Indian Economy: News and Discussion (Apr 1 2011)

Theo_Fidel · Post by **Theo_Fidel** » 24 Dec 2011 13:28

G,

That is simplistic. US became wealthy because all its competitors self destructed while it was protected by being on an Island. It has been protected from its numerous catastrophic errors. It has no miracle formula for wealth.

That FDI number appears to be from Wikipedia and is the total FDI number. Annual FDI into the US is a modest $220 Billion. Compared to total US wealth stock of ~ $150 Trillion that 2 Trillion is a piffling amount. It not even a rounding error. US is not rich because of FDI or for that matter foreign retail.

Don't make the mistake of thinking you get rich by playing fair.

As an economy we are saving about $700 Billion annually, in 3 years we will be saving $1 Trillion annually. We don't need US investment to keep economy growing. Need to avoid such paltry distractions and focus on where our savings are going right now and how to get better bang for our buck. That way we can keep our Investment ratio of 4 and keep growing at 10%.

chola · Post by **chola** » 24 Dec 2011 20:02

Theo_Fidel wrote:G,

That is simplistic. US became wealthy because all its competitors self destructed while it was protected by being on an Island. It has been protected from its numerous catastrophic errors. It has no miracle formula for wealth.

That FDI number appears to be from Wikipedia and is the total FDI number. Annual FDI into the US is a modest $220 Billion. Compared to total US wealth stock of ~ $150 Trillion that 2 Trillion is a piffling amount. It not even a rounding error. US is not rich because of FDI or for that matter foreign retail.

Don't make the mistake of thinking you get rich by playing fair.

As an economy we are saving about $700 Billion annually, in 3 years we will be saving $1 Trillion annually. We don't need US investment to keep economy growing. Need to avoid such paltry distractions and focus on where our savings are going right now and how to get better bang for our buck. That way we can keep our Investment ratio of 4 and keep growing at 10%.

Theoji, this is not about the US playing fair or not. This is about injecting hard currency into a system that is currently running an account balance deficit with the world.

The GOI did not propose retail FDI willy nilly. It was a way to signal to the global investors community that India is open to foreign investment. Everyone knows that Congress leans socialist and for years had made anti-FDI policies that gave us the Hindu growth rates. So for them to say they will open retail to FDI now means they see real danger. When Manmohan and Congress backtracked last week because of opposition from their own members, it destroyed global confidence in India again.

You say all we need to do is save. But what are we saving? If the outside world continues to lose confidence in the rupee then we are saving more and more paper because it will depreciate faster than we can save it.

It is one thing if India can produce all the things, especially energy, it needs. If that were the case then it matters not whether the rupee continues to plummet against the dollar. But that is not the real world. Fully 70% of our oil is imported. When we pay for them, the exporters demand yens, euros and especially dollars.

There is a reason why nations hoard hard currency. Hard currencies are those notes that are backed by strong governments and their trading partners and so therefore accepted around the world. Like it or not, the rupee is not accepted around the world. If it were so, we would be like the US and simply print more money to create money out of thin air because the demand is always there. Right now the rupee has little demand and is becoming less so every week. Hard currency is needed as a backstop.

The difference between FII and FDI is most apparent now during this rupee crisis. FDI comes from corporations investing in hard assets which means they hand dollars to Indians for land, rent, employment, etc. FDI is hard currency injected into the local economy and cannot be easily extracted. FII, on the other hand, are financial instruments in money markets that are structured to be liquid. At the sign of any trouble they can be converted quickly into free flowing cash and taken out. The difference between the two is night and day.

All developing countries prefer FDI over FII. FII is great when the global economy is fine. But the second sentiment turns to panic, there is a rush for the exit. This is what happened during the Asian financial crisis in 1998. Every nation caught in that disaster learned their lesson and have built up hard currency reserves through FDI and positive account balance.

The truth is that it took centuries for nations in the West and Japan to develop trust in their currencies. No nation outside the West and Japan and that includes Russia and China had been able to create that trust. During the Asian financial crisis, we saw that the currencies of even seemingly strong economies like South Korea were deemed worthless until they were stabilized by the US dollar.

Theo_Fidel · Post by **Theo_Fidel** » 24 Dec 2011 22:00

Chola,

G's thesis was that USA be wealthy because it attracts FDI. I demolished it with the numbers and laid out the real reason USA is rich. That is the process by which we will become rich as well.

The stability of US dollar is because there are NO options. It is not something automatic or because of something good the USA has done. Dollar should be horribly weak yet it is going from strength to strength. I predicted that here a year ago. It is weird to watch the USA opponents from Europe to Japan to China & India self destruct their currencies. Germany the only possible other contender is weighed down by the Euro silliness.

There was a time we were truly starved of foreign currency. That day is long past. Our remittances are going to be about $65 Billion this year. Our Invisible's (IT, et al) are about $120 Billion per year. We have enough hard currency coming in to pay for our oil deficit of $40-$50 Billion per year.

The reason for the rupee decline is a global currency panic. Dollar is being used to wage war on rupee and all other currencies. Even China has now gone into negative territory.

