Indian Economy News & Discussion - Nov 27 2017

[Suraj]

I've been slow to keep up with this thread recently, but let me try to catch up...

RCEP: the right decision was made here. Fundamentally, a country that runs a chronic trade deficit does not benefit from a FTA with a bloc who are largely the source of its merchandise deficit. E.g. negative $60B with China, negative $10B each with Australia, Malaysia and Indonesia...

More importantly, refusing to join now, strengthens the negotiating position for later. This is because India was a primary 'sink' for the bloc - China, ASEAN, Aus/NZ all run large surpluses with India and needed to keep that stable. In very crude terms it's like a circuit whose ground connection refused to be part of it. China doesn't want to absorb ASEAN production - they are its extended base. ASEAN doesn't want to be a sink for China. Nor does Japan. Aus/NZ are too small to be sinks. They want markets for their raw material or primary/food products - everything from ore to wool, wine and honey. Without India, the RCEP is unbalanced with too many producers and not enough consumers. Our act ensures that we sabotage that grouping enough to suit our own interests in the long term.

What India seeks instead, is a period of time (10-20 years) of investment on fixed production assets within its shores, so it can be a source and not a sink. Its economic policymaking framework has to be aligned to that goal.

When it comes to FTAs, one with the OPEC/ME oil producers would be fine. Even with Aus/NZ would be fine. Both are sources of primary inputs to our own manufacturing and industrial economy, and both entities lack the manufacturing chops to invade our markets with goods. Even a FTA with UK makes more sense than one with the APEC manufacturing engine.

While on the topic of imports, there remains a negative incentive favouring people to just take a plane to Shenzhen, strike a deal and import and sell junk in India. This must be stopped with appropriate tariff structures, as quickly as possible. That system does nothing more than create Micromax clones - at some point the Chinese will just kick the middleman aside and take over the market themselves. The Make In India policy is hamstrung by the volume of imports coming in, that destroy the incentive to invest locally.

[Suraj]

The issue with the ongoing economic slowdown is that it appears demand driven, but not investment driven: stagnant output, depressed consumer sentiment and consumption but on the other hand, all-time high forex reserves, stable and growing FDI, strong services exports. Index measures are basically range-bound - both INR/USD and the Nifty/Sensex have been stable for the past year or more.

Looking at trade data, the trade growth has been negative for 3 months now, but there's more detail here. Export growth is between minus 0-5% . Import growth has fallen by double digits. Exports of consumer items has been negative (e.g. clothing, gems/jewelry) but exports of industrial goods has stayed positive (e.g. manufactured items, electronics, chemicals, which dominate our export basket now). On the import side, the imports of feedstock material has dropped a lot - petroleum, coal, ore, iron, all are over -10%, which ties in to the picture of the output of the production economy being stagnant.

So what's the conclusion here ? There's a problem getting companies to produce and getting people to buy. But it's not affecting the BoP situation and is not causing a potential macroeconomic crisis down the line due to a huge deterioration of the current or capital accounts as happened in the late 2000s/early 2010s.

[kit]

I've been slow to keep up with this thread recently, but let me try to catch up...

RCEP: the right decision was made here. Fundamentally, a country that runs a chronic trade deficit does not benefit from a FTA with a bloc who are largely the source of its merchandise deficit. E.g. negative $60B with China, negative $10B each with Australia, Malaysia and Indonesia...

More importantly, refusing to join now, strengthens the negotiating position for later. This is because India was a IS THE primary 'sink' for the bloc - China, ASEAN, Aus/NZ all run large surpluses with India and needed to keep that stable. In very crude terms it's like a circuit whose ground connection refused to be part of it. China doesn't want to absorb ASEAN production - they are its extended base. ASEAN doesn't want to be a sink for China. Nor does Japan. Aus/NZ are too small to be sinks. They want markets for their raw material or primary/food products - everything from ore to wool, wine and honey. Without India, the RCEP is unbalanced with too many producers and not enough consumers. Our act ensures that we sabotage that grouping enough to suit our own interests in the long term.

What India seeks instead, is a period of time (10-20 years) of investment on fixed production assets within its shores, so it can be a source and not a sink. Its economic policymaking framework has to be aligned to that goal.

When it comes to FTAs, one with the OPEC/ME oil producers would be fine. Even with Aus/NZ would be fine. Both are sources of primary inputs to our own manufacturing and industrial economy, and both entities lack the manufacturing chops to invade our markets with goods. Even a FTA with UK makes more sense than one with the APEC manufacturing engine.

While on the topic of imports, there remains a negative incentive favouring people to just take a plane to Shenzhen, strike a deal and import and sell junk in India. This must be stopped with appropriate tariff structures, as quickly as possible. That system does nothing more than create Micromax clones - at some point the Chinese will just kick the middleman aside and take over the market themselves. The Make In India policy is hamstrung by the volume of imports coming in, that destroy the incentive to invest locally.

No one could have said it better., India staying put was the best decision any way you look at it

[alexis]

I've been slow to keep up with this thread recently, but let me try to catch up...

RCEP: the right decision was made here. Fundamentally, a country that runs a chronic trade deficit does not benefit from a FTA with a bloc who are largely the source of its merchandise deficit. E.g. negative $60B with China, negative $10B each with Australia, Malaysia and Indonesia...

More importantly, refusing to join now, strengthens the negotiating position for later. This is because India was a primary 'sink' for the bloc - China, ASEAN, Aus/NZ all run large surpluses with India and needed to keep that stable. In very crude terms it's like a circuit whose ground connection refused to be part of it. China doesn't want to absorb ASEAN production - they are its extended base. ASEAN doesn't want to be a sink for China. Nor does Japan. Aus/NZ are too small to be sinks. They want markets for their raw material or primary/food products - everything from ore to wool, wine and honey. Without India, the RCEP is unbalanced with too many producers and not enough consumers. Our act ensures that we sabotage that grouping enough to suit our own interests in the long term.

Completely agree.

