Indian Economy - News & Discussion 27 May 2012

subhamoy.das · Post by **subhamoy.das** » 20 Jul 2013 20:12

Besides CAD, what about the high fiscal deficit ( driven by host of appeasement program such as NREGA, food bill etc... ). That is also running at around 5% of GDP

chetak · Post by **chetak** » 20 Jul 2013 20:31

subhamoy.das wrote:Besides CAD, what about the high fiscal deficit ( driven by host of appeasement program such as NREGA, food bill etc... ). That is also running at around 5% of GDP

Rani is on record saying that FDI money will be used for the food security bill. Do they expect goras to fund India's food bill??

It's time that the NAC nutters were shown the door.

Austin · Post by **Austin** » 21 Jul 2013 13:04

Social programs are just being made a scape goat for all ills ailing India. The main problem of economic problem today is the lack of reforms , roll on roll back approach in past 10 years and corruption i.e their own greed to fund their parties , them self their cronies and whats left goes to the country.

If only they stop thinking about their party fund and their own greed , India would fare much better but that would be the most hardest thing to do which is to change oneself

Austin · Post by **Austin** » 21 Jul 2013 13:08

Austin · Post by **Austin** » 21 Jul 2013 13:11

An Eye Opener .... not surprising for people who live in this county as amm admi

The Bribe Republic
How rampant bribery is corroding India's core

chola · Post by **chola** » 21 Jul 2013 19:44

Austin wrote:

The problem with this silver-lining is that all of our imports, especially of energy and primary raws, are transacted exclusively in US dollars.

Secondly, one of the benefits of a falling currency is to gain a competitive advantage against other nations in the global job market. Costs of imports shoot up, costs of exports drop down.

So for India, to drop against the greenback without the corresponding drop against other nations is the worst of all worlds.

Austin · Post by **Austin** » 21 Jul 2013 19:49

Good Point but are we doomed to be a high import economy or can we have an export oriented economy that can generate surplus ? Granted we dont have Manufacturing or Oil but what else can generate export revenue more than import which is the case now ?

chola · Post by **chola** » 21 Jul 2013 20:17

Austin wrote:Good Point but are we doomed to be a high import economy or can we have an export oriented economy that can generate surplus ? Granted we dont have Manufacturing or Oil but what else can generate export revenue more than import which is the case now ?

All modernized economies depend on imports. In fact, the more successful, the more imports since no nation (not even Russia, the largest) can provide a modern economy with everything it needs.

But that doesn't mean we are doomed to the current account deficit we have now. Japan, South Korea and Taiwan were all able to create surplus economies. As a continental-sized nation we can never be as dependent on exports as them but, like India, these three countries are all resource deficient. So if they can create surpluses there is no reason why we couldn't at least create a more balanced trade profile.

We do not have oil but there is no reason why we should not have manufacturing. Especially since we have two advantages on top of what Japan, Taiwan and SoKo have and those are land and population.

Austin · Post by **Austin** » 21 Jul 2013 20:35

Ok you have mentioned manufacturing before but since China sits on the cheap manufacturing base and India does not have the Hi Tec of South Korea or Japan what is that we can manufacture then that can impact our economy positively ?

Can internal growth due to our huge population can generate surplus if we exclude export oriented economy concept ?

Even small nations like Germany tend to export $1.499 trillion perhaps most likely high tech engineering product and services
http://en.wikipedia.org/wiki/Economy_of_Germany

chola · Post by **chola** » 21 Jul 2013 21:06

Austin wrote:Ok you have mentioned manufacturing before but since China sits on the cheap manufacturing base and India does not have the Hi Tec of South Korea or Japan what is that we can manufacture then that can impact our economy positively ?

Can internal growth due to our huge population can generate surplus if we exclude export oriented economy concept ?

Even small nations like Germany tend to export $1.499 trillion perhaps most likely high tech engineering product and services
http://en.wikipedia.org/wiki/Economy_of_Germany

The biggest story in international trade right now is the flood of manufacturing job out of China due to uncontrolled wage hikes and the unrelenting strengthening of the chinese yuan.

Japan and South Korea were low tech when they started their journey as well. If Congress and the dynasty had taken up the baton of global manufacturing in the 1960s and 70s we would be where SoKo is today. You have to start somewhere.