Look at it from the other side. We used FII as a easy band-aid to cover the fact that only 5% of our savings. Only about $40 Billion, goes into stocks and bonds every year. This is our prime failure that we try to cover up with FII money. Now that the hot money is leaving, that failure is becoming exposed and even amplified. If our stock market was strong and growing strongly FII money would beat its way to our doors. Not the other way around. Suraj, demonstrated that FDI is flooding into India stronger than ever. $20 Billion so far and looks set to beat all the records. A growth rate of 7% should make us the envy of the world. If that does not give confidence, nothing will.

'Global confidence' is a laughable sentiment. It is all manipulated and created for pump-dump type situations. This same 'confidence' trick was executed on countries like Ireland that now hold debt 4-5 times their GDP because the globe had 'confidence' in them. Two years back Germany was held up as the example of all that was wrong with Europe as slow and plodding. Wal-Mart left and the globe had no confidence. Look at them now. Euro is horribly weak yet everyone has confidence in Germany. Whyfor Hainji?

Give them all the middle finger and tell the chaff to clear out is what I say. The wheat will remain. We need the time and space to put our national investments in order. Which unfortunately seems to need a crisis for action.

Ambar · Post by **Ambar** » 25 Dec 2011 01:47

Comrade Theo,

I could well be reading Hamid Gul's words being repeated verbatim here that Pakis don't need foreign aid because they have exported their weed to the land of hated capitalist kafirs and benefiting from the remittances from kafir-land! Although grossly OT, US attracts over 20% of world's FDI, and like i've mentioned in my previous post it is not all "investments" but a lot of it comes in form of payments for IP,services,licensing along with billions that US companies bring in from foreign operations into their shore operations. As for your theory that US is a "accidental" superpower, there were many countries that were left untouched by 2 great wars and are yet nowhere close to being where US is, besides, the steep ascendency of US as a global power had well started in the late 19th century,well before Europe kept shooting itself in the foot. There are tons of reasons why USD is the world's preferred currency which we've beaten to death in the "perspectives of mental meltdown" thread..anyways i digress..

The "invisible" that you talk about also stems from FDI in nearly every sector,especially in IT and other services. The remittances in times of crisis and lack of confidence in Indian economy will evaporate faster than FPIs.Besides, remittances rarely if ever are used for foundational investments, they are almost always consumption oriented or end up in bubble sectors like stockmarket or real-estate.

Sure, the $ is being used to wage "war" against the eternal rupee! Our deficits (which btw does not include the oil deficits, those are "investments" you see? ), crippled or non-existent infrastructure, rising debt both public and private, political and security uncertainties, rampant corruption,uncontrolled inflation none of these matters why rupee is the worst performing currency among G20. Its all a CIA,MI-6,Mossad conspiracy! With a hovering BoP crisis lingering on our head, a continued pressure on OMCs who's bonds nobody wants to touch with a 20ft barge pole, and a burgeoning current account and fiscal deficits yet our marxists comrades are too busy thumping the red-book shoo-shooing foreign money!

Mind you, everything said and done, we are lucky to have one thing that the developed world does not have i.e. jobs. Many of which are directly related to FDIs. Its not a matter of if, but its a matter of when the jobs will hit a saturation point in India and by then if we haven't fixed our selves then we'll soon be in the 1980s all over again.

Prem · Post by **Prem** » 25 Dec 2011 02:29

Learrn from Massa, Take the money, smile and pay back onlee if we have spare . Remember Enron, they were arrogant and eneded up eating Indian Kauwa. Trillion$ investement give them stake in our stability and prosperity. I fact we ought to strive for getting 2-3 Trillion so they remain nice to us in hope of recovery.

Theo_Fidel · Post by **Theo_Fidel** » 25 Dec 2011 04:59

^^^
Absolutely.

Play the game like you own it and for profit. We are the ones with a 7% growing economy. Not them. WRT Enron actually Indian banks ended up bailing out Bechtel. They were the ones who ended up with that albatross. So maybe not a good example.

Imagine for instance Wal-Mart comes in and starts making losses. What do you think USA's next move will be.

Remember the wheat will stay. Less quaking at the knees and doom gloom fear mongering please.

gakakkad · Post by **gakakkad** » 25 Dec 2011 07:44

>>Sure, the $ is being used to wage "war" against the eternal rupee! Our deficits (which btw does not include the oil deficits, those are "investments" you see? ), crippled or non-existent infrastructure, rising debt both public and private, political and security uncertainties, rampant corruption,uncontrolled inflation none of these matters why rupee is the worst performing currency among G20. Its all a CIA,MI-6,Mossad conspiracy..

Theo actually has a point there . It is not a conspiracy theory . There is a logical reason. Dollar is the most trusted currency . We have the euro crisis . When such things happen people revert to dollar. INR is not the only currency that is sliding. All other currencies are . People are going back to dollar. When things look troublesome with dollar people will move out again .

Remember , that in spite of the worst possible government , the NAC , high crude oil prices , rahul gandhi , elections , scams etc India grows at 7% .

