Indian Economy: News and Discussion (June 8 2008)

[AmitNangia]

I came across a news item recently about the vast amount of fake currency being pumped into India from across the border. If the numbers are large enough, there would definitely be an impact on the Indian economy, especially in relation to money supply and inflation.

While oil, global trends, and government profligacy (loan writedowns) may have played a role in creating the current double digit inflation environment, I think this aspect definitely merits a closer look as well.

[Kakkaji]

My apologies if already posted earlier.

Seven Indian companies are in the Fortune Global 500 list this year

[Suraj]

Core sector growth data indicates slowdown, but railway freight data indicates higher growth. Of course the correlation is not precise, but most of the core sector components except electricity contribute significantly to railway freight traffic:
Core sector growth slows down in May

In a pointer to a continuing slowdown in overall industrial production growth, data for the infrastructure sector released here today shows that output grew in the low single digits at 3.5 per cent in the month of May, over 7.8 per cent in the same month last year.

The index of six core infrastructure industries (coal mining, crude output, refinery throughput, electricity, cement and finished steel) has been registering single digit growth for the past 13-months. In April, it grew 3.6 per cent. The core sector accounts for just over one-fourth of the Index of Industrial Production (IIP).

The IIP data for May is scheduled to be released by the Central Statistical Organisation here on Friday.

Railways register growth in freight

Indian Railways have carried 202.99 million tonne of freight traffic during April-June 2008, an increase of 4.92 per cent as compared to the corresponding period last year.
The freight carried during the period shows an increase of 17.48 million tonne over the freight traffic of 185.51 million tonne carried during the corresponding period last year, an increase of 4.92 per cent.

Railways carried 65.26 million tonne of freight in June this year, which is an increase of 4.73 million tonne over the freight of 60.53 million tonne carried during the same period last year, an increase of 7.81 per cent, according to an official release.

With the Left now out of the UPA, GoI has come up with new reform plans:
Govt plans more reforms

The United Progressive Alliance (UPA) plans to take advantage of the exit of the Left from its governing partnership to move swiftly on next-generation reforms like 100 per cent foreign direct investment (FDI) in telecom services.

Sources added the government may also choose to open up some specialty retail sectors like sports goods and electronics to foreign participation.

Atomic energy generation, which is barred to even domestic private companies, may also be opened to private investment.

These issues are over and above key pending legislations to reform the banking, insurance and the pension system which have been stuck owing to consistent Left opposition, chiefly to greater foreign participation in these sectors.

A trust vote is slated for July 21. Though the UPA is still a little short of the required numbers for a comfortable majority, the stock markets appear to have cheered the renewed prospects of political stability with the new alignments in the government.

Today's developments have raised the sense of expectation in government and industry circles that Prime Minister Manmohan Singh, along with key ministers like Finance Minister P Chidambaram and Commerce Minister Kamal Nath, will be able to finally deliver on their earlier promises.

Foreign investment inflows tripled in 2007-08: NCAER

Foreign investments in India almost tripled in FY' 08 than the capital it received during the same period in last fiscal, the National Council of Applied Economic Research (NCAER) said in a recent report.

"In the first nine months of 2007-08, the net capital flows rose to $83 billion from $30 billion the country received during the corresponding period of the previous year," the report said.

These capital inflows have become a significant force behind total investment spending, the report said.

The flow of funds, in terms of foreign direct investment (FDI) or external commercial borrowing, has also complemented portfolio funds, the report said, adding that between FY' 04 and FY' 08, the reserves rose by more than USD 150 billion.

Foreign funds during the period rose enough to finance the current account deficit, it said.

Besides India, a similar trend has been noticed in all emerging economies, the report said.

"The overall capital flow to these economies has gone up from USD 168 billion in 2003 to USD 605 billion in 2007," the report said.

[vina]

If Fannie Mae and Freddie Mac go down, it will be an apocalypse . The clock is ticking. Time for the US govt to extend full soverign guarantee to these govt owned companies. There is no other way out. . The entire world will be singed and the damage to world economy, including India's will be massive.

The New York Times
Printer Friendly Format Sponsored By

July 11, 2008
A Trickle That Turned Into a Torrent
By CHARLES DUHIGG

The word began spreading across Wall Street trading desks on Monday morning: Fannie Mae and Freddie Mac, the giant companies at the heart of the nation’s housing market, might be in trouble.

The tumult, which continued on Thursday, started with a cautionary analyst’s report, one that might have caused few ripples in normal times. But these are not normal times. Within minutes, the price of the companies’ shares was plunging, sending shock waves through the financial markets, the economy and Washington.

Fannie Mae and Freddie Mac are so big — they own or guarantee roughly half of the nation’s $12 trillion mortgage market — that the thought that they might falter once seemed unimaginable. But now a trickle of worries about the companies, which has been slowly building for years, has suddenly become a torrent.

Virtually every home mortgage lender, from giants like Citigroup to the smallest local banks, relies on Fannie Mae and Freddie Mac to grease the wheels of the mortgage market. Virtually every Wall Street bank does business with them. And investors around the world own $5.2 trillion of the debt securities backed by the companies.

Even as senior Washington officials struggled on Thursday to reassure worried investors and discussed a government intervention that could cost taxpayers billions of dollars, the companies’ stock prices plummeted again in a rush of selling, this time to their lowest level in 17 years. Freddie Mac closed down 22 percent, at $8, and Fannie Mae fell 13.8 percent, to $13.20.

“There is a real panic about these companies on Wall Street right now, and sometimes a blaze like that grows almost without reason,” said Tom Lawler, an economist who worked at Fannie Mae for over two decades before leaving in 2006 to become a consultant. “There wasn’t really any new news to set off this crisis. The stocks just started falling, and didn’t stop.”

What set off this storm, and what happens next?

The cause of this week’s huge declines remains somewhat unclear. Though each rumor and concern about the company was batted down as it arose, their overall volume was amplified by Fannie’s and Freddie’s enormous obligations.

