Indian Economy: News and Discussion (Jan 1 2010)

Suraj · Post by **Suraj** » 27 Aug 2010 08:56

Thailand's case (and by no means a unique one) is the Middle Income Trap. It happens when a country rapidly gets out of low income territory by leveraging cheap labour and trade, but reaches a point where it can't focus and sustain the investments and policies needed to take them into high income territory rapidly. It's a conundrum that's frequently discussed both in Thailand and Malaysia. There's no one solution for it - it depends on the combination of circumstances that led them there.

Singha · Post by **Singha** » 27 Aug 2010 20:13

our per capita income is far below malay and thailand, but one clear diff is we have decades ago established small 'beacheads' in higher education, science and technology that many of the 'tigers' did not . so we can send a rocket to the moon or put together a n-weapon but they cannot. as time goes on it will be time to expand these beach heads. we also have more competitive domestic cos and small MNCS in most sectors like manufacturing and services.

their small populations do not help.

taiwan and korea escape from the 'tiger trap', the others seem to have gotten left behind

Theo_Fidel · Post by **Theo_Fidel** » 27 Aug 2010 20:16

Singha wrote: we also have more competitive domestic cos and small MNCS in most sectors like manufacturing and services.

I think this is the critical distinction.

You need world class companies that can grow
and compete in the English sphere.

You also need to work a bit harder productively as a society.

Singha · Post by **Singha** » 27 Aug 2010 20:20

we also do have the advantage of a giant diaspora in the anglosphere, whose benefits we can see in itvity and finance now, perhaps in education and manufacturing soon.

Suraj · Post by **Suraj** » 27 Aug 2010 20:42

Very good observation Singha! Yes, we have several frontiers that can help push us ahead from middle income territory. On my part, my concern is not whether India will avoid the middle income trap. Rather, I am more concerned of how we will elevate (essentially) every last person into middle income territory fast.

As Theo mentioned, we have a substantial populated of poor, physically weak unemployed/unemployable population, the remnants of the lack of governance and the inability to get primary care and education out to the entire population earlier. They are not going to be gone anytime soon. It doesn't help that we persist with political grandstanding on the lines of the messy Vedanta bauxite mining controversy.

On the other hand, there are several other issues that I think will dissipate quickly. One is illiteracy, which will rapidly shrink in the next 5-10 years. Another is birth rate. Unlike grim prognostications, I believe our growth rate will rapidly fall towards the 2.1 replacement figure, because the current growth rate is entirely centered around the BIMARU states; a few years of sustained economic expansion and urbanisation there will be demographically significant. This is both a good and bad thing - the latter being that it places greater urgency to 'get rich before we get old'.

svinayak · Post by **svinayak** » 27 Aug 2010 20:49

abhishek_sharma wrote: 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.

Who is looking for leadership from these BRIC countries.

They have chosen the current P5 who are having problem of their own. There is China PRC which has broken all rules in human rights, non proliferation and global agreements. So what is this about leadership not ready

Singha · Post by **Singha** » 27 Aug 2010 21:33

mehico is cats paw of paschimi interests...

I see india having significant populations of high , medium and low income all together. because we have world beating people and desperately poor and exploited in parallel. I dont see us moving all the poor into middle income anytime soon...but the rate of entry poor->LMC and UMC->rich will remain high. it wont be like EU where there is a thick and dense cluster in the MMC...and 60% income taxes on rich slabs.

as you said, BASIC literacy is essentially non-problem now with kids enrollment approaching 90% in many developing nations incl India.
pushing that enmasse into EMPLOYABLE 12th pass diploma/ITI holder level is the next big challenge.

Suraj · Post by **Suraj** » 27 Aug 2010 21:37

India aims to triple port capacity within decade

The country needs “urgent action” to ensure that it has sufficient seaport capacity, Secretary of Shipping K. Mohandas said in an Aug. 25 interview in his office in New Delhi. “Ports are very important to India’s economic growth.”

