Indian Economy: News and Discussion (June 8 2008)

[Adrija]

Gurulog, was the Economic Survey 2008-09 tabled at all in February this year? Somehow the nicbudget.nic.in website seems to have only the 2007-8 Survey. If so, grateful if someone could point out the relevant link

Actually looking for savings and/or investment/ GDP ratio and ICOR information.... in particular, the breakdown of the savings ration (i.e., what % comes from government, private including households)... wanted to derive a realistic estimate of the potential growth rate for 2009-10

TIA

[Yogi_G]

India story endures, over 100 new FIIs entered in last six months

[Dileep]

For those who handle the shells (kavaTi, the tool of astrologers) like vina dikshithar: Where is the rupee headed? I have a grin on my face during the trip to the bank, but will it last as long as the job?

[vina]

Dileep Saar. If job is 6 months, I think yes, it will last as long as the job. The dynamics in fact favor a weaker rupee, especially as long as the credit markets are stressed and the world is risk averse as it is today. Again, macro wise, we do have a current account deficit, and that is rising, exports are stressed /falling and I really so no reason for foreign money to flood into India in the near term and inflows might fall as well, if all your fellow Mallus in Gelf start coming back and the monthly remittances start drying up.

In fact some smart YumBeeYeas from the usual suspects working as "Currency Strategists" are pitching piphty phy . However are just wonks and not active traders, I would take it with huge dollops of salt and actually be quite comfortable with where we are now, with a bias being in favor of Allah being more beneficent to you and give you more rupees.

[Dileep]

Thanx vina. Job seems good for six months, unless some major catastrophe happens. The advice I got from a local guru is to save everything in that period, put in SBI FDs and say "pOnaal pOkaTTum pOdaa" thereafter.

[vsudhir]

India headed towards deflation: Goldman

CPM plays economy card in LS poll manifesto

[Nayak]

Thanx vina. Job seems good for six months, unless some major catastrophe happens. The advice I got from a local guru is to save everything in that period, put in SBI FDs and say "pOnaal pOkaTTum pOdaa" thereafter.

I opened a account in Vijaya Bank today, to save my hard earned Singaporean khwachas into FDs and NSCs. I wonder what my friends are doing, some of them advised me to invest in stock market or real estate market.

Don't know where both the markets are !!! I believe in Gobarmand banks and their lousy 8 % interest. Atleast the money will keep me safe from predators when my knees turn old and my shotgun gets rusted.

Nationalised banks ki jai ho.....

[Vipul]

Rays of recovery,India to see high commissioning of projects.

Indian industry is likely to see a lot of capacity addition in FY 2010.

As per report, a compilation of investments schedules of companies shows that over 900 projects entailing an investment of INR 500,000 crore are scheduled for commissioning in FY 2010. This will be the single largest annual commissioning of investments in Indian history.

However, there were fears of the CAPEX boom in India coming to an end with the industry witnessing a substantial shelving of projects worth INR 54,057 crore during July to December 2008.

It said that over a 5 of the total investment scheduled for commissioning belong to the electricity sector. The sector has projects worth INR 105,000 crore slated to get commissioned during FY 2010.

The other sectors that are scheduled to see a lot of investment commissioning are metals INR 61,256 crore, road transport and infrastructure INR 25,058 crore, software INR 20,076 crore, machinery INR 16,438 crore, construction INR 15,606 crore and automobiles and components INR 13,578 crore.

It added that the prime reason behind the sudden and huge flow of investments in January 2009 was the overwhelming response received at the Vibrant Gujarat Investors Summit 2009.

The report added that the state attracted fresh investments of INR 300,000 crore during January to February 2009. This is two to third of the total fresh investments captured during this period. Investment announcements made during such events are often more in the nature of tentative intentions rather than clear proposals.

The continuation of fresh investments indicates that Indian corporates and overseas companies continue to have confidence in the growth potential of the Indian market.

[Nayak]

The Rise of the Underground

By PATRICK BARTA

Ahmedabad, India

Economists have long thought the underground economy -- the vast, unregulated market encompassing everything from street vendors to unlicensed cab drivers -- was bad news for the world economy. Now it's taking on a new role as one of the last safe havens in a darkening financial climate, forcing analysts to rethink their views.

At the Manek Chowk market, in this Indian city's congested center, vendors peddle everything from beans to brass pots from a row of derelict stalls as monkeys scramble overhead. One man sharpens nails using a spinning blade attached to a moving bicycle wheel.

