Indian Economy: News and Discussion (June 8 2008)

[SwamyG]

Looks like one year from now the Rupee will be stronger than the Dollar. I heard talks on NPR (national public radio) about inflation down the years. So if the Indian Economy keeps chugging, then Rs is going to appreciate. Gurus any thoughts?

[svinayak]

Suddenly Bric becomes a bad word in US . They seem to think that we cannot link it to SCO's economic angle

Of all the BRIC countries only China has a preferential trade with US and admitted to WTO and other global trade by invitation

[sudarshan]

Ok, thanks, ravi_ku, I moved my question to the nukkad thread.

Sudarshan

vvvvvvv

[vera_k]

The per-capita income figure increased by over $100/year in each of the next three years as well, and is well north of $1000, as of 2008.

What are you basing this PCI calculation on? By my reckoning, PCI is about $805 as of March 2009. This calculation uses an exchange rate of 1USD=47INR and a PCI of INR 38,034 as reported here.

Essentially, the PCI is not rising as fast as it could because of the growth in the population. And PCI may start falling fairly soon if a) the economy grows approx. 5% a year b) the population grows about 2% a year and c) the rupee depreciates about 3% a year due to the borrowings imposed by the fiscal deficit.

[Singha]

this is an excerpt from 2005, but I remember around early 2007 when our GDP crossed $1tr, the news came in media about entering lower-middle-income group.

--

The World Bank classifies its 184-member economies according to their 2005 gross per capita national income into four groups: Low income countries with per capita income of $875 or less, lower middle-income countries with per capita income between $876 and $3,465, upper income countries between $3,466 and $10,725 and high income countries with per capita income of $10,726 or more. The World Bank classifications will remain in effect till July this year.

The difference between Dasgupta’s projection and Lahiri’s view lies in the way the World Bank calculates per capita income. While the figure of $626 is based on constant 1999-2000 prices, the bank uses current year data plus that of two preceding years and adjusts it for inflation and 20 other items. Accordingly, the per capita income of the country stood at $720 for calendar year 2005.

[Sanku]

Deleted. Please don't post political rumours here.

[Abhijeet]

That graph is just upto 2005. The per-capita income figure increased by over $100/year in each of the next three years as well, and is well north of $1000, as of 2008.

The massive Rupee devaluation of the early 1990s significantly lowered the measure of GDP in USD terms, and the constant erosion of the exchange rate until the last few years ensured that these figures didn't rise much. Now that we have both significant GDP growth as well as an appreciating currency, the USD denominated figures are also up significantly.

Indeed the graph is only till 2005, although I didn't note it in my original post. The rupee did depreciate quite a bit over the last year (Rs.40/$ to Rs.50/$) so I would expect the GDP expressed in USD to have increased much more slowly (or actually, even declined) in the last 12 months.

The most recent estimate I think I remember reading for the size of the economy is $1.2T (don't know what exchange rate this was calculated at), which puts us right at $1000 per capita GDP with a 1.2 billion population.

[Suraj]

Last years GDP is roughly $1.2 trillion at Rs.47/$ and around $1.35 trillion at Rs.40/$ . Note that GDP does not increase at the reported real GDP growth rate - it increases at the nominal GDP growth rate, i.e., real growth rate plus inflation .

[Sanjay]

And remember China's GDP is calculated on a 2005 or 2007 base while ours is on a 1993 base by and large. The disparity may be significantly lower.

[Suraj]

And remember China's GDP is calculated on a 2005 or 2007 base while ours is on a 1993 base by and large. The disparity may be significantly lower.

We use a 1999-00 base year officially. However, multiple components of the GDP are reported on a 1993-94 base year, e.g. the entire index of industrial production (IIP). The revision to the 1999-00 base year was little more than a jugaad exercise.

There are other nations who apparently also estimate the size of the informal economy into the official GDP figure - Singha quoted Russia as doing so, though I have not followed it up to determine the veracity of this. From purchasing rice at a small kirana to buying a home, everyone knows there's a massive informal economy in India, which is not reported in official statistics.

Further, the GDP measure doesn't quite acknowledge several Indian economic activities. For example, a housewife's cooking/home maintenance efforts (we still largely tend to cook at home rather than eat out, unlike most other top-15 economies), or a grandma's childcare, amount to zero economic output in official GDP, even if they are cash-compensated by family. On the other hand restaurants, cleaners, daycares all count towards services economy.

I personally find nitpicking over the exact GDP or PCI in USD to be pointless. One needs to realize the significant number of variables and issues involved, the least of which is the volatility of the INR/USD rate. It makes no sense to celebrate middle-income status one day, and then complain we are again a low-income country because of exchange rate fluctuation overnight.

Taking into account all factors, the Indian economy is much larger than the official reported figure, regardless of what currency or exchange rate is presumed. That's as far as my own interest in this discussion goes.

[ShauryaT]

X-Posting here for comments.

OK! Here we go!

The objective of this exercise is to separate the annual budget preparation process from the national development program that I am proposing.

I took 2008-09 budgets as baseline and the first table shows the current revenue receipts and budget allocations.

