Indian Economy: News and Discussion (June 8 2008)

[Sanjay]

Suraj, isn't part of China's sudden GDP value growth down to the fact that they changed the base year for their calculations ? Shouldn't India do the same instead of looking at the economy the way it was structured 15 years ago ?

Anyone care to analyse this old but still useful report:
http://www.oxusresearch.com/downloads/cp180100.pdf

[Suraj]

Suraj, isn't part of China's sudden GDP value growth down to the fact that they changed the base year for their calculations ? Shouldn't India do the same instead of looking at the economy the way it was structured 15 years ago

They did so twice, if I recall - in 2005 and 2007. We effectively use a 1993-94 base year, since the last attempt at revising the base year (to 1999-00) targeted only a handful of goods; the IIP (industrial production data) remains on a 1993-94 scale. This makes size comparisions useless.

A long time ago we used to whine about GoI not revising the base year to give a realistic projection of the size of the economy - ask Singha - but it is not as if it will be heard. We must have the most anachronistic policy for reporting economics statistics, of any major economy today.

[Sanjay]

Suraj, I am not sure if the appeal will not eventually be heard. I would point out that this affects not only the economy but also human development statistics such as literacy and infant/maternal mortality. We never really update figures properly.

Would I be wrong in saying if India was to revise its base year to the same year as China, we could easily see India's economy double in size in US$ terms ?

[Suraj]

Suraj, I am not sure if the appeal will not eventually be heard. I would point out that this affects not only the economy but also human development statistics such as literacy and infant/maternal mortality. We never really update figures properly.

Well, there's certainly an incentive on the part of the government, particularly the current one, to emphasize lack of development to attract external development assistance funds. The previous regime had gone against that approach, such as by prepaying loans and refusing assistance from most nations, but the current one did not follow that approach.

Would I be wrong in saying if India was to revise its base year to the same year as China, we could easily see India's economy double in size in US$ terms ?

Probably.

[Sanjay]

Suraj - probably I'm wrong or probably that GDP would double ?

[Suraj]

Somewhere around 1.5-2x is a possible increase if we use the same means to compute data as PRC. But I cannot really give you a straight answer on that Sanjay - I can't really confirm a guess.

[Sanjay]

Didn't want a confirmation - just a clarification.

But to another point - what Surjit Bhalla seems to say is that based on the World Bank's own data, the % of Indians living on less than $1US per day in 2000 was about 20% (as opposed to 45%). Is Bhalla's analysis credible or just being very optimistic ?

[Atri]

Key sectors bounce back on stimulus

Key sectors bounce back on stimulus
20 Feb 2009, 0655 hrs IST, Rajeev Deshpande, TNN

NEW DELHI: In what would be music to the UPA government's ears just ahead of a close electoral race, the two stimulus packages it has devised seem to have begun to show results with an upturn in key sectors like steel, cement, autos, food and beverages and railway freight.

Cabinet secretary K M Chandrashekhar told TOI in an interview that strong rural demand seemed to be shoring up the economy. "I think we are seeing the first clear signs of a turnaround. The spending on flagship and infrastructure programmes and steady hikes in MSPs for wheat and rice seem to have kept the economy afloat, driving demand," he said.

The data now flowing in is easing some of the worry lines in government as the negative trends are not only levelling out, but the graph has begun to inch upwards again. Though these are early days, government hopes that with adequate follow-up measures, particularly with states that are key to the revival recipe, the trends will hold and strengthen.

The data shows that the cement sector has grown 9.97% in December 2008 as compared to November and the year on year increase is 11%. Steel, which had declined steadily through September, October and November last year has shown a recovery in December 2008 and January 2009 and has now touched the May 2008 figure of 22.86 metric tonnes when the sectoral growth rate was 4.1%. Though the steel sector has been slow, its climb back into positive figures is seen as reason for cheer.

Cement and steel are seen as key drivers with the construction sector seen to have a significant impact on the growth sentiment. Similarly, some of the gloom over the automobile sector seems to be lifting, with the January 2009 figures in the passenger vehicles sector showing a 32% rise over December 2008 while the increase for commercial vehicles is 23% over a similar time frame.

The growth in commercial vehicles is particularly encouraging since higher demand for transport vehicles is often viewed as a lead indicator of positive trends in the rest of the industrial sector.

Interestingly, FMCGs are growing again. "There is a record growth in year on year terms at 26.4% for the quarter ended December 31, 2008," the top bureaucrat said. Food and beverages also registered a record 28% growth in the quarter ended December 31, 2008, indicating that the hospitality industry and food retailers may not have been badly hit. Some of the high-end sales may have gone down, but the rest are doing well.

The growth in railway freight had declined to 2.25% in October-November, 2008, but the December 2008 figures show a heartening growth of 7%, which the government feels will mark a climb back to more healthy growth.