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Surajben Babubhai Patni, 58 years old, sells tomatoes, corn and nuts from under a makeshift cloth tarp at one of Ahmedabad's most central street markets.

Their wages are pitiful by Western standards. But there are no layoffs at the Manek market. All anyone has to do to work there is show up and start hawking -- something more and more people are doing these days.

Without this job, "we'd have nothing," says Surajben Babubhai Patni, a 58-year-old vendor selling tomatoes, corn and nuts from under a makeshift cloth tarp. She makes as much as 250 rupees a day, or about $5, but it's enough to feed her household of nine, including her son, who recently lost his job as a diamond polisher.

Ms. Patni and millions like her are part of the "informal," or underground, economy, an enormous, vital and poorly understood segment of world commerce. It is becoming a lot more important now, as the global financial meltdown casts millions of people out of steady-paying jobs. Especially in developing economies, many of those people are landing in the informal sector, which has become a critical safety net as the economic crisis spreads.



The "informal economy" - which includes everything from rickshaw drivers to maids to drug dealers - is making a big comeback in the developing world. Can it help ease the global recession? Patrick Barta reports from Thailand and India.

Economists have stressed the negative aspects of informal trade for decades. Informal businesses often don't pay taxes, and they routinely lack the capital and expertise to be as productive as big enterprises, leading to less innovation and lower standards of living. Since informal workers lack health benefits and other safeguards, they have to save more for emergencies, resulting in less casual spending that further drags down growth. Having a big underground economy "is not something to be cheerful about," says Nancy Birdsall, an economist at the Center for Global Development, a Washington think tank. "When everybody is selling apples to each other, you're not creating new wealth -- it's not a sign that things are OK."

The frightening scale of the current recession is forcing some analysts to reconsider. As many as 52 million people could lose their jobs from the economic crisis world-wide, says the International Labour Organization, an agency of the United Nations. Without the informal sector, many of them will have nowhere to go.

Informal jobs "will absorb a lot of people and offer them a source of income" over the next year, says W.F. Maloney, an economist at the World Bank in Washington. Indeed, the jobs are "one reason that the situation in desperately poor countries isn't as bad as you'd think," says Simon Johnson, a former chief economist at the International Monetary Fund.

Until late December, Pilaporn Jaksurat, 33, was working full-time on a cotton spinning machine in a textile mill in Bangkok. She made about $7 a day and her benefits included bonuses of $30 a month for good attendance and a severance package worth about $800.

Then she was laid off when her factory, which sells fabric to clothing manufacturers in Europe, said it had to cut costs to cope with the global economic crisis. Finding a similar job wasn't an option, since other local factories were also dumping staff due to a massive decline in orders from buyers across Europe and North America. She decided to start her own business, selling shots of medicinal wine to truck drivers and motorcyclists on the highway by her home -- an adult version of the neighborhood lemonade stand. With help from friends, she fashioned a makeshift bamboo stand on vacant grass by the roadside. The start-up cost was about $275, she says, paid for with money from her severance package.
[f] Patrick Barta/The Wall Street Journal

Pilaporn Jaksurat sells medicinal wine at a roadside stand.

A few weeks later, shouting to be heard over the roar of oncoming trucks, Ms. Pilaporn says she's making a profit of about $10 a day after expenditures for ingredients, including herbs and wine. That's better than the $7 or so she made at the garment factory. She likes being her own boss, she says, and the income allows her to keep sending money home every month to help support her parents and 2-year-old child, who live together in a rural area in northern Thailand.

"It's a bit noisy here, but you get used to it," she says. If business "keeps up like this, I'll be fine."

Defining what makes a job informal isn't easy. Generally it includes any work outside the traditional "formal" sector, in which companies register with the government, pay taxes and provide jobs with fixed salaries and benefits like pensions or health care. It includes self-employed street vendors in Cairo, tortilla sellers in Mexico City, rickshaw drivers in Kolkata and scrap collectors in Jakarta.

There are also some informal workers in the U.S. and other wealthy countries, including off-the-books maids, gardeners and "gypsy" cab drivers, though the phenomenon isn't nearly as widespread as in the developing world. Analysts say it may add up to as much as 10% of the overall U.S. economy, and probably is growing now that employers are slashing staff, forcing more people to try their own small-scale businesses or make do with part-time contract work.

Before the Industrial Revolution, the difference between formal and informal employment was largely meaningless. With the rise of factories and trade unions, labor markets became more efficient and specialized. Workers increasingly entered into contractual relationships with employers that set benefits, while governments passed laws establishing minimum wages, social security plans and other protections. By the latter part of the 20th century, most American and European workers were in these formal arrangements.