A large internal market by itself can create a surplus in the currency account through two very powerful properties. One, a large market is a magnet for foreign investments. This is how China, Japan, etc. got the seed money for their infrastructure. Secondly, a large market gives you leverage to other large markets. East Asian economies like China and Japan as well as Germany ratchet open developed markets with promise of access to their own.

So India has all of requisite tools at hand. The problem is whether we are able to take advantage of the current move of global manufacturing out of China. We missed the boat when it moved from Japan to the East Asian Tigers to China.

History fortunately do go in cycles. But you still need to start from the beginning. I know the Bangalore wallahs look askance at manufacturing jobs unless they are "high tech." But those same low level manufacturing jobs have built powerhouse after powerhouse to our East.

VKumar · Post by **VKumar** » 21 Jul 2013 21:15

Manufacturing in India never took off in the early years, due to the suffocating labour laws, lack of infrastructure and monopolisation by the large businesses.

The suffocating labour laws and lack of infrastructure still continue but large business monopoly was destroyed by Dhirubhai Ambani.

vera_k · Post by **vera_k** » 21 Jul 2013 21:30

Bade wrote:What is driving prices up is the fact that all land or other transactions are done 50%+ in black by ordinary people living in India and the only place to park such money is not in a bank but as a flat readily available for purchase somewhere, usually in a city.

The capital gains tax law is another factor at work. A tax payer can avoid paying capital gains tax on profits from real estate, if the proceeds are re-invested in real estate. This then creates a Ponzi scheme, in that proceeds from every successive transaction of increasing value is rolled back in to real estate by buying more real estate. It also ensures that those who started out holding any real estate, have an incentive to hold real estate in perpetuity, even if it is not required for personal use.

There is now a way to avoid paying this capital gains tax by investing in specified bonds, but the limits are low enough such that most of the money will be cycled back into real estate.

Austin · Post by **Austin** » 22 Jul 2013 11:21

India’s external debt rises to US $360.4 billion for FY’ 13

Austin · Post by **Austin** » 22 Jul 2013 11:23

What does external debt constitute here is it just to GOI borrowings externally ?

Or Does it include the corporate sector borrowing and private sector borrowing along with GOI borrowings ?

Austin · Post by **Austin** » 22 Jul 2013 11:36

^^ Thanks from the link

Government (Sovereign) external debt stood at US$ 81.7 billion as at end-March 2013 as against US$ 81.9 billion as at end-March 2012. The shares of Government and non-Government external debt in the total external debt were 20.9 per cent and 79.1 per cent, respectively, as at end-March 2013

So it is essentially the non-gov debt which is corporate sector borrowing that is leading to high external debt

Arjun · Post by **Arjun** » 22 Jul 2013 15:58

Amartya Sen: I don't want Modi as my PM

Sen-babu moshai currying favour with the Dynasty Empress....His political intrusions over the last several months has become extremely tiresome and predictable.

vera_k · Post by **vera_k** » 22 Jul 2013 18:52

Austin wrote:So it is essentially the non-gov debt which is corporate sector borrowing that is leading to high external debt

Which in turn exists, because of the relatively high interest rates needed to support savings volumes in the presence of high inflation.

vishvak · Post by **vishvak** » 22 Jul 2013 19:34

Arjun wrote:Amartya Sen: I don't want Modi as my PM

Sen-babu moshai currying favour with the Dynasty Empress....His political intrusions over the last several months has become extremely tiresome and predictable.

For the kind of criticism that Mister Sen has been doing, he isn't showing the same passion about policies of NAC or the dude he wrote some book with.

Suraj · Post by **Suraj** » 22 Jul 2013 22:13

India to call on millions of NRIs to defend rupee

Acknowledging the country faced a dilemma, the officials said India was running out of options and time to revive the currency and fund a record current account deficit but equally it was wary of sending any distress signals to international markets.

Issuing a global bond might send such a signal, so instead policymakers will focus on attracting funds from Indians living abroad, such as by raising deposit rates in India or issuing bonds specifically designed for them - repeating measures carried out in 1998 and 2000 to steady a weak rupee.

The officials said an increase in central bank policy rates and allowing select firms to raise capital overseas were also being considered.

"All have agreed that it is not a time for India to issue sovereign bonds at this stage," one official said, adding that the central bank agreed with that position too.