The government intends to open new harbors and sell stakes in ports to help annual capacity reach 3.2 billion tons under a 10-year plan that will be released next month, Mohandas said. The nation is also building highways, railways and airports to ease transport bottlenecks that could cost 1.1 percentage points of growth in fiscal 2017, according to McKinsey & Co.

Indian ports will likely handle more than 2.5 billion tons of cargo a year by 2020, Mohandas said. Throughput in the year ended March rose 14 percent to 844.9 million tons. Nationwide capacity is about 996 million tons, said Rakesh Srivastava, joint secretary for ports at the shipping ministry.

Contracts for 25 public-private port projects will be awarded in the year ending March, which will draw 140 billion rupees ($3 billion) of private investment, Mohandas said. The government awarded 13 projects last fiscal year. State contributions to these partnerships are usually in the form of land, dredging and connections to road and rail links, he said.

Re: the Mexican diplomat, why do people care ? This game has been going on for a while now - the OECD coopts those one rung below the BRICs to talk them down. So what ? Let them talk.

Rahul M · Post by **Rahul M** » 27 Aug 2010 21:43

suraj, could you explain middle income trap for the dummy ? googling has only confused me.
thanks.

Suraj · Post by **Suraj** » 27 Aug 2010 23:22

Rahul M: It refers to a situation where a country rapidly grows out of low income category by leveraging low labour costs and beneficial trading relationships, until a point where the same arbitraging advantage that worked in its favour begins to work against it, as its more prosperous citizens demand better wages. In the process they price themselves out of the low cost volume industries and lose out to lower cost competitors downstream, but cannot adequately redeploy their labour in higher value industries in order to continue the climb up the economic ladder.

The result is a period of stagnation that they struggle to break out of, because they didn't (or to some extent couldn't) adequately chart a plan to take them higher. Thailand and Malaysia have both seen marginalized entities increasingly speak out, asking where their share of prosperity is, having kept quiet initially. Our situation isn't quite the same - the cacophony is deafening as it is, which I think is a good thing; it avoids punting it into the future and turning it into a major issue then.

Some manage to continue down the path by building an extraordinary level of competence and scale in specific industries, e.g. electronics, shipbuilding and heavy industry in South Korea (a nation of 50m that produces almost as much steel as we do), or electronics and mid/light industries in Taiwan. Of course, having a homogeneous population and a heavyhanded dictator at the helm didn't hurt.

Rahul M · Post by **Rahul M** » 27 Aug 2010 23:26

thanks, I've had this apprehension for the Indian economy although I had no idea it had a formal term.

what are the ways out other than cornering a specific industry ?

Suraj · Post by **Suraj** » 27 Aug 2010 23:34

Cornering a specific industry is not enough. We're way too big to be a one trick pony. There's no alternative to having world-class capabilities in a range of productive industries, and having both the manpower and the technical ability to retool for greater complexity as we progress. And yes, that includes having a large military industrial complex capable of building our armaments, not just ToT/screwdriver tech.

It's why I don't ever speak against the space program, for example. Actually in rather clinical terms I agree it looks like a balance sheet liability today, but it gives us the headstart we need down the line when we are in middle income territory and need the base of cutting edge technology in various industries to keep us in the race forward.

krisna · Post by **krisna** » 28 Aug 2010 04:04

Ministry of Power devises a China deterrent: 21% duty on equipment

Giving in to the demands of domestic equipment makers such as Larsen and Toubro (L&T) and state-owned BHEL, which have lost over Rs 65,000 crore worth orders to Chinese companies, the power ministry plans to seek Cabinet approval for levying duties adding up to over 21 per cent on import of equipment for mega power plants

Suraj · Post by **Suraj** » 28 Aug 2010 23:46

Core sector output grows 3.9% in July

According to the latest data released by the government today, the six industries — crude oil, petroleum refinery products, coal, electricity, cement and finished steel — grew faster than the 3.2 per cent rise in July 2009, or the 3.6 per cent expansion seen in June this year.

