Indian Economy: News and Discussion (June 8 2008)

Atri · Post by **Atri** » 20 May 2009 03:28

mnag wrote:A question to gurulog here.

In uSA, gasoline costs about 2.5$ per gallon (120 Rs for 4.4 liter = approx 30 Rs per liter). While in india, it is around 50 Rs per liter. In USA diesel costs around 3$ per galon (Around 35 Rs per liter) which i think is comparable to the cost in india (i am not aware of exact cost of diesel in india).

I keep hearing that govt subsidises petrol in india. If petrol costs twice compared to gasoline even after subsidy,
1. what is the petrol price without subsidy?
2. Why does petrol cost more in india compared to gasoline in us? Is it harder to produce petrol or is it due to inneficency in refinig (compared to usa)?

petrol costs so much due to taxes levied on it... if all taxes are taken away, the costs will reduce significantly..

Dileep · Post by **Dileep** » 20 May 2009 07:23

mnag, US gallon is 3.78 litres, not 4.4 litres.

In desh, petrol is not SUBSIDIZED, but heavily taxed. Diesel is subsidized because it is used in farming, and also vital for transportation.

kumarn · Post by **kumarn** » 21 May 2009 12:22

India buys $20-bn US treasury bills in just 6 months

wig · Post by **wig** » 21 May 2009 19:41

dileep ji,
products/distillates of crude are not heavily or lightly taxed. taxes are much the same. the costs are fudged. in the sense that only kersosene and lpg are low priced . mostly diesel is less priced and shortfall is made good from petrol. this results in the higher price to the consumer. the price to the consumer is dictated by the govt. to the oil companies. of course, states levy differing rates of local taxes leading to variations across states.
cheerio!

Suraj · Post by **Suraj** » 22 May 2009 01:18

It appears that with a dip in revenues, combined with the Communists monkeys off their back, GoI will resort to significant disinvestment to bridge the shortfall:
Singh May Set New Record in Asset Sales After Election Victory

Singh may sell $20 billion of state assets in the next five years as he tries to plug a budget shortfall, said Rashesh Shah, chief executive officer of Edelweiss Capital Ltd. After a privatization wave that netted a record $6 billion between 1999 and 2004 to a government led by Singh’s main opponents, sales slumped during his first term as communist allies thwarted plans.

“Sales by this government will be significantly higher than the previous record,” S. Subramanian, head of investment banking at Enam Financial Consultants Ltd. in Mumbai, said in an interview. Mumbai-based Enam has managed share offerings for state-owned companies including Power Grid Corp. of India Ltd., CMC Ltd. and Power Finance Corp.

Singh’s Congress party-led coalition faces a fiscal deficit that’s more than double the government target and an economy growing at the slowest pace since 2003.

Singh, 76, raised 67 billion rupees ($1.41 billion) from selling stakes in NTPC Ltd. and Rural Electrification Corp. of India Ltd. during his first term, according to India’s Department of Disinvestment. Then-finance minister Chidambaram’s plans to sell shares in companies including Bharat Heavy Electricals Ltd., India’s biggest maker of power equipment, and National Aluminium Co. were blocked by the communists in 2006.

The previous Singh administration waived farm loans, raised government employees’ salaries for the first time in 12 years, cut taxes and increased spending on roads, ports and other infrastructure as it sought to revive economic growth and shore up support before the election. That strained state finances as the economic slowdown hurt tax collections.

Muppalla · Post by **Muppalla** » 22 May 2009 05:02

^^^^^^^^^
It would be good to see some disinvestment. How much did the government disinvest during the last five years. Any statatistics? It was a smooth ride during Arun Shourie's tenure.

Suraj · Post by **Suraj** » 22 May 2009 06:21

The above report reports a figure of less than $1.5 billion, but this refers to NTPC and REC only.

Potential for more FII inflows:
Selling Into India Stocks Rally a ‘Mistake,’ BNP Paribas Says

“Investors may be tempted to sell into the rally in India. However, we believe this to be a mistake,” McDonnell wrote today, predicting that analysts will stop lowering their earnings forecasts. “The dramatic re-rating of the Indian market is set to continue.”