"We do not have much options. Whatever has to be done, will be done in the next few weeks," the official said. "We have a window of only few weeks," he said.

"The government could ask banks to raise interest rates to attract an additional $15-20 billion," he said.

I'm conflicted about this. On one hand, the interest rates are attractive, and the talk of desperate moves screams of an exchange rate bottom. On the other hand, the near complete lack of fiscal competence on the part of the current administration makes me hestitate. Unless *they* start making painful actions in the interest of fiscal stability over polltime spending, I'm not sure I would participate in this.

Theo_Fidel · Post by **Theo_Fidel** » 22 Jul 2013 22:32

vera_k wrote:
Austin wrote:So it is essentially the non-gov debt which is corporate sector borrowing that is leading to high external debt
Which in turn exists, because of the relatively high interest rates needed to support savings volumes in the presence of high inflation.

IIRC All the way up to the mid 1990’s cash was available to corporates at 15%-25% type interest rate. I very much remember my dad organizing a consortium of banks to lend to Apollo Tyre and MRF at 23% interest rate in the 80’s. If I’m not wrong at present most better corporates can access cash in the 8%-10% range. For priority sectors much less. In a relatively transparent system like India I don’t see it falling below 7%. Not for a long time.

Christopher Sidor · Post by **Christopher Sidor** » 22 Jul 2013 23:48

Suraj wrote:India to call on millions of NRIs to defend rupee
Acknowledging the country faced a dilemma, the officials said India was running out of options and time to revive the currency and fund a record current account deficit but equally it was wary of sending any distress signals to international markets.

Issuing a global bond might send such a signal, so instead policymakers will focus on attracting funds from Indians living abroad, such as by raising deposit rates in India or issuing bonds specifically designed for them - repeating measures carried out in 1998 and 2000 to steady a weak rupee.

The officials said an increase in central bank policy rates and allowing select firms to raise capital overseas were also being considered.

"All have agreed that it is not a time for India to issue sovereign bonds at this stage," one official said, adding that the central bank agreed with that position too.

"We do not have much options. Whatever has to be done, will be done in the next few weeks," the official said. "We have a window of only few weeks," he said.

"The government could ask banks to raise interest rates to attract an additional $15-20 billion," he said.
I'm conflicted about this. On one hand, the interest rates are attractive, and the talk of desperate moves screams of an exchange rate bottom. On the other hand, the near complete lack of fiscal competence on the part of the current administration makes me hestitate. Unless *they* start making painful actions in the interest of fiscal stability over polltime spending, I'm not sure I would participate in this.

I second that. This government is trying to do everything but take the appropriate steps to rein in the mess that it finds itself. A simple logic dictates that when your revenue falls you decrease your expenditure. Not seek out ways to sustain your expenditure. The sheer scale of the money that we spend on debt servicing and giving out grants to states who are perennially seeking some special package or the other, take the recent case of Bihar, is seen to be believed.

Austin · Post by **Austin** » 22 Jul 2013 23:56

Hmmm......Why not call the millions of Chinese to defend the Rupees or better get all their black money from Swiss Bank after looting Mother India all these years to defend the Rupee

Theo_Fidel · Post by **Theo_Fidel** » 23 Jul 2013 01:38

What sort of terms are they offering? If it is India bonds type stuff, it will sell out in no time at all. They should go for $100 billion type NRI bond offer at 6% -7%. Should not be a real problem.

For rupees, must offer some tax benefits.

Prem · Post by **Prem** » 23 Jul 2013 02:09

Doc ji would have gotton Heart attack on NRI getting hard on NRI cash . Acca hua , He is already resting out and in good health. Last time it was Indian pride at stake for NRIs ,now is not the same case.

vera_k · Post by **vera_k** » 23 Jul 2013 08:44

Theo_Fidel wrote: If I’m not wrong at present most better corporates can access cash in the 8%-10% range. For priority sectors much less. In a relatively transparent system like India I don’t see it falling below 7%. Not for a long time.

Obviously, no one would take on the exchange rate risk by borrowing externally, unless the cost was lower than domestic borrowing.