The interest payment account takes nearly 30% of the revenue receipts and it works out to be 10% of our national debt. At 8% interest rate we will be able to clear the national debt in 50 years. This amount also includes $2b annual allocation for early payment of debts, and I presume this is a reasonable sum to clear of the external debts in a meaningful timeframe.

I split my budget allocation into two parts. The first part is an attempt at balancing the annual budget with optimal allocations to key sectors. The major item that I removed from this list is Grants/Aid/Contribution to states. I plan to cover this separately under the national development program.

I presented a separate section on National Development Program, with a clear time table for 10 years, to cover the fundamental infrastructure, and social development. The purpose of this program is to bring at least 75% of population currently living below the poverty line into the national tax payer base. The annual cost of the NDP is estimated to be 320,632 crores per year. To get the total allocation for a specific item over the life time of 10 years multiply the number with 10.

A mere 5% growth in revenue receipts (translates into 5% annual GDP growth) would take the total annual receipts from current 737,322 crores to nearly 1200,000 crores in 10 years thus bringing a proportional increase in key sector allocations.

I will explain my thoughts on each NDP item in following posts

Current Budget

Code: Select all

TOTAL-REVENUE RECEIPTS (Includes Railways)          737,322 
Budget Deficit                                     (232,016)

                                                   (969,338)
Organs of State                                      (4,619)
Interest Payments                                  (226,111)
Administrative Services (includes police & Jails)   (33,593)
Pensions and Miscellaneous General Services         (48,352)
Defence Services                                    (90,536)
Fiscal Services	                                   (6,732)
SOCIAL SERVICES (Includes Education, Health)        (87,087)
Agriculture and Allied Activities                   (98,077)
Rural Development                                   (34,671)
Special Areas Programmes (NE, MP LADS)              (14,363)
Irrigation and Flood Control                           (651)
Energy                                              (12,305)
Industry and Minerals                               (18,861)
Transport (Includes Railways)                      (121,483)
Communications                                      (13,671)
Science, Technology and Environment                 (11,707)
General Economic Services                            (7,266)
GRANTS-IN-AID AND CONTRIBUTIONS to states          (139,252)

Proposed Budget

Code: Select all

TOTAL-REVENUE RECEIPTS (Includes Railways)                       737,322 
Budget Deficit                                                   (11,446)

Allocations for a Balanced Budget
Interest Payments                                               (226,111)
Pensions & Misc                                                  (60,000)
Defence Services                                                (100,000)
Central Police, Courts, Jails (30,000 + 10000 + 10000)           (50,000)
Railway Budget                                                   (95,306)
Organs of State                                                   (4,619)
Fiscal Services	                                                (6,732)
Primary Education (6 Lakhs x 400000)                             (24,000)
Higher Education (100 Univ x 250 Crs)                            (25,000)
Social Security (9 Cr people > 65 yrs and under poverty line)    (57,000)
Primary Health                                                   (10,000)
Secondary Health                                                 (10,000)
Roads & Buildings                                                (10,000)
Research & Development (DRDO and Others)                         (20,000)
Space Research & Space Defence                                   (10,000)
National Emergency Response                                      (10,000)
Forests & Fisheries                                              (10,000)
Special Areas & Programms (NE, JK, West Bengal)                  (20,000)

National Development Program

Code: Select all

National Development Program (10 Year Program)                  (330,632)
Infrastructure	
Roads (3000KM per year x 4Lane)                                  (20,000)
Ports (15 Ports in 10 years)                                      (5,000)
Freight Corridars (Rail/Road)                                    (15,000)
Airports                                                          (5,000)
Communications (Fiber Optics, Command Centers Etc)               (10,000)
Energy (R&D, Transition to renewable sources, power grid)        (10,000)
Irrigation Systems (20 projects in 10 yrs)                       (10,000)
Watersheds and River cleaning program                            (10,000)
	
National Defence Program                                         (20,000)
Aircraft Carriers	
NMDP Phases II and III	
BMD	
AWACs	
SSNs	

Education	
Primary Education                                                (97,632)
National Literacy Program                                        (10,000)

Land Reforms & Farm Subsidies	
Farm Subsidies 12000 per acre upto 4 acres                       (48,000)
Social Forestry and Development (1cr familiesx5acres)            (60,000)

National ID Program (100 croresx1000Rs for card/systems/infra)   (10,000)


Funding the NDP	
Onetime Tax 15% of Blackmoney 354000 crores                       53,100 
Improved Tax Collection (15% GDP $1.8TN) per year
1190,000 crores minus current receipts 732,322                   457,428 

[kittoo]

And remember China's GDP is calculated on a 2005 or 2007 base while ours is on a 1993 base by and large. The disparity may be significantly lower.

We use a 1999-00 base year officially. However, multiple components of the GDP are reported on a 1993-94 base year, e.g. the entire index of industrial production (IIP). The revision to the 1999-00 base year was little more than a jugaad exercise.

There are other nations who apparently also estimate the size of the informal economy into the official GDP figure - Singha quoted Russia as doing so, though I have not followed it up to determine the veracity of this. From purchasing rice at a small kirana to buying a home, everyone knows there's a massive informal economy in India, which is not reported in official statistics.