Investors benchmarked against the MSCI AC Asia Pacific excluding Japan Index are 2.7 percentage points “underweight” India, the report said, citing EPFR Global data. Prime Minister Manmohan Singh’s victory, enabling him to accelerate economic reforms, may trigger $5 billion of inflows as fund managers buy shares to achieve a “minimum neutral position,” BNP said.

If the investors boost their India holdings to 1 percentage point “overweight,” or more than the ratio represented in the benchmark index, the inflow could rise to $7 billion from actively managed funds, BNP said.

BNP has an “overweight” rating on Indian stocks with an index target of 15,000, and the gauge has “potential to overshoot to 16,400.” BNP expects profits to rise 24 percent over the next year, compared with the consensus “flat earnings growth” prediction among analysts.

Singha · Post by **Singha** » 22 May 2009 07:09

shankar sharma of cnbc first global(was?) - a big bear last year now says 30% upside in market from current
levels.

radar picks up increasing activity in business channels. all the usual suspects who hibernated in the woodwork
have emerged now that spring has thawed the winter chill. Ms chopra continues to interview CxOs in DLF/unitech chichi golf courses.

Dileep · Post by **Dileep** » 22 May 2009 07:31

I can crash the market. All I need to do is to buy some stocks. The market will crash and stay low till I sell.

I can also make a stock raise. I buy it. It tanks. It stays tanked as long as I hold it. I sell it, the next day it raises. I offered this idea to my bro, who lamented about his SOPS.

Yogi_G · Post by **Yogi_G** » 22 May 2009 08:28

With a strong regulatory framework for insurance in the form of IRDA, I think India can have many more insurance companies. Compared with Massa land the number of insurance companies in India is very low and we can very well welcome joint ventures with foreign orgs.

Singha · Post by **Singha** » 22 May 2009 08:36

they are already JVs like bajaj allianz, icici prudential and tata-aig.

but magazines speak of all insurance cos being at a loss currently.

derkonig · Post by **derkonig** » 22 May 2009 10:26

Dileep wrote:I can crash the market. All I need to do is to buy some stocks. The market will crash and stay low till I sell.

I can also make a stock raise. I buy it. It tanks. It stays tanked as long as I hold it. I sell it, the next day it raises. I offered this idea to my bro, who lamented about his SOPS.

Next time joo buy/sell, do tell us all.

A_Gupta · Post by **A_Gupta** » 22 May 2009 18:35

From "Stuffed & Starved : The Hidden Battle for the World Food System" by Raj Patel

Economist Utsa Patnaik has followed the statistical sleight of hand that have enabled India's poor to vanish since the 1970s, and she has calibrated her observations by going back to one of the central features we associate with poverty - hunger. At the beginning of the 1970s, over half the population was classed as poor. Two decades later, in 1993-94, the number of poor people had fallen to just over one-third. This progress was achieved in no small part because the official threshold for poverty had been lowered. In the 1970s, being on the poverty line afforded you 2,400 calories per day - in the early 1990s, you were afforded only 1,970 calories per day. By 1999-2000, just over one quarter were poor - an impressive reduction. But the threshold for poverty meant consuming fewer than 1,890 calories per day. Says Patnaik, 'by the 60th Round, 2004-05 [the poverty line] is likely to be below 1,800 calories and correspond to less than one-fifth of the rural population. Today, when the official figure for poverty in India is around 27 per cent, a more accurate calculation based on the implied calorie norm of 2,400 per day puts three-quarters of the population under the poverty line. To put it slightly differently, around half a billion people have been written out of poverty, by the simple expedient of shifting the goal-posts and the diligent advertising of present and future prosperity. This is how the story of 'Shining India' is told - with an official narrative about poverty that directly contradicts the facts. Jobs have been created for the educated middle class, but for those without access to education, the story has been rather different.

Singha · Post by **Singha** » 22 May 2009 18:44

I recall reading about one aspect of this maoist history. apparently the consumption of food grains by indians
has gone down (as people are able to afford more milk, meat, fish, egg and so on) - so hear hear - more indians are starving !

A_Gupta · Post by **A_Gupta** » 22 May 2009 19:31

Singha wrote:I recall reading about one aspect of this maoist history. apparently the consumption of food grains by indians
has gone down (as people are able to afford more milk, meat, fish, egg and so on) - so hear hear - more indians are starving !