Actually , the biggest mistake that we made ,is in the 80s . We did not get the high tech elec. manufacturing in desh. South east asia got all of it. India would have been a trillion or 2 larger by now if that was included in deshland.

neel · Post by **neel** » 25 Dec 2011 09:24

James Blonde wrote:when you say bounce back and INR in one breadth it is fresh air to me.
say INR is at 44 to dollar yester day
it went up to say 56 to dollar today
then according to you it will bounce back to 66 or higher day after or very soon. no

bounce back
when you bounce you go higher
according to dictionary bounce is "a light springing movement upwards or forwards "

back according to dictionary is "The part or area farthest from the front"

so INR will soon to be greater than what it is today to dollar
I think its time to rejoice and we are doing this effort less ly

Just to clear up this misconception explicitly. We usually quote the rupee/dollar conversion in terms of the value of one dollar in rupees, which will decrease when the rupee gets stronger. When we say that the rupee is going to bounce back against the dollar, we mean that the rupee will bounce back from the current value (1 INR = 0.019 USD) towards its 52-week high (1 INR = 0.023 USD), which is a 21% appreciation (each rupee will buy 21% more dollars). As this happened, the dollar would fall the same 21% from the current (1 USD = 53 INR) to the 52-week low (1 USD = 44 INR).

Theo_Fidel · Post by **Theo_Fidel** » 25 Dec 2011 12:05

From RBI. To Sept 2011.

FII inflows. (NOT FDI)

2007-08 ---- $27 Billion
2008-09 ---- ($14 Billion) -
2009-10 ---- $32 Billion
2010-11 ---- $31 Billion (To Sept)

Again. Less quaking at the knees and demands for abject grovelling for investment would be advised. Keep your heads about you.

member_21708 · Post by **member_21708** » 25 Dec 2011 12:48

gakakkad wrote:Theo actually has a point there . It is not a conspiracy theory . There is a logical reason. Dollar is the most trusted currency . We have the euro crisis . When such things happen people revert to dollar. INR is not the only currency that is sliding. All other currencies are . People are going back to dollar. When things look troublesome with dollar people will move out again .

you will be hard-pressed to find people to back that line, even common americans have ditched dollar to stock up on gold and silver as alternate non-fiat based currencies to be ready when the eventual dollar collapse occurs.

Theo_Fidel · Post by **Theo_Fidel** » 25 Dec 2011 23:13

Gold and Silver obey the dollar as well. You can't buy a sack of onions with gold can you. Gold and Silver appreciation is pure speculation. It is useful to remember that these are commodities as well. More gold is mined every year. If the speculative pump-dump crowd decides that gold has gone as far as it can and dumps it, all the folks sitting on their gold stocks will be wiped out. As has happened many times before and will happen again.

If you behave like sheep you will be sheared and harvested like sheep.

Ambar · Post by **Ambar** » 26 Dec 2011 00:40

Theo_Fidel wrote:From RBI. To Sept 2011.

FII inflows. (NOT FDI)

2007-08 ---- $27 BillionTh
2008-09 ---- ($14 Billion) -
2009-10 ---- $32 Billion
2010-11 ---- $31 Billion (To Sept)

Again. Less quaking at the knees and demands for abject grovelling for investment would be advised. Keep your heads about you.

FIIs are predominantly portfolio investments, why are we discounting the the outflows ? The cumulative FII investment in India was 17.3 B $ for 2007, -13.3 B$ for 08, 17.6 B $ for 2009,29.3 B for 2010 and - 559 m $ so far this year. We have a huge current account deficit problem, we need FDI more than FII, and even the later has been net seller this year making Indian equities and there by our secondary capital market one of the least attractive in asia.

We may not be in panic zone yet, but with such hubris that we are the "chosen" ones and we'll remain forever immune to the events in rest of the world is being as delusional as Kim Jong Il ! Like i said, if there's one thing we have that others dont are jobs, we don't even need them to dwindle but just a mere saturation point is enough to topple many a carts. With < 1500$/capita , we are toddlers in this race and we have a long way to go before we throw away foreign capital.

Ambar · Post by **Ambar** » 26 Dec 2011 00:50

vikramd wrote:
gakakkad wrote:Theo actually has a point there . It is not a conspiracy theory . There is a logical reason. Dollar is the most trusted currency . We have the euro crisis . When such things happen people revert to dollar. INR is not the only currency that is sliding. All other currencies are . People are going back to dollar. When things look troublesome with dollar people will move out again .
you will be hard-pressed to find people to back that line, even common americans have ditched dollar to stock up on gold and silver as alternate non-fiat based currencies to be ready when the eventual dollar collapse occurs.

There was supposed to be a USD crisis in 2007, then 08,then 09 and 2010 and so on. To be honest, the pundits of pessimism p0rn have been predicting an end of USD hegemony since the late 1960s, and they crawl out of woodwork every time there is a downturn in the global economy. I always ask my American friends if they are buying any gold as investment, and the answer has always been no. Even those who've had some old antiques or bracelets that they received in gifts years ago have been sold in the recent days. Gold, like everything else in this world has a "assumed" value. Today the USD index is where it was in mid-2007 at the height of bubble. 20 out of the last 30 yrs precious metals have trailed other investments including USD, the last 10 yrs its been the other way around. Gold, like everything else has no value in isolation - its all relative.

ldev · Post by **ldev** » 26 Dec 2011 07:18

India-Japan to sign $10 Billion Currency Swap

This swap is an indication of the pressure the RBI is under in defending the rupee. In the 2008 credit crisis the Indian rupee was not under pressure because economic fundamentals were better. No such luck now given the Current Account Deficit which will certainly be more than 4.5% of GDP for the current financial year. Furthermore there is policy inertia and successive monetary tightenings by the RBI have not provided a floor to the rupee. I suspect that given the present trajectory India may well enter into a currency swap with the US sometime in 2012.

chola · Post by **chola** » 26 Dec 2011 08:31

Theo_Fidel wrote:Chola,

G's thesis was that USA be wealthy because it attracts FDI. I demolished it with the numbers and laid out the real reason USA is rich. That is the process by which we will become rich as well.