What India seeks instead, is a period of time (10-20 years) of investment on fixed production assets within its shores, so it can be a source and not a sink. Its economic policymaking framework has to be aligned to that goal.

The intent may be there but the action on ground is lacking. The fact is corporates are not investing and neither is the government.

[alexis]

https://www.livemint.com/news/india/why ... 77580.html

Not a good news...

The survey is for the period 2017-18. But we already have aggregate national income, private final consumption expenditure and savings data in the aggregate for 2017-18. I don't understand this noise about survey data.

As explained in the article, the primary survey data is not agreeing with derived data. The primary survey data is presenting a worse picture and hence government doesnt want to release it. Obviously, one need to analyse the data from the survey to understand the discrepency which statisticians are unable as it is not being released.

We need to create jobs urgently especially at the lower end to address these issues.

[nandakumar]

Survey by definition is a sample and extrapolation of its findings to the universe. But the universe itself already stands measured. But if someone insists that because the extrapolated characteristics for the universe as derived from the sample are at variance with the observed characteristics of the universe, the observed characteristics of the universe must be deemed to be false is to turn the notion of truth on its head. I mean, all statisticians agree that even the most rigorously selected sample may end up not capturing the characteristics of the population. That is why there is something called a 'sampling error'. Of course if the point is that the methodology for measuring the aggregate GDP data (universe) is somehow flawed, then there must at least be an indication of what might be wrong with it. There was none in the story.

[alexis]

Survey by definition is a sample and extrapolation of its findings to the universe. But the universe itself already stands measured. But if someone insists that because the extrapolated characteristics for the universe as derived from the sample are at variance with the observed characteristics of the universe, the observed characteristics of the universe must be deemed to be false is to turn the notion of truth on its head. I mean, all statisticians agree that even the most rigorously selected sample may end up not capturing the characteristics of the population. That is why there is something called a 'sampling error'. Of course if the point is that the methodology for measuring the aggregate GDP data (universe) is somehow flawed, then there must at least be an indication of what might be wrong with it. There was none in the story.

When we are comparing two measurements of the same attribute and they differs, we need to analyse the measurements properly.

The "observed characterisitics" you refer to are itself estimates compiled by the same organisation.

[alexis]

Further update on the matter
https://www.livemint.com/news/india/aft ... 34927.html

[Kashi]

The intent may be there but the action on ground is lacking. The fact is corporates are not investing and neither is the government.

Perhaps they are both waiting for each other to invest, before going all in. Whatever the reason, the impasse cannot be good for us.

[tandav]

The issue with the ongoing economic slowdown is that it appears demand driven, but not investment driven: stagnant output, depressed consumer sentiment and consumption but on the other hand, all-time high forex reserves, stable and growing FDI, strong services exports. Index measures are basically range-bound - both INR/USD and the Nifty/Sensex have been stable for the past year or more.

Looking at trade data, the trade growth has been negative for 3 months now, but there's more detail here. Export growth is between minus 0-5% . Import growth has fallen by double digits. Exports of consumer items has been negative (e.g. clothing, gems/jewelry) but exports of industrial goods has stayed positive (e.g. manufactured items, electronics, chemicals, which dominate our export basket now). On the import side, the imports of feedstock material has dropped a lot - petroleum, coal, ore, iron, all are over -10%, which ties in to the picture of the output of the production economy being stagnant.

So what's the conclusion here ? There's a problem getting companies to produce and getting people to buy. But it's not affecting the BoP situation and is not causing a potential macroeconomic crisis down the line due to a huge deterioration of the current or capital accounts as happened in the late 2000s/early 2010s.

Increasingly environment is causing a push back lack of water is causing issues in electricity production and most of the coal fired power plants are running far below capacity. As of date Coal fired plants install capacity is 20% greater than base load. Interestingly in India bulk industrial users (Rs 12/KWHR) have to pay more for power than small residential users (Rs 6/KWHr) who are cross subsidized by the bulk industrial users. Renewables are now cheaper than coal however cannot sustain nocturnal loads due to lack of storage. We need more pumped storage solutions to store power.

https://economictimes.indiatimes.com/in ... s&from=mdr

[Peregrine]

With $78 billion, India still highest overseas remittance receiver

India continues to retain its position as the world's top recipient of remittances, with its diaspora sending back $78.6 billion in 2018. Considering that India's diaspora is the largest in the world, at 17.5 million (as of mid-2019), this ranking in terms of remittances is not surpising. India's remittances were 14% of the global remittance figure of $689 billion. China was next in line, with remittances of $67.41 billion (which is 5.4% of the global remittance figure).

IMO the percentages of remittances should be for India 11.41% and China 9.78%
Cheers

[Aditya_V]

I wonder what is the value of remittances coming into India by people working in Merchant Navy

[Suraj]

What India seeks instead, is a period of time (10-20 years) of investment on fixed production assets within its shores, so it can be a source and not a sink. Its economic policymaking framework has to be aligned to that goal.

The intent may be there but the action on ground is lacking. The fact is corporates are not investing and neither is the government.

in my view, this is the wrong way to look at it . Encouraging and establishing a manufacturing ecosystem is not a trivial exercise. It’s the result of MANY actions that work incrementally, and often many things have to be learned and fine tuned . Building momentum takes time - years if not decades. SEZs were hugely successful in China, but it took 20-25 years from their first establishment in 1979. Along the way they experimented with many things - TVE reforms, and more. They had to effectively change the structure of their whole economy after all. Did did many little things, learned and went back to the drawing board and did more . Policy along in this domain is a continuous feedback exercise.

Similarly, Make In India isn’t just one policy effort. It involves hitting roadblock after roadblock in fine tuning the system to work . Ministries not working together, turf wars or just lack of coordination, lack of capital, companies under fiscal stress unable to invest. Some major efforts like Make In India face seemingly endless hurdles before it all suddenly starts to function effectively. Until it gets to that point, it seems like a failure.