On Monday, when the analyst report from Lehman Brothers hit the market, Fannie Mae plunged 16 percent. More than 68 million shares changed hands that day — three times as much as average. Volume jumped again on Tuesday, as the stock stabilized, and then exploded on Thursday, to 134 million, as the shares plunged once again.

Perhaps the biggest single risk facing Fannie Mae and Freddie Mac, and with them financial companies and taxpayers, is that investors might simply lose confidence in the companies, leaving them unable to pursue their core businesses — buying home loans from banks and repackaging them for sale to investors.

That buying and repackaging is the lifeblood of the American housing economy, because it provides the capital that banks and other financial institutions use to write new loans.

As long as investors are confident that Fannie Mae and Freddie Mac are relatively financially healthy, then companies, banks and other institutions will continue lending them billions of dollars each week.

But, as the companies’ stock prices decline, wary investors have begun charging higher premiums for those loans. Since January, that premium, measured by the difference between what the companies pay for debt and what the United States government pays, has more than doubled, to nearly nine-tenths of a percentage point for Fannie Mae. Spread over billions of dollars in borrowing, that increase will cost the companies dearly.

If that spread ever became too pronounced, Fannie and Freddie could end up in the disastrous situation of paying so much for loans that it would become unprofitable for them to borrow. It has happened before: as interest rates soared in the 1980s, Fannie Mae’s borrowing costs rose above what it was earning on its mortgages, and the company lost $1 million a day before it was able to right itself.

Should that happen again, Fannie and Freddie could suspend buying some loans — which could bring much of the American housing economy to a standstill. Or the companies could continue doing business, but losing money on many of their deals, which would continue to undermine investors’ confidence in the stocks.

Another risk is that, as investors lose confidence in Fannie and Freddie, buyers will begin demanding discounts on the repackaged loans the companies sell. Those repackaged loans, known as mortgage backed securities, are guaranteed by Fannie and Freddie. As the companies’ stock prices fall and their financial health declines, investors may become worried that Fannie and Freddie cannot honor those guarantees.

Investors might therefore demand prices that are too low for Fannie, Freddie and banks to make any money on the deals. In which case, banks may simply stop creating new loans.

“If people lose faith in Fannie and Freddie, then the whole system freezes up, and nobody can buy a house, and the entire housing market can crash,” said Paul Miller of the Friedman, Billings, Ramsey Group in Arlington, Va. “There’s a fine line between having faith and losing it, and sometimes it’s unclear when it has disappeared. But when investors cross that line, bad things happen very quickly.”

No one is suggesting that line has been crossed yet. Freddie Mac and Fannie Mae can still borrow at relatively low rates. And even though the companies’ stocks continue to decline, there is no evidence that the mortgage backed securities guaranteed by the firms are selling at discounted rates.

But nervousness is still rippling through the economy.

For homeowners and home buyers, it is likely that the decline in Fannie’s and Freddie’s stocks will result in higher interest rates on all kinds of loans.

“As it gets harder for Fannie and Freddie to borrow money, it’s going to push up mortgage interest rates,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics, a consulting company. “And this general gloom will prolong the credit crisis, which means it’s harder to get student loans, auto loans and basically any type of borrowing.”

Moreover, a shaky Fannie and Freddie could increase the volatility in housing prices.

“This is the last thing we need right now,” said Brett Barry, an agent at Realty Executives in Phoenix. “The market is like an elevator with the cable cut lose. It is accelerating downward.”

For Wall Street and the nation’s banks, the declines in the stock prices of Freddie and Fannie pose more dangerous risks.

Although banks are typically prohibited from concentrating their money in the stock or bonds of any one company, those regulations create an exemption for debt issued by Fannie Mae and Freddie Mac, which have long been considered the safest of investments.

As Fannie’s and Freddie’s stock prices decline and they are forced to issue new bonds at higher interest rates, their old bonds become worth less. And as Fannie’s and Freddie’s old bonds decline in value, the many small and regional banks holding the bonds will likely be forced to declare losses.

Moreover, because Fannie’s and Freddie’s older bonds are so widely held, as those bonds decline in value, many people will see their portfolios decline.

“Fannie and Freddie’s counterparties are global,” said Steve Persky, chief executive at Dalton Investments, a $1 billion fund in Los Angeles. “People said Bear Stearns was too large to fail. But Fannie and Freddie are exponentially larger.”

Finally, for taxpayers and the United States government, the risks posed by Fannie’s and Freddie’s declining share prices are potentially overwhelming.

As government officials discuss various rescue plans — including taking over either or both companies in a conservatorship, others are pushing for more immediate action.

“We are potentially looking a crisis in the face, and we must not allow this to happen,” said William Poole, who retired in March as president of the St. Louis Federal Reserve. “The government must intervene.”

If a bailout were to occur, it would most likely make it more expensive for the United States government to borrow money in the future, since the government’s potential obligations, which currently stand at about $9 trillion, would rise by an additional $5 trillion.

Moreover, such a bailout would potentially put taxpayers on the hook for billions to offset Fannie’s and Freddie’s losses.

“The major banks are taking write-downs of 20 percent to 50 percent of their assets,” said Sean Egan, managing director of Egan-Jones Ratings, an independent credit ratings firm. Just a 10 percent write-down in the value of Fannie Mae’s assets would be “a loss of $150 billion that taxpayers would need to offset. So you’re talking about the cost of another Iraq war.”

Fannie Mae and Freddie Mac, for their parts, say such talk is dangerous. Both companies say they have capital on hand that exceeds what is required by their regulator.

But people are still worried.

“I don’t think anything has happened in the last week to warrant the kind of anxiety we’re seeing,” said Senator Mel Martinez, Republican of Florida and a former secretary of housing and urban development.

“But the market does what it wants,” he added. “All we can do sometimes is grab on and hope we don’t get thrown off the ride.”

