investment costs so no investments plus you have various tribals who object so we import coal!

3. Oil & Gas drilling same story as Coal: cannot be exported and must be at price which make investment infeasible. So, we import

4. Retail FDI: fuggedaboutit. 40% of the food crop in India is wasted between the (farm) gate and the plate. Lack of refrigerated trucks and vested interests who screw farmers through middlemen. Indian pols are more concerned about 6MM dukandaris than about 600MM consumers and farmers. Walmart, Tesco et al have enormous expertise but they are devils.

5. Power sector: The nuke liability law and protests have crippled that initiative, No power Captain. The dilithium crystal are running low.

6. Defence FDI. PSUs have nixed any move to move in their turf. They have leverage with pols who place their sycophants/relatives in these companies.

7. Education: They got it half right. Kept the ban on for profit colleges but I personally saw Kapil Sibal insist on Harvard/Yale/Stanford/Columbia setting up campuses in India and charge only $1000/year for the same degree Oh!, and hire only Indian profs and accept the 99 percent reservation for "weaker sections". Same BS they pulled on primary and secondary private schools.

8. Banking & Services: No to Legal firms, no to accounting firms, no to banks and are now enlisting Indian corporates to provide banking services. Always a bad idea and the cause of many pyramid schemes and diversion of funds.

India runs a merchandise trade deficit, Current Account deficit and is not making it up in the Capital (FDI) account. The FX reserves are all short term monies. The INR is headed towards 100

The sheen has gone off the BRICs and there is definite India fatigue in USA Inc. That's why Chidu and Sharma have to go the US sadder but only slightly wiser men, leaving the swagger at IGNA.

Could have been so different and better. Brass rings don't always look the part but you have to grab them anyway. Sigh!

[Theo_Fidel]

http://articles.timesofindia.indiatimes ... -noliasahi

Land acquisition for Posco over, says Odisha government

2700 Acres

[Arjun]

India runs a merchandise trade deficit, Current Account deficit and is not making it up in the Capital (FDI) account.

This idea of massive Current Account deficit being OK, and all we need to makeup is inflows on the Capital (FDI) account - is a flawed idea in the first place.

Kind of like the internet firms of yore that used to lose money by the gazzilions but thought they would still be able to attract equity investment based on their topline growth - and so negative P&L would not matter.

The primary effort right from the beginning should have been to focus on exports and minimize the CA deficit. The nation would do much better in the hands of those who have their basic business sense right - rather than being run by a load of inveterate Bengali / S. Indian / Sardar babus who may have their 'theory' of (questionable) economics down pat but don't have a clue about the abc's of business.

[abhishek_sharma]

Musings on banks of the Huangpu: Admiral Arun Prakash

China succeeded in every aspect of socio-economic endeavour where India has failed.

x-post

[Singha]

nytimes

For Cost-Crunching Retailers, Bangladesh Reigns Supreme
By REUTERS
Published: July 11, 2013 at 9:34 PM ET


TIRUPUR, India — With knitwear exports of over $2 billion a year, India's garment manufacturing hub Tirupur has earned the nickname "Dollar City," but its allure for price-conscious global retailers obsessed by discounts of as little as one U.S. cent pales before Bangladesh.


Indian and Southeast Asian apparel manufacturers had hoped the orders would come flooding in, after the deadly collapse of a Bangladesh garment factory complex this year galvanised global brands such as Hennes & Mauritz AB (H&M) to consider relocating production.

But several industry organizations and factories contacted by Reuters in Vietnam, Cambodia, Indonesia, Sri Lanka and India - Asia's top apparel makers outside China - said international retailers were not beating a path to their door just yet. When it comes to price, Bangladesh is king.

"The reason Bangladesh went from zero to hero in the garment sector is because there is no country with such low labor and other costs," said Arvind Singhal, chairman of India-based retail consultancy Technopak Advisors.

"No buyer is in a hurry to move from Bangladesh because Western retailers are stressed about passing any retail price increases to customers," he said. "Currently, there is no substitute for Bangladesh, where manufacturers even risk operating from rickety structures to cap costs."

Wal-Mart Stores Inc has stood by its Bangladesh production, saying the South Asian nation remains an important sourcing market. H&M also said its quest for alternative manufacturers was not at the expense of Bangladesh.

"We are not reducing our purchases from Bangladesh. We aspire to have long-term relations with our suppliers," H&M spokeswoman Elin Hallerby said. "We are always looking at new production capacity to support our continuous expansion."

The latest data from Bangladesh highlights its enduring appeal: garment exports in June rose 26 percent year-on-year to $2.2 billion.

COST IS KING

More than four million people, mostly women, work in Bangladesh's clothing sector, making it the second-largest global apparel exporter behind China.

The world's biggest fashion retailers, Inditex SA and H&M, as well as Wal-Mart, Gap Inc and JC Penney Company Inc are a few of the brands manufacturing there.