While cement and steel production declined in July, crude oil output rose to the highest level in over a decade, led by private players such as Cairn India. Production was estimated at 3.2 million tonnes (mt), which is 15.8 per cent higher than the level of 2.79 mt produced in July 2009. According to Bloomberg data, the July output is the highest monthly production since at least January 2000.

Output in the refineries also went up by 13.7 per cent to 12.86 mt, against 11.40 mt a year ago. In July 2009, production of crude petroleum as well as refinery output had declined.

“Cement and steel demand is lower due to better rains this year, while the monsoon was weak last year. Going forward, this will get corrected as better rains will translate into higher demand, especially post-September,” said D K Joshi, chief economist at Crisil, a ratings agency.

TN Ninan cuts through the BS and gets down to the money equations in Orissa:
Orissa: follow the money

To understand the dynamics of the mining business in Orissa, just take Deep Throat’s advice and follow the money. For starters, consider the state government. If Vedanta’s expanded aluminium project goes through, the state government stands to gain about Rs 1,200 crore per year in different kinds of tax revenues. And if the Posco steel plant, held up for many years by land acquisition battles, gets up and running, Naveen Patnaik’s government hopes to get Rs 2,200 crore annually. As much is expected from Tata Steel’s Kalinganagar steel plant. Put the three together, and the Orissa government’s tax stake in the projects is well over Rs 5,000 crore per year. This is on top of the money that the state already gets from various mining industries.

The state’s total tax revenue (not counting money that comes from the Centre) is barely Rs 10,000 crore, so what is at stake is a 50 per cent increase in tax collection. Add the existing revenue from mining industries (about Rs 2,000 crore), and the state could be getting half its “own” revenue from extraction industries. For a state that is deep in debt, the money from these projects can be a life-saver. Enough to justify the political risk of upsetting thousands of people who will be ousted from their lands, most of whom will not get any jobs in the projects that are to come up.

So, if you wonder why the state’s officials ignored the violation of national laws to facilitate the Vedanta aluminium project, think of the money. In a state that has under its soil a sixth of India’s total mineral resources, extraction industries are a lifeline that must be grabbed with both hands.

If the state expects a windfall, why does it not share the take with the people whose lives are disrupted, indeed torn apart, by the projects coming up? Looked at from a people’s perspective, the revenue from the mining industries, present and planned, would be close to Rs 10,000 each year for every family in Orissa. The government could pay all displaced people pensions for life, and the state would still have to cough up only a tiny portion of its take.

The Patnaik government will say that it has a generous relief and rehabilitation policy: handsome land price settlements, alternative housing, education and training, and a guaranteed job for every displaced family. But little of this is reflected in the Saxena report on the Kondh tribals of Niyamgiri; one of the complaints from the tribals is that none of them has got a job in the aluminium factory.

The policy of “take from the poor and gift it to the rich” has brought matters to a boil. Land acquisition must be on fair terms; the dispossessed have a prior claim on state resources; laws must be rewritten where necessary (and enforced); mines must not be given out free to businessmen, but bid for in auctions, as with oil and gas blocks; and environmental damage to water and forestry sources must be taken into account. The free ride for governments and industry should end.

Abhijeet · Post by **Abhijeet** » 29 Aug 2010 20:27

An interesting article about a new "mid-budget" hotel chain called Ibis from the company that runs Indigo airlines.

http://www.business-standard.com/india/ ... ly/406216/

While the concept is good, it's always a laugh to hear about hotel tariffs in India. This mid-budget hotel has a rate of $100 a night (Rs.4600) even though their two locations are Gurgaon and Pune, not exactly Tier 1 city centers. You could probably get a decent hotel for that price anywhere in the US outside of NY and SF. Poor land use in India has made hotels ridiculously overpriced, with the resultant undersupply.

ArmenT · Post by **ArmenT** » 29 Aug 2010 20:59

Marten wrote:What incentives will we need to bring over hi-tech industries to India? Is there any hope of Taiwanese manufacturers wanting to expand/move their operations to an investment friendly state, say Gujarat or Andhra or TN?