Eric Dash contributed reporting.

[Vipul]

There was a newsreport yesterday on NPR about the inevitability of using taxpayers funds to rescue these Pvt Sector US Govt chartered companies, that have financed more then 50% of the total US housing mortgage deals.

[putnanja]

India’s rating may be downgraded, says S&P

Mumbai, July 11 India’s sovereign credit ratings are under threat from factors such as rising fiscal deficit, rising inflation and widening current account deficits, said international rating agency Standard and Poor’s.

If these reasons last long, the ratings on India could be lowered to speculative grade, from the current stable grade, said a report issued by S&P.

The country’s credit profile has worsened in the past 12 months, but the upside and downside risks to its ‘BBB’ rating are currently balanced.

...

Rate hike looks certain; will it be on July 29?

[Suraj]

Black Friday for Indian Economy

Friday highlighted growing pressures on the economy after fresh data showed that industrial growth fell to a disappointing low in May and wholesale prices inched higher, leading the finance ministry to warn that double-digit inflation was here to stay till the end of the year.

Despite evidence of slower industrial growth, owing to rising interest rates and slower consumer demand, a further monetary tightening is widely anticipated to arrest inflationary expectations.

The Reserve Bank of India (RBI) has raised the repo rate, or the rate at which it lends funds to banks, twice by 25 and 50 basis points to 8.5 per cent in this financial year. The cash reserve ratio, or the proportion of deposits banks must keep with the RBI, has been raised 125 basis points to 8.75 per cent.

The Index of Industrial Production (IIP) growth for May slowed to a six-year low of 3.8 per cent against 10.6 per cent in the same month last year. The April numbers were also revised to 6.2 per cent from the earlier 7 per cent estimate.

10-year bond yields hit 7-year high on rising inflation

Responding to the rising inflation, prices of the 10-year government bonds declined further, pushing the yield to seven-year high at 9.55 per cent.

It also raised concern that the Reserve Bank of India may hike interest rates in its review of the monetary policy 2008-09, scheduled on July 29.

Yield on the benchmark 8.24 per cent note, due in April 2018, rose 30 basis points this week to 9.45 per cent at 5:30 pm. It had hit an intraday peak of 9.55 per cent, its highest since September 2001. The bond price fell by 1.81 per cent to 92.34.

Inflation soared to 11.89 per cent for the week ended June 28. "Inflation is not going to cool down anytime soon and the sentiment is bearish because more rate tightening is expected," a dealer with a state-run bank said.

The benchmark 10-year yield may touch 10 per cent should inflation hold around 12 per cent for more than a month, said Suresh Pai, head of fixed-income trading at Canara Bank.

[Rupesh]

Forex reserves fall further by over $3 bn

A $4 billion decline in the foreign currency assets (FCA) caused a further fall in India's foreign exchange reserves for the second consecutive week.
Reserves fell by a whopping $3.393 billion for the week ended July 4 to $ 308.397 from $311.790 in the previous week, the Reserve Bank weekly data said.

The reserves had dropped by a marginal $691 million in last week.

FCAs declined from $302.744 billion in the previous week to $298.661 billion, down $4.083 billion, RBI data said.

FCAs expressed in US dollar terms include the effect of appreciation or depreciation of non-US currencies such as Euro, Sterling and Yen held in reserves, RBI said.

Meanwhile, the gold reserves improved marginally this week to $9.208 billion as compared to $9.202 billion in the previous week while the Special Drawing Rights remained static at $11 million, the apex bank said.

India's reserve position in the International Monetary Fund fell by $10 million during the week and stood at $517 million as against $ 527 million in the previous week, the central bank said.

[url]http://www.dailypioneer.com/indexn12.as ... nter_img=5[/url

Rupee might depreciate a bit. Finally some good news for the exporters

[vina]

Hmm . There is fear on the ground. Hikes are not forthcoming, there are threats of layoffs /downsizing and there is a chill in the air. The cut in discretionary spending is palpable. Was in Jayanagar 4th block. Usually on weekends, the places is choked with traffic and just getting around the shopping complex and back used to be a crawl with stop and go traffic. Now there was very little traffic, and traffic actually flowed on a Sat evening.

Had dinner at Pizza hut there . Usually on weekends, it is close to impossible to get in without a reservation and there is a minimum 30 to 45 min wait. We decided to walk in and boy, were we surprised that we were ushered to a table right away. Many tables were empty as well. Not the usual pack to the brim Pizza hut as it normally is there.

This might be just anecdotal and "one of those days" and an imperfect sample. How is the scene like in Forum and Garuda mall kind of places on a weekend. Anyone been there lately and senses a palpable feel of slow down ?

And of course , Sobha sent me an e-mail titled " Thought that owning a world class Sobha home was beyond your reach, think again!" . There were two properties in Peenya I think they flogging in the market (surely, who the hell wants to live in Peenya and pay those kind of prices). The title of the mail clearly means that prices are wholly negotiable and they would be greatly relieved to get those apts off their hands. Market rumors are that all the real estate guys are in a serious cash crunch, more so the mid sized guys like Sobha etc.

Bottomline, the party days in India are over. It is belt tightening time.

[Singha]

indeed there is one sobha property on the NH4 in peenya. no itvity type wants to live there
for sure. but maybe r2i textile industry types might develop a fancy for it later when the
highway widening and elevated roads are done.
I also wonder about the Emaar property that is structurally completed west of blr central
railway stn on ex binny mills land.

per TOI the blr pop has officially crossed 8 mil and cruising fast to 10 mil. if we include
some outlying areas not under anyone's control (Fata, waziristan, baltistan, new whitefield,
nandangudi etc) wags claim the figure is already near 10 mil.

[vina]

. but maybe r2i textile industry types might develop a fancy for it later

Does such an animal exist at all ? . Their fond hopes are on pushing the closeness to devanhalli as the attraction!.