What’s more useful is keeping a gauge of the governments commitment to it . Are they continuously tackling every issue the effort is facing ? Or are they simply giving up on it ? This administration has often been characterized - in my view - by one notable difference compared to its predecessors. Persistent focus.

No government before this one has ever accomplished the rapid socioeconomic gains this one has. Between 2014 - 2019, India almost eliminated the problems of rural road connectivity, electricity, financial inclusion, sanitation and access to cooking fuel . Unglamorous exercises, but ones pursued with a continuous focus not demonstrated by any prior administration. In 2014, less than half of rural India had access to all these. In 2019, more than 90% do. In five years a government did what 70 years of prior governments could not. They were handsomely rewarded for it in the general election.

Therefore when this administration announces a policy effort, I expect persistence from them. They play the long game, so the analysis of their policy efforts needs to attempt to keep track of their efforts . The mainstream media often cannot and will not do so. But the government itself has been good at continuously reporting status for reasons best left to politics thread , so it’s worth tracking what they’re doing.

[Vips]

UPI transactions in July-Sep up 183% at 2.7 bn; value jumps to Rs 4.6 trn.

The total volume of Unified Payments Interface (UPI) transactions in Q3 2019 touched 2.7 billion, a whopping 183 per cent increase from the same July-September quarter a year ago. In terms of value, UPI clocked Rs 4.6 trillion, up 189 per cent from Q3 2018, a new report said on Wednesday.

The number of transactions done on mobile wallets was 1.04 billion, an increase of just 5 per cent over previous year period while the value of transactions in the July-September period was Rs 466 billion, an increase of 2 per cent over Q3 of the previous year, said the Worldline report tiled "India Digital Payments Report - Q3 2019". "The growth of mobile wallets has not taken off much following the emergence of UPI. The transactions done using mobile wallets in Q3 2019 are only 10 per cent of the size of the total transaction value on the UPI platform," the report noted.

Starting with just 21 member banks and less than 1 million transactions in August 2016, UPI is now adopted by 141 banks and achieved a milestone transaction volume of 1 billion in October this year. "The Reserve Bank of India, in its efforts to promote digital payments recently notified that it will operationalize the Acceptance Development Fund from January 1, 2020. This will clearly expedite the task of enabling Tier III, IV markets with acceptance infrastructure," said Deepak Chandnani Managing Director, Worldline South Asia & Middle East.

"Though POS terminals are increasing at a steady pace and have reached 4.59 million till September 2019, we still have a long way to go to cater close to 900 million cards in circulation," he added. In Q3 2019, the total number of credit card transactions was 540 million, an increase of 25.6 per cent over the previous year and the total number of debit card transactions was 3.7 billion, an increase of 6.4 per cent over the previous year.
The average ticket size on POS terminals for credit card transactions was Rs 3,324 and Rs 1,357 for debit card transactions.

IMPS continued its strong growth in Q3 2019. IMPS recorded 594 million transactions, a 50 per cent increase from Q3 2018 and in terms of value, IMPS clocked Rs 5.5 trillion, up 51 per cent from Q3 2018.

August was the month with the highest number of transactions. The highest number of transactions was recorded on August 10, just two days before Eid-al-Adha.The trend of highest number of transactions recorded during festivals continued like previous quarters.

Worldline said it has over 1 million merchant touchpoints pan-India, accounting for 30 per cent of the merchant acquiring touchpoints.

[Suraj]

Entirely predictable news about RCEP that was explained above:
Japan Won’t Sign China-Backed Trade Deal If India Doesn’t Join
There goes the RCEP. Next to run for the exits will be Aus/NZ.

[Yagnasri]

Interesting to see how Aus which always was differential to the lizard for the last few years will do.

[suryag]

Suraj and other garus, what kind of structural reforms can accelerate the growth given growing any new industry is not so easy in a short time frame

[Suraj]

Interesting to see how Aus which always was differential to the lizard for the last few years will do.

Aus are deferential to someone who’s the biggest buyer of their resources, but they’re not stupid enough to let the Chinese buy up their country or dump products there.

RCEP was supposed to be a nice balancing of Asian powers but since we backed out, it’s become another belt and road thing that no wants wants to be part of it any more. The Japanese already quit . Aus/NZ probably will soon. ASEAN will probably just hope it falls apart on its own so they don’t have to say anything to China. Probably only Singapore will speak up and say they quit too .

[kit]

Entirely predictable news about RCEP that was explained above:
Japan Won’t Sign China-Backed Trade Deal If India Doesn’t Join
There goes the RCEP. Next to run for the exits will be Aus/NZ.

The BRF assessment was quite accurate., India was the sink and the market; ALL the rest were in one way or other producers !! ., India should make separate deals with each of them for the simple reason India is more like EU and a single large market and growing, separate deals will make sure each of them will pay for access to the Indian market.

India is definitely NOT suited for any trade bloc deal anytime now.

[ranneel]

Q2 gdp quick analysis...
https://youtu.be/rpLvxn-HIv8

[arshyam]

For the record: India’s GDP Growth Rate Down To 4.5 Per Cent In Q2; Manufacturing Slowdown Major Dent

[arshyam]

Karan Bhasin argues on Swarajya that the policy changes have a lag before they take effect, so this quarter (ending in Sep) may be the lowest we have seen, and things should pick up going forward.

Q2 Growth Stands At 4.5 Per Cent: Why The Worst Might Just Be Over - Karan Bhasin, Swarajya

The worst just might be over — and that should be a major reason for cheer. There continues to be some fresh vulnerabilities and downside risks. However, government appears to be extremely proactive in addressing them. The only hope now is for a sustained period of low real interest rates until we reach the 7 per cent mark in financial year 2020-21.

