Indian Economy: News and Discussion (Jan 1 2010)

[SwamyG]

Last edited by Suraj on Aug 22 2010 04:51 pm, edited 1 time in total.
Let's keep the central asians in their own thread

Sad ain't it? That, we cannot exchange even one or two good things about Pakistan, even on the passing.

[Rahul M]

X-post

my reply to Marten's post in nukkad.

to check how India is actually doing we need to look at PPP onlee, no ? but I agree that our per capita GDP(PPP) is still abysmal.

for all the sloganeering, no govt has worked on the rural sector in a focused way, the gram sadak yojana was a very good idea but there has to be similar projects AND proper implementation for education, health, electricity and so on. with rural population still growing, unless we urbanise a whole lot of that population, we are going to see more fragmented land holdings and even lower productivity. urbanisation OTOH would need creation of more industrial jobs.
fortunately, most of these factors are interconnected and any progress in one has a positive effect on others. the reverse is also true, you fall back on one factor and all other factors take a hit.

this transformation will be a tricky job and the solution does not require creation of a new administrative structure, what we have is sufficient, what it needs is leaders. we seem to have a serious shortcoming on that front.

re: superpower, I don't even know what I'm supposed to do with that term in our context.

and what do I see, suraj guru touches upon the same gram sadak yojana that me econ-ignoramus did ! BR must be teaching me something after all !

[Suraj]

SwamyG: Please don't take it personally. From past experience, the comparison is rarely received well, and I wanted to nip thread disruption in the bud. In any case, you're more likely to get answers to your questions about them in the Pak thread(s).

[SwamyG]

No, no there is nothing personal. I was reflecting on the sad state of affairs. I had guessed correctly why you did what you had to do.

[ShivaS]

When I left desh way back I always thought give India another 25 years we will be on our way. But Now that I have returned, I see no hope of civic sense and duty to do the minimal work in public adminstration is completely gone.

Every week end driving from Hyderabad air port I watch the same pot holes getting bigger and bigger but not a trace of pouring some tar, cement even garbage into the hole.
The road I access to my home is the next lane to Gita Reddy (AP minister for tourism I am told) My MLA is none other than glamour queen Jaya Sudha the new convert to good samaritan...

I may sound despondent but it is true we have not achieved as much as we should.

I wish our netas and babus spend 10 paise of 1 Rs towards some work for public , the rest 90 ps let them loot no problem.

Oh by the way a Lt. Col was discharged for making money thru adultrated milk supplied to Jawans during gues what Operation Parakram. I used think only at Brig level the corruption starts...

The center is so weak now we have all kinds of threats, the latest is KCR who is now the Bal T of AP. People are paying him protection money....

[bart]

When I left desh way back I always thought give India another 25 years we will be on our way. But Now that I have returned, I see no hope of civic sense and duty to do the minimal work in public adminstration is completely gone.

ShivaS, nice rant, and for the most part completely spot on.

However, no offence, and I am not trying to start a NRI vs RNI vs RI contest here, the country does not magically improve by itself if you leave and come back after a while. Its only when people stay and fight the system that it will improve, and if it doesn't at least such people have earned the right to rant about it.

[Vasu]

Shivas, give it some time, you'll get used to it.

Meanwhile, drop your hallowed neighbors a letter, write a letter to the newspaper as well. Its been known to reach their ears sometime.

[nachiket]

When I left desh way back I always thought give India another 25 years we will be on our way. But Now that I have returned, I see no hope of civic sense and duty to do the minimal work in public adminstration is completely gone.

That's like saying "I came across a problem. So I closed my eyes for some time expecting the problem to disappear but when I opened them, Surprise!, Surprise! it was still there."

[Suraj]

Highlights of Annual Foreign Trade Policy Review

* Government confident of $200 billion exports this fiscal.
* Zero duty Export Promotion Capital Goods (EPCG) scheme extended by one year to March 31, 2012; more products added.
* Duty Entitlement Passbook (DEPB) scheme extended by six months till June 30, 2011.
* Number of additional products from sectors like leather, engineering, textiles, jute added to 2 per cent interest subvention scheme.
* Additional benefit of 2 per cent bonus for 135 products under Focus Product Scheme.
* One per cent Status Holder Incentive Scheme (SHIS) for technology up-gradation extended till 2011-12; more products added in the scheme.
* Benefits under Market Linked Focus Product Scheme to garment exports to EU extended till March, 2011.
* Barmer (handicrafts), Bhiwandi (textiles) and Agra (leather goods) declared Towns of Export Excellence.
* Steps announced to reduce transaction cost of exports.
* Leather sector allowed to re-export of unsold imported raw hides and skins and semi-finished leather from public bonded warehouses, without export duty.
* List of items allowed for duty-free import of gems and jewellery sector expanded.
* Scrips issued under Served From India Scheme (for services sector) can be used for payment of duty on import of vehicles.
* Instant tea and CSNL Cardinol included for five per cent duty benefit.

