Indian Economy: News and Discussion (Jan 1 2010)

Suraj · Post by **Suraj** » 26 Dec 2010 06:22

Please, no more discussions on nutrition here. Take it to the personal health and nutrition thread. Thanks.

gpati · Post by **gpati** » 27 Dec 2010 06:30

I got these statistics from one of regional Telugu newspapers (Eenadu).

Pratyush · Post by **Pratyush** » 27 Dec 2010 09:53

Fast growth slashes poverty, wins elections

Economics is not my strong suit. But this reads like a senseble article. Relevent excerpts are posted below.

Many say that fast GDP growth has benefited only a few rich businessmen. That's simply false. The latest data and research show that record GDP growth has benefited the masses and the poorest states. Poverty has fallen sharply and the poorest states have increased growth amazingly. That's one reason so many incumbent governments in poor states have been re-elected

For decades, anti-incumbency dominated elections, and three-quarters of incumbent governments lost. But the trend has reversed in the last few years: suddenly three-quarters of incumbents are winning

The new Tendulkar formula for measuring poverty shows that poverty reduction during the BJP rule-and indeed since 1983 - was around 1% per year. Economist Surjit Bhalla cites the latest NSSO survey to show that in the next three years, from 2004-05 to 2007-08 , poverty reduction tripled to an astonishing 3.3% per year. Poverty fell as much in those three years of 9% GDP growth as in the preceding 11 years.

I presume that he is talking about an economist and not the Cricketer.

Although the national incumbent (Congress) won the 2009 parliamentary elections, it won just nine of 72 seats in the non-Congress states of Bihar, Orissa and Chhattisgarh. A look at the recently revised CSO data (see table) shows why. Economic growth skyrocketed between 2000-04 and 2004-09 from 4.5% to 12.4% in Bihar, from 4.8% to 10.2% in Orissa, and from 6.1% to 9.7% in Chhattisgarh . UP has doubled its rate from 3.3% to 6.7%, suggesting that Mayawati will be re-elected in 2012.

I will prey that it comes true and that the kangress bites the dust.

Examining state GDP growth between 2004-05 and 2008-09 , Panagariya and Gupta divide the major states into three growth categories-high , medium and low (relative to national growth). In high-growth states, a whopping 85% of candidates of the incumbent state party won in 2009. The winning rate dropped to 50% in medium-growth states and 30% in low-growth states. This indicates strongly that fast growth benefits and draws votes from the masses. Many other factors (alliances , caste, regional pride, inflation ) remain highly relevan.

But fast growth matters as never before. When slowgrowing states accelerate to 6% or more, incumbents start winning. Panagariya and Gupta conduct statistical tests to control for other factors that may determine outcomes. The overall pattern remains unchanged-fast growth benefits incumbents . This may be not just because of fast growth but reduced poverty and accelerated jobs too. These are inter-related-fast growth reaches the masses and hence reduces poverty and creates jobs. Government service delivery remains lousy, especially in health, so social indicators remain deplorable. Yet the latest research shows that the overall condition of the masses has improved . This is corroborated by the spread of cellphones to the masses-teledensity has skyrocketed to 70%.

Why have fast growth and mass improvement gone together? Not because some crumbs from fast growth were thrown to the poor. Rather, only when the vast majority of people improved their income did this add up to record growth and poverty reduction.

Growth was slow in 2000-04 in poor states, and this kept the national GDP growth down to 5.6% (see table). But GDP shot up to average 8.5% in the next five years. This was not because of economic reform, which mainly stalled in this period. Rather, chief ministers in poor states changed policies to take advantage of the growth potential created since 1991. So growth accelerated dramatically in large, poor states, and this gave India 9% growth. If they keep up this hugely improved performance, India will be transformed in a decade.

abhishek_sharma · Post by **abhishek_sharma** » 27 Dec 2010 10:50

US warning: Bilateral agri trade can be hit if India does not open market

http://www.indianexpress.com/news/us-wa ... et/729674/

Arya Sumantra · Post by **Arya Sumantra** » 27 Dec 2010 15:45

The IMF sold Gold plated tungsten bars to India ?!?!?!

India specific at 11:14 and 25:26 mins

Tungsten's density is pretty much same as gold.

India should really bring that gold bought from IMF to our shores and test.