Austin · Post by **Austin** » 23 Jul 2013 08:53

Doc ji are you reffering to Shiv , havent seen him on BRF for long ?

vina · Post by **vina** » 23 Jul 2013 10:39

IIRC All the way up to the mid 1990’s cash was available to corporates at 15%-25% type interest rate. I very much remember my dad organizing a consortium of banks to lend to Apollo Tyre and MRF at 23% interest rate in the 80’s. If I’m not wrong at present most better corporates can access cash in the 8%-10% range. For priority sectors much less. In a relatively transparent system like India I don’t see it falling below 7%. Not for a long time.

Prime rates currently are around 9.75% and the rates you actually get your hands on money is closer to 12% to 13% . While you may argue that with inflation running high, these rates are not that high in "real terms" , I can only quote what Chidambaram said on TV on this "Real interest rates are of real interest only to economists. Everyone else, especially businessmen look at nominal interest rates".

The trouble with the UPA policies (which I wrote about even earlier during the alice in wonderland , all he ducks lining up together perfectly budgets that the perennial loser Pranab Mukherjee presented) , is that all that kind of spending financed by deficits, raised the inflation levels , raised interest rates for every one an brought down growth! Our macro economic numbers went out of whack and while we lived in la-la land for 2 years , it has come to roost now for Congress at the most inopportune time.

With consumer inflation above 10% in 2 consecutive ears, and likely to stay at elevated levels in the next one year as well , it is really bad news for the Congress, which is stuck between a rock and a hard place totally due to it's making. To fix it, it has to cut subsidies on diesel and fertilizer and stuff to zero, so that it can finance the spending plans, but is suicidal in an election year (9 months away) , but if it lets inflation stay high, it will get thrown out anyways, all that rhetoric about secularism and whatever not withstanding.

The only way out is for it to risk calling an early election (though today's poll in Al-Hundi says it will be savaged), risk it, hope a fresh mandate comes it's way and do the hard things that are necessary, while hoping to capitalize on the disarray in the BJP.

Muddle around for 9 months paralyzed with high inflation raging and a BJP consolidated under Modi (who revels in that idiotic secularism debate that Congress has launched on him, so dumb to play a game you cant win, too many skeletons in your own closet a few choice counter punches.. quoting just Rajiv Gandhi on Ram Rajya and God's Kingdom in bold will leave the congress reeling, Modi will be brilliant in doing that, like the Maut Ka Saudagar boomerang on Sonia when the Bhopal gas case came about), it will be bad news for the Congress.

Singha · Post by **Singha** » 23 Jul 2013 10:56

again I ask you the question - why would the same set of players (Madam, NAC and other tax-n-spend dole revolutionaries at the helm for 10 yrs now) let PC or montek or anyone else change the entire discourse? the amt of money they want to spend cannot be just got with a 6 month recovery it needs a lot of sustained growth.

without a regime change, the INC cannot change its economic philosophy.
and by genetic code, regime change in INC is not permitted

its like the Holy Quran, all is said, locked and sealed forever and anyone who says otherwise is a apostate. the code of the INC is a gandhi and only a gandhi shall leader its armies because only those of that blood are fit to rule.

nachiket · Post by **nachiket** » 23 Jul 2013 11:11

Singha saar, we just need to modify Einstein's definition of insanity a little bit. Electing the same people over and over again and expecting different results.

Austin · Post by **Austin** » 23 Jul 2013 11:35

I think Congress and BJP will do good to the Economy only if they have absolute or near absolute majority , so that they are not infulenced by policy of cooliation partners like Left or SP/BSP etc.

If the next Government throws up another coalition Government led by say NDA led by NAMO then they would be equally constrained.

Rest all is politics both Congress and BJP are same side of the coin adequately bought over by Corporates and feed on corruption and nepotism.

svinayak · Post by **svinayak** » 23 Jul 2013 11:45

Singha wrote:again I ask you the question -
without a regime change, the INC cannot change its economic philosophy.
and by genetic code, regime change in INC is not permitted

You need to understand that India has to suffer. Repeated suffering only will bring change.
Suffering has to increase to bring change. Until then no change

Theo_Fidel · Post by **Theo_Fidel** » 23 Jul 2013 11:58

All our reform has come under weak coalition politics usually in the midst of an economic catastrophe.
Congress should be cut to size and forced to deal with coalitions. As should BJP.
It these mythical mundayits that cause problems.
What is truly missing is a proper economic crisis, say a BoP collapse or Forex disaster. Though we are getting there.
Seems to be focusing GOI's mind but so far it is more prattle.

nachiket · Post by **nachiket** » 23 Jul 2013 12:23

Theo_Fidel wrote:All our reform has come under weak coalition politics usually in the midst of an economic catastrophe.
Congress should be cut to size and forced to deal with coalitions. As should BJP.
It these mythical mundayits that cause problems.
What is truly missing is a proper economic crisis, say a BoP collapse or Forex disaster. Though we are getting there.
Seems to be focusing GOI's mind but so far it is more prattle.