[Uttam]

Marten: roadbuilding, especially near ubiquitous connectivity of all rural areas, cannot be underemphasized. High speed lines are nice, but roads are far more critical at this stage of development. By roads I don't restrict it to 8-lane expressways in Dilli or Bluru. It also means the ones that you can take to get out of some nondescript village and get to the nearest city or metro without a backbreaking journey. One of the primary drivers of poverty is isolation. On the flip side, mobility will result in urban areas getting crowded by those leaving bleak villages, requiring accelerated emphasis on volume industries that will absorb low wage labour quickly.

One more thing that I have never been able to wrap my head around - people talk of India's consumption driven economy being good, because it's more like a developed society, as opposed to China's 'imbalaced' system with capital investment being the primary driver. I'm sorry, but just look at the base of fixed capital, i.e. infrastructure in all forms, in India. It'll take maybe $10 trillion to 'build' India. It has to be done NOW, while costs are low and labour is cheap and plentiful. To be fair we have made tremendous strides towards it - gross fixed asset formation is now 33-36% of GDP. It was approximately half that figure from 1947-2002 . It is the primary reason why the stock of infrastructure is so small, and of poor quality.

I've said this before and I'll say it again - the massive increase in capital formation/GDP is the primary reason India has seen its economic renaissance since ~2002. It's that investment that is feeding consumption, not the other way around. There's no other way to do it than deploy massive amounts of labour to build it. It requires us to further increase investment/GDP from the current 33-36% to the mid 40%s for several years. I support distortionary policy measures that will enable us to make much more steel and cement than we do now, cheaply, because we need them that way. Both the US and China, during their early stages of development, were characterized by massively disproportionate core sector development; e.g. China produces 45-50% of annual global steel output today.

In terms of providing socioeconomic services, just an accelerated infrastructure building program will 'bring more people into the system' as labour, giving them access to facilities and services they'd have lacked if they were in some isolated village.

Though, I agree that physical connectivity is prime, information connectivity has given very unexpected dividends in many countries and not just India. There is evidence on arrival of cable tv having positive effects on school enrollment for girls in rural India. I personally witnessed how cell phones helped farmers eliminate middle men and increase their bargaining power with mill owners in case of mint oil in the foothills of U.P.

I believe the assumption of Indian growth being led by consumption has more to do absence of huge export portfolio (an in case of China) than any attempts to highlight similarity between India and West. I don't have data handy, but I wouldn't be surprised if one finds a much higher correlation between export growth and GDP growth for China than for India.

[Suraj]

The Chinese are an export engine. But just thinking of them as an exporter misses a much more important issue: they have also for a long time maintained a very high investment/GDP figure, and in particular fixed asset investment. Yes, some of that goes into building useless overpriced stuff like the Shanghai maglev, and other examples of mis-allocation. But they have also build a quality road and rail network, ramped up steel, cement and electricity production. They have several relatively livable cities, at least in terms of general ease of mobility and access to basic utilities. To the mango people, all these basics are important.

All that investment into building their country shows. And the lack of similar investment on our part shows. It's not a 'volume exporter vs domestic market driven' thing. It's simply a case of lack of investment, and execution of the large-scale public works projects necessary. That investment leads to greater productivity, because people are not stuck wasting hours on the most basic things, from waiting for water for a bath, to negotiating traffic, to production being halted by powercuts.

Before people jump up and say 'they are communist - they can flatten and build things easily', I'm sorry but that's an oversimplification. At the most basic level, our abilities at execution and implementation remain much behind the curve compared to what's required. This applies in pretty much every way - not enough labour with low/mid level construction skills to implement efficiently, lack of project management personnel to execute largescale projects (as a result of which we deify those who manage it, like Sreedharan), lack of emphasis on generating large volumes from core sector industries like steel, cement, electricity, mining etc. Letting market prices dictate their production ignores the fact that the current demand >>> supply situation in fixed assets will always enable a price premium.

To be fair, however, real moves are afoot in this direction. Steel production is at least envisioned to double in the next few years, but it is contingent on the likes of POSCOs project overcoming all the opposition facing it. Electricity production is ramping up, despite BHEL being far behind in fulfilling orders. Last I checked, BHEL has a $20 billion unfulfilled orderbook - not a good thing. The end result is we end up importing from Doosan or some Chinese maker. BHEL should instead have been permitted to divest a larger stake contingent on it being ploughed back into enhancing their production capacity.

To me, the 'Chinese model', or more accurately the 'Japanese model', is not about the exports. It's about the massive focus on fixed asset investment. They didn't grow at exponential rates because they exported everything and the kitchen sink, but because they actively ploughed back a massive part of those proceeds into funding their infrastructure building programs. That base of infrastructure put money in the hands of their people (who built it), and made it easier for them to unlock their productivity more quickly, because those people are now freed from having to waste enormous effort negotiating the pursuit basic needs. Some of those countries (e.g. Korea) went to draconian extents to prohibit private consumption during the early years (e.g. restrictions on how much toiletries and cosmetics could be purchased), the austerity measures meant to save as much as possible for investment in hard infrastructure.