In electronics industry at least, the main requirements are a lot of electricity and lots of water, along with a water treatment plant.

vera_k · Post by **vera_k** » 29 Aug 2010 21:30

I think only Gujarat may have the infrastructure as of 2010 - at least electricity if not water - but even that is probably not true.

Reliance looks abroad for semiconductor unit

We have been approached by several state governments, but we require more infrastructural support than these states can provide and, therefore, have not ruled out a foreign location for setting up the projects

Suraj · Post by **Suraj** » 30 Aug 2010 20:53

First quarter GDP growth numbers are due tomorrow. Bloomberg estimates 8.8%:
India's Economy Probably Expanded at Fastest Pace Since 2007

India’s economy probably grew at the fastest pace in 2 1/2 years, adding pressure on the central bank to raise interest rates even as the global recovery falters. Gross domestic product rose 8.8 percent in the three months ended June 30 from a year earlier, according to the median of 27 forecasts in a Bloomberg News survey. The statistics office is scheduled to release the data tomorrow at 11 a.m. in New Delhi.

Exports account for less than a fifth of India’s GDP, and rising wages and consumer spending are sheltering Asia’s third- biggest economy from slowing growth in the U.S., China and Japan. The Reserve Bank of India said last week its priority is to reduce inflation, even after the most aggressive round of monetary policy tightening in the region.

“India’s problem is inflation,” said Samiran Chakraborty, a Mumbai-based economist at Standard Chartered Plc. “The fragility of the recoveries in most developed economies is worrying the global markets but such fears seem to be less pronounced in India due to strong domestic growth.”

krisna · Post by **krisna** » 30 Aug 2010 20:58

Billionaire Ambani's Reliance Industries Invests in Luxury Oberoi Hotels

Billionaire Mukesh Ambani’s Reliance Industries Ltd. acquired a stake in India’s luxury Oberoi hotel chain, his seventh investment this year

Ambani, 53, has invested more than $1.2 billion buying into a broadband company, cargo carrier and announced plans to build hospitals, universities and set up a sports marketing company. The fastest pace of economic growth in 2 1/2 years is bolstering demand for services, providing alternative sources of revenue as Reliance’s core energy business slows.

Investing in everything possible including some reports of media(not confirmed) also.
1) Is it wise
2) will it create a bigger giant than it is now, on to make many more enemies.
3) will it create a collapse later as it has happened to some heavy weights earlier.

hope other companies also grew faster---- will benefit the common man in the long run. Let there be more heavy weights rather than a few.

Suraj · Post by **Suraj** » 31 Aug 2010 00:07

Now this is a heavyweight reform step. DTC+GST next year will be a major step:
GoI introduces Direct Tax Code bill in Parliament

The government today tabled the much-awaited Direct Taxes Code (DTC) Bill in the Lok Sabha which proposed to raise the exemption limit on income tax from the current Rs 1.6 lakh to Rs 2 lakh.

The Bill, introduced by Finance Minister Pranab Mukherjee, seeks to widen income tax slabs to levy 10 per cent rate on income between Rs 2-5 lakh, 20 per cent on between Rs 5-10 lakh and 30 per cent above Rs 10 lakh.

For senior citizens, tax exemption is sought to be raised to Rs 2.5 lakh from Rs 2.40 lakh.

Currently, income between Rs 1.6-5 lakh attracts 10 per cent tax; between Rs 5-8 lakh, 20 per cent and beyond Rs 8 lakh, 30 per cent.

The proposed tax slabs are much lower than originally suggested in the draft DTC Bill -- 10 per cent for Rs 1.6 lakh to Rs 10 lakh, 20 per cent between Rs 10-25 lakh and 30 per cent for income above Rs 30 lakh.

The Bill seeks to fix corporate tax at the current 30 per cent but without surcharge and cess. With surcharge and cess, the current tax liability on corporates comes to over 33 per cent.