The official data is in sync with the feeback ToI has recieved from several industrialists with business interests in these sectors. Most of them said that the economic slowdown had begun to decelerate and the growth worm was slowly but steadily moving northwards again.

The government feels that its efforts to pump money into the rural economy and the public sector are paying off even though the export sector remains a worry due to a fall in orders. Here, too, the government feels that the movement of the rupee in recent weeks may well provide some succour to exporters. "The depreciation of the rupee may provide a cushion to the exporters," said Chandrashekhar.

He said there is a time lag before the full effect of the measures taken by the government would begin to show. "We have had meetings with the states and the RBI is also in the picture. The mechanism will work at the state level to address sectoral issues, let's say SMEs, to resolve the problem quickly. I don't think liquidity is going to be an issue," said Chandrashekhar.

The Cabinet secretary said credit windows had been opened to NBFCs to ensure infrastructure areas like roads are not hit because contractors working on PPP projects run out of money. Similarly, RBI has liberalized norms for external commercial borrowings. Chandrashekhar did stress the need for sustained follow-up, particularly during the election months.

[ramana]

X-Posted...

More on the UPA's achievements from the DNA newspaper. Increasingly, DNA , from the Dainik Bhaskar group is being more centre-right and more inportantly portraying the truth as it is.

All excerpts below are from its editor R Jagannathan.

1 .FM's cookbook rivals Ramalinga Raju's

http://www.dnaindia.com/report.asp?newsid=1196596

On January 7, Satyam's Ramalinga Raju sent a 1,069-word confession saying he doctored the accounts of his company by inflating the assets, mostly cash and bank balances.The amount involved: Rs 7,136 crore, including accrued interest on non-existent bank deposits.

On February 29, 2008, P Chidambaram, then finance minister, also admitted to doctoring the numbers of the country's books -- but in fewer words.

He said: "I acknowledge that significant liabilities of the government on account of oil, food and fertiliser bonds are currently below the line....Our fiscal and revenue deficits are understated to that extent..."

Shorn of gobbledygook, Chidambaram was saying something similar to Raju.

While Raju cooked his books by overstating revenues, Chidambaram was understating his costs (subsidies on oil, fertiliser, and food) to fool the world.

Put another way, he was saying that his fiscal deficit -- the difference between government revenues and expenditure, which has to be met by borrowings -- was a piece of fiction. The size of Chidambaram's misstatement of government liabilities is estimated to be at least Rs 1,50,000 crore. And that's just this year.

The reason why Raju is in jail while Chidambaram is talking of sending other people to jail (mostly terrorists, since he is now the home minister) is simple. No matter how badly he runs his finances, he has the ultimate bailout at hand: a currency note printing press. Raju cannot plug the hole in his accounts by printing money. Chidambaram can.

....

3. The UPA's economics is failing

http://www.dnaindia.com/report.asp?newsid=1165794

Luckily for the UPA, they got a head start as the economy had already started rebounding in the last two years of the NDA regime. As the momentum picked up, all Singh and Chidambaram had to do was harness the rise in revenues and channel it towards social schemes. They did that all right, but without revamping the delivery systems. The poor did not get as much as they thought they should, and are certainly not going to thank the UPA for it. Fiscal profligacy has its own way of biting the hand that feeds it.

[Suraj]

But to another point - what Surjit Bhalla seems to say is that based on the World Bank's own data, the % of Indians living on less than $1US per day in 2000 was about 20% (as opposed to 45%). Is Bhalla's analysis credible or just being very optimistic ?

I just briefly looked through that (really old) article of Bhalla's. I'm not sure how one quantifies present day poverty using 1985 dollars, as the World Bank data appears to do - people use 2009 dollars, to state it in 'duh' terms.

On that regard, a poster here named neel had a detailed description of the various metrices involved, where one party uses 1985 dollars, the other used a later base, and yet another uses PPP dollars. I'm pretty sure I have that post in one of the old economy threads I saved away on my home computer. I don't find anything incredible about Bhalla's analysis - it is quite likely correct within the parameters he uses. The problem is with comparing data obtained by different statistical means.

India Inflation at 13-Month Low of 3.92%

India's inflation rate eased to a 13-month low in the week ended Feb. 7 on sliding prices of cotton and leather, leaving more room for the central bank to cut rates and revive growth in Asia's third-largest economy.

Inflation, as measured by the Wholesale Price Index, slowed to 3.92% from 4.39% in the previous week, showed data issued Thursday by the Ministry of Commerce and Industry.

This is the fourth straight week of slowing inflation.

The reading was below the median 3.99% forecast in a Dow Jones Newswires poll of five economists.

"We expect the headline inflation rate to ease to below 2% by March end as prices of manufactured products continue to soften," said Manoranjan Sharma, chief economist at Canara Bank.

Electrical equipment manufacture sees first recession in five years

Production of electrical equipment — cables, switchgears, transformers and other conductor equipment — fell in the October-December quarter. This was mainly due to inventory pile-up, credit squeeze and uncertainty over future demand in a recessionary environment.