I also wonder about the Emaar property that is structurally completed west of blr central
railway stn on ex binny mills land.

Yeah. No one I know of has bought anything there. By the looks of it, the apts look to be on the smaller side and frankly, nothing spectacular. I doubt you will be able even rent it out at decent prices there. Also, it is too far away from the IT/Vity areas to attract the "posh" types. But again, I would think the prices there are wholly negotiable as well. But in case you are looking at it as an "investment" , 1) That brand is unknown here and 2) Unloading it in the market when you wanna sell will be extremely difficult.

per TOI the blr pop has officially crossed 8 mil and cruising fast to 10 mil. if we include
some outlying areas not under anyone's control (Fata, waziristan, baltistan, new whitefield,
nandangudi etc) wags claim the figure is already near 10 mil.

Al-Toi(let) along with KREDAI claims that there is "no slowdown" and that all apts are flying off the shelves like hot cakes. Yeah, the moon is made of green cheese of course.

[Singha]

alert alert....

TOI...one LSE and Upittsburgh alum, visiting prof at LSE has been signed up as
rahul gandhi's personal secy to chart his economic vision and manage his
leadership vision. so its the new vincent george + mahalanobis kind of role
with a touch of amartya sen blended in.

he will be a man to watch and of great power....name is "Shafi something" from
Kochi. his family is said to be congress loyalists for decades.

[Singha]

How is the scene like in Forum and Garuda mall kind of places

garuda was very crowded this evening. people were eating and buying
plenty of stuff. strangely, not too many bf-gf pairs mostly families. so either
everyone got married and produced kids or love is not in the air.

anyway its cheap to hangout and eat in a mall foodcourt. the first
bite (literally) will be felt in costly restaurants and pizza joints. I have
always found the concept of paying 300 for a medium pizza with
good toppings as not value for money and go for more bang-for-buck
stuff like nandhini palace biryani - undistinguished but cheap enough
and filling. I also never have coffee in barista or ccday but realize
youngsters trying to have their way with females have no other option,
cant blame them from our older pov. maybe we'd be right in there for a slice
of the action had we lived in todays india 15 yrs ago.
wife makes italian, thai food and pizzas at home...all manner of pasta , herbs
and topping material is easily available here. namdhari fresh has stuff
like the flavourful basil in thai cooking, not the pungent indian basil.
lemon grass, ricotta cheese, brie, prawns, olives, zeiti pasta whatever
you want its on tap here....if you make at home. far cheaper.

the legs and heads of prawns fried are good stuff - not to be thrown
away...crunchy and absorbs the flavour well. helps you down there
its alleged.

[John Snow]

love is not in the air

Love is bedridden at home.

[sugriva]

http://www.rediff.com/money/2008/jul/14ran.htm

Looks like somebody is not happy with Ranbaxy being sold to Daiichi-Sankyo

[vina]

wife makes italian, thai food and pizzas at home...all manner of pasta , herbs
and topping material is easily available here. namdhari fresh has stuff
like the flavourful basil in thai cooking, not the pungent indian basil.
lemon grass, ricotta cheese, brie, prawns, olives, zeiti pasta whatever
you want its on tap here....if you make at home. far cheaper.

My wife cant cook to save her life if we were stranded in an island. Poor me is stuck to eating the maid's food and the daal-chawal-roti . Have to get out to restaurants if need anything more.

But yes, cooking at home, if you have the time and skill is far cheaper than eating in a restaurant. But have people actually seen a drop in patronage yet ?

[Naveen]

Inflation woes: Over 70% consumers in metros trim restaurant spend

Over 70% of consumers across Mumbai, Delhi and Bangalore say they have cut down on eating out. And over half (52%) say they have even curtailed home-delivery orders.

India’s Silicon Valley, Bangalore — home to India’s young, suave and outgoing technology professionals — seems to be the worst hit, with almost all participants here reporting a cutting down on eating out and around three-fourths on reducing occasions to order home-delivery of food.

In fact, food retail marketers like Yum Brands! Pizza Hut, are not surprised by Bangalore consumers’ current frugality. Says Anup Jain, marketing director, Pizza Hut: “Our experience has shown that Bangalore is the most price-sensitive market. That is why we have introduced Rs 99 per head meal offer in the city, as inflation has impacted eating out. If the response is good, we will extend it to other cities.” Interestingly, Bangalore is also the city which eats out most frequently. Bangaloreans eat out on a weekly basis, Delhites on a fortnightly basis and Mumbaikars only on occasions or once a month.

Though not as badly hit as Bangalore, over two-thirds Delhites have cut down on eating-out and 41% on home-delivery. Surprisingly, consumers in the country’s financial capital, Mumbai, who pride themselves of taking their mood cues from the movement of the city’s bourses — plunging in the last six months — are the least impacted of the lot, with just over 40% cutting down on eating-out or ordering-in.

[vina]

Thanks Naveen. That sort of confirms what I felt first hand. Go Go days are over surely. Indian economy will probably end this year with 6.5% to 7% growth rates and a dead inflation, if the oil gods are kind to us. That is sort of okay and the best case to get into an election.

Mind you 6.5 to 7% growth is nothing to sniff at, but what it basically means that the growth cratered from the strong momentum in the first half and practically crawled in the 2nd half. But that is the nature of the beast. Real estate will have cratered and prices will have to correct. Land prices too will have to correct.

With the monsoon being what it is and serious shortfalls in rainfall until now in most parts of the country (we are seeing drought in Maharashtra, Karnataka has seen scanty rainfall and we have a potential "Kaveri" problem brewing), the agricultural growth would see some serious stress and we could see spike in food prices. All in all not a nice place to be in at all, especially when all countries in the world have put in export curbs on food. Managing inflation is going to be tough, and the govt better focus all energies on killing that monster.