Given the other indicators like investment, forex reserves, govt attention, and fundamentals are stable, I suspect this is a cyclical dip and sentiment should pick up soon. Some green shoots were reported in the Oct festive season, especially in automobiles. Monsoon has been good this year, and except for the onion crop, farming should do well and would boost rural consumption starting Sankranthi/Pongal. When construction also starts to pick up, these engines will start to boost sentiment. With BS6 and RERA already behind us, further growth will be "good" growth, i.e. not built on speculation that would put another downturn later. I am sure this time next year, we will be back to 7%+ and this slump a blip in the rear-view mirror. Let's see.

[chetak]

Japan not in the mood to join RCEP if India doesn't come on board

Japan not in the mood to join RCEP if India doesn't come on board

November 29, 2019

Japan is not considering signing a Chinese-backed regional trade pact without India, the top Japanese negotiator said Friday, ahead of a series of diplomatic exchanges in the coming weeks that include a visit to Delhi by Prime Minister Shinzo Abe.

India announced this month it was withdrawing from the Regional Comprehensive Economic Partnership, citing the deal’s potential impact on the livelihoods of its most vulnerable citizens. China said that the 15 remaining countries decided to move forward first and India was welcome to join RCEP whenever it’s ready.

“We aren’t thinking about that at all yet,” Deputy Minister for Economy, Trade and Industry Hideki Makihara, said in an interview with Bloomberg. “All we are thinking of is negotiations including India.”

Abe has sought to beef up ties with India across a range of fields to balance China’s regional dominance. Japanese and Indian foreign and defense ministers hold their first joint meeting in a so-called ‘two plus two’ format this weekend. Both countries are also part of four-way security talks with Australia and the US called the Quad, a move that Beijing has complained could stoke a new Cold War.

Japan Seeks to Keep India in China-Backed Regional Trade Pact

“It is meaningful from the economic, political and potentially the national security point of view,” Makihara said of the inclusion of the world’s largest democracy in the pact. “Japan will continue to try to persuade India to join.”

Trade Minister Hiroshi Kajiyama will accompany Abe on next month’s trip to India, Makihara said.

The other countries taking part in the RCEP talks are Australia, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, New Zealand, Philippines, Singapore, South Korea, Thailand and Vietnam.

China has sought to accelerate the RCEP deal as it faces slowing growth from a trade war with the U.S. An agreement would further integrate Asia’s economies with China just as President Donald Trump’s administration urges nations in the region to shun Chinese infrastructure loans and 5G telecommunications technology.

[chetak]

lower level monkey business continues unabated.




twitter

This is how corrupt officials kill businesses. This is a Rs 3-cr scam where bulbs worth Rs 5,000 were purchased at 10 times the price. And this money will be recovered from units that set up shop in Aerospace Park. Guess who will end up paying for them?

[Peregrine]

Mods : Please Transfer this to the appropriate Thread. I have posted it in Full as the Article is "guarded" by a PAYWALL.

X Posting on the P E S W Thread

The rise and rise of India as an economic powerhouse

Sitting in one of India’s seemingly endless traffic jams, breathing its often choking air, it’s difficult to see how this nation of 1.3 billion will solve its own problems, let alone present an alternative to China as a global economic powerhouse.

But it’s this crush of humanity, and the ambition it instills in its youthful population, that makes India such a compelling economic partner. As the world’s biggest democracy, India also has a strong commitment to the global rules-based order, making it an ideal strategic partner for Western nations as authoritarian China flexes its muscles.

Scale and shared values are India’s great advantages, and at the heart of Scott Morrison’s push towards closer ties with New Delhi.

In a major foreign policy speech last month, the Prime Minister described India as “a great success story of our region”, and “a natural partner for Australia”.

Morrison will seek to turbocharge this relationship in January when he travels to India at the invitation of his charismatic and politically savvy counterpart, Narendra Modi.

Preparations for the visit have been under way for months, with Australia hoping to secure economic and strategic agreements, which will begin the long process of lessening the nation’s economic dependency on China, and strengthening the West’s response to Beijing’s technological and military posturing.

The next China?

Morrison will not present engagement with India and China as a “binary choice” that Australia must make, in the same way he argues Australia doesn’t need to choose between the US and the People’s Republic of China.

But Tony Abbott, with all the frankness of a former prime minister, suggested during a visit to India last week that’s what Australia should aim for. Abbott declared in New Delhi that India “could be the next China” and urged Morrison to help create a new democratic global superpower less politically overbearing than the communist giant.

He said policymakers had neglected engagement with India by putting “too many eggs into the China basket”, arguing it would be easier to develop a “deep commitment” across the board with India.

Former Department of Foreign Affairs and Trade secretary Peter Varghese says in his landmark 2018 India Economic Strategy that there is “no market over the next 20 years which offers more growth opportunities for Australian business than India”.

Varghese says Australia’s flagship education sector, together with agribusiness, resources and tourism, will be at the forefront of a new economic partnership with India. Energy, infrastructure, financial services and innovation also offer promising opportunities, he says.

By 2035, India will overtake China as the most populous nation and is likely to become the third largest economy, after China and the US.

Varghese predicts India’s economy will continue to grow at 6 per cent to 8 per cent a year for the next 20 years. But he also cautions against India “boosterism”, and disagrees with Abbott’s “next China” analysis.

“No Indian government will be able to direct the economy in the way China does,” he says. “Nor will it ever have the control over the allocation of resources, which has been intrinsic to China’s economic success.

“We need to navigate between the hype that India is the next China and the outdated pessimism that India is just too hard.”

Australian exports to China last year were worth $118bn — more than 10 times the value of Australian goods and services purchased by India, at $16.7bn.

Australian companies and financial institutions had more than $75bn invested in the Chinese economy last year, but only $15.5bn invested in India.

The stark economic numbers suggest that for Australia there will be no Donald Trump-style “decoupling” from China in favour of India.

Untapped opportunity

But there is no doubt that India — fastest growing large economy — presents an enormous and largely untapped opportunity that Australia can no longer ignore. Its potential as a security partner in the increasingly contested Indo-Pacific also is energising the Australian government, together with policymakers in Washington and Tokyo.