Erm, so what is happening now is not a crisis? Slowing exports, slowing Industrial output and GDP growth, Rupee at its lowest level and mounting debt looks clearly like a crisis even to a layman like me. You are saying the geniuses in the MoF need more convincing?

Maybe we should be electing governments which don't wait for things to get as bad as they did in 1991 before getting off their posteriors to do something about it. Or at least one which won't make things even worse like introducing a Food Security Bill at a time when there is a desperate need to cut government spending.

Arjun · Post by **Arjun** » 23 Jul 2013 12:30

Theo_Fidel wrote:All our reform has come under weak coalition politics usually in the midst of an economic catastrophe.
Congress should be cut to size and forced to deal with coalitions. As should BJP.
It these mythical mundayits that cause problems.
What is truly missing is a proper economic crisis, say a BoP collapse or Forex disaster. Though we are getting there.
Seems to be focusing GOI's mind but so far it is more prattle.

The problem lies in the traditional 'Burkhawala' (Indian 'secularist') back-bencher philosophy of wanting to flit from one crisis to another before initiating any action that does not gain them a vote-bank. The sheer gall of such a nation wanting to compete with the likes of a driven China is breath-taking.

vina · Post by **vina** » 23 Jul 2013 12:48

nachiket wrote:Maybe we should be electing governments which don't wait for things to get as bad as they did in 1991 before getting off their posteriors to do something about it. Or at least one which won't make things even worse like introducing a Food Security Bill at a time when there is a desperate need to cut government spending.

Then you will have to wait until kingdom comes.See , the reality of India , much as we hate the likes of Amartya Sen (I hate what and his fellow travellers did to this country by imposing that stalinist statist model, with the license permit raj and ) , you have to admit that he is spot on when he says we need massive investments in the social sector and huge improvements there (that it is used by the commie scoundrels to claim that this backwardness is due to reform and Amartya not speaking against that calumny is his complicity in that and he will always wiggle out that I didnt say anything at all about reforms /post 91 period, just spoke about investments to be made) , he is right.

In a democracy , anyother way is not sustainable (in his recent book, with Jean Dreze, all the examples he quotes of East Asia did that under totalitarian regimes, which he doesn't say very conveniently) .

Stuff like Food Security is necessary,also MNREGA, and national health mission, child and women's welfare. There is no getting away from it. What HOWEVER , we should do is to demand that it is efficient , delivers results and it is not money down a bottomless pit with nothing to show for it. In addition, what you should DEMAND is that this is not deficit financed, but is fully paid for and that will mean cutting the massive subsidies that go into everything from fuel to fertilizer to everything. We should demand the govt to be laser focused on a few things that are vitally important (public health, education , women and child welfare, food security and access and of course internal security and national security) and do it extremely well and leave the rest out. The govt in India is spread out too much in areas where it shouldn't be (like business) and too little in areas where it should be (health, education and internal security).

That is exactly where a Narendra Modi with his administrative and mangerial acumen should score over the Congress.

Now let us hear Modi talk over it on national television, what the programs BJP proposes, what it plans to do, rather than hear talk about whether there will be a Ram temple in Ayodhya. Let Modi speak to his strengths while Congress can prattle about secularism . Let him show the UPA govt's failures and say what he will do different. Let him point out the NHAI and PMGSY under the NDA and the thousands of KM of roads built and ZERO km of tracks laid under the UPA under the much ballyhooed freight corridor.