Wealthy nations attract FDI because investors have confidence that their money is safe. It took the US, the UK and Japan years of development to build this confidence. Developing nations who gain hard currency from FDI take advantage of this confidence.

Every successful developing nation from South Korea to Brazil took advantage of FDI.

Give them all the middle finger and tell the chaff to clear out is what I say.

We did under Congress and the Nehru clan from the 1960s to 1990s where did that get us? Our economy opened under the BJP that no longer had a knee-jerk commie style reaction to the international business community.

chola · Post by **chola** » 26 Dec 2011 08:43

vikramd wrote:
gakakkad wrote:Theo actually has a point there . It is not a conspiracy theory . There is a logical reason. Dollar is the most trusted currency . We have the euro crisis . When such things happen people revert to dollar. INR is not the only currency that is sliding. All other currencies are . People are going back to dollar. When things look troublesome with dollar people will move out again .
you will be hard-pressed to find people to back that line, even common americans have ditched dollar to stock up on gold and silver as alternate non-fiat based currencies to be ready when the eventual dollar collapse occurs.

Do you actually follow the world's economic situation? Interest rates for the US dollar is below inflation. This means the dollar is in so much demand that world is willing to take dollars even when it makes them no money. There is no safer investment in the world today in spite of all of the US's deficit problems.

One thing to remember is there is not enough gold and silver in the world to actually back up all the currency out there. There is simply not enough precious metal at the current price to finance a modern economy.

If the majority of Americans wanted gold over the US dollars, an ounce of gold would be unaffordable for everyone except billionaires. You would start talking about millionths of an ounce as an usable unit of measure which is practically unusable (since it would impossible to measure except in physic labs.)

That is why the US went off the gold standard in the 1970s. There is no reasonable value assigned to gold in the world that can finance a $13 trillion economy.

chola · Post by **chola** » 26 Dec 2011 08:53

ldev wrote:India-Japan to sign $10 Billion Currency Swap

This swap is an indication of the pressure the RBI is under in defending the rupee. In the 2008 credit crisis the Indian rupee was not under pressure because economic fundamentals were better. No such luck now given the Current Account Deficit which will certainly be more than 4.5% of GDP for the current financial year. Furthermore there is policy inertia and successive monetary tightenings by the RBI have not provided a floor to the rupee. I suspect that given the present trajectory India may well enter into a currency swap with the US sometime in 2012.

Thank goodness. Call me a dhoti shaker but I am breathing much easier now that Manmohan has broken from the Congress of the past with this move. He understands the precariousness of the situation. Under Congress of Nehru, Indira and Rajiv they would have had their heads in the sand and the rupee would have tanked.

The rupee is not at the point where the world has confidence in it. You need hard currency like the dollar and yen to back it. At some point in the future it will be. But it is not now. You cannot change the world market with jingos. You need time and performance over time to build trust in your currency. While trust is in its infancy, you cannot leave it to the wind, you need to protect it with dollars and yens.

VikramS · Post by **VikramS** » 26 Dec 2011 09:13

vikramd wrote:
gakakkad wrote:Theo actually has a point there . It is not a conspiracy theory . There is a logical reason. Dollar is the most trusted currency . We have the euro crisis . When such things happen people revert to dollar. INR is not the only currency that is sliding. All other currencies are . People are going back to dollar. When things look troublesome with dollar people will move out again .
you will be hard-pressed to find people to back that line, even common americans have ditched dollar to stock up on gold and silver as alternate non-fiat based currencies to be ready when the eventual dollar collapse occurs.

Spoken like a true gold bug. Neshant redux.

The USD is the one eyed king of the blind and will continue to rule the paper world. And Gold has a 10x run in the past decade. While the fundamentals continue to be supportive, there has to be a total and utter collapse of the paper based fiat system for the world to go back to the Gold Standard.

And as chola put it Gold will have to trade 10x higher at that point. And it is very likely the rich and the oligarchs will corner the PM supply except for those who keep it buried in their backyard. And even they would be "buried billionaires"; there will no no legal way for them to cash out.

member_21708 · Post by **member_21708** » 26 Dec 2011 10:21

Theo_Fidel wrote:Gold and Silver obey the dollar as well.

dont know how you came to that conclusion

Theo_Fidel wrote:You can't buy a sack of onions with gold can you.

yes goods can been bought and even more, i can buy the land were the onions were grown, offer the farmer a share in the crop and ensure next year's supply of onions too.

Theo_Fidel wrote:Gold and Silver appreciation is pure speculation. More gold is mined every year.

Government or banksters cant print more gold to reduce the value of existing gold. value of existing gold is not decreasing but increasing, which only means one thing. there is a supply shortage due to increased demand of gold by common people.