And not only that but even test the gold that we pawned to UK in 1990s and subsequently "brought it back" post liberalization. Hopefully we didn't get back gold plated tungsten after pawning real gold to UQ in 1990s. Unfortunately the gold "brought back" might have mingled with gold never pawned. Nevertheless merits a non-density based testing of our stock.

http://gold-quote.net/en/articles/fake- ... d-bars.php

Theo_Fidel · Post by **Theo_Fidel** » 28 Dec 2010 12:00

Suraj,

Can we go back to discussing healthy diets.

Anything's got to be better than the post above.

ArmenT · Post by **ArmenT** » 28 Dec 2010 13:05

Bombay Stock Exchange launches Sharia Index
Before you think this is a bad idea, this sounds like it is targeted to get Gulf money invested in India. Guess it is better to get them to invest in stocks instead of wahabi madarassas.

The Bombay Stock Exchange (BSE) in the Indian city of Mumbai has launched a new index which consists of companies that meet the Islamic legal code.

The Tasis Shariah 50 was formed using guidelines from an Indian Shariah advisory board.

Studies have found that most Muslims in India are excluded from the country's formal financial sector.

That is because Islamic law does not allow investment in companies that sell goods like alcohol, tobacco or weapons.

Neither does it allow investment in companies that derive significant profit from interest.

The index is intended to be the basis for other Shariah-compliant financial products.
...
BSE Managing Director and Chief Executive Madhu Kannan said that the new index would attract Islamic and other "socially responsible" investors both in India and overseas.

And the best part.....

"The BSE has the largest number of listed Sharia-compliant stocks in the world," said Shariq Nisar, director of research and operations at Tasis.

"All Muslim countries of the Middle East and Pakistan put together do not have as many listed Sharia-complaint stocks as are available on the BSE."

Read that and weep Pakis!

Singha · Post by **Singha** » 28 Dec 2010 13:41

except for a few like mohan meakin, UB group, ITC, grover and sula vineyards we are all sharia compliant onree..even Brahmos inc should it list on BSE will be sharia compliant

Pratyush · Post by **Pratyush** » 29 Dec 2010 09:53

I have been debating with mys self whether I should post this article. It looks a nice and sensible article to my non specialist brain. But then parts of it don't add up if try to read it critically.

Perhaps the economists on this thread help me understand if the author is speaking sense of as usual being DDM.
India: Decoupling Emerging Economy?

Theo_Fidel · Post by **Theo_Fidel** » 29 Dec 2010 12:36

From the article above. If this is true it is very worrying. We need to save more. A lot more.

The problem at home is acute. As of early December, year on year, deposit growth rose 15% but bank loans grew 23%. This has liquidity problem written all over it. Which is why the RBI has been easing statutory liquidity levels on banks. It has also been raising deposit interest rates gently to incentivise Indians to save more.

But inflation is the key problem. Indians won’t save more if prices rise as rapidly as they are doing today. Its officials continue to express concern about inflation. Which is why commercial interest rates are floating upwards. “Tightening by stealth,” is how Chetan Arya of Morgan Stanley called it.

Murugan · Post by **Murugan** » 29 Dec 2010 19:24

http://economictimes.indiatimes.com/mar ... 185828.cms

Oil crisis looms as RBI stifles Iran oil imports

NEW DELHI: India may face fuel supply shortages next month after Reserve Bank of India (RBI) stopped facilitating payments for Iranian crude imports, which make up for 12 per cent of the nation's oil needs.

RBI's sudden move, which came without either the oil industry or the government being consulted, would mean that the nation cannot import 10 million barrels of crude oil contracted from Iran for January, a replacement of which cannot be found easily.

"There is a huge crisis staring us. The RBI has without putting in place an alternative payment mechanism suddenly withdrawn from a system that was running fine since 1976," an oil industry official said.

"You simply cannot find replacement of such a huge quantity so easily. Plus, once the market comes to know of such a huge requirement, the already firm crude prices will shoot through the roof," he said. "There is bound to be some effect."

The RBI on December 23 said oil and other import payments to Iran will have to be settled outside the existing Asian Clearing Union (ACU) mechanism, which involves the central banks of India, Bangladesh, Maldives, Myanmar, Iran, Pakistan, Bhutan, Nepal and Sri Lanka.

Under the ACU mechanism, imports by the nine nations are settled every two-months with every member paying for imports after netting out its exports among the union.