Economists assumed developing countries would follow. With the spread of industrialization and wealth, they thought, underground endeavors would be replaced by factory and office jobs. Rickshaw drivers would get replaced by big transport companies, while street-cart vendors would give way to restaurants that paid taxes and observed health codes.

That isn't always happening. One-half or more of the developing world's nonagricultural workers are employed in the underground informal sector, according to the International Labour Organization. In India, 83% of workers are informal, while in sub-Saharan Africa, about 72% are.

The percentage of workers in informal trades has even increased in some developing countries at times in recent decades. According to the ILO, informal activities accounted for about 90% of the new jobs created in Africa over a roughly 10-year period in the 1990s. In Mexico, informal employment rose to about 54% of all jobs in 1997, from about 50% in 1990. Venezuela and Brazil saw similar increases.

Some researchers are starting to argue the informal economy is becoming a permanent fixture in some poorer countries -- in good times and bad -- as population growth outstrips job creation. The current recession, which is pressuring companies to cut labor costs, could intensify that process by pushing companies to ditch expensive formal workers in favor of cheaper part-time employees without benefits. Many laid-off workers may never be re-absorbed by the formal economy, as companies grow more accustomed to the flexibility of their informal counterparts.

Despite India's rapid growth of recent years, economists believe the bulk of new jobs created were in the informal sector, not the flashier salaried positions of corporate titans like Infosys Technologies Ltd. and Reliance Industries.

India's basic problem -- as with much of Africa, Asia and Latin America -- is that its economy can't create enough steady, salaried positions to absorb the millions of people entering the labor force each year. Between 2000 and 2005, the most recent year for which data are available, the number of formal jobs in India stayed flat at about 35 million, while informal jobs grew 17% to 423 million, according to the Indian government. Creation of new formal jobs has probably picked up since 2005, but not by enough to dramatically change the situation, economists say.

To alter that equation, the Indian economy would have to maintain stellar growth rates for years, says Jeemol Unni, an economist at India's Gujarat Institute of Development Research, a research center. It costs a lot more to hire full-time employees than take on temporary workers, so big corporations in India only add them when they're really flush, economists say.

As a result, much of India is now embracing the underground economy. That includes Ahmedabad, where informal jobs have played a crucial role in keeping the economy afloat in recent years.

For decades, this city of roughly five million people, where camels still amble down city streets, was known as the "Manchester of India," after the city in England famous for textiles. In the early 1980s, it had more than 60 giant mills employing 150,000 people or more, most of them with generous pension packages and other benefits. The industry trade union, started by Mahatma Gandhi himself (he kept an ashram by the city), was one of the most powerful institutions around and even ran a bank and hospital.

Then the mills entered a long and disastrous decline. More efficient operations were opening in other places, including China, and most of Ahmedabad's factory owners refused to make investments to become more efficient.

The mills became uncompetitive and shut down, dumping their workers and leaving scores of rotting mills and smokestacks that still loom ominously over the city. Today there are only about 10 mills left in operation. Membership in the trade union has fallen to about 9,000 people, and its bank and hospital have closed.

In many American or European cities where major industries died, like Buffalo, N.Y., urban centers fell into decay because there was nothing left to replace them. But Ahmedabad remains a thriving city. Most of the laid-off employees were able to find work in street vending, rickshaw driving, day-wage construction or other informal jobs, and as a result, the percentage of people employed in the underground economy increased. Today, Ahmedabad has some 55,000 rickshaw drivers, 70,000 street vendors, 70,000 construction workers and 45,000 roving trash collectors and recyclers.

As the sector has boomed, it also has become more sophisticated. It spawned its own trade unions, including one called the Self-Employed Women's Association, which began in Ahmedabad in the 1970s and has grown to a million members across India. The group provides training to teach women how to lay bricks and even started its own bank.

It also has a research staff of 22 women who study the underground economy and compile data to bolster the group's advocacy efforts, which include filing court cases to prevent government officials from kicking street vendors out of public areas. "The reality is that this sector is there and it's going to grow, so you have to deal with it," says Reema Nanavaty, director of economic and rural development at the group.

Despite the long demise of its signature industry, Ahmedabad today "is vibrant, it has life," says Martha Chen, a lecturer at Harvard's Kennedy School of Government who has studied the city. Based on Ahmedabad's experience, "I think we should see the informal economy as the solution" to urban decay and unemployment, she says, "not the problem."