The $21 billion-a-year industry has been built on low wages, government subsidies and tax concessions from Western countries. But the collapse of the Rana Plaza factory complex outside Dhaka in April raised concerns about safety loopholes. The disaster, one of the world's worst industrial accidents, killed 1,132 people.

The collapse prompted global brands to consider tapping regional alternatives.

Indonesian textile firm Sri Rejeki Isman PT (Sritex), which makes clothing for Zara, H&M and other brands, said it was in talks with H&M about taking over an as yet unspecified amount of Bangladesh-sourced production. H&M declined to comment.

But as large factory owners across the region discovered, translating talks into orders is difficult as, compared to Bangladesh, they are considered too expensive.

"Garments produced in Bangladesh have a very competitive price, around two-to-three times lower than in Vietnam," said Nguyen Huu Toan, deputy director of SaiGon 2 Garment JSC, a Vietnam factory whose clients include British fashion retailers New Look and TopShop.

The cost disadvantage also impacts Sri Lanka's $4 billion-a-year garment industry, and factory owners there say any shift in production from Bangladesh will be transient.

"We are much better than any other country in the region, but it is a temporary advantage," said Tuly Cooray, the secretary-general of industry group Joint Apparel Association Forum. "At the end of the day, the price is going to matter."

NOT CUT FROM THE SAME CLOTH

The economic slowdown in Europe and the United States has made retailers all the more keen to seek out the lowest-cost manufacturing centers to keep their store prices down.

N. Thirukkumaran, owner of Tirupur-based apparel maker Estee which racked up $8.3 million in sales last year, said he holds marathon haggling sessions with foreign customers demanding discounts as little as one cent per unit.

At least one U.S. retailer asked about moving production from Bangladesh, he said, but they have yet to place orders. Thirukkumaran would not name the brand, citing client confidentiality.

"There are positive signals from buyers, but they are still skeptical about price," he added.

Monthly minimum salaries for garment sector workers in Bangladesh average around $38, far below the $100 average for Indian factory workers.

After the Rana Plaza collapse, the cabinet approved changes to the labor laws that pave the way for garment workers to create trade unions without the approval of factory owners.

The cabinet also formed a wage board to consider pay increases. But industry experts say Bangladesh has too much to lose by alienating global retailers, which means that for now, the low costs are here to stay.

"No other destination has what we have and that is skilled and cheap labor," said Mohammad Mujibur Rahman, a Bangladeshi academic leading factory inspections.

"Foreign buyers realize this and nobody is in a hurry to move out ... there might be a small trickle outside, but nothing significant that will hurt us."

(Corrects spelling of name in paragraph 15 to Nguyen Huu Toan)

(Additional reporting by Nandita Bose and Ruma Paul in DHAKA, Shihar Aneez in COLOMBO, Nguyen Phuong Linh in HANOI, Fathiya Dahrul in JAKARTA, Jessica Wohl in NEW YORK, Anna Ringstrom in STOCKHOLM; Writing by Miral Fahmy and John Chalmers; Editing by Ryan Woo)

[svinayak]

My friend met the Bangladesh central Bank governor

[abhishek_sharma]

^^ Regarding that Bangladesh story

Paul Krugman on safety standards in Bangladesh

Safer Sweatshops

A long, long, long time ago I used to believe that the central political and economic debate facing our nation was going to be about globalization — not realizing that it would instead revolve around a powerful movement to roll back the clock here at home, and bring back the Gilded Age. (As I once said, I think to Robert Kuttner, while he and I were arguing about tariffs, Sauron was gathering his forces at Mordor). Anyway, back then, as a columnist for Slate, I wrote a piece arguing that low wages and poor working conditions by Western standards were necessary and inevitable in poor countries — provoking the predictable outrage.

All these issues have faded into the background, but they’re still out there — and the Bangladesh factory horror has bought some of them back to prominence. And there are now serious moves to impose stricter safety and working conditions standards in third-world apparel producers. So what’s my view?

The answer is, I’m all for them — and no, I don’t think that’s a contradiction of my earlier views.

It remains true that given their low productivity, countries like Bangladesh can’t be competitive with advanced countries unless they pay their workers much less, and provide much worse working conditions too. The Bangladeshi apparel industry is going to consist of what we would consider sweatshops, or it won’t exist at all. And Bangladesh, in particular, really really needs its apparel industry; it’s pretty much the only thing keeping its economy afloat.

At this point, however, there really isn’t any competition between apparel production in poor countries and rich countries; the whole industry has moved to the third world. The relevant competition is instead among poor countries — Bangladesh versus China, in particular. And here the differences aren’t as dramatic: McKinsey (pdf) estimates Bangladeshi productivity in apparel at 77 percent of China’s level.