Further, the GDP measure doesn't quite acknowledge several Indian economic activities. For example, a housewife's cooking/home maintenance efforts (we still largely tend to cook at home rather than eat out, unlike most other top-15 economies), or a grandma's childcare, amount to zero economic output in official GDP, even if they are cash-compensated by family. On the other hand restaurants, cleaners, daycares all count towards services economy.

I personally find nitpicking over the exact GDP or PCI in USD to be pointless. One needs to realize the significant number of variables and issues involved, the least of which is the volatility of the INR/USD rate. It makes no sense to celebrate middle-income status one day, and then complain we are again a low-income country because of exchange rate fluctuation overnight.

Taking into account all factors, the Indian economy is much larger than the official reported figure, regardless of what currency or exchange rate is presumed. That's as far as my own interest in this discussion goes.

Absolutely agree with everything you said. Its commonsense that everyone, who is a little aware, will notice that there is so much going on and if everything was actually counted towards economy, our economy will come out as much much bigger than mere 1.2 Trillion Dollars (its small for a nation of 1.2B people). There are so many other factors involved (like the grandma example you gave) which are never counted towards effective economy, but are part of it practically.
Wonderful post.

[SwamyG]

From purchasing rice at a small kirana to buying a home, everyone knows there's a massive informal economy in India, which is not reported in official statistics.

It plays a huge part in keeping India Zindabad!!!

[svinayak]

India’s ‘Not for Sale’ Legal Market Draws U.S., U.K. Law Firms
http://www.bloomberg.com/apps/news?pid= ... z8zYy8.Vdg
By Douglas Wong

June 16 (Bloomberg) -- Two weeks before Clifford Chance LLP said it would fire as many as 100 lawyers in London and New York, the world’s largest law firm by revenue announced an alliance with India’s AZB & Partners to expand operations there.

The firms said in January that they were establishing a referral relationship that would give Clifford Chance a way to serve clients doing business in India, which bans foreign firms from practicing in the country. This month London-based Clyde & Co. and ALMT Legal announced a similar association, saying they would look to merge once it was “permissible.”

These alliances and the increased hiring of Indian lawyers come as U.K. and U.S. law firms are fighting a collapse in work from their financial clients. India is a logical countertrend. For the past five years, Asia’s third-largest economy grew at the fastest pace since independence in 1947. Lawyers are betting India will be a growth market for them once they’re allowed in.

“Most international law firms are looking at doing more” in India, said Sunil Gadhia, chief executive officer of London- based Stephenson Harwood LLP. It’s “a market where firms can generate more business” than in Western economies, he said.

“India’s a place you have to be, from a global business franchise standpoint,” Goldman Sachs Group Inc. India head Brooks Entwistle told 66 European and North American law firms attending a Mumbai conference of the International Bar Association in March. Some of the firms, barred from practicing in India since a 1995 court order, have set up India teams in nearby locations, including Singapore, to serve companies doing Indian deals.



“The Indian legal market is important, not so much for today, but for the future,” said David Jacobs, the head of Chicago-based Baker & McKenzie LLP’s India practice. Foreign acquisitions by Indian companies more than tripled to $13.9 billion in 2008 from $4.5 billion in 2005, and India “will be restored as one of the dominant global economies in our lifetimes,” he said.

[R Vaidya]

Finance minister should budget for the real India, for a change

http://www.dnaindia.com/money/column_fi ... ge_1265570

rvaidya

[Suraj]

Folks, enough of the BRIC talk here. Why are we getting worked up about some grouping designation made up by an investment bank ? If Morgan Stanley wants it to be BRIM they should go talk to Goldman Sachs, the original creator. It's not our problem. Going 'those rich western countries are trying to split the BRIC' is just overreaction. All that's happening is you're internalizing some fancy catchphrase and now are concerned about its reclassification.

[Sanjay]

Suraj, in the context of power, numbers matter and statistics matter - even if they are inflated or manipulated. The better the stats, the stronger a country looks. That's why India better re-consider its GDP figures.

[Suraj]

Suraj, in the context of power, numbers matter and statistics matter - even if they are inflated or manipulated. The better the stats, the stronger a country looks. That's why India better re-consider its GDP figures.

That was my contention 2-3 years ago. A few other thread regulars like Katare, Singha etc would remember our prior discussions berating the current statistics collection policies. However, I learned from experience that having such high hopes from the CSO is an exercise in frustration. I just provided a summary of the topic in my previous post, but am otherwise not inclined to

[vsudhir]

The great SEZ rush skids on slowdown, land issues

[vsudhir]

Even as Commerce Minister Anand Sharma claimed the “impasse” over the Doha Round of world trade talks is “broken”, senior government functionaries familiar with the negotiations maintain nothing has changed since July 2008, when the dialogue broke down.
Meanwhile, political parties and civil society groups have expressed disquiet on Sharma’s comments.

In an interview with Reuters news agency, Sharma had said “There is much happening now. The impasse has been broken.” This view is being seen as a dilution from the tough stand taken by Kamal Nath, his predecessor in the previous government and known for his firm stand on issues related to the Doha talks, which have been on since 2001.

Government functionaries say the statement by Sharma is just an intent to take forward the Doha talks and does not reflect the actual negotiating status, where nothing has changed since the talks broke down in the mini-ministerial meeting on the Round at Geneva in July 2008.