Certainly more people are able to afford more milk, meat, fish, egg and so on in the urban salaried and small business class. But it is true, more Indians are also starving. It is also true that by counting calorie requirements, more Indians are mired in absolute poverty than ever before. This is not a condemnation of India's pattern of economic growth. But clearly, growing government revenues have to plowed into alleviating rural poverty.

PS: the idea that poverty is not declining but is being redefined away might help you understand some phenomena that are discussed on the Strategic forum, whether it be Maoists or affronts to India's secularism.

Rahul Mehta · Post by **Rahul Mehta** » 22 May 2009 21:00

Singha: I recall reading about one aspect of this maoist history. apparently the consumption of food grains by indians has gone down (as people are able to afford more milk, meat, fish, egg and so on) - so hear hear - more indians are starving !

A_Gupta: Certainly more people are able to afford more milk, meat, fish, egg and so on in the urban salaried and small business class. But it is true, more Indians are also starving. It is also true that by counting calorie requirements, more Indians are mired in absolute poverty than ever before. This is not a condemnation of India's pattern of economic growth. But clearly, growing government revenues have to plowed into alleviating rural poverty.

PS: the idea that poverty is not declining but is being redefined away might help you understand some phenomena that are discussed on the Strategic forum, whether it be Maoists or affronts to India's secularism.

Singha,

It would be useful if you look at "fallacy of composition". IOW, if average consumption has increased, it does not imply that consumption of everyone has increased. It is very much possible that consumption of many declines and yet average increases.

=============

It would be useful if you can explain why pulse consumption has decreased by 20% since 1991, why more and more poor Hindus are becoming Christians and more and more are becoming naxals. Because all three data points show that poverty of poor has increased since 1991.

Singha · Post by **Singha** » 22 May 2009 21:46

it would be a good debate if done honestly. however its more used as a stick by lefties to beat the govt of the day wrt to capitalist economic politices/pandering to MNC interests and other ailments.

Suraj · Post by **Suraj** » 22 May 2009 22:11

Here's a PDF analyzing manufacturing outsourcing costs for four countries (India, China, Mexico, Brazil) as a function of US costs.
2009 Manufacturing Outsourcing Cost Index
There are interesting dynamic trends on how the cost advantage of the four countries have changed over the last few years, and the reasons for it.

Market response to the elections:
Rupee rises 4.9% during week, highest since Mar'96

The rupee strengthened 4.9 per cent this week, the most since March 1996, to 47.12 per dollar at 5pm in Mumbai, according to data by Bloomberg. It had closed at 49.40 on last Friday. The rupee has gained 6.5 per cent this month, the best performance among the 10 most active Asian currencies.

Dealers said expectations of better economic prospects under the new government drove trades. Also, the US dollar was battered against most global currencies on fear of a possible downgrade in the US sovereign rating, they said.

Highest weekly gain for markets in 17 years

The markets opened in the red in the morning. However, it picked up momentum in the afternoon session once it was clear that the Congress would retain key portfolios in the government. Among sectoral indices, consumer goods rose by 2.90 per cent, followed by bankex and healthcare that were up over 1.5 per cent. Both consumer durables and auto indices were down over 1 per cent.

putnanja · Post by **putnanja** » 23 May 2009 02:53

Cong shows DMK no Karuna

The tone was soft but the message was blunt. ``I have to run the government and I also have to worry about its
effectiveness,'' Prime Minister Manmohan Singh told DMK boss M Karunanidhi late Thursday evening. The firm words from an otherwise mild-mannered man were sufficient to signal Congress's resolve not to give in to DMK's demand for key infrastructure
ministries.
...

Congress sources were unapologetic. They denied that they had tried to veto the inclusion of Baalu and Raja in the Cabinet, saying that a distorted perception was being created by DMK leaders themselves to settle factional scores. But they didn't mince words on the fact that Baalu's performance in the surface transport ministry was less than satisfactory, and this justified the bid to wrest it back.
...
Congress sources said the DMK has been offered three cabinet portfolios. ``They can choose three out of the following four: communications & IT, labour, chemicals & fertilisers and textiles,'' they said. In addition, four minister of state posts have been offered.
...
The trouble for the DMK is that if the party doesn't get the shipping ministry at the very least, its pet Sethusamudaram ship canal project may never see the light of day.