My biggest gripe with Indian policymaking is that nearly 20 years after liberalization we don't have anywhere as much an emphasis on building our infrastructure. It doesn't have to be anywhere as draconian as the Koreans, but there simply isn't a coherent policy tying together respective ministries (e.g. finance, trade, industries, environment) driven by the PMO at all.

[Nihat]

We're getting there. As an example, conider the fact that all 6 of our major cities have got or are in the process of getting new airports and a big metro network in addition to more and more SEZ's, expanding road network etc. Rural areas have their own pace of deveopment. We have a rotten system to fix wrt infrastructure and we're doing that now.

I'm not a big fan of the Japanese model of development because after a point it causes over investment in Infrastructure which is financed through subsidies (also mentioned in another report in PRC thread), a service based economy like ours with a robust private sector has other advantages which may take time to evolve but they will be more important in the long run.

[Theo_Fidel]

Suraj,

I see your point but base wealth too matters. 40% of nothing is still nothing.
It is only now that our GDP is $1.5 Trillion that a serious assault is being made on our infrastructure woes.
40% of $1.5 Trillion is $600 Billion every year. We are roughly were China was 7 years ago. The next 10 years are everything.

Recently the Delhi airport was completed to world standards in 37 months for about $3.3 Billion. Almost all
the mangers and workers were Indian. Over 50,000 people worked on it. The management and workers do exist in India.
Much of the gleaming Gulf states have been built by Indians, many of whom have returned.

That $3.3 Billion dollar price was equal to 1% of all India GDP as recently as 15 years ago. No doubt we could have built that
same airport at about $1 Billion at the shoddy inefficient India price in about 10 years!

Having completed two relatively small construction projects in India recently I can identify a few things that are real problems.
Both projects were in the $5 million range.

1. Complete lack of standards. There are no institutes that maintain standards for things like doors, windows, finishes, wall types,
concrete work, testing, steel testing, water, chemicals used, etc. I could go on and on. All our door hardware had to be imported from the US!
We couldn't even specify concrete curb and truncated dome walk systems. Forget about anything electronic.

2. There are 2 levels of contractors. Professional and Jugaad. When we first bid out the contract we got 56 responses! That is correct 56. It is so easy
to start a construction company in India every Ram & Rahim has one. This is contrary to every report you hear about the toughness of starting a business.
It does not seem to even slow down the entrepreneurs in India. They get it done.
There are way way too many mom and pop shops trying to do every job under the sky. You can see it in the endless rows of shops selling the same things in every street.

It took us 4 months to sort out who was legit and who was not. Eventually we had the professional price for the work, about $4 million and the Jugaad price about $2.5 million.

It was extremely tough to get the owner to over look the cost savings! And this was a multi Billion dollar multi national.
The problem in India is that there is always a cheaper way to do things, and the temptation is usually irresistible.

When we finally did get the project going the first one had impeccable management and finished 3 weeks before time. It then took us
6 months to get the A/C hook up by the landlord. The second one finished 2 months late due to some changes and then it took 8 months to get
all the specialized equipment through customs and installed.

What I'm saying is that large chunks of our economy is now world class. It is the 30% that has stayed behind that causes such a stink.

It would take less than 1% of GDP to clean and maintain all our streets and cities. This one item would dramatically transform the image of our country.
If our streets were clean and painted our infrastructure would look 10 times better, as it does on the occasion it is cleaned and painted.
The problem is that the lost 30% lives on those streets. Even if the rest of the population contributes it is the casual dumping by that ignorant chunk
that causes the most damage.

When I was growing up 90% of our population was destitute and unproductive. This has now dropped to 30%. Finally they are in the minority. It is a huge chunk
of people, no doubt, 300-400 million or so. But finally they are the minority. It is this minority that causes our statistical horrors on the whole.

I have previously noted that it is hard to know what to do about them.

It is unconscionable that the poverty wallahs sensationalise this as the only representation of India. We should not fall for this crap.
Lower that Sub-Saharan Africa indeed.

[svinayak]

My biggest gripe with Indian policymaking is that nearly 20 years after liberalization we don't have anywhere as much an emphasis on building our infrastructure. It doesn't have to be anywhere as draconian as the Koreans, but there simply isn't a coherent policy tying together respective ministries (e.g. finance, trade, industries, environment) driven by the PMO at all.

My question is - do you think somebody from outside is controlling this.

[nachiket]

^^That is a pacquiesque conspiracy theory. There is no one outside controlling our infrastructure spending. When the Indian populace attaches the same amount of premium on better infrastructure as they do on caste while voting, the government will be forced to work their asses off to better the infrastructure. The current situation is our own fault. Believing in "Foreign Hand" chimeras will take us to the level of pakis.