Sharma’s comments on the Doha round have already evoked political reactions. “If this is true, we are going to take up the issue in a big way, as it completely contradicts the position of the earlier government,” said Sitaram Yechury, M.P. and politburo member of the CPI(M).

“It seems Sharma has bent his back to accommodate the wishes of the developed countries at the cost of interests of the marginal farmers of India. Not a single dollar of subsidies will come down if the round is taken forward in its current form,” said Bhaskar Goswami of Forum for Biotechnology and Food Security.

link

[vsudhir]

Big pharma comes to India

In an emerging trend, the same MNCs are now queuing to join hands with generic specialist companies such as Dr Reddy’s and Aurobindo Pharma to market their low-cost drugs in global markets. “Multinational drug companies are under pressure, as their new drug pipelines are dwindling and many existing drugs are going off-patent in the near future. In the field of generics, branded generics offer the largest margins and this is an area where we will soon see many deals by Big Pharma with Indian generic companies,” said Dominic Hollamby, global head—healthcare group, of Rothschild, one of the largest private banks.

Last week, GlaxoSmithKline (GSK), the second largest drug maker in the world, teamed with Dr Reddy’s to market its 100 branded pharmaceuticals in emerging markets such as Africa, West Asia, Latin America and the Asia-Pacific, excluding India. Dr Reddy’s will manufacture the drugs, license these and and supply to GSK.

In March, the world’s largest drug maker, Pfizer, had acquired rights from Aurobindo Pharma for 39 generic finished-dose products in the US and 20 in Europe, plus an additional 11 in France. Later, Pfizer expanded this supply pact for another 60 products, for selling in several countries through Asia, Latin America, Africa and West Asia. Two months later, Pfizer entered into a partnership with Ahmedabad-based Claris Lifesciences, an injectable drug maker, to commercialise off-patent drugs in the United States, Canada, Australia, New Zealand and Europe.

“Such deals are a win-win situation for both Big Pharma and generic companies. Multinational companies enjoy big brand equity and have extensive sales and marketing set-ups, which will help the generics players to tap new markets and business,” said Sarabjit Kaur Nagra, vice-president of research, Angel Broking.

It is estimated that about $70 billion worth of branded drug patents are set to expire through 2012. Big Pharma, trying to protect margins and revenues, is now looking at generics as a serious business. At present, a dozen-odd Indian drug companies such as Piramal Healthcare, Jubilant Organosys and Dishman are engaged in contract research and manufacturing services (CRAMS) for Big Pharma. Indian contract manufacturing was estimated at $869 million in 2007 and is projected to grow at a rate of 41.7 per cent to $2.46 billion by 2010, says a study by KPMG and CII. According to a YES Bank and Organisation of Pharmaceutical Producers of India (OPPI) estimate, contract manufacturing in India will grow from about $625 million in 2007-08 to $3.2 billion by 2015.

[Prem Kumar]

India may dilute stand on farm product imports

http://timesofindia.indiatimes.com/Indi ... 673841.cms

The sell-out continues

[vera_k]

I personally find nitpicking over the exact GDP or PCI in USD to be pointless.

The exact numbers are not as important as is knowing whether the economy is growing or shrinking. It looks like the economy (and PCI) shrank last year due to the exchange rate changes. It runs counter to the assumption that India will catch up with Western economies partly by exchange rate appreciation.

[Suraj]

The exact numbers are not as important as is knowing whether the economy is growing or shrinking. It looks like the economy (and PCI) shrank last year due to the exchange rate changes. It runs counter to the assumption that India will catch up with Western economies partly by exchange rate appreciation.

Why not hold a survey asking people "The rupee fell 10% against the dollar in the last few months. Do you feel 10% poorer because of it ?" and see how many say yes ?

Judging GDP growth and making sweeping generalizations using some (effectively) instantaneous exchange rate at a time of significant volatility and essentially, unprecedented turmoil, is pointless. By your argument the economy can go from being in expansion to recession in a manner of days just because the exchange rate against one particular currency fluctuated. Say the Rupee concurrently appreciated significantly against Elbonian dollar. By the same logic, we were in a boom phase last year.

When dealing with the impossible trinity, the RBI just prioritized the inflation and interest rates over the exchange rate. Real GDP and PPP GDP continued to expand significantly , the latter at a double digit rate.

[Rahul Mehta]

India may dilute stand on farm product imports

http://timesofindia.indiatimes.com/Indi ... 673841.cms

The sell-out continues

PK,

In Good Governance thread, pls explain what you mean by "sell out". Are you accusing PM, FinMin of selling away India and Indians? And if so, what solution do you propose.

Pls dont use this holy thread. This thread is meant for BRites with class to discuss classy things like growth rate onlee. The trashy things like selling out and solution should be discussed on "Good Governance " type threads only meant for BRites without class. So pls post response on that thread only.

[svinayak]

Far Eastern Economic Review
India's Premature Exuberance
http://online.wsj.com/article/SB124513568534118169.html

By SUBHASH AGRAWAL

For much of the campaign season, there was little memorable about the position of any political party or inspiring about any political figure. It all seemed so scripted. The ruling Congress party, which began with a huge head-start over the Bharatiya Janata Party, the main opposition, appeared to have lost much of its advantage due to overconfidence. The BJP, which looked weak at first, began to act as if it actually was the dark-horse favorite. Everybody was ready for a long haul, expecting no clear winners and much postelection horse-trading.