Till 2008, payments under the ACU mechanism was done in US dollars but after United States imposed sanctions against Iran over its suspected nuclear programme, the currency shifted to Euro.

United Nations sanctions do not forbid buying Iranian oil and recently the European Central Bank (ECB) asked RBI and other central banks of ACU to provide certificates that the Euro being used to import products are not on US sanctions list.

Sources said while certification for crude oil imports was easy to provide and track, RBI chose to scrap the entire system itself.

In the absence of ACU, Iran and its crude supplier National Iranian Oil Co (NIOC) are jittery over sales without being backed by the sovereign guarantee of the central bank.

Also, oil firms will have to find an alternative European bank which can accept payments on behalf of NIOC.

Sources said realising the impact of the move, top RBI officials will meet their Iranian counterpart within 2-3 days in Mumbai to finalise a panel of banks through which payments can be made.

India imported 21.3 million tons of crude oil from Iran in 2009-10 and this year imports are expected to be around 18 million tons as Reliance Industries has totally stopped using crude oil from the Persian Gulf nation.

Mangalore Refinery and Petrochemicals Ltd (MRPL) is the biggest importer of Iranian crude oil with 7.1 million tons of contracted quantity. Mumbai-based Essar Oil imports roughly 3 million barrels per month (5-5.5 million tons a year), Indian Oil Corp 3.5 million tons and Hindustan Petroleum Corp about 3 million tons.

ashokpachori · Post by **ashokpachori** » 29 Dec 2010 19:28

Murugan wrote:http://economictimes.indiatimes.com/mar ... 185828.cms

Oil crisis looms as RBI stifles Iran oil imports

NEW DELHI: India may face fuel supply shortages next month after Reserve Bank of India (RBI) stopped facilitating payments for Iranian crude imports, which make up for 12 per cent of the nation's oil needs.

RBI's sudden move, which came without either the oil industry or the government being consulted, would mean that the nation cannot import 1

Because of this:

India Joins U.S. Effort to Stifle Iran Trade

India has tightened the web of sanctions around Iran by barring Indian companies from a range of deals transacted through a key trade-finance clearinghouse.

http://online.wsj.com/article/SB1000142 ... s_business

Pratyush · Post by **Pratyush** » 30 Dec 2010 09:47

Am not an economics hack. But it seems that the RBI has gone Paki and decided to shoot Indian oil imports in the head.

chola · Post by **chola** » 30 Dec 2010 10:00

Whatever India loses from Iran will be made up for by US allies like Saudi Arabia, Kuwait, etc. As clueless as the GoI is sometimes, I firmly believe that they bargained with the US for this. The mere fact that these sanctions are happening now, several years since the US began pressuring for sanctions, means there was deliberation and horse-trading.

Vasu · Post by **Vasu** » 30 Dec 2010 10:04

Iran has for a long time been proposing to a few countries to trade directly in their own respective currencies, much to the chagrin of US of course. Some South American nations have already given up on the USD as a common currency in their trade with each other, one reason why the US hates the Chavez's and Ortega's.

abhischekcc · Post by **abhischekcc** » 30 Dec 2010 10:31

chola wrote:Whatever India loses from Iran will be made up for by US allies like Saudi Arabia, Kuwait, etc. As clueless as the GoI is sometimes, I firmly believe that they bargained with the US for this. The mere fact that these sanctions are happening now, several years since the US began pressuring for sanctions, means there was deliberation and horse-trading.

Iran does not sponsor terrorist movements in India, nor does it fund fundamentalist schools of thought - which Pak and KSA do, respectively.

If India becomes dependant on US allies, then these threats against India will rise.

Vikas · Post by **Vikas** » 30 Dec 2010 11:49

If US can trade with Terrorist nation like TSP, why should India try to squeeze Iran just because USA is saying so.
Caveat being either this is being blown out of proportion or there is something for RBI in asking for settlement outside ACU.
If someone is doing it because US says so then they should be fired from their job. USA hardly is a trustworthy partner.

Suraj · Post by **Suraj** » 30 Dec 2010 12:57

Folks, enough about west asia politics on this thread. There's already a west asia thread in the strat forum.

ashokpachori: this is the second time you've participated in a thread derailment here. You're a newcomer, but please keep posts to the topic instead of forcing moderators to move posts around between threads.