I am glad that MMS is not offering surface transport and telecom to DMK. Balu shifted NHAI chairmen 6-7 times as they didn't tow his line, and that reflected in the poor execution of highways during UPA's 1st term. The less said about Raja and the telecom ministry, the better. In fact, there was a Daily Pioneer article posted recently that of the six firms shortlisted for WiMax by BSNL, five of them had ties to the minister or his cronies.

SK Mody · Post by **SK Mody** » 23 May 2009 04:04

Suraj wrote:
The rupee strengthened 4.9 per cent this week, the most since March 1996, to 47.12 per dollar at 5pm in Mumbai, according to data by Bloomberg. It had closed at 49.40 on last Friday. The rupee has gained 6.5 per cent this month, the best performance among the 10 most active Asian currencies.

Do you think that this is temporary or is the Rupee set to appreciate further?

csubash · Post by **csubash** » 23 May 2009 04:10

RaviBg
Karuna & his coterie are probably the most venal bunch you can ever see. Apart from Dayanidhi Maran even though is corrupt to the core atleast has some decency. Less said about M K Azhagiri & T R Balu. I am never a big fan of Rahul G - but if it's him who put the foot down, hats off to him. I am sorry about nukkadising this thread.
CSubash

vsudhir · Post by **vsudhir** » 23 May 2009 05:15

Do you think that this is temporary or is the Rupee set to appreciate further?

IMO, the USD will tank against most major currencies, including the INR over the next few months.

Singha · Post by **Singha** » 23 May 2009 06:04

per a recent book, 2 cabinet ministers in previous UPA regime were making money on the side.

svinayak · Post by **svinayak** » 23 May 2009 06:12

Rahul Mehta wrote:
=============

It would be useful if you can explain why pulse consumption has decreased by 20% since 1991, why more and more poor Hindus are becoming Christians and more and more are becoming naxals. Because all three data points show that poverty of poor has increased since 1991.

How bad economic policies over 30 years can result in Spiritual Displacement, violence and vote bank policies.

vera_k · Post by **vera_k** » 23 May 2009 08:43

Singha wrote:per a recent book, 2 cabinet ministers in previous UPA regime were making money on the side.

How about the other ministers? Aren't they all corrupt as a rule - where do they get the money for the elections?

vera_k · Post by **vera_k** » 23 May 2009 08:54

Author says that the stock exchange rally is due to short covering.

Link

Raju · Post by **Raju** » 23 May 2009 09:42

Singha wrote:per a recent book, 2 cabinet ministers in previous UPA regime were making money on the side.

A Raja and T Baaalu ?

Singha · Post by **Singha** » 23 May 2009 09:52

Raju any idea of the character of the writer ?

http://online.wsj.com/article/SB124279208675238197.html

from here:
NEW DELHI -- Since he retired as India's most senior civil servant in 1998, T.S.R. Subramanian likes to say that he can be spotted frequently on a golf course. Recently, using a stenographer (four decades climbing the bureaucratic ladder means you don't learn to type) he put his mind to a question that appears to nag him as he marches the fairways: What has gone wrong in official India?

...

Where does all this leave us? "The political class," he writes, "is the only one which is not constrained by any checks or balances, follows no effective code of conduct and considers itself a king or an emperor, while extolling the virtues of democracy." In person, he puts it more starkly: In the last government, there were three Cabinet-level ministers making money. Yes, that kind of money. And nothing was done about it.

Raju · Post by **Raju** » 23 May 2009 10:28

he is late 50/60s IAS/CCS cadre tambrahm babu. Doesn't have any reputation like Seshan but individually honest although like MKN, chamchagiri towards seniors and yes-massa to political class attribute could be present. Possible BJP supporter.

Singha · Post by **Singha** » 23 May 2009 17:55

so chances are he is very right, must still be socially in touch with his network of peers and juniors in the service.

one of the reasons why DMK strongly wants to retain the very same ministries might be to
avoid a honest guy coming in as the next minister and uncovering something unsavoury to provide addl levers to the UPA leadership vs DMK.