Data released by the Indian Electrical and Electronics Manufacturers Association (IEEMA) show production was down by 1.76 per cent during the period — the first contraction in five years — against growth of 11.8 per cent in the corresponding quarter last year (2007-08).

Consolidated growth for the nine months of 2008-09 declined sharply to 4.9 per cent, from 8.98 per cent in the first half of the year. The electrical industry had grown 6.6 per cent in the previous quarter and by 11.8 per cent in the first two quarters. Against this, the industry had grown by 14.5 per cent and 24.55 per cent, respectively, in the corresponding quarters of 2007-08.

Sops for petroleum product exports also on the cards

In order to boost export of petroleum products in the backdrop of surplus refining capacity in the country, the government may include these in the Market Linked Focus Product Scheme.

Launched in April last year, the scheme provides ad valorem support equivalent to 2.5 per cent of the freight-on-board value of the export turnover, which can be used for importing inputs. However, such exports are linked to a particular product tied to specific destinations. For example, recently, apparel exports to Japan and Australia were included in the scheme.

The proposal, aimed at offsetting the freight disadvantage Indian companies suffer vis-à-vis West Asian companies, is being studied by the petroleum ministry.

This follows a plea by the Petroleum Federation of India — which has companies like Reliance Industries Ltd (RIL), Essar Oil and government-owned oil refiners and marketers as members — to commerce and petroleum ministries.

The private sector, led by RIL and Essar Oil, accounts for over two-thirds of the country’s petroleum exports, which are the largest foreign exchange earners. In 2007-08, 39.3 million tonnes (mt)of petroleum products worth Rs 1,07,603 crore were exported from India. These products account for around 15 per cent of the country’s total exports.

At present, petroleum products from India are exported to Africa, Europe, the US, Latin America, South East Asia and West Asia.

India has surplus refining capacity, which is slated to increase further to 240 million tonnes per annum (MTPA) by the end of the 11th Plan period (2007-2012) from the current level of 177.97 MTPA. The move will help the companies export their surplus output.

The country’s refining capacity increased by 29 MTPA to 177.97 MTPA from December 2008 with the commissioning of Reliance’s refinery at Jamnagar. Of this, 105.5 mt is in the public sector, while the balance 72.47 mt is in the private sector.

The refining capacity is expected to cross 190 MTPA at the end of the 2009-10 fiscal with the commissioning of the Bina refinery, among others. Indian companies would be required to export aggressively keeping in view the expected surplus capacity in the coming years, said experts.

[Stan_Savljevic]

Demand for Indian Tea goes up in Egypt
http://www.hinduonnet.com/thehindu/holn ... 210340.htm

[Kakkaji]

Swapan Dasgupta's take:

Many straws in the wind

Swapan Dasgupta

In the bad old days of the Cold War, Kremlin-watching was a growth industry in the West. A cluster of journalists, academics, diplomats and spooks made themselves relevant by trying to piece together disparate pieces of information and deducing what was really happening behind the iron curtain. The Politburo line-up during the annual May Day parade, for example, would be minutely scrutinised for tell-tale signs of shifts in the hierarchy of the rulers. Radio broadcasts too would be closely monitored for economic intelligence and the state of public morale.

In today’s world of information overload, the craft of Kremlin-watching is at a discount, except perhaps in the Jurassic Parks of North Korea and Myanmar. It is a measure of astonishing absurdity that these deductive skills have suddenly become relevant to penetrate the disingenuous denial over the state of the Indian economy. The pronouncements of those at the helm of the Government of India tell one story. Till the day, a much-relieved Prime Minister eased him out of the Finance Ministry and installed him as Home Minister, P Chidambaram’s incessant refrain was that the “fundamentals” of the Indian economy were “strong” and that the country had no reason to fear a meltdown similar to the one prompted by the insatiable greed of international bankers with obscene salaries and bonuses. Throughout much of 2008, the economist Prime Minister Manmohan Singh kept insisting that India was on course for 9 per cent growth. Putting an ideological gloss to this self-congratulatory arrogance, Congress President Sonia Gandhi proclaimed that her mother-in-law’s nationalisation of banks in 1969 had averted a banking crisis in India.

In a similar vein, after elevating the UPA chairperson to the status of an original thinker on economics, acting Finance Minister Pranab Mukherjee proclaimed in his Interim Budget speech that the people of Indian have “seen how our Government has successfully steered the country through difficult times. They have experienced the joy of being citizens of a proud nation moving ahead with confidence. I have no doubt that when the time comes, our people will recognise the hand that made it all possible.” The message, driven home by images of smiling peasants, happy youth and rustic jingles on the electronic media was unambiguous: the UPA has “successfully steered the country” through a calamitous world crisis without anyone even feel the pinch. With such a monumental achievement under its belt—which makes the triumphs of Slumdog Millionaire look pedestrian by comparison—the “hand” had every right to demand re-election.