And then, the results came in and woke everybody up. A reinvigorated Congress party has returned with a clear mandate, without the bear-hug of left-wing parties. It won 206 seats on its own, and the alliance it led, the United Progressive Alliance, won very close to a simple majority in parliament. The leftist parties have lost nearly half the seats they held. Equally crucial for the Congress, it has won 21 seats in the state of Uttar Pradesh, putting it in second place in India's most populous province. From all angles, the Congress is back with a clear electoral victory, and is heading a new coalition government that is likely to be the most stable in over two decades of fractious Indian politics.

It is easy for commentators to come up with lucid 20-20 hindsight, but the fact is that no one was expecting such a clear victory for the Congress party, least of all the Congress itself. There was near unanimity, and anxiety, that Indian voters would deliver a split verdict, with the Congress-led UPA just marginally ahead of the BJP-led National Democratic Alliance. According to almost all scenarios envisaged by political insiders, the most probable outcome was that India was headed for a very fragile Congress-led government supported by a motley group of small parties and Communists, who would then extract their pound of flesh on patronage or policy.

View Full Image
Prime Minister Manmohan Singh
Associated Press

Indian Prime Minister Manmohan Singh, left, President Pratibha Patil, center, and Parliamentary Affairs Minister Pawan Kumar Bansal, right, greet the media as they walk in a procession towards the central hall of parliament for Patil.
Prime Minister Manmohan Singh
Prime Minister Manmohan Singh

Given this overhang of nervousness, existing political alliances during the election campaign were already becoming irrelevant, with almost all parties brazenly talking about jumping ship and changing partners after election. Even Prime Minister Manmohan Singh was reportedly working the phones, trying to drum up support in anticipation of a hung parliament.

So what explains the results? First, in many states, the Congress won by default rather than by choice, primarily because of opposition disunity. In Maharashtra and Andhra Pradesh, it won a large number of seats because anti-Congress votes got divided among numerous parties. Specific state-level issues also played a role. In West Bengal, there was voter fatigue with the left-wing alliance which had ruled the state for 30 years; in Tamil Nadu, there appears to be a late resurgence in favor of the UPA alliance as a result of worsening plight of Tamil citizens in Sri Lanka. Additionally, the Congress presented a younger, fresher and more charming persona, especially in comparison to the BJP. In stark contrast to Rahul Gandhi's smiling face and beguiling modesty, voters were presented the stern countenance of the BJP's LK Advani.

Lastly, the BJP is rapidly losing its urban base. The crude communalism and brazen lawlessness of many BJP-related outfits now embarrasses India's growing middle class, who had been the BJP's core constituency for many decades. At the same time, the incumbent UPA regime rediscovered an old wisdom about India, that the heart of the country beats in its villages, not in its cities. Keen to avoid the mistake of the previous BJP-led NDA government, which was seen as insensitive to the plight of farmers, over the last three years, the UPA has increased the support price paid to rice and wheat farmers by almost 50% and pumped more than $8 billion into village roads, water pumps and schools under a new rural-employment scheme. In 2008, the UPA even introduced a massive farm-loan waiver scheme for small farmers that will probably cost more than $10 billion. Together, these measures projected the Congress-led UPA government as being aligned with India's rural masses and not the urban elite.

The immediate reaction in India's business and investment community to this unexpected election outcome has been one of relief, joy, celebration and exaggerated expectation -- in that order. The Indian stock market jumped by more than 17% within seconds on the first trading day after election results were announced, and has stayed high since then. But this reaction may be built on excessive optimism. Broader trends give Indians reasons both to celebrate and to be concerned.

On the positive side, the new Congress-led government has unhindered political space to restart bold reforms, such as the privatization of state-run companies, step up public expenditure on infrastructure, reduce manufacturing and import duties, and relax foreign-direct investment rules in the banking, insurance and aviation sectors. Prime Minister Singh's authority within his own party is now more firmly in place and the Congress has felt little compulsion to offer key economic ministries even to its allies. Moreover, the current UPA has no need to bring a revisionist approach to everything attempted by its predecessor, which the first UPA regime in 2004 carried to office and which left an unpleasant political legacy. Going from UPA-1 to UPA-2 may be the most seamless succession India has seen in two decades, with the new cabinet having reassuring familiarity if not exciting freshness.

The major political parties in India also seem to have realized the importance of good governance, economic growth and jobs. There is a nascent recognition that India is perhaps at a social and political cusp, with a young and restless population no longer happy with old clichés, promises or identity politics.

On the economic front, India is comfortably hedged for now against the ongoing global financial and economic crisis because it is fundamentally driven by domestic demand. Despite a drop in industrial production, consumer demand has grown respectably in the past year, and India's overall GDP growth in the current financial year is expected to be around 7%, which is better than most other Asian economies. Personal savings have risen steadily to 35% of household income from 23% during the last 10 years, offering a healthy cushion against the external credit squeeze. The medium-term prospects of the economy are further boosted by a changing demography. Over the next 25 years India is set to have a younger, better educated and more productive workforce than ever before.