The jobs aren't pretty. The trash collectors, known as rag pickers, live in squalid slums amid rotting piles of garbage. Street vendors have endured beatings by police who don't want them to clog thoroughfares; in some cases, they say, corrupt officers demand bribes to let them stay.

The workers aren't immune to the global economic slowdown, either. At one rag-pickers' slum by an abandoned mill, residents say traders are now paying as little as half what they shelled out a few months ago for plastic bags, steel scraps and animal bones. Some residents have started stockpiling waste in the hopes prices will recover, adding to the stench.

Another problem is that with more people losing their formal jobs, the informal sector is getting more competitive. At the Manek market, for instance, there are now about 500 vendors, from 325 six months ago. More informal jobs also means more lost tax revenues. I.P. Gautam, the local municipal commissioner, says 30% of the city's residents pay no taxes at all, a figure that could rise further if the informal sector keeps growing.

Yet Mr. Gautam believes the underground economy is essential to Ahmedabad's future. He says that while Ahmedabad has attracted a smattering of good jobs in financial services and the chemical trade in recent years, they weren't nearly enough to meet the overall labor needs in the city. Worse, big companies are quick to ditch workers when business slows, he says.

In cities like Ahmedabad with lots of informal jobs, "per capita income is less, and growth is slow, but you get your bread and butter," he says. The existence of a big underground economy is "why we are going to survive" the downturn. He says the city is now shifting to try to create more informal jobs, including setting aside new space for public markets at bus stops.

In the streets, many workers say they're just happy to have work. Ms. Patni, the tomato vendor at Manek market, says she would be happy to have a better job with a real salary, but finding one would be impossible. With little education, and few solid jobs to go around, "we can't get something like that," she says.

Kavitaben Uttambhai Parmar, 25, says she had one of the better jobs in the city until recently, stitching pants and other clothes in one of the few remaining major textile factories. During her five years there, her salary more than tripled to 115 rupees per day; she recently dreamed of buying a refrigerator. Then one day in November, she was laid off with one of her best friends, 30-year-old Jayshree Kantilal Makvana.

"That was a bad day for us," says Ms. Parmar, whose income helped support a household of five, including her mother, brother, sister and grandfather. "I went home crying."

Both later found informal work, doing stitching for a smaller textile company that pays only by the piece, allowing each woman to earn about 50 rupees per day. They also are making bracelets in their spare time to sell at festivals for about five rupees per 12 dozen.

Ms. Parmar says she is cutting back on electricity. Ms. Makvana says she's using city buses to get around instead of more expensive rickshaws. But they're happy they're still earning something.

"At least we're surviving," Ms. Makvana says.
—Wilawan Watcharasakwet and Vibhuti Agarwal contributed to this article.

Write to Patrick Barta at [email protected]
Printed in The Wall Street Journal, page W1

[Nesoj]

NRIs send most money back home
http://timesofindia.indiatimes.com/File ... 477713.cms
NEW DELHI: India has displaced China and Mexico to become the top remittance receiving country in the world, according to latest data released by the World Bank. Indians working in foreign countries sent back over $25.7 billion (roughly Rs 1,28,500 crore) as remittances in 2006, followed by Mexico ($24.7 billion), China ($22.5 billion) and the Philippines ($14.9 billion).

To put the scale of the remittances in perspective, consider this: money received by India through this route is roughly the same as the country’s total estimated annual expenditure on defence, or about five times the estimated expenditure on education in 2007-08. Total income tax and wealth tax collections in the country are less than the remittances received. And they are over three times the foreign direct investment in the country in 2006.

However, the remittances make up only about 3% of India’s GDP. In several small countries, remittances are a much bigger share of the national economy. Thus, in Moldova, remittances are equivalent to 38% of its GDP. Other countries in which remittances are over 20% of GDP include Tonga, Guyana, Haiti, Lebanon, Tajikistan, Honduras and Jordan. In the Indian subcontinent, Nepal receives remittances equivalent to 15% and Bangladesh 9% of their GDP.

Among the Indian states, Kerala and Tamil Nadu provide almost half of the total immigrants from India. These are followed by Karnataka, Gujarat, Andhra Pradesh, Maharashtra and Punjab.

A study conducted by the Centre for Development Studies, Thiruvananthapuram, showed over 25% of households in Kerala have at least one person working abroad.

Sheer numbers and relatively higher skill levels appear to be driving the growth in Indian remittances. The World Bank study estimates that the number of Indian immigrants is about 10 million. Mexico and Russia are the top immigrant sending countries with an estimated 11.5 immigrants each.

Interestingly, the bulk of remittances are being sent not by highly skilled professionals like doctors or software engineers, but by more humdrum workers, wage employees and service providers.