What is remarkable about India’s famous victory over global trends is the alacrity with which it has been endorsed by the cheerleaders of the “free” media. Although our house loan repayment statements don’t reflect it, mortgage rates, we have been informed, are nearly 3 per cent below what is actually been paid out monthly. Inflation is down to nothing. The sponsors of IPL are still bidding astronomical sums for an Enflish lout and a brave heart Bangladeshi. More Indians than ever before are rushing to secure new mobile connections. And rural poverty is being progressively banished with the whopping Rs 30,000 crore allotment to NREGA, a measure that (according to a recent poll on CNN-IBN), more than 50 per cent of the rural poor haven’t even heard of.

Unfortunately, there are some disconcerting footnotes. The 6 per cent estimate of the fiscal deficit has been mocked as a piece of Satyam-style accountancy by not merely Arun Jaitley in Parliament but by other stakeholders. It is instructive, for example, to read the assessment of Goldman Sachs: “We estimate that the consolidated fiscal deficit will go up to 10.3 per cent in FY09 and 10 per cent in FY10, among the highest in the world… Thus, the gains from a reduction in commodity prices and therefore in the Subsidy Bill, will be more than neutralised due to substantially weaker revenues and election-related spending pressures.” This is a polite way of saying that the Government’s optimism is poppycock.

Next, take Labour Minister Oscar Fernandes’ admission in Parliament on February 20 that an estimated five lakh people were retrenched in the four-month period ending December 2008. This is only a woefully conservative estimate of happenings in the organised sector. It does not take into account the layoffs and sackings in the unorganised sector. We need not take the estimates of CPI’s Gurudas Dasgupta that the real figure is one crore job losses and another crore in the coming months as the last word. But the discrepancies between what the Government claims and what is happening on the ground is too vast to be bridged by another tranche of Bharat Nirman advertisements.

If the problem was limited to five lakh families, India could have boasted of emerging from a towering inferno with just a toenail singed. But when Pranab Mukherjee issues a simultaneous plea to both employers and workers to accept voluntary pay cuts, you can be rest assured that there is something terribly amiss with the claim that the UPA under the “guidance of UPA Chairperson, Sonia Gandhi, the inspiring leadership of Prime Minister, Dr Manmohan Singh and the hard work put in by… P Chidambaram” has “successfully steered the country through difficult times.” Earlier this month a media delegation met relevant Ministers to press for a bailout package for the apparently beleaguered sector. The passage from what a blogger described as “handout journalism to bailout journalism” may be rewarding for some but it does reveal why up-front depiction of Indian reality has been replaced by the deductive charms of Kremlin-watching. India is wallowing in denial and bad news has ceased to be news—till the last day of voting.

[VinodTK]

Want a job, go rural

[ramana]

So govt is hiding the bad news before the elections?

[AjayKK]

Govt's aam aadmi bill may be inflated: CAG

NEW DELHI: Punching a hole in the UPA government's campaign of Bharat Nirman and other flagship schemes, its official auditor, the Comptroller and Auditor General (CAG) said in a report released on Friday that the government had been overstating the expenditure.

Over Rs 51,000 crore was allocated for these flagship schemes in 2007-08 which got transferred to the bank accounts of NGOs, autonomous bodies and district authorities. However, the government has told CAG that it was not aware of the actual expenditure by these organisations.

The CAG's observations in an election year, just before dates are to be announced for Lok Sabha polls, is a big blow to the UPA government's pro-poor, pro-development posture.

Pointing out how the government had been diverting funds intended to provide subsidies to the rural “aam aadmi'', the CAG report said of the Rs 20,000 crore collected under the Universal Service Obligation Fund between 2003-08 towards subsidising rural telephony, only Rs 6,000 crore was spent; the remaining amount was not there in the fund.

http://timesofindia.indiatimes.com/UPAs ... 172282.cms

[Suraj]

FinMin unveils fiscal stimulus III

Service tax has been cut across the board from 12 per cent to 10 per cent and the excise has been reduced by the same margin only for items that currently attract the 10 per cent rate.

Consumers are expected to benefit significantly from this latest cut in indirect tax, since over 90 per cent of excise duty collections come from the 10 per cent slab rate, which is levied on white goods, metals, commercial vehicles, iron and steel and cement. Tyre makers have already responded by announcing a two percentage point cut in prices.

Overall, consumers can expect a more than 2 per cent reduction in retail prices if the excise and service tax cuts are passed on fully. This is because the Value-Added Tax (VAT), which is levied at the state level, is applied over and above the excise duty, said Vivek Mishra, partner, Ernst & Young, an auditing and consulting firm.

Most items attract 4 per cent or 12.5 per cent VAT rates. At 12.5 per cent, a two percentage cut in indirect tax will lead to a 2.3 per cent reduction in retail prices.