However, all is not well with Indian politics or the economy. The Congress remains a left-of-center party that is intrinsically populist. Despite having some top economic brains and genuine reformers, the Singh government has in the last five years given out massive subsidies, which of course was one reason for Congress' electoral success. This largess has doubled India's fiscal deficit in the last three years to almost 12% of GDP, pushing Standard & Poor's to lower India's credit rating to noninvestment grade. A radical turnaround of this precarious situation is fiscally impossible, and given that there is always a crucial local election around the corner in India, it is perhaps politically unlikely as well.

Moreover, the Congress party's recent success will again make it the primary adversary of regional parties, who know that a resurgent Congress will push them to the margins and whose leaders are unnerved by the prospect of another generation of Nehru/Gandhi. Once regional parties are through licking their wounds, they are likely to become even more hysterical toward the Congress—especially if the Congress somehow gets embroiled in an ethical or financial scandal. In fact, the Congress knows all too well that the flip side to political promiscuity in India is that, had the results turned out differently, many of its current allies would have had no qualms in deserting it. This built-in insecurity is likely to work against any reformist instincts of the new Congress leadership.

The Trinamool Congress Party is also likely to be a difficult ally, especially since the TMC chief, Mamata Banerjee, is a loose canon who is likely to sulk, indulge in theatrics and flex her political muscle against her own allies. Her moody shenanigans and unabashed populism are legion, including her role in forcing Tata Motors to move its Nano car project out of West Bengal. Her role in the UPA cabinet is borne out of political necessity, but it is likely to erode coherence and harmony.

Finally, there is perhaps too much focus on Mr. Gandhi in the Congress. Though he may not be in Mr. Singh's new cabinet, his imprimatur over new policy initiatives is likely to loom very large, reducing the space that any prime minister or individual ministers should ideally have.

And so there are many crosscurrents, out of which it appears that the new UPA government will move decisively on reforms in the near-term only where it does not hurt the alliance, especially since local elections in two major states, Maharashtra and Tamil Nadu, are due later this year. Even so, low-hanging fruits that can be expected in the next year include new investment in infrastructure; gradual easing of FDI norms in aviation, banking and even education; disinvestment in selective government-owned enterprises; and reduction in credit rates to help the middle class and the real-estate sector. To move boldly beyond these, such as allowing FDI in retail, such as Wal-Mart stores, the Congress will need to feel confident about its political comeback.

From a nonpartisan perspective, the new UPA government needs to prioritize two major domestic challenges. The biggest challenge to India is the quality of its economic growth, which has been too concentrated in cities and service sectors at the expense of the rural economy. While information technology, telecommunications and finance are booming, the fabled Green Revolution of the 1960s has clearly run out of steam and villagers now have dismal access to social services or prospects of non-farm jobs. The new government must also begin to tame India's huge bureaucracy. Despite almost two decades of economic and political reforms, it would be hard to find another democracy where unelected people have amassed so much power, arrogance and immortality. More than being a huge drain of money, a corrupt and insensitive bureaucracy is the major cause of such shoddy governance in India.
—Subhash Agrawal is the founder of India Focus, a think tank that studies India's political, diplomatic and economic trends.—This article first appeared on feer.com.

[vsudhir]

Fiscal deficit will not be in 'double digits', says Montek

Infrastructure experience must for PPP project bids

[BijuShet]

DNA Article: India's growth will be slowest in six years: World Bank

Washington: The World Bank today forecast India's economy to expand by 5.1 per cent this fiscal, the slowest in six years, although the country has consistently outperformed the multilateral funder's estimates in the past.

The Indian economy had grown by 6.7 per cent in 2008-09 against the World Bank's estimate of 6.1 per cent, despite recession setting in most of the developed nations.
...
The Reserve Bank of India itself has put the possible growth numbers at six per cent - 0.9 percentage points more than the estimates of the World Bank. India's economy had expanded by 8.5 per cent in 2003-04.
...

[Katare]

IIRC correctly, for last severals years Indian economy has performed much better than what WB has predicted for it. Their estimates are usually pretty conservative......

[Jamal K. Malik]

First quarter review of Monetary Policy on July 28: RBI
http://www.business-standard.com/india/ ... i/65581/on

Amid industry's demand for interest rate cuts, the Reserve Bank of India will come out with the first quarter review of Monetary Policy on July 28.

RBI should reduce key rates before july 28 to boost credit off take.

[Keerthivasan]

A query to Gurus & knowledgable people:

Due to financial meltdown in US and also looking at the default like situations of states like California, the forcast for US Dollar doesn't seem to be good. There are expectations of high inflation (oil prices are raising back to 100$) & stagnant economy in US.
At the same time, Indian rupee is expected to fall (Indian Government debt it just next Junk Bond status). Indian Government will run another set of government spending like (NREGA, waivers etc).

Indian in US who have come in work visas have their savings in USD. Can this be kept in some other currency like Euro or Yen ?. Some friends of mine were thinking about it. Is it possible? If so, what is the procedure?

If this is not the appropriate thread, can the moderators tell me what thread to post this?