Theo_Fidel wrote:If you behave like sheep you will be sheared and harvested like sheep.

true, those having blind faith in fiat based currencies will be out in cold when their favoured currency collapses, only those having alternate means to buy or barter will survive.

member_21708 · Post by **member_21708** » 26 Dec 2011 10:44

Ambar wrote:There was supposed to be a USD crisis in 2007, then 08,then 09 and 2010 and so on. To be honest, the pundits of pessimism p0rn have been predicting an end of USD hegemony since the late 1960s, and they crawl out of woodwork every time there is a downturn in the global economy.

slaves of fiat based currencies will regurgitate propaganda lines of their masters and try to sideline views of those who advocate a more cautionary approach as either lunatic or pessimist, this shows the complete brainwashing and mental enslavement of such people who without giving a thought lash out at the people who hold a realist view of the current ponzi economic system.

dollar is not backed by physical assets and only serves the personal interests of 8 families who own the federal reserve, such as cartel system is bound to fail sooner rather than later, when that happens slaves will be busy searching for a new master.

Ambar wrote:I always ask my American friends if they are buying any gold as investment, and the answer has always been no. Even those who've had some old antiques or bracelets that they received in gifts years ago have been sold in the recent days.

your's is a silly line of argument, just because your small circle of friends are not buying doesn't necessarily mean others are not, a cursory search reveals there is a definite trend of common people stocking up on gold and silver.

http://blogs.reuters.com/reuters-money/ ... s-on-ebay/

Plenty of Americans are turning to eBay’s Gold and Silver outpost. The company says sales of gold bullion have increased more than 60 percent from 2007 through 2010.

Amid economic uncertainty, demand for precious metals continues to soar around the globe. Aside from the U.S., the gold bug is rampant in Iran and Asia. “Record high prices won’t scare away investors,” Shi Heqing, an analyst at Antaike, a state-backed metals consultancy based in Beijing, told Reuters. “Investors are likely to chase the rally and continue to buy gold because paper money feels increasingly worthless and they are worried about inflation.”

abhischekcc · Post by **abhischekcc** » 26 Dec 2011 10:51

>>dollar is not backed by physical assets and only serves the personal interests of 8 families who own the federal reserve, such as cartel system is bound to fail sooner rather than later, when that happens slaves will be busy searching for a new master.

Which 8 families?

shyam · Post by **shyam** » 26 Dec 2011 10:53

There is an argument being made by someone that there is high probability that defacto gold standard will be enforced by private sector. When countries are involved in currency wars and when currencies become volatile, private businessmen will be forced to invoice in gold. At the time of settling the trade, they can make payment in currencies equivalent to the current price of gold.

When rupee went up, many Indian exporters lost their price advantage. Then they started hedging against exchange rate fluctuations and they now see rupee going down and not able to take advantage of that. When this kind of uncertainty becomes a norm, people will start looking for some stable solution.

Suraj · Post by **Suraj** » 26 Dec 2011 10:56

Folks, please stick to the Indian economy here. There is already a global economy and the economic meltdown thread for the gold vs fiat currency discussions.

chola · Post by **chola** » 26 Dec 2011 11:08

shyam wrote:There is an argument being made by someone that there is high probability that defacto gold standard will be enforced by private sector. When countries are involved in currency wars and when currencies become volatile, private businessmen will be forced to invoice in gold. At the time of settling the trade, they can make payment in currencies equivalent to the current price of gold.

When rupee went up, many Indian exporters lost their price advantage. Then they started hedging against exchange rate fluctuations and they now see rupee going down and not able to take advantage of that. When this kind of uncertainty becomes a norm, people will start looking for some stable solution.

Gold is exceptionally volatile. Especially against the US dollar which is what everything is traded against because it is the only thing that is accepted world wide and is practical to trade with.

Again, if the US dollar were discarded for gold then you will be slicing an immensely rare and finite metal into units that are impossible for practical usage. Who is willing to accept a microscopic speck of gold dust for curry and nan?

To go back on track in this thread, the currency swap with Japan is a great step. During the Asian financial crisis, Thailand, South Korea and the rest of them halted their slide with swaps of the Dollars, Yen and Yuan. They actually were late and suffered major damage before the slide was halted. The GOI is ahead of the curve in this case.

shyam · Post by **shyam** » 26 Dec 2011 11:30

Read the post again. It said things will be priced in gold but exchanges may happen in currencies. It may be used by international traders and not at local restaurant. BTW, it is not gold that is volatile, but the currencies are. That is what is being printed without any limit.

Theo_Fidel · Post by **Theo_Fidel** » 26 Dec 2011 12:34

chola wrote:Wealthy nations attract FDI because investors have confidence that their money is safe. It took the US, the UK and Japan years of development to build this confidence. Developing nations who gain hard currency from FDI take advantage of this confidence.

I do agree that world has confidence in the economies of wealthy countries. What I disagree is that FDI is the reason these countries became wealthy and instituted confidence in them. Did it help, sure it did, but at the margins and usually late.

Confidence in a large nations economy comes from seeing the nation plow through difficult times and come out stronger on the other side. Why is is there confidence the USA can break through where as there is not that confidence in Europe other than Germany or maybe UK and maybe Japan. Because the world has seen these countries on the ropes and come out stronger. Often the last man left standing. That is why people are retreating to the dollar.

Truth be told the rupee is not really integrated into the world market yet. It is not a free float currency and it is not used by others to hold value. I agree that there is not much confidence in it. But I question how confidence will come without a free float no matter what we do in terms of opening our economy. Japan is hardly an open economy yet its currency is considered quite stable.