A decade after Kevin Rudd withdrew Australia from the Quadrilateral Security Dialogue to appease Beijing, the informal security grouping bringing together the US, Japan, Australia and India is back on track.

Former Labor foreign minister Stephen Smith announced in 2008 that Australia would quit the Quad, admitting it had “caused China concern”, and Australia “would not be proposing to have a dialogue of that nature” again.

The decision hobbled the nascent security dialogue, conceived by Japanese Prime Minister Shinzo Abe as an “Asian arc of democracy”, and left Indian strategists questioning Australia’s reliability.

The Quad was revived and elevated in September with its first ministerial meeting, on the sidelines of the UN General Assembly, after years of official-level talks.

Foreign Minister Marise Payne said she and her US, Japanese and Indian counterparts discussed “efforts to maintain and promote an open, prosperous and inclusive Indo-Pacific” — code for countering bad behaviour by China.

Scott Morrison with Indian Prime Minister Narendra Modi in Osaka, Japan, in June. Picture: AAP
In April, Australian and Indian ships conducted a third bilateral naval exercise, AUSINDEX, in the Bay of Bengal, focusing on anti-submarine warfare.

Australia contributed the landing helicopter dock HMAS Canberra, two frigates and a Collins-class submarine, its largest contingent for an exercise in those waters.

The Australian government will be hoping to ramp up such military co-operation, including possible participation in Operation Malabar exercises with the US and Indian navies.

Morrison also is determined to use his upcoming trip to strike new strategic agreements on the development of critical technologies — artificial intelligence, quantum computing and 5G — and critical minerals such as rare earths and lithium.

Initial talks have occurred between Australian and Indian officials on a plan to combine Australian research expertise with India’s ability to apply new technologies on a colossal scale.

It’s hoped the collaboration will enable Western nations, rather than China, to set the technical standards around the technologies that will underpin economic and military development for decades to come.

The 2019 Global Innovation Index, co-published by Cornell University, INSEAD business school and the World Intellectual Property Organisation, placed India in 51st place in its global league table of the most innovative nations. Australia came in at 22, China at 14 and the US third, after Switzerland and Sweden.

Tech hub

But India is undeniably a hub of technology expertise, particularly in the IT services sector.

Companies such as Tata Consultancy Services, Infosys and Wipro have combined India’s strengths — cheap, English-speaking labour and quality technical education — to help companies around the world improve their business processes with AI and machine learning and armies of coders.

The Australian recently toured Infosys’s Bangalore technology hub — a vast Google-like campus that runs 24 hours a day supporting some of the world’s biggest companies. Employees use company bicycles to get around, eat wholesome food, and play tennis during their breaks.

The $40bn company, whose founders started in 1981 with a $US250 loan from their spouses, entered the Australian market in 1999. Now its Australian operation has about 5000 employees and pulls in about $1.47bn in revenue.

“India missed the manufacturing revolution but was able to take advantage of the services revolution,” company chief operating officer Pravin Rao says.

But capacity constraints continue to crimp the country’s potential. The county’s renowned Indian Institutes of Technology are harder to gain entry to than Oxford. This year one million students applied for an IIT position but only 9784 gained entry.

Grasping growth story

Although China has presented a difficult business environment for Australian investors through the years — particularly for companies forced to hand over their intellectual property — Australian companies have grown used to doing business in the Chinese market.

India is an altogether different prospect. While it has a strong and familiar legal framework, it has been a prodigious generator of investor red tape. India’s bureaucracy is famously stultifying, and its polluted cities are clogged with traffic. In the World Bank’s latest “ease of doing business” ranking, released last month, India took 63rd position — up 14 places. China came in at 31 and Australia at 14. But with an average age of 27 — a decade younger than China’s — India is young and hungry.

Varghese lamented at a recent forum in New Delhi that Australia’s “big end of town” had yet to grasp India’s growth potential, saying there would be significant benefits for those who got in early.

“There is less of an appreciation of what is happening in India in the Australian corporate sector, and less of an understanding of what these long-term trends in the Indian economy add up to,” he says.

However, some Australian investors are beginning to see value in India’s growth story, with the nation’s biggest retirement fund, AustralianSuper, sinking up to $1.47bn into the Mumbai-based National Investment and Infrastructure Fund.

Macquarie Group also is betting big on India, winning a $2.2bn contract to operate 680km of the country’s national highways for the next 30 years.

Energy demand

India won’t reach its development potential without access to more energy, providing a significant opportunity for Australia.

India’s electricity demand has tripled since 2000 and is expected to rise by at least 5 per cent a year to 2035 and beyond. About 280 million Indians have no access to reliable electricity, which contributes to the nation’s staggeringly low average per capita energy use of about 800 kilowatt hours a year. The world average is 3600kWh, while Australian consumers use about 10,000kWh a year.

The International Energy Agency predicts India’s thermal coal consumption will continue to grow and soon will overtake China as the biggest coal importer.

And while Adani’s Carmichael coalmine, in central Queensland, became a lightning rod for environmental protesters, few realise the Indian firm is also on its way to becoming one of the world’s biggest renewable energy companies.

It has nearly 5000 megawatts of installed or under-construction renewables, and plans to expand its solar and wind capacity to 20,000MW by 2025.

Adani family scion Karan Adani says new coal and renewables plants need to be rolled out in tandem across the country to ensure network reliability.

“The underlying stable network of the country can only rely on non-renewable sources,” he says. “And for us the cheapest source is coal.”

Varghese says Indian demand for Australian coking coal also will surge when the country’s steel production ramps up.

Australia was disappointed when India opted to remain out of the Regional Comprehensive Economic Partnership — a proposed 16-nation trade deal that would have covered 3.4 billion people with a combined gross domestic product of $US49.5 trillion ($72.8 trillion).

But Modi’s decision to stay out of RCEP was driven by domestic politics, amid fears the deal would expose the nation’s farmers and small businesses to cheap imports.