Apart from increased international flow of labour, better means of transferring funds, like electronic transfers, are contributing to the rapidly increasing remittances.

This is borne out by the fact that the business of wire transfer companies is booming, with estimated revenues of $15 billion in 2006, and up to 30% profit margins.

Wow!! NRI remittances same as Defence Budget Great!! and proud to be a part of it

[ramana]

What does he want? India to be same as Moldova? Except for the core fact its full of useless info.

[SaiK]

absolutely shitty article..

btw, nesoj, nice correlation.. are we all thinking of funding Arjun Mk2? or some fgfa!?

[Yogi_G]

In fact this year remittances are more than FDI thanks to weak rupee...

[Dileep]

I don't understand the FDs. I find that the yield is similar to the inflation, so you are likely to end up with the same money. So, how can that be a source of income??

And if you pay taxes, like I do, you end up loosing the value.

[Singha]

any other form of investment is likely to make you lose money. if you are to get the same money, FD is safer than stuffing cash in safe. land is not liquid and gold boom might peak out at some point.

[vina]

Dileep Saar,

FDs are a bet on inflation rates. Inflation today is 2.x % , interest rates are dropping, but SHQ's FDs (thanks to me, but will get zero credit for that piece of "strategy" / "rear admirar giri" , of course she got that 10.x % because she "called" the bank manager see? , but who gave her the idea?) are at 10.x % . So even if you pay 33% tax, it is 7%. So, you earn 5% real interest. Even today with inflation tending to drop and interest rates with downward bias, the 8.x % FD are halaal and Sunnah onree, with the math holding.

[Dileep]

I agree with both gurus, but someone "called" an year ago with 8%, and rode the 12% inflation, lost it right?

If I had FDd money in the 90s I would have been a sore loser onlee.

[Singha]

the past is a good teacher but cannot be extrapolated directly into the future.

a consensus of gurus worldwide claim FD/CD is best bet for next 2-3 yrs. nobody is asking you to lock cash in for 5 yrs. a 190 day deposit in ICICI for ex fetches 7.75% iirc. if things turn around the cash is liquid after 190 days again.

[Yogi_G]

Moreover, if you file as joint FD with someone working in a bank you get 1% extra, my Mom works in a bank and she gets 1% more than customers her being staff...

[Yogi_G]

what about Kisan Vikas Patrika? heard money doubles in 7-8 years...wil explore that option when I get back...

[Singha]

NSC and KVP are both taxable. best tax saving investment for long term is PPF upto 70k/annum
which is locked in for 15 years but all interest is non-taxable. it tracks the EPF interest rate which is around 8% currently. I always put 70k into PPF in april to maximise the interest. I believe after 7th year you can withdraw partially.

[Singha]

WSJ: ONGC to Propose New Strategic Crude Reserve

By GURDEEP SINGH | Dow Jones Newswires

NEW DELHI -- India's largest oil producer, Oil and Natural Gas Corp., plans to propose construction of a 2.5 million-metric-ton strategic petroleum reserve in the western state of Rajasthan, a person familiar with the matter said Tuesday.

"The feasibility study has been completed and a report will be submitted to the government in a month or two. So far, indications from the government are positive," said the person, who didn't want to be named.

India is separately building three strategic storage facilities in southern India that will hold a combined 5 million tons or 36.7 million barrels of crude oil.

[Singha]

WSJ: India FDI Likely $28 Billion

By MUKESH JAGOTA

NEW DELHI -- India is expected to have $28 billion of foreign direct investment, or FDI, in the current financial year ending March 31 after healthy FDI growth in January, a senior government official said Tuesday.

"In January, the total foreign direct investment was up 58.5% on year at $2.79 billion," the official told Dow Jones Newswires, asking not to identify him. "The remaining two months are expected to be good and we expect an additional investment of at least $4 billion during the period."

He said the FDI growth was across all industry segments.

In the previous fiscal year, the total FDI into India was $24.5 billion.

The January growth came after a 25% on-year decline in foreign investments in the October-December quarter.

In the April-September period of the current financial year year ending March 31, the foreign direct investment was up 137% from a year earlier at $17.2 billion. In the first 10 months of the financial year, it was up 66% at $23.94 billion.

Apart from fresh foreign investment into equity, foreign companies are expected to reinvest about $8 billion to $10 billion of their earnings in the country, the official said.

"If reinvested earnings are included, the total FDI this financial year would be around $38 billion, up from $34.3 billion in the previous fiscal year," he added.