Mamata-di is getting railways.

Suraj · Post by **Suraj** » 24 May 2009 02:35

Pranab has been chosen as Finance Minister. This is very good news, because Pranab has sufficient weight to push his case with the party and get the backing he needs. Hopefully he and MMS can work as well together as Montek would have.
Mukherjee the ‘Deliverer’ Takes Over as Indian Finance Minister

Pranab Mukherjee earned a reputation as a trouble shooter in Prime Minister Manmohan Singh’s cabinet since 2004 by resolving spats among ministries and coalition partners. Now he’s got the job of reviving the economy.

The 73-year-old Congress party veteran was appointed finance minister today, a position he has been acting in since January as Singh, 76, recovered from surgery. He held the defense and then the foreign portfolio for the bulk of Singh’s first term.

Mukherjee, who ran a closed economy as the finance minister in Indira Gandhi’s cabinet from 1982 to 1984, inherits one that is now open and exposed to the global recession. He has called for “accelerating” reforms in banking and insurance to make the economy more competitive and accelerate growth.

“He is a deliverer,” said Alastair Newton, a political analyst at Nomura International Plc in London. “He will have challenges in the economic portfolio given the political realities -- market expectations are high.”

vera_k · Post by **vera_k** » 24 May 2009 06:02

Congress returns to its old leftist roots

According to this article the secular free market is about to take a back seat to a economic policy akin to the European Middle Ages with the Indian state substituting for the church. Is the economy headed back to an era of low growth rates?

harbans · Post by **harbans** » 24 May 2009 09:53

I'm a bit disappointed with Pranab Da as FM. He was a FM last in the leftist sense during IGs time. These folks have intrinsic sympathies with the left. They follow the economic policies of today not because they have realized that command, control based economic leadership is inferior to a free market system, but because the system now has a free market inertia of it's own. I doubt Pranabda will have the nerve or initiative to take hard decisions in reforming major sectors that still wait for them. Insurance, retail reforms will go slower with Pranab..JMT/

Raju · Post by **Raju** » 24 May 2009 14:04

he is a complete reliance tool. In 60s or is it 80s he was caught receiving a diamond ring from Dhirubhai Ambani, worth ten lakhs, on behalf of his wife, the ring was given by Ambani to his wife on a/c of her birthday. You can just imagine how much that relation would have quadrupled today.

but pranab da wants to be perceived as leftist because he owes his LS seat in WB to the commies among other things. So he cannot risk rubbing them the other way.

Singha · Post by **Singha** » 24 May 2009 16:47

closet capitalist is better than being a true leftist no doubt

Suraj · Post by **Suraj** » 25 May 2009 01:31

Pranab's first stint as Finance Minister was also the period of the first real deregulation efforts seen India, during Indira Gandhi's last stint, when she tried to reverse the stagnation of the 60s and 70s. While it did pick up steam subsequently under Rajiv, the previous regime had set the ball rolling. Compared to the reform measures effected since, those may appear to be baby steps, but that is always the case when you look back to the first reforms.

There was an excellent report about a year ago (I will post it if I can find it) detailing the steps taken by Pranab under IG, and subsequently VP under RG, as well as the mistakes made in resorting to short term borrowings (due to unwillingness to open up trade barriers at the time). The subsequent perfect storm of political instability and the Gulf War 1 led to PVNR coming to power and authorizing MMS to effect the liberalization efforts.

Pranab therefore is a system insider, from whose hands the first real reform measures came into effect, and has since had a ringside view of successive reform efforts. He has his negatives, but I see him in sufficiently positive terms as to have consistently preferred him as FM since the moment the election mandate became clear, as I've stated in earlier posts.

vera_k · Post by **vera_k** » 25 May 2009 02:05

Let us see what happens. INC/UPA have always come across as reluctant reformers who prefer statist contol unless reform was inevitable. At this point anything short of a rollback of reforms implemented will be a win.

Suraj · Post by **Suraj** » 25 May 2009 02:19

India FDI up 85% in 2008, highest globally

The (UNCTAD) study, which updates the organisation's January assessment, estimates that the FDI investments into India went up from $25.1 billion in 2007 to $ 46.5 billion in 2008 even as global flows declined from $1.9 trillion to $1.7 trillion during the period.