Lisa · Post by **Lisa** » 26 Dec 2011 13:33

http://www.ft.com/cms/s/0/9f424f4e-2b31 ... z1hcqUKCLh

Reliance linked to covert investments

A legal battle in London has revealed that a conglomerate controlled by Anil Ambani, the Indian telecoms tycoon, used a Mauritius-based fund to make covert investments in one of its own companies, triggering calls in India for a full investigation.

UK regulators have found that Mr Ambani’s Reliance Group, spanning interests from financial services to infrastructure, invested $250m in the offshore fund that in 2007 bought securities linked to one of the companies within the group, in violation of Indian law.

The complex chain of investments, long the subject of media speculation in India, is now at the centre of a disciplinary action brought by the UK’s Financial Services Authority against the former private bankers at UBS who set up the investment fund.

Austin · Post by **Austin** » 26 Dec 2011 16:29

Fiscal deficit may swell to 5.2%

NEW DELHI: The finance ministry has prodded other departments to prune their spending by Rs 30,000 crore but the Centre is still staring at a fiscal deficit of over 5.2% of the gross domestic product (GDP), compared to the 4.6% target, as subsidies are going to be far higher than what finance minister Pranab Mukherjee had budgeted for in February.

The bad news on government finances couldn't have come at a worse time given that the economy is in the throes of a slowdown and there is little chance of returning to the legally-mandated fiscal deficit of 3% of GDP. By the time elections in states such as Gujarat end late next year, UPA-2 will be donning poll gear for the 2014 general elections . In 2008, a year before the last general elections, UPA had chosen the budget to sound the poll bugle through moves such as the Rs 70,000 crore farm loan waiver.

Officially, however,Mukherjee has put the fiscal consolidation plan on the backburner. But his officials now acknowledge that with growth in tax collections remaining low and the government doing virtually nothing to improve the flow of subsidies and the quality of spending, the going will be tough this financial year. Already , there is talk of missing out on mopping up Rs 53,000 crore from disinvestment and fresh auction of spectrum.

As a result, the finance ministry has got almost every other ministry to slash a part of its budgeted plan allocation. So, against the budget estimate of Rs 4.41 lakh crore for the current financial year, the plan expenditure is expected to be of the order of Rs 4.1 lakh crore.

In contrast, the non-plan spending target of Rs 8.16 lakh crore is set to be missed as the government is being forced to earmark more for food, fertilizer and petroleum subsidy, something that Mukherjee even acknowledged in Parliament . What his officials privately admit now is that they had under-budgeted for these items at the start of the year, which helped them show better numbers.

Mukherjee had told Parliament that fertilizer subsidy could be as much as Rs 90,000 crore this year, compared to the budget estimate of Rs 50,000 crore. Similarly, the government is expected to shell out an additional around Rs 45,000 crore to compensate oil companies for selling auto and cooking fuel below international price. Even food subsidy is expected to be higher than the budgeted level of Rs 60,572 crore.

The fiscal problem could get even more acute if the government misses the tax targets , something that it has not acknowledged so far.

Not adding up

Growth in tax collections remains low The govt is likely to miss out on mopping up Rs 53,000 crore from disinvestment and spectrum auction Fertilizer subsidy could be Rs 90,000 crore against the estimated Rs 50,000 crore The govt is likely to shell out additional Rs 45,000 crore on fuel subsidy.

vina · Post by **vina** » 26 Dec 2011 16:55

Per NY Times, Japan & India are planning a currency swap agreement to coincide with a high level Japanese visit.

Japan recently signed that with Panda .

krishnan · Post by **krishnan** » 26 Dec 2011 16:59

Even pakis signed such an agreement with panda

Dhiman · Post by **Dhiman** » 27 Dec 2011 15:08

Theo_Fidel wrote:
chola wrote:Wealthy nations attract FDI because investors have confidence that their money is safe. It took the US, the UK and Japan years of development to build this confidence. Developing nations who gain hard currency from FDI take advantage of this confidence.
I do agree that world has confidence in the economies of wealthy countries. What I disagree is that FDI is the reason these countries became wealthy and instituted confidence in them. Did it help, sure it did, but at the margins and usually late.

If there is one thing that the recent financial crisis has shown, it is that the world does not have confidence in the economies of wealthy countries. However, Euro at this point is particularly vulnerable with many questioning whether the Euro will survive at all as a currency (due to Greece, Spain, Italy debt issues). This is leading to a flight towards dollars which is making dollars expensive and hence causing a short-term skew in dollar-rupee exchange rate. Even if the euro goes extinct, this is only a temporary phase and all else remaining same, the dollar-rupee rate is likely to get back to normal within a year since there is no fundamental shift that has taken place.

So if I had hordes of rupees, I would sit tight and just wait for the dollar-euro affair to blow over. The last thing that I wold do is open up retail sector just to get some quick dollars to tide over a short term crisis. If things get really bad, I would rather auction off some gold (which is at historically high levels) to get dollars.

In fact I would go as far as saying that the world at this point has more confidence in Indian and Chinese economy rather than in many of the well known wealthy western economies. India and China are touted (and rightly so) as the future - the place where most of the global economic growth will come from going forward and I don't see anyone questioning that irrespective of recent exchange rate fluctuations. Have the fundamentals changed in last few months?