[enqyoob]

It would take less than 1% of GDP to clean and maintain all our streets and cities. This one item would dramatically transform the image of our country.
If our streets were clean and painted our infrastructure would look 10 times better, as it does on the occasion it is cleaned and painted.
The problem is that the lost 30% lives on those streets. Even if the rest of the population contributes it is the casual dumping by that ignorant chunk
that causes the most damage.

Great post.

3 items that contribute to the unique desi ambience of streets:

1. Power lines snaking all over, strung from crooked, leaning posts.
2. Blinding maze of crummy signs, completely overwhelming any driver looking for road signs.
3. Open rain gutters/sewers on either side of the street.

What can be done to replace these with underground power lines, eliminate/ standardize all outdoor signs, and close the gutters with even, well-paved sidewalks with grills for the gutters?

[svinayak]

There is no one outside controlling our infrastructure spending.

Do you know how much dialogue is going on between policy planners in India and other global institutions.
Do you know how many countries are interested in India demographic data and other information.
Do you know how much socilogy and anthropology studies are done by western countries on Indian population. They are connected to religious institutions also.

[Suraj]

Acharya, please continue your discussion in a more appropriate location, like the geopolitical thread. Thanks.

[Theo_Fidel]

It would take less than 1% of GDP to clean and maintain all our streets and cities. This one item would dramatically transform the image of our country.
If our streets were clean and painted our infrastructure would look 10 times better, as it does on the occasion it is cleaned and painted.
The problem is that the lost 30% lives on those streets. Even if the rest of the population contributes it is the casual dumping by that ignorant chunk
that causes the most damage.

Great post.

3 items that contribute to the unique desi ambience of streets:

1. Power lines snaking all over, strung from crooked, leaning posts.
2. Blinding maze of crummy signs, completely overwhelming any driver looking for road signs.
3. Open rain gutters/sewers on either side of the street.

What can be done to replace these with underground power lines, eliminate/ standardize all outdoor signs, and close the gutters with even, well-paved sidewalks with grills for the gutters?

N3,

You look at that picture, subtract all those signs, electric lines and misc. trimmings that would be a very charismatic street corner.
Also note that I can see 3 add's for hospitals, 2 for clinics, 2 for auto shops, one for a painter, etc.
This is the problem. Way too much competition. The professionals are getting crowded out.

In the US a city of 50,000 has between 20-30 people (not including police) whose only job is to go around making sure this sort of stuff doesn't happen.
A city like Bangalore should have about 5000 people going around cleaning this stuff up. Non-stop. In 6 months the problems will go away.

Take a look at these before and after Exnora images.

Note that the sewers are still open and it is essentially the same infrastructure.

[Suraj]

Theo, enqyoob: Would you mind contributing on this line of debate in the Urban Development and Public Policy thread ? One interesting topic related to this : there's no national postal address system; PIN code is the finest level of granularity.

[Suraj]

How prescient. Just as we were discussing infrastructure here, Ajit Ranade writes about the topic in Business Standard:
Taxing the unborn

The first fact is that we have a huge backlog of unbuilt infrastructure. This includes not just power, roads, railways, ports but also schools and hospitals. The prime minister recently quantified this backlog as about $1 trillion, to be bridged in the next five years.

The third fact on which there is grudging consensus is that India’s infrastructure is far below that of China. Opinions may differ on how we got so behind, or whether China’s strategy of building capacity ahead of demand is a wise one. The fourth fact is that to build that $1 trillion of new infrastructure, we will need a lot of private investment. How much is a lot? It could be between 5 per cent and 30 per cent. That would still be infinitely more than the share of private investment in Chinese infrastructure, which is close to zero.

These four facts taken together — huge backlog, low tax to GDP ratio, limited role for private participation and Chinese benchmark as aspiration — point to an inescapable tax policy prescription. But first some background.

Since we are using China as a comparator, we need to incorporate three pertinent features unique to China. First, Chinese infrastructure was built almost entirely by public money. There was very little private investment. Secondly, China is facing a rapidly aging population. And thirdly, the level of non-performing banking assets (NPAs) in China are disproportionately large. By some estimates, the NPAs could be as high as 30 per cent of total bank assets. These three apparently unconnected features are actually intertwined.

The policy of purely public expenditure ensured there was no need to sweeten infrastructure deals with government guarantees for private investors (remember Enron?). Hence there were no hurdle rates of return to be scaled, no payback periods to be assured. Capital markets for bonds did not exist, and there was no need to hunt for private investors. Infrastructure project funding decisions were probably based less on social cost-benefit analysis and more on gut feel and conviction. Hence it was all public spending, pushed by bank finance. That inevitably led to a build-up of NPAs, since there was insufficient demand. But the Chinese view has been, better NPAs in the form of brick and mortar rather than cash sitting in squeaky clean bank balance sheets. After all, if these asset horizons are very long, then who cares about NPA definitions which recognise horizons of only 90 or 180 days overdue? The high-speed Maglev bullet train, which connects Pudong airport to Shanghai, used up $2 billion, and covers a distance of 40 km in four minutes. But even at the best of times, its occupancy is around 10 per cent. Either the ticket is too high or the demand has not yet caught up. So, this is an NPA, but not as per Chinese accounting. The Chinese rush to build infrastructure is a race against an adverse dependency ratio. The ratio of young workers to old pensioners is declining rapidly. If the rate at which new generation of workers (who are taxpayers) slows down, there is that much less room for public spending, which makes it difficult to postpone the burden to future generations.