The legislation also proposes to increase MAT from 18 per cent to 20 per cent of book profit of a company. It seeks to levy dividend distribution tax at 15 per cent.

When enacted, DTC will replace archaic Income Tax Act.

DTC may make taxpayers richer by up to Rs 41,040 annually

People earning more than Rs 10 lakh a year may save up to Rs 41,040 in income tax, if slabs proposed by the Direct Taxes Code (DTC) bill come into effect, experts said.

Similarly, tax burden would reduce by Rs 21,540 for those earning annual income between Rs 5 lakh and Rs 10 lakh, while those making Rs 2 lakh to 5 lakh could be richer by Rs 7,660, Deloitte Haskins & Sells Partner Neeru Ahuja said.

According to the bill presented in the Lok Sabha today, income from Rs 2-5 lakh is likely to attract tax rate of 10 per cent; 20 per cent in the Rs 5-10 lakh bracket and 30 per cent above Rs 10 lakh.

At present, income between Rs 1.60 lakh and Rs 5 lakh attracts 10 per cent tax, while the rate is 20 per cent for the Rs 5-8 lakh bracket and 30 per cent for above Rs 8 lakh.

The bill proposes to raise income tax exemption limit to Rs 2 lakh from the current Rs 1.60 lakh.

"For the individuals, DTC tax slabs are certainly beneficial. Their tax liabilities will go down," DSK Legal Partner Balbir Singh Mastan said.

FY12 direct tax collection estimated at Rs.5 lakh crore ($110 billion)

India's direct tax collection for 2011-12 is expected to be around Rs 5 lakh crore, if current rates hold, Revenue Secretary Sunil Mitra said on Monday.

India on Monday introduced in Parliament a Bill to overhaul its archaic Direct Tax Code (DTC), a key reform aimed at simplifying procedures for investors and bring in more revenue by widening the tax net.

New DTC only from April 2012

The new legislation to replace the Income-Tax Act, 1961, is slated to come into force only from April 2012. Like the Goods and Services Tax, this is again a case of missed deadlines, since the original schedule was to shift to DTC from April 2011.

Under the new regime, companies will pay 30 per cent corporation tax, including cess and surcharge, instead of the present combined levy of 33.2 per cent. Besides, the tax rate for foreign companies will now be the same as domestic companies.

The Bill — the result of two rounds of consultations and factors in 1,600 comments — proposes to increase the exemption limit for individuals from Rs 1.6 lakhs to Rs 2 lakhs. Accordingly, the slabs have also been reworked. Those with a taxable income of Rs 2-5 lakhs will be taxed at 10 per cent; those in the Rs 5-10 lakhs bracket will have to pay 20 per cent; while taxable income of over Rs 10 lakhs will attract a 30 per cent levy.

Though this is lower than what was proposed in the first discussion paper released last August, exemption on saving instruments, which were proposed to be withdrawn, has been retained. In fact, there have been a few additions to the list such as investment in the New Pension Scheme.

Senior citizens are in for some relief, but ‘gender equality’ has meant that the additional exemption limit so far available to women taxpayers will be withdrawn once DTC comes into effect.

Gems/jewelry April-July exports up 54% in Rs terms, 68% in $ terms

India’s gem and jewellery exports in April-July surged 54 per cent on year to Rs 52,600 crore, according to provisional data from the Gem and Jewellery Export Promotion Council (GJEPC).

In dollar terms, exports soared even higher at 68.55 per cent to $11.47 billion, despite a year-on-year appreciation in rupee against the dollar, GJEPC said. The exchange rate realised by the industry in July was 46.84 rupees per dollar as against 48.48 rupees in July last year, GJEPC said.

The data does not include export figures from Cochin and Surat special economic zones, Mumbai Foreign Post Office and Madras export processing zone, and is subject to revision, it said. {Should be a significant revision upwards, since Surat is a major gems centre.}

krisna · Post by **krisna** » 31 Aug 2010 01:16

Information on accounts stashed away in Swiss banks now easier

India and Switzerland on Monday signed a protocol to the Double Taxation Avoidance Agreement that would enable the government get information about some of the illegally stashed wealth in Swiss banks.

will they really do it?

ramana · Post by **ramana** » 31 Aug 2010 03:39

Means the official circles have already moved to other pastures.