Theo_Fidel · Post by **Theo_Fidel** » 30 Dec 2010 21:58

It is amazing that every year this inflation happens after the monsoon like clock work. BTW Potato now down to Rs 8 in Chennai (this is a loss for the farmer), Onion down to Rs 45, Tomato has soared to Rs 40 in 2 weeks time. crazy.

http://online.wsj.com/article/SB1000142 ... 81536.html

NEW DELHI – Food prices in India rose yet again in the week to Dec. 18, increasing the likelihood the country's central bank will raise interest rates further as it tries to deal with relentless inflationary pressure.

The wholesale price index for food articles in the week to Dec. 18 was at 187.8, up 1.1% from the previous week, according to data issued Thursday by the Ministry of Commerce and Industry. On a year-on-year basis, food inflation accelerated to 14.44% from 12.13% a week earlier.

But worries rates would be raised further were partly calmed after Kaushik Basu, the chief economic adviser to the finance ministry, said inflation still wasn't in a zone that warrants strong RBI action.

"We are not at a level of inflation when you begin to hurt other sectors," Mr. Basu told reporters.

Thursday's data showed the index for primary articles rose 1 % to 189.7 in the week to Dec. 18, from a provisional 187.9 in the previous week. Prices of primary articles were up 17.24% from a year earlier, after climbing 15.35% in the week ended Dec. 11, the data showed.

disha · Post by **disha** » 30 Dec 2010 22:44

Theo_Fidel wrote:It is amazing that every year this inflation happens after the monsoon like clock work. BTW Potato now down to Rs 8 in Chennai (this is a loss for the farmer), Onion down to Rs 45, Tomato has soared to Rs 40 in 2 weeks time. crazy.

Tongue in cheek statement: Let us blame the merchants for hoarding!!!

This clockwork inflation does affect the Indian Economy. Further the internal "farm" economy does not get developed and marginal farmers actually loose targetting the wrong crop. It is a lose-lose situation for everybody.

Do we have a model on how much an Indian family of four spends behind each of the following (from 2001 Census?):

1. Food, and further breakup in what type of food.
2. Shelter
3. Education
4. Healthcare
5. Utilities (Electricity, Water etc)
6. Transportation
8. Entertainment
9. Travel
10. Savings

I am curious on how the spending behaviour changes because of rise in food inflation. For eg. in AP with rise in tomato prices, more homes start cooking rasam with imli, which may sometimes lead to iron deficiencies and hence towards more health care bills. In 1991 census, there were attempts to identify this trends at a regional level.

krisna · Post by **krisna** » 31 Dec 2010 03:45

India's Sahara Buys London's Grosvenor House From Royal Bank of Scotland

Royal Bank of Scotland Plc, the U.K.’s biggest government-owned bank, sold the Grosvenor House hotel in London’s Mayfair district to India’s Sahara Group for 470 million pounds ($726 million).

Stephen Hester, RBS’s chief executive officer, is shrinking the Edinburgh-based bank by selling assets and cutting jobs after receiving the world’s biggest taxpayer-funded bailout in 2008.

krisna · Post by **krisna** » 31 Dec 2010 03:49

Onion, fuel bite: food inflation hits a worrying 14.4%

That is a matter of worry for the government and consumers alike, with clear
fears that overall benchmark inflation could exceed its tolerable limits of between 5.5% and 6% by March-end.

High inflation has prompted the Reserve Bank of India to raise key lending rates — a standard tool to suppress demand, and thereby cool prices — at least six times since March last.

Thursday’s elevated food inflation figures reflect the over 300% rise in onion prices in mid-December due to a supply crunch. Vegetable prices increased by 29.26%, while fruit prices gained by 21.97%, the latest price data show. Milk prices grew 17.75%, while egg, meat and fish prices rose by 20.34%.

krisna · Post by **krisna** » 31 Dec 2010 03:53

Carrefour opens first store in India

Carrefour, the world’s second-largest retailer, today opened its first cash-and-carry store in India in New Delhi. The store, Carrefour Wholesale Cash&Carry, is located in the Seelampur area, east of New Delhi in the Shahadara neighbourhood.