The policy takeaway from the “four facts” of India’s infrastructure and lessons from China is that we will need to depend largely on public spending, and that we can increase substantially the tax burden on unborn generations. Infrastructure assets are long-lived, and their beneficiaries span several generations. To the extent that infrastructure has a public good nature (i.e. once built you cannot exclude people), it is inevitable that a large portion will have to be financed by public spending, i.e. tax revenues. Despite the huge push given to public-private partnership, at best we can expect only one-fourth of the funding to come from private sources. Hence, public spending needs to be supported by an appropriate tax base.

Instruments like long-term infrastructure bonds are a disguised form of taxation, since the bonds need to be repaid from future revenues. Thus, public spending is equal to more taxation.

The future, unborn generations as tax base for infrastructure makes sense both morally and rationally. Since India’s dependency ratio will remain favourable for much longer than that of China, passing the buck to the future will be that much easier. Owing to the demography advantage, a rupee postponed from today to tomorrow will be less than a rupee per capita. Thus infra spending is both a gift and a (partial) bill to tomorrow’s generation.

It is also important to note that the fiscal expansion that is implied by infrastructure spending is less susceptible to be stolen by foreigners. Other fiscal stimuli like cash for clunkers in the West, or many other job-creation initiatives can potentially leak away to low-cost economies. According to this view, a bulk of the stimulus in Europe and America was stolen away by China. The emerging market export economies can thus harvest rich economy fiscal stimuli. Not so with infra spending. A road cannot be manufactured in low-cost China to be imported into India. Infrastructure is the so-called non-tradeable sector, and public spending on it will firmly remain within India.

And one last point. Just as we need to increase the tax on the unborn to fund infrastructure which they will enjoy, we also need to tax the dead. The inheritance tax in India is one of the lowest, leading to a big and persistent skew in wealth distribution for many generations. Increasing inheritance tax will help the exchequer, and also lead to greater inter-generational equity. The unborn will thank you.

[Theo_Fidel]

Thanx for the post Suraj.

But that is a very pertinent observation. Most of the infrastructure in China is publicly financed.

There is one more point. China is paying first world prices for all its stuff. That high speed rail line cost it $30 Billion dollars!

Or roughly Rs 150,000 crore. It would be a staggering 2% of our GDP.

Is this something the Indian economy can support? With this money we could build all the Dedicated freight corridors we need and
still have plenty leftover.

This is what has happened to Japan. It is stuck with a first world, extraordinarily expensive structure it must maintain and rebuild,
even as its population ages/declines and needs less and less infrastructure.

One of the weird things about the Indian economy is that oddly it is the most energy and capital efficient economy on the planet.
I know it sounds counter intuitive to all we have been told, that we are hopelessly inefficient. This is not true at all. We are very efficient.
For instance most of our rail lines run at ~ 200% capacity.

It is just that the quality and standards are third world.

To get to first world standards we will have to pay first world prices. or instead of Delhi to Bihar being $11, we will have to pay $110.
The economy is simply not ready for this.

To get First world project delivery standards and schedules, we will have to pay first world prices.

Promise this is my last post on this subject here.

[ShivaS]

I am sorry my experience has been whenever and what ever I left, always showed marked improvement since my departure, The most recent was case was my stint was at AIG!

So I thought I left India to itself it would improve, looks like it is waiting for me to return only...

I am not seeking elimination of corruption, Mrs. Gandhi proclaimed ‘corruption is universal’ when her Railway Minister Jaffer sharief from Karnataka was caught in Railway Bogey (yes bogey) scandal

[svinayak]

I am not seeking elimination of corruption, Mrs. Gandhi proclaimed ‘corruption is universal’ when her Railway Minister Jaffer sharief from Karnataka was caught in Railway Bogey (yes bogey) scandal

That was in the 70s or early 80s. 25 years later nothing has changed

[Nihat]

IIP-like index for services output by early 2011

INDIA will soon have an index to measure output of services that contribute more than half of its national income but still do not have a periodic measure like the index of industrial production.

The government is likely to release by early next year regular data on sectors such as road transport, ports, aviation, telecom, post & telegraph and banking, for which the methodology has been firmed up. A full-fledged service output index could take some more time.

[Suraj]

Marten: Feel free to post pics in the appropriate places, such as the roads or urban development threads. I started the urban development and public policy thread a very long time ago (early 2007!) with the current topic in mind, but it took a while for people to wrap their heads around it, and get over just whining 'no water, no power...' Theo's constructive comments on what's missing, and the related discussion is very much fodder for that thread. Once in a while a good discussion starts, but loses interest rapidly. That thread has 3 pages in 3 years.