Today’s package, which India Inc had anticipated in the Interim Budget presented on February 16, comes a few days ahead of an expected announcement of general election dates by the Election Commission. Once these dates are announced, a model code of conduct kicks in, preventing the government from announcing such fiscal giveaways.

SEZ exporters to get tax relief

Section 10AA of the Act provides 100 per cent deduction on export profit of SEZ units for a period of five years, but computes it with reference to the total turnover of the holding company. As a result, companies having units in SEZs as well as outside used to get lesser tax benefits.

A change in Section 10AA would require would require Parliament’s approval as it concerns income tax. Mukherjee said the necessary changes in the Act would be carried out during the full-fledged Budget, expected to be presented by a new government in mid-2009.

The present definition is directly affecting companies like Infosys, Tata Consultancy Services and Wipro, which have software development centres in SEZs as well as outside.

“It has been decided to remove this anomaly through necessary changes in the Act when the regular Budget is presented,” Mukherjee said.

The amended Section 10 (AA) will compute export turnover proportionate to the turnover of the SEZ unit and not the entire company. In fact, an empowered group of ministers headed by Mukherjee had, last year, ruled the same.

Welcoming the fact that the problem was recognised in Parliament, Export Promotion Council on SEZs director general L B Singhal said, “This anomaly should be removed through a clarification by the finance ministry and subsequently through an amendment to the Act. A similar situation was observed in cases of export-oriented units and software technology parks, but it was rectified with a clarification and a subsequent amendment to the Act in 2000.”

S&P cuts India outlook to negative

Excise and service tax cuts may make consumers and companies happy, but earlier giveaways and spending schemes to stoke economic growth this year have contributed to a deteriorating fiscal situation that has prompted Standard & Poor’s to revise its outlook on India’s long-term sovereign credit rating to negative from stable.

Revising the outlook signifies that the actual rating could be downgraded if the situation worsens in the coming months. A downgrade would put India in the below-investment category, meaning Indian companies will find it more expensive to borrow money overseas.

“With high government debt burden and deficits, its weak fiscal profile has been the single largest negative factor for the sovereign ratings on India,” S&P said in a statement.

“The outlook revision comes after a gap of two years and could result in lower inflows from foreign institutional investors and lead to some weakness in the rupee,” said Citi India economist Rohini Malkani.

Companies, however, said that they would not be immediately affected since only the outlook had been changed, while the ratings had been reaffirmed at BBB- (long-term) and A-3 (short-term).

[andy B]

S&P cuts India outlook to negative

Excise and service tax cuts may make consumers and companies happy, but earlier giveaways and spending schemes to stoke economic growth this year have contributed to a deteriorating fiscal situation that has prompted Standard & Poor’s to revise its outlook on India’s long-term sovereign credit rating to negative from stable.

Revising the outlook signifies that the actual rating could be downgraded if the situation worsens in the coming months. A downgrade would put India in the below-investment category, meaning Indian companies will find it more expensive to borrow money overseas.

“With high government debt burden and deficits, its weak fiscal profile has been the single largest negative factor for the sovereign ratings on India,” S&P said in a statement.

“The outlook revision comes after a gap of two years and could result in lower inflows from foreign institutional investors and lead to some weakness in the rupee,” said Citi India economist Rohini Malkani.

Companies, however, said that they would not be immediately affected since only the outlook had been changed, while the ratings had been reaffirmed at BBB- (long-term) and A-3 (short-term).

Suraj, correct me if I am wrong but these measures are starting to look more and more like carrots for voters than actual measures to help out the economy by Kangress.

[Sanjay]

Anyone care to add their considerable economic analysis skills to this article:


http://www.rediff.com/money/2008/sep/06guest.htm

[Rahul Mehta]

Folks,

Pls see http://rbidocs.rbi.org.in/rdocs/Wss/PDFs/90230.pdf

We all know that RBI manufactures currency notes, which only form about 15% of total rupee (M3) around us. To be exact, currency notes manufactured by RBI between 1951 and Jan-2009 is about Rs 640,000 cr . And total rupee (M3) manufactured by all banks between 1951 and Jan-2009 is Rs 44,40,000 cr. IOW, about Rs 38,00,000 of M3 has been manufactured by banks other than RBI. To give information of past 52 weeks, RBI manufactured Rs 91,000 cr in past 52 weeks, whereas all banks including RBI manufactured Rs 724,000 cr. So Rs 633,000 cr was manufactured by banks other than RBI.

---

Now RBI balance sheet does give TOTAL amount of rupees (M3) manufactured by banks other than RBI. But RBI does not given approx amount manufactured by each individual bank. Does anyone have data on approx amount of M3 manufactured by each individual banks in India, such as SBI, BoB, Dena Bank etc? since 1951 or in past 1-2-3 years?