The silver lining is that the Beijing olympics should be over soon and they will idle factories for sometime. The end of the olympic buildup and the factories going idle for a while should see some slack in inflation. The olympic driven demand should see an end to a 5 year demand spike, while the factories coming back on line,hopefully will do so in a worsened economic environment and dont start asking for huge amount of inputs.

China too is seeing double digit inflation . There too the govt will have to kill the run away growth to reign in inflation. Chinese interest rates are going to see a hike after the olympics. The dollar is going to be in deep trouble. The problem is that the US is exporting inflation all over the world, because Oil is priced is dollars and more improtantly the fixed peg of oil exporters like Saudi, UAE and all the persian gulf countries with the USD. They too are facing run away inflation and really dont have a monetary policy because of the peg.

The pegs (Chinese, Saudi, UAE , all ME Countries) have to go. Only then will the US not be able to export it's domestic troubles as inflation to the rest of the world. If the ME countries de peg, then things will be fine. How much longer can they sustain the inflation in their economies. That is the trillion dollar question.

[Raju]

>>> With the monsoon being what it is and serious shortfalls in rainfall until now in most parts of the country

It's all coming to Delhi. It is raining almost everyday here.

[Suraj]

Vina: where did you get the monsoon news from ? I'm under the impression that it is well on track. Here's an article with a July 10 summary:
Hindu Businessline: Monsoon covers entire country with 5-day lead

The southwest monsoon has in a ‘delayed push’ covered the remaining parts of Rajasthan on Thursday, thus bringing the entire country five days ahead of the normal schedule of July 15.

This milestone had been in the making for quite sometime with the seasonal weather system racing in with a record 15-day lead time. But, it squandered this advantage after its crucial southeasterly bearing gave way during the days that followed.

The southwest coast has since witnessed only localised heavy rains – the peninsular interior getting to see hardly any – as the Arabian Sea went into an enforced stupor. But the basic monsoon attributes, including the cross-equatorial flows, have largely held strong. The only exception was the winds, which, if not erring in direction, had simply failed to measure up in speed.

Consensus forecasts are that the prevailing lull in the south would last for another eight to 10 days. Contrary to forecasts, the weak Madden-Julian Oscillation (MJO) wave of periodical planetary-scale anomalous precipitation has not been able to make much headway into the adjoining Arabian Sea.

This is now forecast by various models to get a move to the east and trigger some rain over a region spanning the Maldives and the Lakshadweep Islands and extreme south peninsular India from July 19-20. During this phase, a ‘low’ is forecast to develop in the southeast Arabian Sea, off the Kerala coast.

A forecast statement from the Climate Prediction Centre of the US National Weather Services on Monday and valid for 20 days said that weak MJO activity is forecast with wet conditions developing over the Indian Ocean. Almost all major weather models seemed to support this outlook.

A ‘low’ is seen materialising over the Head Bay of Bengal around the same time with a typical west-northwest track for lateral movement.

This would take the system and associated rain belt over central India, even dipping over west Madhya Pradesh and adjoining Gujarat.

Sounds more like a lull than a failed monsoon.

[vina]

>>> With the monsoon being what it is and serious shortfalls in rainfall until now in most parts of the country

It's all coming to Delhi. It is raining almost everyday here.

Good !. So Dilli will be able to grow it's own food, generate it's own power and also have sufficient water for it's own needs. I hope it keeps raining a little longer so that Dilli can have "surplus" that it can export to the neighboring states like UP, Rajasthan, Punjab etc. Raju, where do I put in an order for 100 Kg of Rice, Wheat and Sugar with the growers in Dill ?

Given all the "good" news, why do I suspect that Dilli will be still at it this summer drawing water, power and other stuff from surrounding states and importing food from all over the country !

[Singha]

That is the trillion dollar question.

as a coincidence, ET has a article today on credit card debt being the next
h-bomb rolling down the aisle...they claim US consumers have $1.5 trillion in
pending credit card debt and with times being tough, increasing mortgages,
food, medical care, petrol is being paid on multiple cards and people are
having trouble meeting the minimum payments. UK is said to have pound 50 bil
pending. global figure claimed to be $3 tr outstanding. with interest rates of
22% pa , people piling up big amts on cards are doomed to a lifetime of
painful payments unless _drastic changes_ are made to std of living and
lifestyle.

the bottom 60% of US are going to have to slap themselves awake from
the easy money and start living like folks do in say poland, greece or
spain - and without some of the generous euro social benefits.

french men take an avg of 2500 cals / day in food. the US avg is 3500+.
they are going to have to eat less for sure. frenchmen are lighter, healthier
and less stressed and angry for it. no more gallon drums of ben n jerrys,
family sized pizzas consumed by one tv-hound, no more "rascal moto scooters"
to drive around in stores (walk *shudder* !), no 24-packs of Bud on tap
and maybe even *horror* walk a km to the grocery rather than fire up the
V8 truck to buy a bag of bread.

article says people havent noticed this little fire in the corner yet....

the next 2-3 Potus'es are going to preside over this downward spiral and
like a CEO of a failing co have to make brave quarterly speeches and
"manage expectations" downward without igniting mass panic. beyond the
fence of thorny plants, "wolves" like PRC, KSA, emirate of pakistan are
prowling to bite and rub it in.

[pradeepe]

Vina: where did you get the monsoon news from ? I'm under the impression that it is well on track. .

No. Its been more than a lull. Most of AP hasnt seen any serious or even moderate monsoon activity other than a few early showers. I do hope this is the week.

[shyam]

I heard that there is practically no rain in Kerala. Power cut has started very early in the year.

[vina]

The New York Times
Printer Friendly Format Sponsored By

July 14, 2008
News Analysis
Government as the Big Lender
By PETER S. GOODMAN

The desperate worry over the health of huge financial institutions with country cousin names — Fannie Mae and Freddie Mac — reflects a reality that has reshaped major spheres of American life: the government has in recent months taken on an increasingly dominant role in assuring that Americans can buy a home or attend college.