I mentioned the lack of trained technical school personnel in the earlier post about lack of sufficient manpower to execute largescale projects, and for that matter, mechanized systems. While we have a large labour pool, I see nothing good happening when I see a roadbuilding project where people are walking carrying heavy baskets of rocks and tar on their heads slooowly. Why ? Because their per unit output rate is much too low because they're not suited to that task as much as a mechanical scooper or layer. They're better off sitting in a production pipeline churning out widgets.

In terms of human development indicators, there have been some significant improvements, and inexplicable lack of progress on other fronts. Literacy and educational standards should be in solidly 80% territory in the next census in 2011, following their past census data (51% in 1991, 65% in 2001) trends, and over 90% by mid-2010s. Medical indicators like infant mortality, maternal mortality and neonatal care, however are poor for a country relatively floating in cash compared to 1991, and requires concerted policy action.

[Bade]

THE MARKET MIRAGE - India’s income distribution is less unequal than China’s

If we compare India with the rest of the world, its income inequality turns out to be average. There is an easy measure of inequality. First draw a graph of the cumulative proportion of population against the proportion of its income. If everyone had the same income, cumulative income would be exactly proportional to cumulative population, and the graph would be a 45-degree straight line. The more unequal the income distribution, the more will the line — called the Lorenz curve — diverge from the 45-degree line. Measure the area between the Lorenz curve and the 45-degree line and divide it by the area under the 45-degree line, and you get the Gini coefficient, which measures inequality. If, for example, the entire income of a population went to a single king, the Lorenz curve would coincide with the x- and the y-axis; the Gini coefficient would be equal to 1. Gini coefficients generally exceed 0.5 in African countries, and fall between 0.4 and 0.5 in Latin America and below 0.3 in Europe. India’s Gini coefficient varies in the range of 0.3-0.35; its income distribution is less equal than in Europe, but more equal than in developing countries. China’s, incidentally, is around 0.4 — more unequal than India’s.

National Gini coefficients have been known for long. But for the first time, Gini coefficients have been calculated for various occupational classes in India by Vamsi Vakulabharanam and published in The Economic and Political Weekly of July 17. Since it began the National Sample Survey in the 1950s, the government has never asked people what their income is. This is because for people who do not get a regular salary and those who get some of their income in kind (for instance, the produce of their farms) income is difficult to calculate, and it is not done. So the government asks them to enumerate in detail how much they consume; it is from their total consumption that Vamsi has calculated Gini coefficients. Consumption figures exclude savings, and since the rich save more, incomes are more unequally distributed than consumption; in other words, Gini coefficients calculated from consumption understate income inequality. Vamsi has made detailed calculations to decompose the contribution of various factors to inequality. But his figures tell another story that interests me more

[Uttam]

Financial Times
India warns about balance of payments

By James Lamont in New Delhi
Published: August 24 2010 13:33 | Last updated: August 24 2010 13:33
The Reserve Bank of India warned on Tuesday that volatile capital flows threatened to increase pressure on the country’s balance of payments, which is recording the widest current account deficit among large emerging economies.

Analysts identify the current account deficit – which will put downward pressure on the Indian rupee – alongside double-digit inflation as the biggest challenges for the Indian economy.
.......................

The Reserve Bank of India said on Tuesday that the country’s current account deficit had grown to 2.9 per cent in 2009-10 from 2.4 per cent in the previous year. One reason, the central bank said, for the deterioration in the balance of payments was a decline in an “invisibles surplus”, caused in part by falling revenues to India’s prized outsourcing sector.

..............

[enqyoob]

Marten, thx. Wonder how to bring any such civic sense to Urban Malloostan. In searching for images on the web to illustrate the "desi urban amibence", I could not find anything to properly describe what I see there in terms of sheer urban blight and eyesores on what should otherwise be some of the prettiest real estate on the planet. Must be special to Malloostan. Huuuuge deterioration since the 1960s, even as "wealth" has got poured into the place.

Most Modern Malloostani city centers remind me of the ambience described in the Michael Crichton book, "Congo".

[hnair]

.

Most Modern Malloostani city centers remind me of the ambience described in the Michael Crichton book, "Congo".

saar, regarding your point#3

2. Blinding maze of crummy signs, completely overwhelming any driver looking for road signs.

Here is something I posted on the topic after hearing the Bredator's warning revvs of the rotaxx....

[abhischekcc]

Marten, thx. Wonder how to bring any such civic sense to Urban Malloostan. In searching for images on the web to illustrate the "desi urban amibence", I could not find anything to properly describe what I see there in terms of sheer urban blight and eyesores on what should otherwise be some of the prettiest real estate on the planet. Must be special to Malloostan. Huuuuge deterioration since the 1960s, even as "wealth" has got poured into the place.