Write to Mukesh Jagota at [email protected]

[shyamd]

Contracting Manufacturing and Slowing Investment: Big Challenges for India's Corporates in 2009

* Industrial production fell 0.5% y/y in Jan-09 after 0.6% drop in Dec-08, first consecutive decline in 16 years. Manufacturing growth declined 0.8% y/y in Jan-09 compared to -1% in Dec-08. This is because both exports are contracting and domestic consumer spending is slowing while govt and central bank measures to cut taxes and interest rate measures have been inadequate to counter the sharp slowdown in private sector
* Q4 2008: Profits for top line of 595 companies grew 17% from 35% in Q3 2008. The bottom line saw net profit to fall 21.1% on lower realization for commodities, marked-to-market losses on derivatives exposures and high finance charge
* Global and domestic demand and liquidity conditions are unlikely to improve in H2 2009. So, in spite of fiscal stimulus for firms and exporters, rates cuts and easing lending rates, easing of external capital borrowing and FII rules by the central bank, industrial production will continue to be under pressure through most of 2009 and firms will face constraints in accessing capital in domestic and foreign markets
* Global factors: firms are scaling down production, laying off workers as exports are expected to contract through 2009. Global liquidity crunch and high short-term external rates are affecting external capital raising, FII and FDI inflows that funded real estate, infrastructure, services in recent years
* Domestic factors: Consumer spending is taking a big hit from slower income and job growth, tighter credit conditions. Firms face lower corporate earnings, high leverage and debt/equity ratios, losses on exchange rates on foreign liabilities
* Access to capital is constrained by domestic banking liquidity crunch, high short-term rates, slump in capital raising activity in the stock market, high cost/credit crunch in foreign borrowings (in 2007, 30% of funding came from foreign borrowing and 16% from stock market). This will also pose risk of bank defaults and rise in NPLs. Capex plans will be severely hit (esp. in infrastructure, real estate, and SMEs), several investment plans already under review, new projects being canceled/postponed. With slowing domestic/foreign investment, the investment/GDP ratio will ease in 2009-10 from the present 39%
* Manufacturing sector slowing since oct 2008. Industries face slowing sales, rising inventories. Energy (losses of oil companies), real estate (slowing capital inflows, price correction), IT (slowdown in U.S., EU), banking (interest rate hike, losses on credit derivatives, rising NPLs), auto, consumer durables, auto (slowing consumption, income and job growth, tight lending standards), infrastructure (credit crunch, declining net returns), labor-intensive exports (global slowdown)
* M&A and private equity activity, both domestic and foreign, is under pressure due to global liquidity crunch. M&A volumes fell 23.8% y/y in 2008 led by both outbound and inbound M&A. Cross border acquisitions by Indian companies fell 33.2% y/y. In-bound M&A volumes fell 36.8%. Foreign currency convertible bonds and IPO markets saw lower volumes. Debt raising both from India and overseas fell in 2008
* EIU: Industrial output would continue to fall in 2009; firm will suffer lower export demand, and domestic consumption will decline with higher unemployment and softer real wage growth; industrial production growth could contract by 3% in 2009
* FT: Many controlling shareholders esp. in real estate have pledged more than half of their stakes to lenders, leaving open the possibility they will fall into the hands of creditors in the coming months. Almost 500 companies have pledged a total of $13.5bn
* Kotak: Cyclical trough in industrial growth might last through mid-2009; easing input prices and interest rates will support growth in 2009

[Vipul]

Direct tax kitty rises 18%, corporate tax 36%.

Advance tax from top 50 firms up 10.5% in Q4.

[Suraj]

Regarding the absence of an economic survey as part of this years budget, I believe that is because the budget was an interim one. There will be another after the elections. Regarding savings and investment/GDP , these were recently reported as about 37.5% and over 39% respectively .

[Suraj]

Inflation falls to 0.44%, lowest on record

Wholesale prices rose 0.44 percent in the week to March 7 from a year earlier after gaining 2.43 percent the previous week, the commerce ministry said in New Delhi. That’s the lowest inflation rate on record, according to data available since 1990 on Bloomberg. Economists expected an increase of 0.86 percent.

“Inflation will turn negative starting from April and will remain so until the end of 2009,” said Tushar Poddar, an economist with Goldman Sachs Inc. in Mumbai. “We expect the Reserve Bank to ease liquidity” to support growth.

The International Monetary Fund said this week India should rely more on monetary policy to support the economy as high public debt makes fiscal efforts difficult. Growth won’t be hurt by falling prices and any such negative trend won’t last for long, the finance ministry’s top economist Arvind Virmani told Bloomberg News this week.