Sanjay M · Post by **Sanjay M** » 31 Aug 2010 07:53

Like where? The Caman Islands?

Dileep · Post by **Dileep** » 31 Aug 2010 08:36

About 'bringing in hitech industry':

It depends upon the domestic partner. If you want, you can bootstrap yourself and build a lot of competencies. But you should follow the proverbial camel in the tent.

I have firsthand experience with this. My company started by pure manufacturing of a simple network device, with a small wave soldering machine. From there we moved to manufacturing engineering, packaging design, board and enclosure design to full product design cycle. We also diversified into other related verticals. All because of us camels pushing, and the arab not resisting, because we were improving his bottom line all the time. The state of the art here right now is 10GBps TOSA/ROSA manufacturing, and soon we hope to move to design of the same.

Another side started with production of fused couplers. It grew to the level of design/mfg of own fusion machines, and design of own coupler/mux using those machines.

There was talk about bringing in fab technology. Still, they might.

Bade · Post by **Bade** » 31 Aug 2010 08:46

Dileep you are not in IT-Vity then. Good for you and Cochin.

Vasu · Post by **Vasu** » 31 Aug 2010 09:54

ramana wrote:Means the official circles have already moved to other pastures.

Sir, my thoughts exactly. I wouldn't be surprised if the government starts with this the same way it has been using the CBI to circle opposition. Plus I am sure all the ground work of removing their own money has already been completed. More Bofors aane do!

We know that Lichtenstein, another tax haven, has already disclosed all the details to Germany, and as far as I know, Germany and India have a provision of sharing this information. Did the Congress make use of it (other than to stash their own wealth somewhere else that is)? According to Arun Shourie, the Indian government actually decided to not press Germany for the details for various reasons.

Prem · Post by **Prem** » 31 Aug 2010 09:58

Sanjay M wrote:Like where? The Caman Islands?

Under the benevolent eyes of all knowig Chacha Amir Chandh Chaudhry .!!

Dileep · Post by **Dileep** » 31 Aug 2010 10:20

Bade wrote:Dileep you are not in IT-Vity then. Good for you and Cochin.

I thought you knew where I work, and their background.

I am like the proverbial bat. Plays either side.

Suraj · Post by **Suraj** » 31 Aug 2010 11:25

Bloomberg was on the mark: 8.8% GDP growth in Q1
India's Economy Grows Most Since 2007

India’s economy expanded at the fastest pace in 2 1/2 years, increasing pressure on the central bank to extend the most aggressive round of monetary-policy tightening in Asia.

Gross domestic product rose 8.8 percent in the three months through June from a year earlier, after an 8.6 percent increase in the previous quarter, the Central Statistical Organisation said in a statement in New Delhi today. The figure matched the median estimate of 27 economists in a Bloomberg News survey.

India may be forced to raise interest rates to cool inflation even as Japan steps up its monetary stimulus and the U.S. signals it may take more steps if needed to avert another recession. Exports account for less than a fifth of India’s GDP, and rising wages and consumer spending are sheltering Asia’s third-biggest economy from a slowdown in advanced economies.

“Inflation will continue to be a challenge for policy makers in India,” Dipankar Mitra, an economist at Motilal Oswal Securities Ltd. in Mumbai, said before the report. “Though global uncertainties are increasing, India is better placed to counter them due to strong domestic demand.”

Nihat · Post by **Nihat** » 31 Aug 2010 20:07

Excellent news about the first quarter growth , this has set the marker for the rest of the year. With monsoons being normal this year and no economic shocks expected in the near term, we can certainly top 9% without compromising on inflation, which should moderate on its own without interference from the reserve bank

krisna · Post by **krisna** » 01 Sep 2010 01:11

Agriculture grew 2.8%

In the quarter that ended in June, India's economy grew 8.8% from a year earlier, its fastest pace since the end of 2007. Then, as now, most of the momentum came from the services and manufacturing sectors.