Former Indian diplomat Anil Wadhwa, who is writing the Indian government’s response to the Varghese report, says India’s decision to stay out of RCEP offers “a great opportunity” for a fresh look at a bilateral trade deal with Australia.

Australia and India began negotiations on an economic co-operation agreement in 2011, but the talks stalled in 2015 amid difficulties over agriculture and services market access.

Wadhwa says freer access to Australia for skilled Indian workers will be one of India’s top priorities when considering closer economic ties, suggesting Indian doctors, nurses, infrastructure specialists and security guards could “fill the gaps” in the Australian labour market.

Wadhwa’s draft report identifies acquisition of Australian agritech companies, cotton farms and food companies as key investment opportunities for India, and says India can benefit from Australian expertise in renewable energy and electricity grid technology.

The report, scheduled for release during Morrison’s visit, says it is “imperative” that India focus on Australia to meet its future minerals needs, and that a new port on the country’s east coast offers opportunities to boost imports of Australian liquefied natural gas.

Billionaire Anand Mahindra, the head of one of India’s most successful companies, says the Australia-India relationship inevitably will grow amid rising international concerns over China’s behaviour in the world.

The Mahindra Group executive chairman says the long-running unrest in Hong Kong illustrates “starkly what the differences are” between India and China.

“We may not look the same but the fact is that as far as what we feel about freedom, and about democracy and its principles, are identical. I think that is the bedrock of trust,” he says.

Cheers

[Supratik]

Change tax slabs next budget. Real interest rate should not be more than 6-7%. Retirees will be unhappy but nothing much can be done. While jobs are being created not enough quality paying jobs are being created. Something the govt needs to focus on. There are still complaints about GST regime and ease of doing business which needs to be worked upon. There is no reason why India cannot have a sustained 9% growth rate.

[jpremnath]

The govt should have cut the income tax and GST rates rather than corporate tax. The former would have meant more spending by public. The government is always an inefficient allocator of capital and this exacerbate the current economic malaise. Thousands of crores pumped into PSU banks to recapitalise them hasn't yielded any results..they are as sick as before if not more.
The corporate tax cut is never a guarantee for increase in investments..the companies just adjust the bounty into their balance sheet and wait for economy to pick up before committing any expansions. In the previous quarter results, very few companies talked about expansions in theor con calls..All were in the wait and watch mode. And expecting foreign investors to queue up might also not materialise as they will think twice to sink their capital in a slowing economy. Even though our corporate taxes were high and needed adjustments, cutting Corp tax means there wont be any room for cutting income tax or GST.

[Dileep]

The biggest hassle the manufacturing industry (and any industry that need to spend cash first and then recover it later) is the availability and cost of working capital. A good portion of this need is met by the 'black money'. With the screws tightened on black money, this source for working capital is drying up. An alternate 'legal' source for money has not opened up. That is the 'elephant in the room'.

This scarcity of money cause a dirty vicious cycle. Customers (B2B) never pay on time, and ask you to jump through hoops to get your money. You won't have money to fund further work, so you start scraping the bottom of the barrels. Competitiveness go for a toss.

Once you fill the 'pond' of black money, you are obligated to give 'pipe connection' to meet the need for water you see?

In reality, it will take time to change the workflows and concepts established over a long period based on 'british mistrusting the cheating natives'. Reducing the interest rate is the obvious thing that could be done.

Hey!! We are Bharat! the land of jugaad!! Why can't the bright minds find some innovative idea to solve this?

[Supratik]

I am against IT tax cuts. IMO they are in line with most advanced countries. Plus any cut will become permanent. However, the tax slabs can change. The logic is that with expanding economy, income rises and more people move up to the higher bracket but are penalized unnecessarily for this. Cost of living also increases with expanding economy. So every few years tax brackets need to change and I believe it has not happened on the higher side for quite some time. The govt should reduce obsessing over being the prime driver of the economy. I have no problem if there are 2-3 PSU banks. I don't think it is bad for the economy and as stated earlier India still needs finances for social intervention for at least another 20 years. In addition, I and several others had predicted that cleaning up the economy will have a downside in the short term but benefit in the long term. Not cleaning up will be disastrous with Latin America type situation where the economies tanked due to a combination of factors - a major one being uncontrolled corruption.

[nam]

Growth is a simple case of demand being met by supply. So where is the demand? Is there an area which will allow Indian companies to provide the demand?

We can have goods used by internal market or exports. We sustain on internal market, but our exports are really weak. Other than IT, we don't have any bug guns.

Let's take the major areas of exports:
Oil- cannot be
Engineering goods: German, Chinese, and American
Automobiles: German,Chinese, Japanese, to some extent us.
White goods: Chinese
Electrical: Again chinese.
Weapons: US, Russia, Chinese.
Warship/Ship building: Europeans, Koreans & Chinese.

If we want to be 5 or 10 trillion GDP, we need to produce stuff what the world wants. What do we produce?

The defense industry is strangled by GoI & it's DPSU. White goods by Chinese imports. No matter what steps we take, unless we make stuff what the world wants, we cannot grow.

[Supratik]

That is just one factor and corporate tax cut will help there. Plus land and labor. While there has been some movement on labor nothing on land. If you make it mandatory to give 4x rate for rural land and 2x for urban land it will lead to disaster. Imagine paying 2x rate in New York for something. This scheme was designed by Commies in NAC to tank the economy. If you do these two plus low cost of capital companies which export will automatically emerge. I am sure we are not expecting babus in finance ministry to go to IIT and start developing stuff for export. Their job is only as enabler and Indians don't lack in entrepreneurship.

Coming back to demand and supply. India is an underdeveloped country. 90% of the country is not developed. 90% of the people don't have what people of advanced countries have. It means there is enormous demand. You are just not able to fulfill them. It is America or Japan who should worry about demand.