Much of the private money that once surged into the mortgage industry has fled in a panicked horde, leaving most of the responsibility for financing American homes to the government-sponsored Fannie and Freddie.

Two years ago, when commercial banks were still jostling for fatter slices of the housing market, the share of outstanding mortgages Fannie and Freddie owned and guaranteed dipped below 40 percent, according to an analysis of Federal Reserve data by Moody’s Economy.com. By the first three months of this year, Fannie and Freddie were buying more than two-thirds of all new residential mortgages.

A similar trend is playing out in the realm of student loans. As commercial banks concluded that the business of lending to college students was no longer quite so profitable, the Bush administration promised in May to buy their federally guaranteed student loans, giving the banks capital to continue lending.

In short, in a nation that holds itself up as a citadel of free enterprise, the government has transformed from a reliable guarantor into effectively the only lender for millions of Americans engaged in the largest transactions of their lives.

Before, its more modest mission was to make more loans available at lower rates. Now it is to make sure loans are made at all. The government is setting the terms and the standards of Americans’ biggest loans.

On Sunday, that federal oversight and protection was made more explicit, as the Bush administration sought to mount a rescue of Fannie and Freddie, asking Congress to devote public money to buying the two companies’ flagging stocks.

The new reality is scorned by libertarians and conservatives, who fear state intrusions on the market, and by populists and progressives, who dislike the idea of education and housing increasingly resting upon the government’s willingness to finance it.

“If you’re a socialist, you should be happy,” said Michael Lind, a fellow at the New America Foundation, a research institute in Washington. “But you should really wonder whether you want people’s ability to pay for housing and college dependent on the motives of people in Washington.”

The government is trying to support plummeting housing prices and spare strapped homeowners from the wrath of the market: last week, the Senate adopted a bill authorizing the Federal Housing Administration to insure up to $300 billion in refinanced mortgages, enabling borrowers saddled with unaffordable loans to get better terms.

How the government came to dominate these two crucial areas of American lending is — depending on one’s ideological bent — a narrative of regulatory and market failure, or a cautionary tale about bureaucratic meddling in commerce. Perhaps it is both.

To those prone to blame lax regulation, the mortgage fiasco was the inevitable result of a quarter-century in which American policy makers prayed at the altar of market fundamentalism, letting entrepreneurs succeed or fail on their own.

This was the spirit in which Alan Greenspan, the longtime chairman of the Federal Reserve, allowed banks to engineer unfathomably complicated webs of mortgage-based investments that, through the first half of this decade, sent real estate prices soaring and expanded homeownership.

The banks relied on these investments to raise money for the next wave of loans. The system worked so long as lenders could keep selling their mortgages, and so long as someone would guarantee most of the debts. Fannie and Freddie took care of both tasks. Together, they now guarantee or own roughly half of the nation’s $12 trillion mortgage market.

Belief in Fannie and Freddie gave banks a sense of certainty as they plowed more of their capital into residential mortgages. That easy financing, in turn, brought more and more people into the market for homes, generating a belief that American real estate prices could keep rising forever.

And that contributed to the banks’ ultimately making extraordinarily risky loans, which defaulted first when home prices started falling. As lending became conservative, the whole speculative bubble burst.

As some called for intervention by the Fed to cool a speculative binge, Mr. Greenspan resisted. He believed the risks of real estate were effectively limited because debt was widely dispersed. The market would sort it all out.

“Alan Greenspan had this view that the light hand of regulation was best,” said Vincent R. Reinhart, a former Federal Reserve economist and now a scholar at the American Enterprise Institute.

When housing prices commenced plummeting, the ugly truth emerged that many banks did not understand the details of the mortgage-backed investments they owned. Ignorance proved expensive.

As one bank after another announced losses that now exceed $400 billion and that some estimate will ultimately cross the trillion-dollar mark, money ran screaming from the field, leaving Fannie and Freddie pretty much the only players.

A general fear of debt took hold. Banks that had offered loans to students under a federally guaranteed program suddenly could not sell investments linked to those outstanding debts, meaning they could not raise cash for the next crop of loans. Dozens of banks pulled out of the program.

“What’s happened kind of speaks for itself,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington. “You had this effort to weaken the government’s role. There was this conscious effort to turn things over to the private sector, and it failed.”

But there is a parallel narrative, the story that critics and competitors of Fannie and Freddie have told for years: how the two companies exploited their pedigree as entities backed by the government to secure an unfair advantage over the private sector.

They swelled into highly leveraged behemoths, it was said, on the implicit guarantee that the government would step in and rescue them if they ever got into trouble. This allowed them to borrow money more cheaply than their competitors could, enabling them to make loans more cheaply.

That secured more business and rewarded their shareholders, along with their handsomely compensated executives. It emboldened them to trade in highly risky investments.

“They were using their privileged position as favored children of the government to dominate the market, and taxpayers were on the hook for substantial risk,” said Martin N. Baily, a chairman of the Council of Economic Advisers in the Clinton administration. “You couldn’t possibly say this was a pure unfettered market.”

The government was getting something for its protective largess. It was using Fannie and Freddie to pursue the social goal of broader homeownership, particularly among racial minorities.

“When you’re looking at the upside, here’s the government helping people get mortgages and student loans,” said David R. Henderson, a self-described libertarian economist at the Hoover Institution at Stanford University. “The downside is there might be a bailout and then you pay in taxes. These things don’t come cost-free when government gets involved.”

As the Bush administration readies funds to buy student loans from cash-short banks, and officials plot a potential bailout of Fannie and Freddie that could run into tens of billions of dollars, the government’s outsize role in these two huge areas will not shrink anytime soon.

It seems a strange coda to an era in which markets were sacred, and regulation heresy.

For a generation, American policy makers have lectured the world on the need to unleash the animal instincts of the market. China’s rickety banks should stop lending to protect state factory jobs, Americans said, and focus on the bottom line. Now the Bush administration is reluctantly concluding that Fannie and Freddie might need to be propped up to protect the American homeowner.