[Jamal K. Malik]

CPI-WPI gap affects ability to cut deposit rates, says Thorat
http://www.business-standard.com/india/ ... at/362224/

[Suraj]

Keerthivasan: Please post your question in the NRI Investment thread, which is in this forum. You may also be able to find past discussions on your questions in that thread.

[Akshut]

From WSJ...
Crouching Tiger, Hidden Dragon

Since the early 1990s, India has invested about 25% of GDP and obtained an average GDP growth rate of about 6%, while China has invested over 50% of GDP and obtained an average growth rate of 9%.

India is a better capital allocator, requiring four units of capital to generate one unit of output, while China consumes about 5 units of capital to generate 1 unit of output. As economist Niranjan Rajadhyaksha puts it, capital efficiency is the reason why India has "few good roads but many world-class companies."

From purely a development standpoint, India needs more investment from abroad in the form of both foreign direct investment and venture capital than China does. Global investors are eager, and Indian entrepreneurs have demonstrated that they are a cut above the rest. It's now up to the state to ensure that it doesn't fritter away the merit of the Indian entrepreneur.

According to a survey released June 10 by the U.S.-based National Venture Capital Association, half of the venture capitalists said they would increase investments in China and other Asian countries over the next three years, while 43% of those surveyed said they would invest more in India.

http://online.wsj.com/article/SB1245989 ... %3Darticle

[csharma]

Based on World Bank numbers, Indian economy will be bigger than Canadian economy and Russian economy in 2009.

Probably the first time India's economy is bigger than any of the G7 economies.

In three to four years, India should overtake Brazil, Spain becoming the 8th largest economy.

You can use the following link to go over country specific data for upto 2011.

http://web.worldbank.org/external/defau ... PK=2470429

In fact India will be almost the same size Brazil in 2009 and if India grows faster than World Bank numbers, then India might be bigger than Brazil in 2009 itself making it the 9th largest economy.

[Singha]

big drought expected this year due to weak and delayed monsoon. all reservoirs are near the 10 yr lowest level.

delhi is still 40C to the S&H (shock n horror) of my wife who landed there expecting blrish weather.

[vina]

delhi is still 40C to the S&H (shock n horror) of my wife who landed there expecting blrish weather.

Ah. Weather. Blr weather is just heavenly right now. Not even using a fan in the nights these days.

See scenese of dilli types going on rampage on New Delhi TV (where else) against the electric utility office under the headline " North India faces severe heat wave conditions and reservoirs close to empty!

I was expecting scenes from hinterlands of Punjab and Haryana, UP etc with long hours of power outage and farmers despairing about lack of rains.. But no sir, the preening Dilli Billis put up some undershirt/banian clad billis burning up some odd trash on the streets and breaking glass in the utility's office as examples of "distress".

Hmmm.. Dilli Billis cannot run their a/c s and continue with their god given right of stealing power and with the help of local linesman run high wattage appliances like a/cs 24 hrs in all rooms for a pittance ?.. Tut. Tut.. how sad.

Another shot of some fully glass faced IT/Vity kind of Public Office in Punjab. There the govt has imposed a dictate against a/c use. Now babus claim they are all hot and bothered and "work efficiency is dropping" and they want the cool 24C back when a/cs are working!. Funny, how they can manage to do incredible stuff like "drop efficiency" when nothing much was anywah hapening. Is there a concept of negative work outside of engineering in govt/babu dom?

Now next step would be to Ms Sheila Dixit and other dilli bills to lean on the union govt to send more power from "cental projects" to dilli's way while squeezing others.. err.. as usual every other state has to pay for these parasites to run the a/cs of course (natural onree no?)
Next time they show lack of rain and dilli, I am going to ask them if they plan to turn south delhi into a giant reservoir or something.

[vera_k]

The Billis would not be bothered if the summer capital was in Shimla. The British had some good ideas .

[Singha]

while its fun to watch a few lakh inbred billis squrim, dont forget there are tens of millions of ordinary people just like us who are suffering and all dont have the option of coming and settling in bengaluru (do you really want that ?)

also karnataka supposedly had the highest arid region outside of rajasthan and is set for severe drought this year. photos show KRS type dams at rock bottom or dry.

so millions of farmers who feed our korpulent itvity/ibanking bellies are already suffering.

blr billis will be on serious diet if food supply is severely hit. no juicy red tomatoes for instance - KT produces nearly half the country's tomatoes.

I wouldnt gloat at this juncture at all - everyone including the billis are our countrymen! the real
billis who inhabit lutyens dilli are unaffected by it all. they have back gensets fed on Govt funds
and IPrastha power plant dedicated to their comfort. its the poor gents living in DDA colonies who are sweltering.

[vina]

while its fun to watch a few lakh inbred billis squrim, dont forget there are tens of millions of ordinary people just like us who are suffering and all dont have the option of coming and settling in bengaluru (do you really want that ?)

No , no, I would rather have Nai Dilli be the shining city of gold on top of the hill and send all the unwashed millions that way from every where, North, South, East, West. After all, if loot and sucking resources is the way to build it, why should it be shared by only a few thousand inbred billis ?

also karnataka supposedly had the highest arid region outside of rajasthan and is set for severe drought this year. photos show KRS type dams at rock bottom or dry.

so millions of farmers who feed our korpulent itvity/ibanking bellies are already suffering.

blr billis will be on serious diet if food supply is severely hit. no juicy red tomatoes for instance - KT produces nearly half the country's tomatoes.