Notes :

1. Some of you may think that SBI does NOT manufacture Indian rupees. Well, SBI does manufacture Indian rupees, but only in passbook form and not in currency note form. And it is not illegal. It is fully authorized by RBI, Finance Ministry and MPs. And for that matter some 200 so called scheduled banks have licence from RBI to manufacture Indian rupees in passbook form within limits. These 200 banks have manufactured over 85% of Indian rupees (M3) and rest 15% has been manufactured by RBI in form of currency notes (and credits on RBI books). Please see any Economics text for more or feel free to send me questions at [email protected]

2. The fashion says that verb "create" should be used with money (M3) and verb "manufacture" should NOT be used with M3. And very fashion conscious economists would take severe objections to the use of word manufacturing for rupees. But I am fashion-challenged. So I use verb "manufacture" for money, as I see RBI as a factory which manufactures currency notes and I see SBI as a factory which manufactures passbook money. I hope BRites will put with my usage and perception.

[Suraj]

Rahul Mehta: The RBI elitemen have taken away your PDF. The link is broken.

What do you mean by other banks 'manufacturing' money ? All currency is issued by the RBI. Passbooks are backed by savings deposits; they are just transaction records of the account.

Do you computations take into account the monetization of roughly $250-300 billion (Rs.9,60,000 - 14,40,000 crore) in foreign capital inflows in the last 25 years ? Rs 44,40,000 cr is not a particularly remarkable number anyway - our current GDP is much more than that - about Rs.57,00,000 cr .

[Rahul Mehta]

Rahul Mehta: The RBI elitemen have taken away your PDF. The link is broken.

What do you mean by other banks 'manufacturing' money ? All currency is issued by the RBI. Passbooks are backed by savings deposits; they are just transaction records of the account.

Do you computations take into account the monetization of roughly $250-300 billion (Rs.9,60,000 - 14,40,000 crore) in foreign capital inflows in the last 25 years ? Rs 44,40,000 cr is not a particularly remarkable number anyway - our current GDP is much more than that - about Rs.57,00,000 cr .

(About broken link : it has happened with me before that the links to RBI money supply bulletins sometimes fails and then starts working again)

As you know, the currency notes are manufactured by RBI, the rest of the M3 (passbook money) is manufactured by banks. One can certainly claim that the passbook money is backed by currency, but only about 8% of it, the CRR part.

I have not done any calculations. I am taking numbers right from RBI bulletin of Jan-9-2009. The total currency notes are about Rs 640,000 crores. To that, add about Rs 14,40,000 crores net dollar inflow as you said. Now total M3 as RBI bulletin says is Rs 44,60,000 crores. So somebody must have manufactured remaining Rs (44,60,000 - 14,40,000 - 6,40,000) crores = about Rs 2400,000 crores. And this number matches with credit issued by banks. And as economists say "banks create money when they issue loans" or "money supply increases when bank issues loans". (I am saying same thing except I use the verb "manufacture" instead of verb "create". Please pardon my usage.)

So about Rs 24,00,000 cr of M3 is created various banks such as SBI, BoB, Dena Bank, ICICI Bank, HDFC Bank etc. Now I want to know how much money (M3) was manufactured by each of them, say SBI to start with. Approximately, it will be equal to loans SBI has given, but may differ as there are inter-bank deposits and inter-bank loans which needs to be canceled. I wish RBI was giving approx or exact number of how much rupees in M3 each individual bank creates. But RBI does not give bank-wise information and gives only the total.

So I was wondering if anyone has idea about individual banks' contribution to M3.

(I am not challenging the system, I only need some data.)

.

.

I want to get this information bank-wise for top 10 PSU banks banks and the top 2 private banks.




The

[Suraj]

As you know, the currency notes are manufactured by RBI, the rest of the M3 (passbook money) is manufactured by banks. One can certainly claim that the passbook money is backed by currency, but only about 8% of it, the CRR part.

Are you familiar with fractional reserve banking ?

[Shalav]

AFAIK

the GoI prints the Rs. 1 note and the all other notes are printed by the RBI. There is no other authority which can print currency notes.

[ramana]

He is talking of velocity of money and not printing money.

[Suraj]

the GoI prints the Rs. 1 note and the all other notes are printed by the RBI. There is no other authority which can print currency notes.

The old GoI-issued Re.1 notes no longer appear to be in active circulation; the lowest active denomination is Rs.5 . The RBI therefore has the sole authority to issue banknotes in India. GoI on the other hand has the sole authority to mint coins, though the mints then pass the coins to the RBI, who issues them to the public.

[Sanjay M]

India is now about to achieve the dubious distinction of earning a junk credit rating on borrowing.

http://www.businessweek.com/globalbiz/c ... 145994.htm

So much for the claim about Manmohan and Congress having been architects of India's economic liberalization -- a credit which we all know was stolen from Narasimha Rao. As we can see from Manmohan's ongoing mismanagement of the economy, the description of him as a father of economic reforms has always been a charade.