Agriculture, the sector that employs nearly 60% of India's population, grew just 2.8% during the quarter. Excluding the farms, India's growth would have been 9.9% in the period.

In the 1980s, annual agriculture growth averaged 3.9%, and in the 90s, it was 3.6%. In the past three years, it has been closer to 2%.

Rahul M · Post by **Rahul M** » 01 Sep 2010 01:15

that probably means adjusted for inflation there was no real growth or even negative growth ? depressing news, we need to get divert a large section of labour from agri sector to industries.

krisna · Post by **krisna** » 01 Sep 2010 01:22

krisna wrote:Information on accounts stashed away in Swiss banks now easier
India and Switzerland on Monday signed a protocol to the Double Taxation Avoidance Agreement that would enable the government get information about some of the illegally stashed wealth in Swiss banks.
will they really do it?

India-Swiss tax pact won't cover past transactions

Exchange of information to be on par with international standards.
Information exchange to be used for tax purposes only.
The pact brings shipping income from international traffic within DTAA ambit.

The latest protocol amending the Double Taxation Avoidance Agreement (DTAA) between India and Switzerland says only prospective information can be shared, not past information. The protocol was signed on Monday. It will come into operation only after the Swiss side completes certain internal processes.

Money has not gone to greener pastures after all.

Suraj · Post by **Suraj** » 01 Sep 2010 01:38

Rahul M wrote:that probably means adjusted for inflation there was no real growth or even negative growth ? depressing news, we need to get divert a large section of labour from agri sector to industries.

All growth figures reported are real GDP growth rates, not nominal. They do account for inflation. In nominal (i.e. current prices, not 1990-00 rupees) terms, our GDP growth rate for Q1 would be around 14-15%; CSO has not updated their website, so I don't have exact numbers.

I have no idea of where WSJ got its 60% figure, but I find it questionable; agriculture is not even the largest contributor of rural economic output anymore - services are (as of ~2008). Employment-wise, though, agriculture may employ more people, which just means lower per-unit output from those in rural agriculture than rural services. People who see this would simply desert agricultural labour in favour of the rural services industry, or move to urban areas.

A_Gupta · Post by **A_Gupta** » 01 Sep 2010 05:12

http://www.censusindia.gov.in/Census_An ... ivity.aspx
In 2001 it was 56%

CIA world fact book puts it at 52% in 2010.
http://www.theodora.com/wfbcurrent/indi ... onomy.html

---

BTW, thanks for the illuminating posts on the "Middle Income Trap".

vera_k · Post by **vera_k** » 01 Sep 2010 07:10

Price rise lifts nominal GDP growth to 21.7%

The widening differential between current and real GDP increases during the April-June period of 2010-11 and of the preceding year is explained by the fact that, the GDP deflator-based inflation has zoomed to 11.8% now from a mere 0.9% at this point of 2009-10.

Suraj · Post by **Suraj** » 01 Sep 2010 08:15

21.7% nominal growth rate ?

Well one thing the current inflationary conditions are doing is really padding up our GDP numbers, both in Rupees and in USD, thanks to helicopter Ben's stimulus measures keeping the latter depressed as well. A stable exchange rate would put our GDP this year higher than the $1.6T I estimated previously.

Nihat · Post by **Nihat** » 01 Sep 2010 12:52

Question mark on 8.8% GDP growth number

THE government’s claim that the Indian economy grew at its fastest pace in over two years in the April-June quarter has been questioned by economists, who said the huge gap between the different growth estimates was confusing.

The value of all goods and services produced by India, or the gross domestic product (GDP), grew 8.8% in the first quarter of the current fiscal, according to the `supplyside’ growth estimate arrived from various sectors such as agriculture, industry and services. The numbers were 6% a year ago and 8.6% in the previous quarter.