Given this reality, can we demand that Bangladesh provide better conditions for its workers? If we do this for Bangladesh, and only for Bangladesh, it could backfire: the business could move to China or Cambodia. But if we demand higher standards for all countries — modestly higher standards, so that we’re not talking about driving the business back to advanced countries — we can achieve an improvement in workers’ lives (and fewer horrible workers’ deaths), without undermining the export industries these countries so desperately need.

So, can we act to improve the lot of workers in low-age, labor-intensive manufacturing? Yes, we can, as long as the goals are realistic and the measures appropriate in scale. And we should go ahead and do it.

[abhishek_sharma]

[Austin]

India's trade deficit comes down to $12.24 billion in June from $20.14 billion in the previous month, but exports also dip by 4.6 per cent to $23.79 billion. Import of gold and silver dipped to $2.45 billion in June from $8.4 billion in May, a fall of nearly 71 per cent.


Read more at: http://indiatoday.intoday.in/story/brea ... ay-july-12
/1/290920.html

Great opportunity for India, US to work together: Chidambaram

"I therefore appeal to you there is great opportunity to wok together for the two countries," he said in his speech.

"We are a country where we are building our economy brick by brick, and in that process we seek your help," Chidambaram said in front of an audience that included executives, officials and lawmakers of both India and the US.

Chidambaram strongly defended India's policy on intellectual property, including compulsory license.

India, he said, is the largest country in the world that faces the challenge of eliminating poverty.

"We will do it. We have demonstrated our capacity to do it. Even after financial crisis, India's growth has been impressive," he said, adding that India paid the price in terms of high fiscal deficit, high inflation and high current account deficit.

"We would overcome them working with you. My appeal to you, my business friend in India and US, we have a common goal and great opportunity in eliminating this poverty," said Chidambaram.

[Austin]

A large section of the Indian middle class, though living in the country, is in a state of mental exile

The Exit of the Middle Class

Frontline views on Rupee Fall by C.P. Chandrasekhar

Falling Rupee: Weak and vulnerable

[Austin]

US urges India to reverse discriminatory course against American firms ( via RT )

US Trade Representative Michael Froman has urged India to reverse course on policies that he said discriminated against American companies. “I am concerned about the investment and innovation environment in India,” Froman told the US-India Business Council on Thursday. He cited measures ranging from subsidies for solar developers who use domestically manufactured solar equipment, to preferential treatment for products manufactured in India and denial of rights of patent holders.

[Abhijeet]

Musings on banks of the Huangpu: Admiral Arun Prakash

China succeeded in every aspect of socio-economic endeavour where India has failed.

Great articulation. I've felt this same sense of "silent rage" this author talks about when living in India.

It's too easy to explain away India's governance shortcomings relative to China as somehow the result of democracy -- "of course dictatorships can do these things better than democracies like us." This is not true. Only a small set of problems are actually caused due to factors that democracy enables: land acquisition or worker rights are typical examples. But there is a vast set of things that can be done equally well by dictatorships or democracies: building roads to decent standards, enabling regular garbage collection, providing clean piped water, and many others. India cannot even provide such services reliably in its top five largest cities, let alone all over the country.

The issues in India come down to poor execution. The form of government is not correlated.

Really, things like electricity, water, sewerage and roads are table stakes today when comparing countries -- not even worth talking about. Lack of progress on these very basic facilities drags down development in many different areas.

It's telling that in a democratic country, the institutions from which people have the highest expectations of performance -- the Supreme Court and the military -- are not elected directly by voters. The institution filled directly by voters -- Parliament -- is one of the most dysfunctional in the country.

[Arjun]

It's too easy to explain away India's governance shortcomings relative to China as somehow the result of democracy -- "of course dictatorships can do these things better than democracies like us." This is not true. Only a small set of problems are actually caused due to factors that democracy enables: land acquisition or worker rights are typical examples. But there is a vast set of things that can be done equally well by dictatorships or democracies: building roads to decent standards, enabling regular garbage collection, providing clean piped water, and many others. India cannot even provide such services reliably in its top five largest cities, let alone all over the country.

It all boils down to the quality of the electorate. Is the electorate the type to choose phoney 'secularism', 'minorityism' and 'dynastism" over development? If it is - a government that cares jackshit about development is precisely what it will get. The electorate sent the message in 2004 that they don't want an 'India shining' - and now it acts surprised at the obvious outcome ??

Working up a "silent rage" on comparing with China is all well and good - at least they get their primal instincts right. But have these same folks been able to translate that "silent rage" into something useful in light of an upcoming elections which would probably be the most consequential ever for India ?

[Austin]

The Piped Music Connection
The UPA puts up smokescreens to counter the media uproar over the Reliance gas rip-off

[Austin]

Unequal India
Despite growth, India is behind the world's poorest nations in human development. Here's why.