[Rahul Mehta]

.

I am talking about fractional reserve system, total rupee supply and not talking about velocity of money. Also, lets take coins and Re1 notes out of discussion. The coins and Re 1 notes are less than 2% of total currency note and coins supply ( see http://rbidocs.rbi.org.in/rdocs/Publica ... /80345.pdf for exact numbers). IOW, leaving coins and Re 1 note out will at worst create 2% error in our analysis. We can live by that. Also, I will use EXACT terms as in RBI bulletins and economists with one and ONLY one exception : while economists say "money was created by RBI or banks" , I say "money was manufactured by RBI and banks". IOW, I use verb 'manufacture' instead of verb 'create' and other than that I use the standard terms RBI and economics textbooks use.

Please see URL http://rbidocs.rbi.org.in/rdocs/Wss/PDFs/89770.pdf

This bulletin proves that banks other than RBI do indeed manufacture Indian rupees, though not in the form of currency notes but in form of so called 'passbook money' which. This should not surprise anyone, as Eco-101 texts also say this in black and white and non-RBI banks do create (manufacture) money M3. I only want to know contribution of each of 250 banks in India or at least contribution of major banks such as SBI, ICICI, HDFC, BoB etc

I have posted more comments on this issue in neta-babu-judge thread.

[Suraj]

Rahul Mehta: So you are indeed referring to fractional reserve banking as I guessed earlier. I am now at a loss to understand what your question is. Do you have one at all ? The rate of growth of broad money is controlled by a host of factors, including the prevailing exchange rate, the attractiveness of time deposits, and number of financial transactions in the economy, all of which are dynamic in nature. What sort of conclusions do you seek to arrive merely by looking at the broad money figure in isolation ?

[vina]

Yes Rahul (The) Mehtaji, every Economics Newbie (noobie or noob in BR parlance) knows that banks "manufacture" money. So what is your point?. Are you concerned over M3 growth? . The entire world needs to fight deflation now. But India shouldnt be the ones printing cash. We are already over extended . With fiscal deficit at 12% of GDP, thanks to our "Poojya Pradhan Mantri" and our former "Poojya Vittha Mantri" , it is all downhill only from now, and we will be lucky if we can escape gettin flushed down the toilet.

Yeah, interest rates in India and inflation are headed in future in only one direction. And that is UP. The UPA govt spent like there was no tomorrow (a common wet dream of the JNU commies ) . Well it happened, and now we will have to live with the consequences of that in the future.

[Suraj]

Inflation falls to 3.36%

Wholesale prices climbed 3.36 percent in the week to Feb. 14 from a year earlier after rising 3.92 percent the previous week, the commerce ministry said in New Delhi today. Economists expected an increase of 3.38 percent.

Bonds gained on speculation the central bank may lower interest rates for a fifth time since October. Finance Minister Pranab Mukherjee yesterday said he was sure the Reserve Bank of India would take “appropriate compensatory” action after the government this week cut taxes on consumer goods and services to spur the economy, expected to grow at the slowest pace since 2003.

“The sharper-than-expected slide in inflation and demand leaves little ambiguity that the Reserve Bank will cut rates,” said Dharmakirti Joshi, an economist at Mumbai-based Crisil Ltd., the local unit of Standard & Poor’s. Joshi expects the central bank to reduce borrowing costs by between 50 to 100 basis points.

The yield on the benchmark 8.24 percent note due April 2018 fell 2 basis points to 6.56 percent from 6.58 percent immediately before the report. A basis point is 0.01 percentage point.

To help revive demand and arrest a decline in industrial production, India’s government on Feb. 24 lowered the excise duty to 8 percent from 10 percent and reduced the service tax to 10 percent from 12 percent. A 4 percentage point cut in central value-added tax announced in December was also extended beyond March 31, 2009.

India’s central bank kept interest rates unchanged in its scheduled policy review on Jan. 27 after reducing them to an unprecedented low on Jan. 2. The repurchase rate, which has been cut four times since October, is at 5.5 percent and the reverse repurchase rate is 4 percent.

“Inflation has markedly decelerated in recent weeks, and interest rates must follow suit to maintain a loose monetary policy stance,” said Sherman Chan, an economist at Moody’s Economy.com in Sydney. “It is time for the Reserve Bank to join in again in reviving the economy.”

[shaardula]

suraj,

this has nothing to do with indian economy. context is entirely american. but the topic is that cornerstone of indian economy called jugaad in the workplace.
america's tryst with jugaad

hope it is ok.

[Rahul Mehta]

Suraj, Vina,

Posted my reply in neta-babu thread. These days, I am scared to post replies in other threads.

.

[Sanjay]

Suraj, if you don't mind, I'd like to pose an open query - can anyone figure out what % of India lives on less than $1 per day and less than $ 2 per day ?

I have read the WB report and some others and frankly they don't make sense.