But the country’s current regulations don’t allow foreign direct investment (FDI) in multi-brand retail to safeguard the interests of traditional general (kirana) stores. The current policy of the Indian government only allows foreign groups to develop cash-and-carry format. The Indian government allows 51 per cent FDI in single-brand retail and 100 per cent in the cash-and-carry segment, but none in multi-brand retail.

krisna · Post by **krisna** » 31 Dec 2010 05:59

India decides to cast 'chavanni' to history

It had in any case lost whatever little value it had - now the Indian government has decided to withdraw it from circulation altogether. Come June 30, and the 25 paise coins will cease to be legal tender in the country. The days of 'chavanni will truly be over.
'The minimum denomination coin acceptable for transaction will be 50 paise from that date,' the Finance Ministry said in a statement Thursday.
From June 30, 2011, together with 25 paise coins, all other coins of lesser denomination - one paisa, two paise, three paise, five paise, ten paise and 20 paise -- also 'will not be accepted in transactions', it said.

Most of these coins vanished a long while ago as the government found the cost of minting them many times more than their face value.

Neshant · Post by **Neshant** » 31 Dec 2010 22:43

another example of inflation destroying the value of money.

Prem · Post by **Prem** » 31 Dec 2010 22:53

http://www.theglobeandmail.com/report-o ... le1853707/
India: Asia’s other economic powerhouse

India currently enjoys three major economic attributes that China lacks: democracy, favourable demographics and a preponderance of English speakers, which helps ease business dealings with the West. In 2011, these advantages could begin to bloom.
As Raghav Bahl, the founder and controlling shareholder of Network 18, India’s largest television news and business network, argues forcefully in his new book Superpower? The Amazing Race Between China’s Hare and India’s Tortoise, India has the mettle and resources needed to eventually close the economic gap with its powerful northeastern neighbour.For starters, Mr. Bhal notes, India is a democracy, the world’s largest, in fact. Compare that with China, where 24 members of the Central Politburo are tasked with charting the course for a nation of 1.3 billion people. The primary driver of much of China’s social, political, fiscal and monetary policy is preventing social unrest and keeping the Communist Party of China in power. Although admittedly flawed, India’s democratic system aims to elect representatives that will draft the best policies for the people and the country, not the political party they belong to.India also has demographics on its side. It will soon dwarf the rest of the world when it comes to its working age population – people between 18 and 65 who are contributing members of society. Compared to North America, Japan and even China, India is an exceptionally young country. The majority of its population is less than 30 years old and by 2020 the average age will be 29, compared to 45 in Western Europe and 48 in Japan, according to a recent report from the Canadian International Council

Theo_Fidel · Post by **Theo_Fidel** » 01 Jan 2011 02:34

Cement production always drops during monsoon. Esp. after last years dry monsoon. Here in Chennai you can see half build structures w/ scaffolding every where put on hold due to rain. Next quarter should be good for cement.

http://www.thehindu.com/business/Econom ... 018834.ece

Core sector growth drops to 2.3 %

Pratyush · Post by **Pratyush** » 01 Jan 2011 11:34

Managing your money in 2011

wig · Post by **wig** » 01 Jan 2011 12:14

the Govt releases figures on India’s External debt at End-September 2010

At end-September 2010, India’s external debt stock was US$ 295.8 billion reflecting an increase of 12.8 per cent over the level of US$ 262.3 billion at end-March 2010. The long-term debt increased by 9.5 per cent to US$ 229.8 billion, while short-term debt showed an increase of 25.8 per cent to US$ 66.0 billion.

Of the total increase of US$ 33.5 billion in India’s external debt at end-September 2010, the valuation effect arising from depreciation of the US dollar against major international currencies accounted for US$ 6.3 billion (18.8 per cent). Excluding the valuation effect, the increase in external debt would have been US$ 27.2 billion.

Short-term debt accounted for 22.3 per cent of India’s total external debt while the rest 77.7 per cent was long-term debt. Component-wise, the share of commercial borrowings stood highest at 27.8 per cent followed by NRI deposits (16.9 per cent) and multilateral debt (15.8 per cent).

Government (Sovereign) external debt was US$ 72.3 billion (24.4 per cent of total external debt) at end-September 2010 as against US$ 67.1 billion (25.6 per cent) at end-March 2010.

The share of US dollar denominated debt was the highest in external debt stock at 53.9 per cent at end-September 2010, followed by the Indian rupee (18.8 per cent), Japanese Yen (11.8 per cent), SDR (9.8 per cent) and Euro (3.6 per cent).