I think this slowdown is structural and not because there is no demand. The economy is going from an unstructured, informal, corrupt economy to a genuine free market, formal, rules-based economy. This transition is not going to come without pain. The Govt job is to make it as painless as possible and to enable a faster transition. Only those who will be able to compete will survive. A lot of jobs and businesses will go kaput but what will emerge will have a longer run. Not doing will do what happened to UPA2 on a much larger scale. See what is happening in Pakistan. I am sure we can shave some short term growth to avoid that kind of scenario.

[nam]

There is no point of land and labour reforms, when you cannot sell stuff that you produce. Let's say someone is given cheap land and abundant labour to open an mobile factory. What are the chances that it will sell, given the domination of Chinese mobile phones in Indian market? or even in world market?

The complain about labour & land reform is moot. Taiwan is leader in semiconductor. Germans & Japanese in engineering goods & cars. Chinese in white goods. What is the cost of labour and land in these countries? Cheaper than us? Absolutely not.

There can be two source of creating demand. Government putting free money in people pocket or people having employment. To have employment you need to produce goods which sell. We don't seem to have any such thing.

Regarding the supply versus demand. There was never a supply problem. Companies are talking about slowing sales, not backlog.

Chinese invest money in a sector to kick start products. Then run a job lot, like they doing for warship build. The scale absolutely drives the cost down and allows them to dominate that sector.

Ship building, trains even lithum battery maker is dominated by Chinese.

GoI creates a life long job lot in PSU, which produces nothing.

[ldev]

There is no point of land and labour reforms, when you cannot sell stuff that you produce. Let's say someone is given cheap land and abundant labour to open an mobile factory. What are the chances that it will sell, given the domination of Chinese mobile phones in Indian market? or even in world market?

The complain about labour & land reform is moot. Taiwan is leader in semiconductor. Germans & Japanese in engineering goods & cars. Chinese in white goods. What is the cost of labour and land in these countries? Cheaper than us? Absolutely not.

There can be two source of creating demand. Government putting free money in people pocket or people having employment. To have employment you need to produce goods which sell. We don't seem to have any such thing.

Regarding the supply versus demand. There was never a supply problem. Companies are talking about slowing sales, not backlog.

Chinese invest money in a sector to kick start products. Then run a job lot, like they doing for warship build. The scale absolutely drives the cost down and allows them to dominate that sector.

Ship building, trains even lithum battery maker is dominated by Chinese.

GoI creates a life long job lot in PSU, which produces nothing.

The objective should not just be "Make in India". It should be to make in India at the cheapest manufacturing cost in the world. What is needed is a line by line analysis of costs of manufacturing in India vs other countries and how to address those high Indian costs. And GOI and industry have to work on it together.

[Supratik]

Nam, probably you have not understood what I said. I will start with by saying the shoe salesman in Africa story that many of you have heard before. Two shoe salesman were sent to Africa for survey. One reported to the company "Don't send any shoes here. No one here wears them". The other salesman reported "Please send as many shoes as you can. No one here wears them". You can guess who got the job. There are two things about demand. One is "unmet demand" e.g. something that people can afford but is not available for whatever reason. The other is "creating demand" i.e. something that does not exist is created. India needs both. As India is not an export-driven economy by choice or were simply out competed we look at the huge market of 1.4 billion for demand. China OTOH is focused on meeting external demand through exports and is struggling to create demand internally. So the solution to India may not be to create another China as both have gone in different directions. USA is one of the largest exporters in the world but its output comes from creating (at present through innovations) and then meeting internal demand and then exporting it. So you have to first understand demand and the trajectories that different countries have taken. You cannot suddenly ask someone going to Mumbai to go to Delhi.

Now coming back to your specific points. We cannot compare an advanced country like Japan or Germany with India and say oh they have high labor and land cost. Then why can't India compete. You have to compare with countries that are in the same level of progress e.g. SE Asia or even China 15 years back. This is for several reasons e.g. what Germany or Japan were competent in 40-50 years back when they were at similar level as India now may not exist there at present. So you have to do an apples to apples comparison. At present we are not competitive with China and SE Asia in land and labor.

As for Indian mobile companies not being able to compete study the history of car and electronics companies in Japan and Korea 20-30 years back and Chinese companies 10 years back. They started with reverse engineering, getting into the supply chain and then innovating and creating their own supply chain and then moving onto value chain. India was always poor at reverse engineering and we are just at the first stage of getting into the supply chain. You have to wait for another 10 years to find out if India succeeded or failed.

There seems to be no slowdown visible in personal demand if you go by sales on Amazon and Flipkart. There are 2 specific areas of slower sales. Automobiles and RE. Automobiles may be due to BS6. Similar thing happened when BS4 was coming. RE may be due to sucking up of black money.
Both affect at least some segments of the core sector. Things like coal, electricity may simply be due to govt inefficiency.

Bottomline is there is no reason why India cannot grow at a faster clip for a sustained period. Govt needs to buckle and go after the problems. Good thing for this govt is that it happened at the start of its term. So policy can be framed and executed before re-election.

[nam]

The objective should not just be "Make in India". It should be to make in India at the cheapest manufacturing cost in the world. What is needed is a line by line analysis of costs of manufacturing in India vs other countries and how to address those high Indian costs. And GOI and industry have to work on it together.

The problem is GoI has monopoly in lot of high value industry. And the cost cannot decrease, until the GoI has a finger in the pie.

Take metros. It is been built is virtually every known city in the country. With such large investment, we should have had Indian companies producing metro trains and competing internationally, like the Chinese have done with their HSR. I mean come on, if the Chinese can learn building HSR trains from virtually nothing, we cannot build metro trains?

But who produces metro trains in India? BEML, a GoI entity.
Aircraft industry, stranglehold by HAL, a GoI entity, which is hell bent on preventing growth of TASL.
Ship building..L&T is struggling for orders, while.. we know it all.
Defense industry which is the prime source of technology, again stranglehold by DPSU.
Oil...we know it all.

Why is GoI even in steel production?

Lower value items are left for private industry and these items are dominated by the Chinese.