Exports from SEZs reach Rs.90,000 crore

The global economic downturn notwithstanding, exports from India’s special economic zones (SEZs) are continuing to show robust growth. Units in SEZs are expected to post a 40% increase in exports to Rs 90,000 crore this fiscal, commerce secretary G K Pillai has said. Exports from SEZs in the next fiscal is likely to go up by more than half to Rs 1,45,000 crore in 2009-10, he added.

The commerce department, which is over-all incharge of SEZs, expects about 120 SEZs to be operational by December-end as opposed to the present 87.

[ajay_ijn]

Inflation falls to 0.44%, lowest on record

Wholesale prices rose 0.44 percent in the week to March 7 from a year earlier after gaining 2.43 percent the previous week, the commerce ministry said in New Delhi. That’s the lowest inflation rate on record, according to data available since 1990 on Bloomberg. Economists expected an increase of 0.86 percent.

“Inflation will turn negative starting from April and will remain so until the end of 2009,” said Tushar Poddar, an economist with Goldman Sachs Inc. in Mumbai. “We expect the Reserve Bank to ease liquidity” to support growth.

The International Monetary Fund said this week India should rely more on monetary policy to support the economy as high public debt makes fiscal efforts difficult. Growth won’t be hurt by falling prices and any such negative trend won’t last for long, the finance ministry’s top economist Arvind Virmani told Bloomberg News this week.

Exports from SEZs reach Rs.90,000 crore

A growing economy like us remaining in deflation for so many months?

[Arya Sumantra]

self-deleted.

[Suraj]

Deflation = negative rate of inflation, as has been projected in the quoted article.

[Dilbu]

So far so good. Go India.. go.

[ramana]

Watch out it could be the death of everything. While we applaud the decrease it might really be due to deflation which is very damaging.

[Rahul Mehta]

Watch out it could be the death of everything. While we applaud the decrease it might really be due to deflation which is very damaging.

Yes. It can be damaging. I propose following way out from this mess.

1. Raise purchasing capacity of commons so that they can buy more, and this will increase industry. But how do we increase incomes of commons? One ESSY and simple way is to DIRECTLY give them 67% of the mineral royalties that comes from minerals and directly give them 67% of the land rent from ALL GoI plots such as Delhi airport, JNU, IIMA, all IIM plots etc. The rent from Delhi airport alone can be, at present mkt value and 3% rent a year, be Rs 50 per common per year. If rents of all GoI plot is added, it can become as high as Rs 5000 per common per year. This system would need an Executive Notification, whose draft I will published later in some other thread, if someone demands.

2. Impose wealth tax of 2% on land mkt value above 100 sqmt of NA land per family. And impose inheritance of 45% on inheritance above Rs 1 cr per heir (70% if heir is not a "close" relative). This will reduce land price and will further increase industries and would thus enable small employers to expand and create jobs. Impose such tax would need a legislation, whose draft will be provide later in some other thread if someone demands.

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What solutions do you all propose?

.

[hshukla]

Watch out it could be the death of everything. While we applaud the decrease it might really be due to deflation which is very damaging.

Yes. It can be damaging. I propose following way out from this mess.

1. Raise purchasing capacity of commons so that they can buy more, and this will increase industry. But how do we increase incomes of commons? One ESSY and simple way is to DIRECTLY give them 67% of the mineral royalties that comes from minerals and directly give them 67% of the land rent from ALL GoI plots such as Delhi airport, JNU, IIMA, all IIM plots etc. The rent from Delhi airport alone can be, at present mkt value and 3% rent a year, be Rs 50 per common per year. If rents of all GoI plot is added, it can become as high as Rs 5000 per common per year. This system would need an Executive Notification, whose draft I will published later in some other thread, if someone demands.


.

How do you plan to execute the "give them". Whatever we are having if we "give" properly will itself enhance money-in-hand by a good margin. Besides on what criterion do we plane to "give"...is it like free money??
Governmnt ran a Pilot program having Voter Id card or Genetic identification based card which one can use to withdraw from ATM. Donno how successful it was but my understanding is the highest priority for any wannabe visionary politician is to devise a simple yet effective deliverance method.
Admins pls delete it if OT.

[Suraj]

Watch out it could be the death of everything. While we applaud the decrease it might really be due to deflation which is very damaging.

No 'might be'... It *is* a deflationary situation . However I don't see the possibility of a crippling depression like spiral, because we were not demonstrating massive surplus capacity like the US in 1930 or PRC in 2008. Even after the upcoming capacity additions in 2009-10 there is a large demand - supply gap. The official stimulus measures, the pay commission and election spending should all put money in peoples' hands .