The reason why wealthy western countries get more FDI is mainly due to historical reasons - just because that has always been the case ever since the world came under western financial domination and because the existing financial mechanism support these FDI flows. I mean where will Saudi Arabia invest its dollars (that it got from selling oil) if not in US?

India is not the favorite destination for FDI and nor is there any reason for India to be a favorite destination for FDI or FII money, because rest assured the next phase of Indian economic growth won't come out doing ridiculous, redundant, and absolutely brainless ideas such as accepting FDI in multi-brand retail. The next phase of Indian economic growth will come out of domestic reforms..

If there is no FDI in retail, we won't go back to the eighties, but rest assured if there are no domestic reforms, we will go back to the eighties if not worse.

ldev · Post by **ldev** » 27 Dec 2011 22:44

The sad reason why this Indian billiionaire refuses to invest in India

India, still a beacon of relatively fast growth despite a troubled world economy, should be a magnet for capital. Instead, since the beginning of 2010, the amount that Indians have invested in businesses overseas has exceeded the amount foreigners are investing in India, according to central bank figures.
In part this reflects the confidence and aptitude of India's maturing companies and the current malaise in the global economy and financial markets. But it also reflects deep problems at home. India's big coporations may be cash rich but the failure to invest that money domestically is bad news for a developing country that needs capital to build the roads, power plants and food warehouses that could help lift hundreds of millions out of dire poverty.
The frustration of India's business elite with corruption, political paralysis, log-jammed approvals, regulatory flip-flops, lack of access to natural resources and land acquisition battles — to pick a few of the top complaints — has reached a pitch perhaps not heard since India began liberalizing its economy in the early 1990s.
"If you are an honest businessman in India, it's very difficult to start up anything," said Jamshyd Godrej, chairman of manufacturing giant Godrej & Boyce. "Companies are going to operate where they see the best opportunities and efficiency for their capital."
Increasingly, that's outside India.
In 2008, foreigners poured roughly twice as much direct investment into India — $33 billion — as Indians plowed into businesses overseas. By 2010, that had reversed: Indians invested $40 billion abroad — twice as much as foreigners invested in India — a trend that's continued this year.

Yogi_G · Post by **Yogi_G** » 28 Dec 2011 09:57

ldev wrote:The sad reason why this Indian billiionaire refuses to invest in India

India, still a beacon of relatively fast growth despite a troubled world economy, should be a magnet for capital. Instead, since the beginning of 2010, the amount that Indians have invested in businesses overseas has exceeded the amount foreigners are investing in India, according to central bank figures.
In part this reflects the confidence and aptitude of India's maturing companies and the current malaise in the global economy and financial markets. But it also reflects deep problems at home. India's big coporations may be cash rich but the failure to invest that money domestically is bad news for a developing country that needs capital to build the roads, power plants and food warehouses that could help lift hundreds of millions out of dire poverty.
The frustration of India's business elite with corruption, political paralysis, log-jammed approvals, regulatory flip-flops, lack of access to natural resources and land acquisition battles — to pick a few of the top complaints — has reached a pitch perhaps not heard since India began liberalizing its economy in the early 1990s.
"If you are an honest businessman in India, it's very difficult to start up anything," said Jamshyd Godrej, chairman of manufacturing giant Godrej & Boyce. "Companies are going to operate where they see the best opportunities and efficiency for their capital."
Increasingly, that's outside India.
In 2008, foreigners poured roughly twice as much direct investment into India — $33 billion — as Indians plowed into businesses overseas. By 2010, that had reversed: Indians invested $40 billion abroad — twice as much as foreigners invested in India — a trend that's continued this year.

Jai Mamata ji! Jai Kudankulam!

Austin · Post by **Austin** » 28 Dec 2011 10:16

Govt to meet 2011/12 stake-sale target'

New Delhi The Indian government is confident it will meet its target (disinvestment) of raising Rs 400 billion ($7.6 billion) this fiscal by selling shares in state-run firms, a senior finance ministry official with direct knowledge of the matter said.

Austin · Post by **Austin** » 28 Dec 2011 10:22

Higher spends, sluggish receipts push Centre to borrow more

The government is likely to borrow in the next three months as avenues for revenue collection dry up and it has demands that need to be met, senior finance ministry officials said. While they did not reveal the quantum of extra borrowings, they said this will be over and above the Rs 52,872 crore extra borrowings the finance ministry announced in September.

Meeting the fiscal deficit target is out of question," said a senior finance ministry official, who did not wish to be quoted. "Additional borrowings will be required to bridge the deficit,” the official added. The government has projected a fiscal deficit target of 4.6 per cent of GDP for the current fiscal. But the combined impact of a lower GDP growth rate of 7 per cent (against the Budget estimate of 9 per cent), sluggish tax collections and increased expenditure demands, will likely push the fiscal deficit to cross 5.5 per cent of the GDP, or even settle at 6 per cent, another finance ministry official said.

member_21708 · Post by **member_21708** » 28 Dec 2011 10:35

Austin wrote:Govt to meet 2011/12 stake-sale target'

New Delhi The Indian government is confident it will meet its target (disinvestment) of raising Rs 400 billion ($7.6 billion) this fiscal by selling shares in state-run firms, a senior finance ministry official with direct knowledge of the matter said.