I wouldnt gloat at this juncture at all - everyone including the billis are our countrymen! the real
billis who inhabit lutyens dilli are unaffected by it all. they have back gensets fed on Govt funds
and IPrastha power plant dedicated to their comfort. its the poor gents living in DDA colonies who are sweltering.

Seriously, since it is the Economix thread after all and before the adminullahs say this should be in Nukkad, what you are pointing out here is a larger policy and political economy failure. That is something that is fundamental, inherent and a part of the economic model of the country that we labored under for all these years. I lay the failure of policy and the thinking behind it firmly on the doors of Dilli, it's politico/bureaucratic class and the "Delhi E- con 'o' mix" school/clique.

Now, we have never EVER invested in this country ahead of demand in ANYthing in our state planned/ babu driven model. You want to build a house ,, okay , pay up "development charges" for water, power , sewage, roads ityadi (oh , if you are building flat, it is on a per flat basis, though the govermund is only going to run the water/ultility, etc past your property and anyway it is the developer's responsibility to build anything inside the property!, so the amount they make out of say 100 aparts as "development charges" is simply mindboggling). You buy a car, you pay "lifetime" road tax, though if you bought a car in certain places, you might never get a road in your lifetime, most probably.

No, sir , the govt / development model is to take money from you and build some crappy excuse of infrastructure probably 10 to 20 years down the line. The money you pay goes into a "govt account" and promptly probably diverted for some MP/MLA/ Babu/ soo-soo facilities or handed out as dole somewhere else.

How different is it from the real estate developers who take money for your project and promptly divert it somewhere else?

Specifically for power, the entire "BHEL/Public Sector" commanding heights has cost us tremendously. All that bureaucratic log jam in dilli means that power demand and supply will never get closed in India , most probably in our life times, maybe never. The performance of the power and electricity and key infrastructure ministries have been miserable to say the least.

How and why will it change?. The babus, netas and "phoren embassies" in Chanakyapuri are insulated from that . They get all the water, power and everything they need regardless. So if the ordinary Dilli wallah who is worthy of sympathy has any sense, rather than go and beat up the utility guy, they would blockade the Indraprastha power unit and that utility office that supplies Lutyens dilli, along with stopping the fuel trucks that take fuel for the gensets of the posh billis . They should insist that any power out of Indraprastha gets distributed to everyone else first before it goes to the uber posh billis and babus. Make the politicos and babus sweat and get all hot and bothered. Only then there will be real reforms, paper and files get pushed around and the entire broken infrastructure and funding systems will get fixed, (they will drop the PSU/commanding heights rubbish faster than a hot potato if they get all hot and bothered) entire cobwebs and swamps of policy get cleaned up and we can actually see something on the ground.

Look at it this way. The Hosur road aka NH7 between BLR and electronics city mess is not new. Why way back in the early 90s, it was a serious bottleneck. That road used to be so miserable, that once every CEO of the companies in electroncis city took up road building equipment and hired a road roller and put out a protest saying that they would do kar seva on the road to build it. That went from bad to worse to terrible, while things were getting kicked around on is it the state govt's thing or since it is a national highway, the center's thing.. all the while while Dilli was getting fly overs, this and that and everything , while we had "no funds" given as the reason. The IT/Vity guys over the past 20 years contributed far far more than the blood sucking leeches in Dilli ever did. In the middle of all this, as expected , an entire "ribbon development" / encroachment happened all along the corridor upto e City and they had to decide to build an "elevated road" . Just think if the Dilli babu/politico mofos actually could think ahead and said, Wow! we have billions of dollars rolling in from this place. Let us build it into world class showpiece and build a six lane access controlled expressway , back in the 90s when the entire stretch was nearly empty !. You wouldn't have these unplanned/disastrous development like what happened in all those choke points on the way , you would have had planned orderly development and a very liveable city. No sir, Dilli politcos attitude was, screw them, squeeze them out of every cent you can and give nothing back. Loot their money and spend it elsewhere.

Every city in India , except Dilli of course is far more sinned against than sinning. Bangalore for instance contributes close to 80% or so of Karnataka's tax revenues . Dilli of course would be taking in far far more than it gives out. What some remote Halli is to Bangalore, the Dilli is a far bigger remote halli to Bangalore as well. It is for a good reason I called the City of Dilli as the Apex Parasite.

No sir. No sympathy for Dilli . As for the ordinary abdul in Dilli, he /she better revolt against the system of privileges and we "know better than you " and can look over our noses at you , babus and politicos . Only then can things change for th better.

What happened in Hosur road is a travesty. In any other country, any place bringing even a tiny fraction of the business of eCity would have world class infrastructure (roads, power and water) and have "first world" look and feel , rather than some miserable excuse of a 3rd world hell hole . A Jurong industrial park of Singapore atleast (does anyone have a comaprison of Jurong vs eCity in terms of business and revenues) A show piece, instead of constantly having to make excuses and explanations to customers and visitors about the infrastructure and everything and spending some 3 hrs on the road just to get to work and back.