Surprisingly FDI increased by a much slower 10% in China, pushing up the inflows from $83.5 billion in 2007 to $ 92.4 billion in 2008. What is, however, significant is that India's FDI flows which was just a fraction of that of China just a few years back has now touched half the levels. More importantly that ratio of FDI to GDP in India would now exceed that of China, indicating its larger role in the Indian economy, as the size of the Chinese economy is around three times higher than that of India.

India's achievement in mobilising FDI is all the more significant because the inflows into the developed countries have declined by 25.3% in 2008. In contrast the overall FDI flows to developing countries increased by 7.2% in 2008. The report warns that though developing and transition economies were quite resilient in 2008, during the downturn in global foreign direct investment (FDI) flows, they will be increasingly affected in 2009 as international investment continues to decline.

However it also noted that some large emerging economies, such as Brazil, China and India, still remain favourable locations for FDI, particularly market-seeking FDI. They maintained relatively high economic growth rates in 2008 compared with advanced economies. As prospects continue to deteriorate more markedly in developed countries, investors are likely to favour the relatively more profitable options available in the developing world.

These numbers exceed the figurest reported by DIPP/Commerce Ministry, because they count reinvested earnings, as is standard procedure. GoI does not follow this and reports a more restricted figure.

Suraj · Post by **Suraj** » 26 May 2009 01:42

Montek is favoured to run the Disinvestment Ministry:
GoI plans to revive disinvestment ministry

Sources said Montek Singh Ahluwalia, former deputy chairman of the Planning Commission, was a front-runner among the names shortlisted to head the new ministry. The new disinvestment minister is likely to hold Cabinet rank.

Originally set up under the BJP-led National Democratic Alliance, the ministry was converted into a department under the finance ministry in 2004 when the United Progressive Alliance (UPA) first came to power.

This was done to meet the demands of the Left parties, which had raised strong objections to disinvestment on the assumption that it leads to job losses. The UPA was dependent on the four Left parties’ 60-odd seats for outside support in the last Lok Sabha.

With the Left no longer in the power equation, the government has decided to focus on selling government shares either through public offers or institutional placements (especially for listed blue-chips).

The department of disinvestment is currently headed by Disinvestment Secretary Rahul Khullar.

The issue of disinvestment has grown in importance because the government faces a fiscal deficit of 6 per cent of Gross Domestic Product, owing to farm loan waivers, pay increases, a country-wide rural job guarantee scheme and a fiscal stimulus package. The fiscal deficit has overshot a parliamentary fiscal responsibility target by over 3 percentage points, from 2.5 per cent to around 6 per cent.

TC opposes strategic sales, preferring the IPO route, and also is against opening up the insurance and retail sectors. It would be interesting to see what compromise is achieved; I do see them being as ideological as the communists:
Trinamool opposition to disinvestment

According to Chatterjee, in PSUs where majority holding was with financial institutions, the party would not oppose disinvestment. But TC was opposed to disinvestment in a PSU, where the controlling stake was with the government.

Even though the party is opposed to strategic sale of profitable PSUs, disinvestment by way of an initial public offering (IPO) is acceptable. “An IPO will infuse funds into the PSU and help it function better,” said Chatterjee.

The UPA government has lined up several PSUs for disinvestment through market offering and there could be some strategic sale, as well. Banking, pension, insurance and banking reforms are also high on the agenda of the government.

The TC leader said, in its initial meetings, the UPA government had indicated that its priority areas were infrastructure and rural development. “Disinvestment is not the UPA government’s priority,” said Chatterjee.

Sanjay M · Post by **Sanjay M** » 27 May 2009 02:46

US keeps rates low, India keeps rates high - so what happens?

Could US Credit Fuel India's Rise?

The Carry Trade!

The Federal Reserve could thus easily find itself in the rather unusual situation of underwriting the nascent recovery in emergent economies like India and Brazil , just as Japan pumped massive liquidity straight into countries like New Zealand and Australia during its experiment with quantitative easing between 2001 and 2006. And the mechanisms through which the money will arrive? Well, they are several, but perhaps the best known and easiest to understand of them is the so called carry trade, which basically works as follows.