During much of Japan’s lost decade of the 1990s, Americans called for an end to its coddling of weak banks. Better to let them keel over, along with the paper tiger companies they sustained. No company was “too big to fail,” Washington said.

Yet here, in the aftermath of a financial crisis brought on by what were once called American virtues — financial engineering and risk management — Washington may bail out Fannie and Freddie for the simple reason that they are too big to fail. If they go down, so do whole neighborhoods. So, perhaps, does the global financial system.

“The thing we have to do now is to make sure that Fannie and Freddie remain solvent and continue to make loans,” Mr. Baily said. “We just don’t have any choice.”

[bart]

the next 2-3 Potus'es are going to preside over this downward spiral and
like a CEO of a failing co have to make brave quarterly speeches and
"manage expectations" downward without igniting mass panic. beyond the
fence of thorny plants, "wolves" like PRC, KSA, emirate of pakistan are
prowling to bite and rub it in.

I wonder if it will be the opposite? The Pakdogs main mode of sustenance is leftover crumbs from Massa's table. Perhaps with Massa hard up they might have to behave and earn their keep, unlike now where they just have to growl at and harass the neighbors for Massa's amusement.

[vina]

I heard that there is practically no rain in Kerala. Power cut has started very early in the year.

Oh wait. When the farmers in Andhra start turning on their irrigation pumpsets (thanks to YSR's free power scheme) in their millions and when the Billis in Dilli switch on their air conditioners (yeah Raju, Dilli is not the Air Conditioned City, Bangalore is, remember?) with the stolen power (for which no one bothers paying any bills the utility presents anyways) that is when the party will really start. Andhra will make the southern grid collapse (as always) , forcing TN to island itself (they have enough power), Karnataka will have massive power cuts (zero investment in power generation over god knows how many decades) and Kerala of course will raise the Lal Jhanda , Karat might make a couple of noises, but basically remain powerless (sorry bad pun).

The best outcome will happen if the rain gods are kind and the monsoons pick up again. So there. If you were the hoity toity commie atheiest, come off it, go to the nearest temple /godman and set up prayers for the rains to come this year.

[Singha]

NYT - none of these 100s of billions being thrown are going to come off military
budgets. one can expect steep cutbacks in social and academic spending.
Stan sahib wont be happy

By STEPHEN LABATON
Published: July 14, 2008

WASHINGTON — Alarmed by the sharply eroding confidence in the nation’s two largest mortgage finance companies, the Bush administration on Sunday asked Congress to approve a sweeping rescue package that would give officials the power to inject billions of federal dollars into the beleaguered companies through investments and loans.

In a separate announcement, the Federal Reserve said it would make one of its short-term lending programs available to the two companies, Fannie Mae and Freddie Mac. The Fed said that it had made its decision “to promote the availability of home mortgage credit during a period of stress in financial markets.”

An official said that the Fed’s decision to permit the companies to borrow from its so-called discount window was approved at the request of the Treasury but that it was temporary and would probably end once Congress approved Treasury’s plan. Some officials briefed on the plan said Congress could be asked to extend the total line of credit to the institutions to $300 billion.

The actions, which taken together could provide an overwhelming surge of capital to the companies, were the second time in four months that the housing crisis had prompted the government to scramble over a weekend to rescue a major financial institution. Last March, the Treasury Department engineered the sale of Bear Stearns to prevent it from going into bankruptcy and cause a shock to the financial system.

The plan was disclosed on Sunday evening to calm jittery markets overseas and on Wall Street in advance of a debt sale by Freddie Mac on Monday morning. Officials said that after talking to senior lawmakers through the weekend, they expected that Congress would attach the proposals to a housing bill that could be completed and sent to the White House for approval as early as this week.

[Dileep]

Report from the midlands.

My guestimate is that in the past one and a half months of monsoon proper, we had only <50% of the normal rain. If you add the rains that fell during the "summer", that would still make like 70% of normal rain. As far as this village farmer's son can feel, it is a FAILED MONSOON as of now.

The primary problem is that we have't seen much of the REAL monsoon rains. The ones that bring in huge amount of water in an extend period of time. What we get now is the burst of showers which dumps a lot of water, but in short duration. The total amount of water is low, and since it is bursty, very bad for the soil.

Right now, we have an hour of power cut a day, and more underway. If rains don't get back on track in the coming week, we will end up having 4 hour power cuts.

What is the price for that Genset again?

[Raju]

Dileep, you can get a diesel genset with "self-start" for around 30k. Probably even lesser if you scout around a bit.

[Suraj]

Bunch of contradictory economic information. First, a statement from CII. It underlines that there is a lot of investment coming onstream, and that while consumption led growth may be falling, investment-led growth can still compensate:
Economy not slowing down: CII

Strongly denying that economy is slowing down, CII President K V Kamath today said one has to see India Inc's performance in the next two quarters to pass a judgement.

Pointing out that corporates have an investment pipeline of $700 billion to $750 billion, Kamath, also the Managing Director and CEO of ICICI Bank, said there are reports that order book of companies now is "much higher".

Kamath said inflation and surging oil and commodity prices are challenges but noted that "what's insulating us is the huge pipeline of investment that's happening" and also the fact that services sector contributes to around 60 per cent of India's GDP.

Corporate India has an investment pipeline of $700 billion to $750 billion, Kamath said, adding that there are reports that order book of companies now is "much higher" than it was at the same time last year.

"Investment is not going to be a challenge," he said further.

Customs, excise duty kitty up 11.5% in Apr-June

The government has collected 11.5 per cent higher revenue from customs and excise duties at Rs 54,341 crore during the first quarter ended June, against Rs 48,723 crore in the same quarter a year-ago.

Data for service tax collections are available only for two months of the current fiscal and the collection under this head grew by a whopping 37 per cent to Rs 9,774 crore in that period, according to an official release here.