[Supratik]

That is a fair argument. You can say Indian govts haven't been as proactive as the Chinese in promoting their own companies.

[nam]

More than the issue of prompting, GoI stranglehold on these sector is allowing foreign companies to capture market. The PSU cannot deliver on time & cost, neither innovate nor compete in international market.

Foreign companies are able to create better products and we are forced to buy the same, because our PSU cannot produce for us. The private industries are just watching on the sidelines, since they also cannot compete in the international market as well. When you cannot sell in your own market, how can you sell in other's market.

[Peregrine]

12 global companies evinced interest to shift base from China to India : FM Sitharaman

HEADLINES

- "The last count, I came to know was about 12 of them have already been spoken to, their minds understood, their expectation listed out so that the government can come up with a concrete offer for them to shift from where they are now, so that the ecosystems can get built here, new industries can come," she said.

- In the biggest reduction in 28 years, the government in September reduced corporate tax rate by almost 10 percentage points in a bid to give a boost to the sagging economy

MUMBAI: Finance minister Nirmala Sitharaman on Saturday said about 12 global companies have evinced interest to shift their base from China to India, taking advantage of competitive tax rate of 15 per cent recently.

In the biggest reduction in 28 years, the government in September reduced corporate tax rate by almost 10 percentage points in a bid to give a boost to the sagging economy.

Base corporate tax for existing companies has been reduced to 22 per cent from 30 per cent, and for new manufacturing firms incorporated after October 1, 2019 and starting operation before March 31, 2023, it was slashed to 15 per cent from 25 per cent.

"I had said that I will form a task group, which will look into those companies which want to get out of China, and in the meanwhile I announced the corporate tax cut. There were many companies which were showing interest and wanting to come back.

"So, this task force has already started contacting many of these companies. The last count, I came to know was about 12 of them have already been spoken to, their minds understood, their expectation listed out so that the government can come up with a concrete offer for them to shift from where they are now, so that the ecosystems can get built here, new industries can come," she said.

The minister said the word that was given for bringing newer industries, which are moving out of China, is actively moving forward.

"And I am sure, I will be able to report some progress on that," she added.

With regard to the investment of Rs 100 lakh crore in the next 5 years, she said the task force will come out with a list of 10 major infrastructure projects by December 15 and that investment in these projects would be front-loaded.

"We made sure that a set of officers were looking into pipeline that can be readied, so that once the fund is ready and it will be front-loaded...that task is near completion," Sitharaman said.

Before December 15, she said the government will be able to announce the frontloading of at least a 10 major projects.

The finance ministry in September set up a task force headed by Economic Affairs Secretary to prepare a road map for the "national infrastructure pipeline" from 2019-20 to 2024-25 under a Rs 100 lakh crore infra plan. The task force expected to cover greenfield and brownfield projects costing above Rs 100 crore each.

The finance minister also listed some of the measures taken by the government to boost consumption and liquidity in the system since August this year.

Talking about the GDP growth rates, she expressed hope that the next numbers should be better.

India's growth falling to a more than six-year low of 4.5 per cent in the second quarter of 2019-20 is sub-optimal and below the potential of the economy, the industry pointed out.

During the loan outreach programme in October, public sector banks have disbursed more than Rs 2.5 lakh crore, the finance minister said while outlining various measures taken by the government to revive economy.

"They (banks) reached out to 400 districts, literally the hinterland where the money went. And as a result, now I can see somewhat that kind of spend has helped in somewhat reviving the consumer spirits and purchases have gone up and I also hope that it will lead to improvement in tax collections," she said.

She, however, said the progress on partial guarantee scheme is not very satisfactory.

"I'd like to draw your attention to the partial guarantee scheme which we brought in, so that all the pooled assets could be bought over by the banks and for which the government would give the partial guarantee with a minor haircut... A lot more is going to be done on that and I admit that things have been a bit slow," she said at the Ecnomic Times Award event here.

To ensure transparency in the taxation, Sitharaman said that faceless assessment has been introduced in direct tax, and indirect tax too will have this system soon.

"And the last word on GST. The systems are really being worked on so that it becomes as simple as we claim it to be. We would further like to simplify it," she said.

As regards the rationalisation of the taxation, she said, "We are having a good conversation with all the states and want to make sure that those essential items may be put to the lowest if not exempt, but for the rest of them, we are trying to rationalize".

Cheers

[Kati]

Survey by definition is a sample and extrapolation of its findings to the universe. But the universe itself already stands measured. But if someone insists that because the extrapolated characteristics for the universe as derived from the sample are at variance with the observed characteristics of the universe, the observed characteristics of the universe must be deemed to be false is to turn the notion of truth on its head. I mean, all statisticians agree that even the most rigorously selected sample may end up not capturing the characteristics of the population. That is why there is something called a 'sampling error'. Of course if the point is that the methodology for measuring the aggregate GDP data (universe) is somehow flawed, then there must at least be an indication of what might be wrong with it. There was none in the story.

Though mostly I'm a passive BRFite, I'm going to stick my neck out here.

I would like to know how the surveys are done, who carries out the surveys, and using what method are the samples drawn. ....

The entire exercise is dubious at the best, and treacherous at worst.

May be I'm oversimplifying the whole exercise, but being a graduate of Bharat's premier Statistical Institute, of which NSSO was a part till 1980,
I have seen how the "surveyors" stayed home, played cards, and then cooked up numbers. On top of it, Bharat's economy is 50% unorganized, and hence always stays out of any so called "official surveys".

To put it simply, desi survey data are horribly unreliable. Whatever figures we see are from some organized sectors (like - power generation, consumer goods under the tax net, automotive, cinema ticket sales, trackable export-import, etc.), a vast, vast segment of the economy stays outside the official figures.

I would like to know answers to my above questions.

[Karan M]

Re:12 firms expressing interest, that's a pretty low number and just shows the GOI started very late, and have done less (than what has been expected) so far. The aim to get at least some of the new list of 325 firms to shift to India should be a priority.