Most Modern Malloostani city centers remind me of the ambience described in the Michael Crichton book, "Congo".

If you like Malloostan, you will lurv delhi.

[Vipul]

Rs 50k cr infra fund by early next fiscal.

[Ameet]

India Gold Imports May Reach 2009 Level This Month

http://www.businessweek.com/news/2010-0 ... month.html

Purchases in the six months ended June were 348 metric tons, compared with 559 tons in all of last year, the group said. Jewelry demand surged 67 percent to 272.5 tons in the period and sales for investment more than tripled to 92.5 tons.

“The imports, if the trend continues, should cross last year’s figure any time in July-August.”

[Suraj]

An indicator of where the money is going:
India tops Asia in FII inflows

India has emerged as the star performer in terms of attracting foreign inflows into the domestic equity market. In the past month, the net inflow into India has been significantly higher than the whole of Asia put together. This despite the fact that the undertone of most recent reports by leading foreign institutional investors (FIIs) has been cautious.

Code: Select all

Country     Inflows($mn)
India  	     2,073.90
Indonesia      269.00
Japan 	      1,273.70
Philippines 	172.00
S Korea 	    -294.30
Taiwan 	     -518.90
Thailand 	   390.70
Vietnam 	    23.00

RBI better placed to tackle inflation in Sept review

RBI’s annual report yesterday maintained its July policy stance, that inflation remains a concern and monetary policy action would continue. Economists surveyed said RBI is likely to raise rates by about 25 basis points in mid-September to cool excessive demand. It could also narrow the corridor between the rate at which it lends to banks and borrows from them, they said.

Before the mid-September policy review, data from first quarter GDP numbers, wholesale price index, index of industrial production and the global trend of prices of commodities, including crude oil, the global economic uncertainty and outlook will all help the central bank decide which instrument will be most suitable, bankers say. {GDP and related data will be released Aug 31}

By then, the status of the monsoon over the country will be clearer. A widespread monsoon could help keep food prices under check. In its July policy, RBI had mentioned the monsoon as one of the key factors influencing inflation, apart from a good kharif harvest, global energy and commodity prices.

[Vasu]

Capital inflows may rise, pose a challenge

The Reserve Bank of India (RBI) on Tuesday said there was a possibility of return of another phase of capital inflows, indicating this might pose a challenge for currency and interest rate management.

While a stronger growth could help absorb higher foreign capital within the limits of sustainable current account deficit, excess inflows would entail the risk of exerting appreciation pressure on the rupee, which in turn could weaken the competitive advantage of Indian exports.

Sterilised interventions could limit this pressure but might lead to higher interest rates, it said. Unsterilised intervention, which could relieve pressure on both exchange and interest rates, would involve excess liquidity creation. In an environment of high inflation, this could worsen the situation. High inflation would also hit export competitiveness through the appreciation of the real effective exchange rate and the widening of the current account deficit.

In emerging market economies, any sharp rise in capital inflows often led to a rise in prices of assets, along with the strengthening of the exchange rate, RBI said.

RBI sees some risks from capital flows. Share change in the global growth environment could lead to flight to safety. The funds could exit India and other emerging markets in such event, putting pressure on Balance of Payments, according to RBI deputy governor Subir Gokarn.

I like this article because it has explained the relation between inflation, capital flow and exchange rate quite well. Increased pressure from India's newest friend to push for capital account covertibility will increase the risks in the future. Currently there is a current account BOP situation and I definitely think the full current account convertibility has a role to play in it.

[ramana]

Raghu Nandan
Unleashing Your Entrepreneurial Potential
Sage Publications Pvt. Ltd | 2009-03-16 | ISBN: 8178299089 | 380 pages |

Unleashing Your Entrepreneurial Potential highlights how to learn to compete with the best in the world. It builds on the premise that the excellent exposure that the average young Indian professional is already getting is heavily tilted towards the West. But the strongest competitive challenges are now coming from the East, which is ruthlessly capturing the Indian and the world markets. Hence, to fight and win in the new world, youngsters in India have to learn and understand the mindset of the Japanese, the Koreans and the Chinese.


This book focuses on how to identify and nurture the entrepreneurial talents of the new generation. The author believes that in the new India, entrepreneurship is less about creating wealth than about creating new organisations that generate upscale employment.

Unleashing Your Entrepreneurial Potential highlights how to learn to compete with the best in the world. It builds on the premise that the excellent exposure that the average young Indian professional is already getting is heavily tilted towards the West. But the strongest competitive challenges are now coming from the East, which is ruthlessly capturing the Indian and the world markets. Hence, to fight and win in the new world, youngsters in India have to learn and understand the mindset of the Japanese, the Koreans and the Chinese. This book aims to help them do just this.

[ManjaM]

Ford furthers Asia push in India and Thailand

http://finance.yahoo.com/news/Ford-furt ... 0.html?x=0

"We have massive expansion across the region," Joe Hinrichs, president of Ford Asia Pacific and Africa, said in an interview Thursday. "We believe the Indian market at the end of the decade will be the third largest auto market in the world behind China and the U.S."