The ratio of short-term external debt to foreign exchange reserves was 22.5 per cent at end-September 2010 as compared to 18.8 per cent at end-March 2010.

The Department of Economic Affairs, Ministry of Finance has been compiling and releasing quarterly statistics on India’s External Debt for the quarters ending September and December every year. This press release relates to India’s external debt at end-September 2010.

http://www.pib.nic.in/newsite/erelease.aspx?relid=0

Uttam · Post by **Uttam** » 01 Jan 2011 20:20

Here are some of my observations and questions on India's External Debt. Experts, please weigh in:

Short-term debt accounted for 22.3 per cent of India’s total external debt while the rest 77.7 per cent was long-term debt. Component-wise, the share of commercial borrowings stood highest at 27.8 per cent followed by NRI deposits (16.9 per cent) and multilateral debt (15.8 per cent).

A rise short-term external debt is a worrying sign. As sudden flight of capital can have catastrophic effects on INR and India's ability to fulfill foreign currency obligations.

Government (Sovereign) external debt was US$ 72.3 billion (24.4 per cent of total external debt) at end-September 2010 as against US$ 67.1 billion (25.6 per cent) at end-March 2010.

However, a large part of the growth in external debt is driven by commercial sector and Sovereign saw an increase of only about 7.7%. In addition, the economy probably grew about 4 - 5% during this period. So the external debt as percentage of GDP rose but at a very slow pace.

The share of US dollar denominated debt was the highest in external debt stock at 53.9 per cent at end-September 2010, followed by the Indian rupee (18.8 per cent), Japanese Yen (11.8 per cent), SDR (9.8 per cent) and Euro (3.6 per cent).

One pleasant surprise for me was the fact that 18.8% of external debt is in INR. The more the merrier. Has this proportion increased over time?

ashokpachori · Post by **ashokpachori** » 01 Jan 2011 21:56

Uttam wrote:Here are some of my observations and questions on India's External Debt. Experts, please weigh in:

Short-term debt accounted for 22.3 per cent of India’s total external debt while the rest 77.7 per cent was long-term debt. Component-wise, the share of commercial borrowings stood highest at 27.8 per cent followed by NRI deposits (16.9 per cent) and multilateral debt (15.8 per cent).

India would be in a hell hole after five years time. We are living beyond means, borrowing to stay afloat. BOP, current account deficit would be stagering USD one trillion at the end of 2015.

Indian Rupee is a soft currency, unlike those of OECD countries who have hard currency. USA´s best export merchandise is USD - it takes just 4 cents to print 100 US dollar bill.

I see a white conspricy (US-UK-Sonia) to bleed India down the road!

Suraj · Post by **Suraj** » 02 Jan 2011 00:37

Please see the actual document at the Finance Ministry site:
India's external debt as of Sept 2010

Short-term debt, led mainly by trade related credits stood at US$ 66.0 billion, reflecting an increase of US$ 13.5 billion over end-March 2010 level.

Short term debt also accrues from the high volume of FII inflows this year. The weakening of the USD and the interest rate arbitrage between INR and USD just makes short term hot inflows more common, unless capital entry controls are applied. Further, look at Table 8 of the document, showing ratio of short-term to total debt in major economies, particularly PRCs 50% shortterm/total debt ratio.

Overall there's nothing particularly extraordinary or worrisome about our external debt position. One must remember that a lot of debt is basically bookkeeping debt - when you send money to India as repatriable remittance, it adds to both forex reserves and external debt, because it's a repatriable liability, even if most of us are sending it one way.

Airavat · Post by **Airavat** » 02 Jan 2011 08:40

Salt business in Gujarat

India produces nearly 24 million tonne of raw salt annually, out of which 20 percent is exported mainly to Japan, China, US and Indonesia. As per ISMA, the almost Rs 1,000 crore salt industry is set to witness a huge order as the cold front continues in Europe. Major firms in Gujarat that contributes about 70 percent of the total salt production in India are readying their capacity to be shipped to European destinations.

Industry experts say that Europe had to rely on India for this season as China has witnessed untimely rains that resulted in a dip in salt production. China, the third largest salt producer in the global salt industry worth of $9.7 billion also consumed much of salt for its newly opened caustic soda plant.