This article has me further confused:

http://www.rediff.com/money/2008/sep/06guest.htm

Can anyone make any sense of this ?

Macroeconomic concepts and indicators are vital but it is these poverty levels that give people an impression of India that is hard to refute.

[AnimeshP]

India's GDP growth in 3rd quarter down to 5.3 % .... http://www.livemint.com/2009/02/2710561 ... .html?h=A1

Well ... I guess that is the final nail in the coffin of the de-coupling theory and our govt is MIA...

[Vipul]

Apr-Jan fiscal deficit at $52 bn: Govt.

India's fiscal deficit for the April-January period stood at 2.63 trillion rupees ($52 billion), or 80.5 per cent of an upwardly revised budget target, a government statement said on Friday.

Last week, the government revised upwards its fiscal deficit estimate for the year to end March to 3.27 trillion rupees or 6 per cent of gross domestic product, from 2.5 per cent estimated earlier.

The deficit has widened after the government announced extra spending of close to 1.5 trillion rupees to cover a farm debt scheme, subsidies and steps to stimulate a slowing economy.

[Suraj]

Sanjay: this may interest you.

NCAER recently analysed the CSO's GDP data for a breakdown of rural economy according to agricultural, industrial and services sectors. The conclusion is enlightening - the contribution of agriculture to rural economic output is down from 52% to 42% in just 8 years. More importantly, the second largest component of rural economy is not services but industry, and the latter is slated to overtake argiculture in rural economic output by 2015:
The changing countryside

The perceptible change in the composition of the gross domestic product (GDP) of the rural areas, as reflected in the faster growth of rural industry and services vis-à-vis agriculture, is a welcome development. Analysis of Central Statistical Organisation (CSO) data, done by the National Council of Applied Economic Research (NCAER), reveals that while the share of agriculture in rural GDP has dropped from 52 per cent in 1999-2000 to 42 per cent, that of industry and services, taken together, has surged from 48 per cent to 58 per cent. Industry alone now accounts for nearly 30 per cent of rural GDP, and services the remaining 28 per cent. By the middle of the next decade, therefore, industry in the rural areas could well outstrip agriculture as a contributor to rural GDP. In a quite unplanned manner, India may be achieving the rural industrialisation that China’s Township and Village Enterprises model achieved in that country.

The growth of alternative occupations in the countryside should be a matter of relief, given the low employment growth taking place in agriculture, a result of the poor absorptive capacity in an area where there is already significant under-employment. Also, the same people who work in the fields during the busy agricultural seasons of sowing and harvesting can and do take up non-agricultural work at other times. This may be why the CSO’s economic census of 2005 showed that about a fifth of the rural workforce was employed in agricultural establishments, while four-fifths worked in non-agricultural establishments. There could of course be definitional issues too, as to what is a rural area, because several large villages in the country are de facto urbanised, while some mandi (or wholesale market) towns are still categorised as rural.

There are several reasons for welcoming the diversification of the rural economy. It indicates, for one thing, that the robust performance of the manufacturing and services sectors in recent years has not been confined to the urban areas and has percolated through to the semi-urban and rural areas as well. The diversification of job patterns also indicates reduced dependence on agriculture for livelihood, a shift that is particularly desirable when over 50 per cent of the population lives off a sector which accounts for just 18 per cent of the country’s overall GDP. As such, this bodes well for poverty alleviation as well. Equally significantly, it could help curb migration from rural to urban areas and thereby ease the pressure on cities that are struggling to cope with the influx.

This data is significant implications on general economic development, since it highlights the fact that for the first time in history, rural India is no longer primarily dependent on agriculture. The next course is the movement of labour from majority employment in agriculture to majority in services+industry.

[wig]

massive investments made in infrastructure should enable the BPL sectors of people to raise their living standards.
it is this development activity that funds deficits.
but more disturbing and a problem that simply refuses to go away is the costing incurred in implementation. All costs in infrastructure development are inflated to almost double the cost.
dams, roads, bridges, drains - it hardly matters whether the project is big or small
the costing is skewed and the entire thing of how costs are inflated is instituionalised
this money that leaks or probably the more appropriate word is misappropriated fuels
a)inflation
b) people start hoarding assets/ buying additonal long term or end term investments (land, houses, flats) and pushing up prices so that those who really need these objects end up being unable to afford them
c) this parallel economy drives people into illegal avenues. the dividing line becomes hazy!

[Sanjay]

Suraj, Thanks for that article. It would seem to indicate that there is now an even more pressing reason to change the base year for calculations for GDP size.

BTW, what's your take on the article I posted ?

[Suraj]

I don't have a comment beyond what I've already mentioned - that there are different measures involved , and that the politics of poverty make the data difficult to parse . In any case , the base year revision is long overdue . Our GDP base year is effectively still 1993-94 . There's no excuse for being so anachronistic .

[derkonig]

^^
Our current base year is 1999-2000.