The government is working on a plan to raise funds by pledging stakes held in tobacco-to-hotels group ITC, industrial conglomerate Larsen & Toubro and Axis Bank , the senior official said on Tuesday.

selling valuable national assets to collect money and squander it all on votebank schemes to win next elections. stupid move, govt should cut unnecessary spending, reduce salaries of unproductive babus who draw salaries in thousands, and spend their time doing chamchagiri of nehru family by flooding social networking sites with abusive comments on anna. these fascist bootlickers without any morality or self-respect are public enemies encouraging corruption and hiding its exposure.

neel · Post by **neel** » 28 Dec 2011 22:04

vikram-

I would actually take to opposite view, namely that if we can get the leftists to shut up about disvestment by promising to use the proceeds to finance their vote buying, it is worth it to get rid of all of those inefficient Soviet-era relics. When we have such a capable private sector, there is no need for the people who run steel and cement factories, let alone hotels and banks, to be insulated from the threat of failure by the government guarantee implicit in state ownership or to be bound by political considerations in their daily operations (i.e. decisions about whom to hire where to do what should not be dependent on the constituencies of specific important ministers). The revenue boost due to the economic growth resulting from efficiency gains attendant to privitisation will, in the long run, dwarf any mis-allocation of the proceeds that was required due to political considerations.

Theo_Fidel · Post by **Theo_Fidel** » 29 Dec 2011 00:08

I don't always read the racist rag but bit of OT but important news. Our sex ratio is skewing back to normal at a rapid rate. I blame TV.

#1 social reform tool.

http://www.economist.com/node/21542208

A glimmer of hope in the sad tale of sex-selective abortion in India

Now, however, comes evidence that India may in fact be succeeding. In a pair of articles in the Indian Express, Surjit Bhalla, an economist, and Ravinder Kaur, a sociologist, use a different set of figures to get a different result. On the basis of the national sample surveys (NSS), they calculate that India’s sex ratio at birth swung from 924 females per 1,000 males in 2004-05 to 977 in 2011, a stunning turnaround in favour of girls.

The NSS figure is not comparable to the census. It shows the sex ratio at birth, whereas the census shows the ratio for children aged 0-6 (census figures for the sex ratio at birth have not been published). But there are reasons for thinking the NSS is reliable. The sample size, of 125,000 households, is large. And when the NSS does produce figures comparable to the census, they closely match it (for example, the NSS and census figures for the child sex ratio in 2001 and 2011 are almost identical). The new figure represents a very big change. A sex ratio of 977 girls to 1,000 boys is closer to what prevailed in the 1960s than it is to more recent decades.

So it is possible that the sex ratio has begun to change recently in ways not captured by the census. If so, why? Mr Bhalla and Ms Kaur pin the explanation squarely on the behaviour of parts of India’s middle class. What they call the mature middle class, those with an annual income of 170,000 rupees ($3,200) for a family of five, no longer practises sex selection. Ms Kaur’s research in five Indian states finds that richer middle-class families are no longer using sons as vehicles for upward mobility. A combination of female education, the spread of “modern” social attitudes through television, government policies and a dawning sense that daughters are more likely than sons to look after parents in old age are all having a cumulative effect. This is persuading the richer parts of the middle class that girls are as valuable as boys. The authors reckon this slice of the population has almost doubled in size in six years, from 27% in 2005 to 50% in 2011, so its preferences explain the change in the figures.

The argument might seem to contradict the view that sex selection rises as people get richer. In fact, at slightly lower levels of income, the link is as strong as ever. Mr Bhalla and Ms Kaur find sex selection has run rampant among what they call the emerging middle classes—those with an income of 90,000-170,000 rupees a year. But since this group has declined as a share of the population, from 68% in 2000 to 41% now, their preferences have a smaller impact.

Monica Das Gupta of the World Bank points out that the 2011 census shows the sex ratio is beginning to return to normal in Punjab and Haryana, states where sex-selective abortion used to be common, but which now report big changes in attitudes to girls.

Meanwhile, these states need to get their collective asses in gear. Shameful, everyone of them. Esp. the new offenders.

Meanwhile, in nearby Gujarat, Uttar Pradesh, Rajasthan and Maharashtra, the sex ratio is getting worse. These are states with more of the emerging middle classes. Because there are many such states and some, like Uttar Pradesh, are huge, they explain why the national child sex ratio became more distorted in 2001-11.

ldev · Post by **ldev** » 29 Dec 2011 04:33

Japan, India Agree to Set Up $15 Billion Swap Line

So the agreement is more than the $10 Billion amount speculated earlier. But it is small potatoes considering Japan's $70 Billion swap agreement with South Korea and the unlimited swap lines between the US Federal Reserve and the European Central Bank.

Rishirishi · Post by **Rishirishi** » 29 Dec 2011 06:04

ldev wrote:Japan, India Agree to Set Up $15 Billion Swap Line

So the agreement is more than the $10 Billion amount speculated earlier. But it is small potatoes considering Japan's $70 Billion swap agreement with South Korea and the unlimited swap lines between the US Federal Reserve and the European Central Bank.

Separately, Japan Wednesday said it will give a ¥450 billion loan to build freight railways between Delhi and Mumbai.

That is about 6 billion dollars. Will we see a new freight railway between mumbai and NCR soon?