India is at a sweet spot of growth -- what Hinrichs calls the "take-off stage" -- where average incomes in major cities are finally high enough to afford a vehicle. China is ahead, with consumers in secondary cities also able to buy cars.

[Suraj]

The beginning of 2011-12 fiscal year (April 1 2011) is shaping up to be a fiscal blockbuster - both GST and the new direct tax code (DTC) are due to go into effect that day. It should significantly enhance economic activity by streamlining compliance and revenue generation:
Indian Cabinet Approves Lowering Tax Rates to Boost Compliance, Revenue

India’s cabinet approved a proposal that aims to improve compliance by reducing tax rates, Finance Minister Pranab Mukherjee told reporters in New Delhi today.

The new direct tax bill will seek to reduce corporate taxes to 30 percent and proposes three tax rates on personal income, Mukherjee said. Companies pay 33.6 percent tax at present.

The changes to tax law are aimed at reining in evasion that leaves the government reliant on about 27 million tax payers out of a population of 1.2 billion, according to the finance ministry.

Mukherjee unveiled the tax changes last year and proposed lowering rates for companies to 25 percent and abolishing taxes on equities trading. He didn’t provide information about equities trading today. The new proposal will be presented in parliament on Aug. 30 for approval by lawmakers, Law Minister Veerappa Moily said today.

Personal income up to 200,000 rupees ($4,269) a year will be exempted from tax, Mukherjee said. Annual incomes between 200,000 rupees and 500,000 rupees will be taxed at 10 percent, from 500,000 rupees to 1 million rupees at 20 percent, and those above 1 million rupees at 30 percent, the Bloomberg-UTV television channel reported, without saying where it got the information.

The proposed changes may become effective from April 2011, Revenue Secretary Sunil Mitra said today.

Cabinet clears Direct Taxes Code, with some relief

Individuals and companies can expect some relief in the Direct Taxes Code (DTC), with the government planning to widen personal income-tax slabs, enhance the exemption limit and remove levies on corporate tax.

Finance Minister Pranab Mukherjee, however, said the rates would be disclosed in Parliament when the Bill is presented on Monday.

Corporation tax is sought to retained at the present level of 30 per cent, but without any surcharge or cess, Mukherjee told reporters after the Cabinet meeting clearing the DTC Bill. The Bill seeks to overwrite the Income-Tax Act, 1961.

"The whole objective is that a plethora of exemptions will be limited. (Income-) tax slabs will be three. Rate of taxes will be taken in the schedule so that they need not be changed every year," Mukherjee said.

Food Inflation Slows for Second Straight Week as India Curbs Farm Exports

India’s food inflation slowed for a second straight week as the government maintained restrictions on the export of farm products such as wheat to cool prices.

An index measuring wholesale prices of agricultural products compiled by the commerce ministry rose 10.05 percent in the week ended Aug. 14 from a year earlier, according to a statement released in New Delhi today. It gained 10.35 percent the previous week.

“Food inflation will moderate in the coming months because of government steps and monsoon rains,” N.R. Bhanumurthy, an economist at the New Delhi-based National Institute of Public Finance and Policy, said before the report.

[A_Gupta]

Thailand seems to have fallen into a development trap:
http://www.nytimes.com/2010/08/25/world ... -thai.html

Three months ago, images of protesters battling the military in the streets of Bangkok seized the world’s attention. Now, by some measures, Thailand is bouncing back: the country’s economy is projected to grow as fast as 7.5 percent this year, and the government is pushing ahead with a program of “reconciliation” with its opponents.

But even as Thailand pulls itself back together, there are concerns that deep-seated problems among its young people represent a quieter, long-term threat to the country’s future.

Declining education standards — as well as reports of growing violence and drug and alcohol use among the young, which some analysts see as related issues — are contributing to fears that Thailand’s dream of joining the ranks of the world’s most developed countries may be getting more and more elusive.

Is there something for India to learn from Thailand to avoid this kind of problem?

[abhishek_sharma]

BRICs at the Gate

http://bosco.foreignpolicy.com/posts/20 ... t_the_gate

Former Mexican foreign minister Jorge Castañeda warns in a new Foreign Affairs essay that the BRICs—Brazil, Russia, India, and China—are not ready for leadership roles in key international institutions. The gist of the argument is that their committment to democracy and human rights is shaky and that handing them keys to the inner sanctum would weaken institutions like the UN Security Council, the IMF, and the World Bank.

Leaving substantive policy differences aside, there's a related danger associated with too quickly dispersing leadership in key international institutions: that nobody will feel ownership of them. Particularly when it comes to the World Bank, it's critical to remember that there are donors and borrowers. And if the donors stop feeling that they ultimately run the show, their appetite for donating may subside. Congress has already put up some almighty fights about UN dues. Without an American at the head, Bank funding might come in for the same treatment.