Crash develop UP and Bihar and get the health and other levels atleast upto Andhra /KTK standards, if not Kerala & TN stds, you will win them forever. That is a plan that Modi and BJP should talk about. I am all ears for it.

vina · Post by **vina** » 23 Jul 2013 13:04

Singha wrote:again I ask you the question - why would the same set of players (Madam, NAC and other tax-n-spend dole revolutionaries at the helm for 10 yrs now) let PC or montek or anyone else change the entire discourse? the amt of money they want to spend cannot be just got with a 6 month recovery it needs a lot of sustained growth.

I do think MadamJi would have been shaken by what happened in southern europe (he PIIGS , including her native Italy) and the tremors that are happening in India due to an unsustainable welfare state without the fiscal heft behind it. There is no way that fuel and other subsidies would have started getting cut without it. Also the NAC jokers have been quietly told to shut up I think. For eg, that nutcase Aruna Roy is out and as is Jean Dreze I think and Harsh Mander is strangely quiet these days.

without a regime change, the INC cannot change its economic philosophy.
and by genetic code, regime change in INC is not permitted

I am okay with a regime change, if it can do the implementation of a sharply focused govt far better than the Congress and defocuses on the more divisive wedge issues.

nachiket · Post by **nachiket** » 23 Jul 2013 13:16

vina wrote: Stuff like Food Security is necessary,also MNREGA, and national health mission, child and women's welfare. There is no getting away from it. What HOWEVER , we should do is to demand that it is efficient , delivers results and it is not money down a bottomless pit with nothing to show for it. In addition, what you should DEMAND is that this is not deficit financed, but is fully paid for and that will mean cutting the massive subsidies that go into everything from fuel to fertilizer to everything. We should demand the govt to be laser focused on a few things that are vitally important (public health, education , women and child welfare, food security and access and of course internal security and national security) and do it extremely well and leave the rest out. The govt in India is spread out too much in areas where it shouldn't be (like business) and too little in areas where it should be (health, education and internal security).

Well the government seems to be executing it in exactly the way that you say it shouldn't. All their social sector splurging is deficit financed. And it is being taken up at the worst time imaginable, when revenue is weak and GDP growth is marginal. In any case all these social sector schemes are just another type of economic redistribution without economic growth unless accompanied by the requisite reforms as well. We tried that already for 40+ years. It didn't work. Without addressing the infrastructure bottlenecks, excessive red tape and ill-thought out economic policies that are stifling industrial growth none of these schemes are going to improve the lot of the poor. All they will do is increase inflation. You might as well just shout "Garibi Hatao" from rooftops as our old governments did. Even that might give better results. And the worst thing is the present government had a strong mandate in two elections to actually address the real problems and they did nothing. Annd once a government is elected, the present system doesn't let us "demand" anything. All we can do if the government acts like nincompoops is to throw it out of power in the next elections. That is the only way they learn. Unfortunately our people seem to be singularly incapable of doing that.

Crash develop UP and Bihar and get the health and other levels atleast upto Andhra /KTK standards, if not Kerala & TN stds, you will win them forever. That is a plan that Modi and BJP should talk about. I am all ears for it.

Well I don't want to talk about Modi and the BJP too much here. There are too many other threads in which to do that. Suffice to say that you would be better off giving that advice to the voters of Bihar and UP. The need to elect the BJP to power first. Fat chance of that happening, at least in UP in the next elections.

vina · Post by **vina** » 23 Jul 2013 13:38

Seriously. If BJP promises, that it if it comes to power, it will kick JNU out of Delhi to Dantewada, I will vote for it. I ask for nothing else.

The JNU location can be given to IIT Delhi which has a serious space crunch. JNU can be given some 400000000 hectares in Dantewada. It will help the faculty with their "fieldwork" and the students to be close to and intern with their primary recruiters.

Singha · Post by **Singha** » 23 Jul 2013 14:44

a good joke was in JNU the CPI(M) is considered "a dangerous far right party"

Supratik · Post by **Supratik** » 23 Jul 2013 16:48

Aruna Roy, Jean Dreze, Harsh Mander, etc wanted more e.g. 100% coverage in FSB, 100% consent in LA, Communal Violence bill, etc which they did not get and moved out or were moved out.

I agree with Singha, unless the INC is out of power for a considerable period of time like 20-30 years and the dynasty is eradicated they will continue to go on with their "crony socialism, crony capitalism" model. For India to forge ahead there has to be a complete paradigm change. I am afraid the INC and dynasty are not suitable to make that change. You need someone who is a game-changer.