But, the robust 8.8% growth figure was not corroborated by the `demand side’ of the equation based on transactions in the market place. The demand number—calculated from private and government consumption, investment and net exports—showed that the economy grew as low as 3.7% during the first quarter of the current year. On an average, the divergence is well below 0.5%, though on a few occasions it has touched 2-3%.

“I think there is a methodological mess in the GDP estimates,” said Mridul Saggar, chief economist at Kotak Securities.
Indirect taxes are netted out and subsidies added to the demand side of the GDP figure to arrive at the supply-side estimate.

Since excise duties were rolled back and subsidies cut, the demand-side GDP growth should have been higher than the supply-side number. But, it was the reverse, as per government data.

“The divergence (of 5.1%) is at a record high and also inexplicable... Two-thirds of the demand-side GDP growth in the first quarter of this year is because of discrepancies. Excluding discrepancies, 1.4% growth was one of the lowest since start of the quarterly data in the first quarter of FY00,” said Sujan Hajra and Gautam Singh of Anand Rathi Financial Services.

An official in the ministry of statistics and programme implementation, which is responsible for compiling the data, dismissed the concerns over the quality of data. “We have checked the data. There is some seasonal impact as well as some differences in import and export figures which can’t be simply calculated on the basis of inflation,” he said. Dismal growth in private consumption

ANOTHER worrying sign in the government data is the dismal growth in private consumption, which rose 0.3% in the first three months of the fiscal. “It’s lowest in a decade. Government consumption declined 0.6%—the first fall in 11 quarters,” said Mr Hajra and Mr Singh as they maintained a growth target of 6.5% for the current fiscal.

According to Abheek Barua, chief economist at HDFC Bank, there is a “major discrepancy in the data as there is huge variance between consumption numbers at current and constant prices”. For instance, the demand-side GDP grew at 24.8% in nominal terms or current prices, but in real terms—at constant prices net of inflation—the growth is as low as 3.7%. The difference is much more than the headline inflation number, which averaged at 11% in the first quarter this fiscal. “So, are the inflation indices missing something or are our GDP numbers wrong?” said Mr Saggar.

Any question mark over GDP data, considered the most authentic gauge of the economy, will only make the task of the central bank that much difficult as it tries to check inflation. While the benchmark 10-year bond yield fell by two basis points to 7.95% after the release of the data, the stock market slipped 60.99 points.

A low consumption growth number comes amid a lower-thanestimated US growth rate for April-June and renewed concerns in Japan, which announced a fiscal package on Monday to shore up the economy. Even though finance minister Pranab Mukherjee is confident of the GDP growing in the range of 8.5% to 8.75%, some scepticism has set in. “Overall, June may mark the peak quarterly GDP growth in FY11. We are currently reviewing our estimates with a mind to downgrade (from 9%),” said Sonal Varma of Nomura in a research note as she questioned the GDP data.

The moderation in industrial growth to 7.1% in June and exports growth to 13.2% in July has created expectations that the Reserve Bank of India may not lift rates in its September 16 review. RBI governor Duvvuri Subbarao had also said last week inflationary pressures were easing. “With inflation rates coming down to manageable levels, we could expect a near-temporary pause by RBI,” said Mr Saggar.

manish · Post by **manish** » 01 Sep 2010 15:26

Marten wrote:Has anyone been tracking the proposed SEZ at Dronagiri, Navi Mumbai? or the Reliance SEZ at Taloja?
A little birdie told me MDA was looking to set up an electronics fab and assembly park. There's ample water available at both places plus a large port (JNPT) and a proposed airport. This was supposed to be the first large scale project in that sector for Reliance.

Intriguing. Wasn't there a rumour a couple of years ago that Reliance wanted to buy out AMD? I guess it must have been around the time of Globalfoundries spin-off.

May be there was indeed some substance to the rumors then.

pradeepe · Post by **pradeepe** » 01 Sep 2010 15:57

Not likely.
ATIC and PRC have bigger plans. Still offbeat but a much more likely scenario would be its china div spin off as an independent entity.