Suraj · Post by **Suraj** » 03 Jan 2011 00:34

Posts related to Iran, Israel, holocaust etc have been moved to the West Asia thread.

arjunm · Post by **arjunm** » 03 Jan 2011 07:49

Forex reserves slip below external debt after 7 years

http://www.hindustantimes.com/Forex-res ... le1-645665

gap of seven years, India’s foreign exchange reserve slipped below its total external debt during the quarter ending September 2010. At the end of the September quarter, India’s external debt stood at $296 billion, exceeding the country’s foreign exchange reserve by about $3 billion,
according to a finance ministry report.

India was one of the few economies — besides China, Russia, Malaysia and Thailand — which has been maintaining more forex reserves than its total external debt. However, with spurt in external debt, especially in the quarter ended September 2010, the country's forex reserves fell below external debt, a position that it had maintained since 2003-04.

According to the finance ministry report, the country’s forex reserves worked out to be 99% of its debt at the end of September.

Quoting a World Bank report, the finance ministry said India was the fifth most indebted country in 2008 in terms of stock of external debt.

The increase in India’s external debt at end of September 2010 over March was mainly on account of higher commercial borrowings and short-term debt, which together accounted for over 70% of the total increase. In the first half of the fiscal (April-September), external commercial borrowings (ECB) rose by $10 billion to $82 billion. Also short-term debt increased by $13 billion in the first half to $66 billion at the end of September.

“Strong domestic demand along with rising interest rate differentials led to higher net inflows of commercial borrowings,” the ministry said.

Ambar · Post by **Ambar** » 03 Jan 2011 09:07

arjunm wrote:Forex reserves slip below external debt after 7 years

http://www.hindustantimes.com/Forex-res ... le1-645665

gap of seven years, India’s foreign exchange reserve slipped below its total external debt during the quarter ending September 2010. At the end of the September quarter, India’s external debt stood at $296 billion, exceeding the country’s foreign exchange reserve by about $3 billion,
according to a finance ministry report.

India was one of the few economies — besides China, Russia, Malaysia and Thailand — which has been maintaining more forex reserves than its total external debt. However, with spurt in external debt, especially in the quarter ended September 2010, the country's forex reserves fell below external debt, a position that it had maintained since 2003-04.

According to the finance ministry report, the country’s forex reserves worked out to be 99% of its debt at the end of September.

Quoting a World Bank report, the finance ministry said India was the fifth most indebted country in 2008 in terms of stock of external debt.

“Strong domestic demand along with rising interest rate differentials led to higher net inflows of commercial borrowings,” the ministry said.

[/quote]

Fifth most indebted country in 2008 in terms of stock of external debt ? Not according to Wikipedia atleast. India's external debt is listed way below a whole lot of countries including Turkey.

Ambar · Post by **Ambar** » 03 Jan 2011 09:21

Sorry, this may be OT for this thread but nevertheless : UK's external debt is a whooping 482% of their GDP! How on earth are they servicing this debt? Shouldn't the value of sterling be much much lower than what it is now? Looking at UK and Netherland's external debt, the debt of Greece seems like a bloody zit!

Pratyush · Post by **Pratyush** » 03 Jan 2011 11:14

^^^

The external debt can be handled by getting external suppliers of equipments top set shop in India and produce using Indian raw materials & labour. The capital and IP will remain vested with the vendor along with the profits. If this policy can be implimented then the FI inflows will increase as well.

I say that as a non economist. The gurus I am sure will punch a dozen holes in my solotion.

rohiths · Post by **rohiths** » 03 Jan 2011 11:25

As long as government does not borrow from abroad, external debt should not be too much of a problem. Private sector entities has the option to go Paki and default.
Government borrowing from abroad is around $70 billion. Half of it may be from world bank which is ok. Still it is quite high.
The main reason at least from a Macro point of view is the high fiscal deficit and QE1 & 2 which has resulted in a overvalued rupee(Real Exchange rate)
India should rein in deficit to less than 2% and remove fuel subsidies. This should solve the problem to a great extent

Suraj · Post by **Suraj** » 03 Jan 2011 13:26

19% of the external debt is Rupee-denominated, i.e. foreigners holding Indian govt/corporate bond issuances, as opposed to borrowings in another currency. There is no exchange rate risk here, and they can just print the money to pay it back. Of the remainder, more than 50% is in a currency (USD) whose value is being inflated as GOTUS monetizes its debt and attempts to boost asset prices to pre-bust levels, suggesting that those debts as computed in INR will show a declining trend in value.