[vishvak]

^^ The article does not include progress made by states like Gujarat. Gujarat, or any other state where primary education is compulsory or education of girls is also compulsory, seems to be out of notice here.

Or is it selective cognitive dissonance - selective depending upon revolution and not progress?

There seems to be some silence on progress which perhaps is not considered progress unless followed only after bloody revolution.

[svinayak]

That book and the author are tapped for image building of India.

[Suraj]

Regarding Adm Prakash's piece:

The fundamental weakness of the Indian system is that it is poor at execution at the local level. While we are a federal system, the concentration of political, administrative and financial power is more unitary than federal in nature.

The fundamental process for political elevation is gaining power at the state level. Not at the city level, but state level. The system places more emphasis on winning a poll than administering well, because there's no penalty for performing badly. Well sure, they can lose an election, but the next party faces exactly the same situation, which means zero systemic incentive to perform, as opposed to find ways to win.

Further, our cities have no independent power to tax or utilize the revenues generated within. It goes to the state, and then to centre, before being disbursed back to state level. Unless you have states whose demographic profile puts them at aggregate urban:rural population close to or better than 50:50, the result is an incentive towards cross subsidization of the rural vote using urban revenues. The national urban:rural ratio is 31:69 . Slide 25 of the census document shows that every socio-economically developed state is also extremely urbanized (by Indian measures).

Urbanization feeds development, but we don't incentivize urbanization. One might ask 'what about all those people moving to cities ?' Sure, they move because of better circumstances than in their village. But the city accomodates them. The political and administrative framework is not geared towards encouraging their move, and more importantly, towards investing in the cities to encourage their move into the city in a planned manner. Instead, cities are sources of revenue meant to win the state. Investing in the city itself is not a political imperative, except in the case of New Delhi - which already looks a decade more advanced than any other city in India. The average Indian city is overburdened with a vastly greater population its amenities can support, with no political incentive to channel the productive output of the population to constantly improve their quality of life, other than when the people rise up in arms in anger.

There's a popular desire to blame the politicians' corruption as the root of all ills. Personally, I don't think that's the primary issue here. They are the professional leeches in every system - in India, PRC, US or elsewhere. I'm more inclined to look at how well the development of the system is in line with their own gain. In a system where they are both roughly aligned, there will be a substantial development within the system.

While a good conscientious governance system (since the Gujarat model is so popular these days) can fix some problems, it doesn't fix everything. Governance doesn't in itself eliminate the issue of funding. A properly run city requires massive civic investment. Even in GJ, there are ample stories of funds being denied just to spite them.

Further, such a model is currently unstable and non-sustaining. It depends on one man. In some situations, that one man is enough. Think Park Chung Hee for example. But as it stands, its an unstable case. The best possible scenario would be that the urban-focussed governance model becomes a political ticket because of the success of one example. That requires several things - willingness to emphasize urbanization and stop romanticizing the rural life, effective investment within the urban areas to support the incoming population, and progressively manipulating the political process such that power at national level arises from administrative success at the urban city level.

In PRC that's how they run the ship. There is no political imperative to compete since it's a one party system. The emphasis is on showing accomplishment to get ahead politically. Name a PRC leader who was elevated to leadership from being a state boss. There are none that come to mind; Xi Jinping was Fujian governor, but that was more than a decade ago. Their leaders are of two types - those who came up party ranks, and those who were city bosses. Jiang Zemin and Zhu Rongji were both successive Shanghai mayors in the 1980s before elevation to replace Deng. The now disgraced Bo Xilai was mayor of Chongqing.

Their system works like this - you make your name by running a city well, get elevated to the politburo, hopefully make the standing committee and then try to become premier/president. There's no political incentive to invest in the rural and provincial hinterland - that is a place they treat as the source of raw material, grain and labor. The result is that investment in development focuses on urbanization, because that's the ticket to political gain - gain visibility by running a small town/city well and head up the gravy train.

One particular aspect of their system I find very interesting is that they still manage a clear transfer of power. However, I do not know how resilient that system is. Clearly, the original intent was to prevent another Mao from happening, but institutional memory is only so long, and Hu Jintao's generation was the last one to really experience those days. I don't see any compelling reason why a current or future Chinese leader will not aggrandize himself again - their system has no explicit checks against it happening.

Further, they split off several major cities from their respective provinces, as direct controlled municipaltiies - Beijing, Shanghai, Tianjin and Chongqing are all independent of their surrounding provinces. One does not need influence in Sichuan to be a big shot in Chongqing. This system is biased towards urbanization, which is why they are seeing the greatest urbanization in history - to the extent that they'll invest in building entire cities up in a few years. In addition, their residency (hukou) system enables them to control the movement of population, so that they both have a political system geared towards urban investment and development, and a means to control the movement of population into those cities. Is it any surprise their cities look vastly better ?