Excise duty collections edged up by 2.8 per cent to Rs 25,882 crore for during the quarter, boosted by 5.9 per cent growth in June at Rs 9,889 crore, against Rs 9,335 crore in the same month last year.

Finance Minister P Chidambaram had said that meeting target of excise duty collections for this fiscal appeared to be a formidable task.

Even excise duty collection growth in June fell short of the target of 8.8 per cent growth for the FY'09.

Customs duty collections were up 20.9 per cent for the April-June quarter at Rs 28,459 crore. Collections under this head grew by 13 per cent at Rs 9,236 crore in June.

Despite cut in customs duty on various items to tame inflation, the government is hopeful of meeting the collection target under this head for this fiscal.

In May, the government earned Rs 3,653 crore from the service tax.

Customs duty and service tax collections are targeted to grow at 14.4 per cent and 26.1 per cent respectively during the current fiscal.

[putnanja]

Spectre of drought looms in Karnataka

[Sanjay M]

India to Get Multi-Commodities Exchange

Finally the country is getting a commodities exchange. Imagine, so many are gushing about how we are a "shooparpowarr" when we don't even have such basic things as a commodities exchange! It's absolutely ridiculous. Long overdue.

[Suraj]

Sanjay M: did you read the article at all ? There are already multiple commodity exchanges in the country, and their current turnover exceeds $900 billion, despite all the politically motivated restrictions on them in recent times:

Long overshadowed by the attention-grabbing Bombay Stock Exchange and National Stock Exchange, India's commodity futures business -- led by the three national exchanges Multi Commodity Exchange, National Commodity and Derivatives Exchange and National Multi-Commodity Exchange -- has been among the world's fastest-growing.

In 2007-08, the three national commodity exchanges recorded a combined trade turnover of Rs 38,26,138 crore, just three years after India allowed commodities futures in 2003.

Players like Goldman Sachs, Fidelity and NYSE Euronext have already invested in Indian commodity exchanges. While Goldman Sachs has a 7 per cent stake in NCDEX, Fidelity and NYSE Euronext are shareholders in MCX.

[vina]

Spectre of drought looms in Karnataka

It poured yesterday evening. Hopefully the monsoon builds up again in the next week or else it is going to be disastrous for sure. There is already talk of 2 hr power cuts in Bangalore!. The only place that is free of power outages is TN and they have limited /no hydel power. Its crazy. If TN can invest in power, why cant Karnataka ?.

From what I hear, places like Nagpur already have 4 hours of power cuts. Maharashtra has already been declared as drought hit. Karnatka is just a week away from being declared so.

[Singha]

around 2002 there was talk of a 1000mw thermal plant in bidadi to serve blr-mysore region
by adag. I think that died a quiet death. any ideas/schemes of coastal plants in uttara kannada coast are always stopped by environmental PILs.

yet the enviro fundies dont seem to mind lakhs of diesel and kerosene gensets spewing their
fumes heavenwards everyday including factory grade ones below every IT building. it is so
much more efficient to do it at few large plants with world class pollution control.

vina, raining in blr is useless. it has to rain heavily in the farming regions of north and central
karnataka to matter. even rains in blr this yr has been less than usual, though it is always
cloudy.

[putnanja]

Power has been the bane of Karnataka. There were plans for last three years for three 1000mw plants at Chamalapura near mysore, Gulbarga and Belagaum. The one in Chamalapura has been held up due to protests. The projects were initally supposed to be public-pvt partnership. As that didn't work out, it was planned to hand them over to KPC. Not much progress though.

KPC has almost completed the 500 MW plant at Bellary and should be inagurated in next few weeks. The 2nd stage of another 500 MW has been approved and work started. 230MW Varahi hydel plant is supposed to be online by end of this year. Unit 8 of Raichur Thermal Power station has been approved and work started. Nagarjuna power's 1000 MW project in dakshina kannada district is underway and should be completed by 2010.

The 1400MW Bidadi project has been dragging on for a long time. It was supposed to use gas from Reliance, but that didn't work out. They are still thinking of exploring alternate avenues for gas or to go in for coal.

[Katare]

It seems FII are still de-risking but DII are bottom fishing......Rs20K Corer invested in stocks in Q1.

http://www.thehindubusinessline.com/200 ... 520100.htm

[AmitNangia]

Spectre of drought looms in Karnataka

It poured yesterday evening. Hopefully the monsoon builds up again in the next week or else it is going to be disastrous for sure. There is already talk of 2 hr power cuts in Bangalore!. The only place that is free of power outages is TN and they have limited /no hydel power. Its crazy. If TN can invest in power, why cant Karnataka ?.

From what I hear, places like Nagpur already have 4 hours of power cuts. Maharashtra has already been declared as drought hit. Karnatka is just a week away from being declared so.

In the absence of adequate rainfall, Hyderabad has also had to resort to 2 hour power cuts on a daily basis. The monsoon this year seems totally out of whack. There's been no sign of any rain here for the last couple of weeks. Let's keep our fingers crossed for the heavens to open up.

[Viswanthan]

Vina-you are a clairvoyant.You prediction on the power situation appears to be unfolding

i think the environmental mafioso appears to be pretty well organised and deeply entrenched in Karnataka especially in the coastal parts.I think BSY government will be at wit's end to wriggle out of the situation.Any power projects in Coastal Karnataka by BSY government is a non-starter given the NGO'S are frontal organisation for groups whose socio-religio-politico ideology that will make them imagine evil designs in any steps of BSY government

Ofcourse Humble farmer and his frustated sons are there to stoke fire in other parts of the state.I think Eshwarappa already beat a hasty retreat after announcing that they will go ahead with a contentious power project

Dark days ahead for Karnataka though ITvity folks can ofcourse beat it by spending ' extended' hrs in their cushy office(:.Also the now fashionable 'homeworking' option might be a thing of past given the unreliable 'Wireless'