[sugriva]

1. Raise purchasing capacity of commons so that they can buy more, and this will increase industry. But how do we increase incomes of commons? One ESSY and simple way is to DIRECTLY give them 67% of the mineral royalties that comes from minerals and directly give them 67% of the land rent from ALL GoI plots such as Delhi airport, JNU, IIMA, all IIM plots etc. The rent from Delhi airport alone can be, at present mkt value and 3% rent a year, be Rs 50 per common per year. If rents of all GoI plot is added, it can become as high as Rs 5000 per common per year. This system would need an Executive Notification, whose draft I will published later in some other thread, if someone demands.

One can legistate to transfer wealth to the commons but can one legislate to force a person receiving the money to spend it? I don't think so. In these days of uncertainty, people will only burden the PSU banks with their excess deposits who are nowadays paying around 8.5%.
Pretty soon PSU banks will go into the red as most of them were during 80's-90's under the burden of paying these interests. Also how is your proposal any different from suggesting a tax cut that supposedly increases the spending power of the commons. It is better that at this time, gobermand keep the money with it and spend it itself to create stimulus. The commons are only gonna save it.

[Vikas]

Watch out it could be the death of everything. While we applaud the decrease it might really be due to deflation which is very damaging.

Yes. It can be damaging. I propose following way out from this mess.

1. Raise purchasing capacity of commons so that they can buy more, and this will increase industry. But how do we increase incomes of commons? One ESSY and simple way is to DIRECTLY give them 67% of the mineral royalties that comes from minerals and directly give them 67% of the land rent from ALL GoI plots such as Delhi airport, JNU, IIMA, all IIM plots etc. The rent from Delhi airport alone can be, at present mkt value and 3% rent a year, be Rs 50 per common per year. If rents of all GoI plot is added, it can become as high as Rs 5000 per common per year. This system would need an Executive Notification, whose draft I will published later in some other thread, if someone demands.

2. Impose wealth tax of 2% on land mkt value above 100 sqmt of NA land per family. And impose inheritance of 45% on inheritance above Rs 1 cr per heir (70% if heir is not a "close" relative). This will reduce land price and will further increase industries and would thus enable small employers to expand and create jobs. Impose such tax would need a legislation, whose draft will be provide later in some other thread if someone demands.

---

What solutions do you all propose?

.

Rahul, When you say "Give them", how do you propose to give. Just goto the bank and collect the share ?
Is it feasible, practical and possible ?
You talked about Rent from Delhi Airport, but pray tell us who do you propse will pay this rent. Airlines ? But then Airlines would conveniently pass on the rent load to passengers and passengers in turn would stop flying owing ot high fares and there goes your plan for increasing the purchasing capacity.

[Vriksh]

I have said this before to RM why does he want to tax only Public land, tax private land at the same rate as public land. If this is acceptable then I have no problem.

In india private land is not taxed at all and a large portion of it lies unused with no return. Have a uniform land tax and a lot of problems can be solved. For example in this proposed legislation

All residential land will be taxed at a given rate A, commercial land at rate B, and agricultural land at rate C. All institutions whether private or public will have to fork out this money directly to the bank accounts of citizens (there should be a national ID number and a bank account attached to this number).

[Katare]

Govt tax collections are good for this year.......

Direct tax mop-up surpasses previous fiscal’s collections

[Rahul Mehta]

All,

I have answered the questions on land rent proposal in neta-babu thread, so that this thread stays unpolluted.

Govt tax collections are good for this year.......

Direct tax mop-up surpasses previous fiscal’s collections

The URL says that tax collection last year was Rs 263,000 cr and this year it was RS 310,000 cr. Increase is about Rs47,000 cr of it is 18% of last year.

There is nothing good or bad, as money supply in past year has also increased about 20%. So if M3 increases, so will tax collection just as M3 increases revenues.

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Now recently 3SCjs namely judge Aftab Alam, judge Singhvi and judge Agrawal have increase the interest rate ceiling on credit card from 30% to 49%. This means that banks will be able to squeeze commons more and so purchasing capacity of these people will reduce. The elitemen who owns the bank will be richer, but they consume more gold, lands, flats etc than food or cloth. IOW, raising interest rate ceilings from 30% to 49% will create a transfer of wealth from commons to elitemen which will reduce the consumption of many goods such as cloth, soap, school education etc.

I have written more on this in the neta-babu thread.