Indian Economy - News & Discussion 27 May 2012

[panduranghari]

The rupee is again hovering around Rs 68 to a dollar. Goldman sachs is saying that Rupee will hit Rs 72 to a dollar. With such a steep depreciation, why is that the morons in the finance ministry cannot realize the love that Indians have for Gold is driven by their currency policies?

Add to this certain rating agencies have been saying that India might get downgraded before Indonesia does. We will then rub shoulders with exalted companions such as Greece, Cyprus, etc. And what do our politicians do? Well they can make helpful suggestions like close petrol pumps at night or increase taxes on gold so that Gold smuggling increases once again or start direct cash transfers. i.e. everything which is wrong but not the right thing.

At least Greece and Cyprus have proven gold reserves, unlike ukil.

[svinayak]

http://newindianexpress.com/opinion/Rec ... 741218.ece

Reckless imports put rupee on ventilator
By S Gurumurthy Published: 19th August 2013 09:59 AM Last Updated: 21st August 2013 07:55 AM
After watching the relentless fall of the Indian rupee for 18 months with saintly restraint, Finance Minister P Chidambaram declared on August 12 that he would cut the Current Account Deficit (CAD) — the excess outgo over receipts of foreign exchange — and stabilise the rupee. In January 2012, Indians could buy one US dollar by paying Rs 45. But, by August 12, they needed to pay more, Rs 61 for a dollar, the dollar rising by over 35 percent since January 2012, mirroring an equal fall in the rupee value.

This is the direct outcome of the burgeoning CAD since 2004-2005. On August 12, Chidambaram announced “measures” to reduce the CAD and arrest the rupee slide. But, within 36 hours, on August 14, the rupee fell further, to Rs 61.50 per dollar.

This forced the Reserve Bank to restrict investments and remittances abroad to reduce the dollar’s flow out of India. Even that did not work. It is Rs 62 to a dollar now. Even as the rupee was crashing, in January, The Economist magazine [2.1.2013] reported that the real value of the rupee, namely its purchasing power, equated a dollar to just Rs 19.75 - a third of the market value of the dollar today.

The Economist said the rupee is the most undervalued currency in the world market. Why does the already-undervalued, high real-value rupee keep losing value? Who is responsible for it? Chidambaram himself had acknowledged that the NDA had left behind a healthy economy.

In his budget speech (July 2004) Chidambaram said: “The economic fundamentals appear strong” and “the balance of payments robust”. From “robust” balance of payments, the nation is today in a balance of payments crisis reminding the country of the dark days of 1991.

How did the UPA manage to mess up the prosperous economy it had inherited in 2004?

Galloping CAD

A quick look at some simple facts will bring out the drastic change for the worse after the UPA came to power in 2004, which turned disastrous for the country after the UPA was voted back in 2009. Take the recent history of the CAD. The country incurred a CAD of $35 billion in 10 years from 1991 to 2001. But, under the NDA regime, it posted a substantial current account surplus - yes, surplus - of $22 billion for the first time since 1978. After the current account surplus of the NDA days, nine of years of the UPA regime saw unprecedented CADs of $339 billion, when Chidambaram [5 1/2 years] and Pranab Mukherjee [3 1/2 years] stewarded the national economy. See the transition from surplus into deficits under their economic leadership. While the NDA handed to the UPA a current account surplus of $13.5 billion in 2003-2004, the UPA quickly turned it into a CAD of $2.7 billion (2004-5) and trebled it to $10 billion each in the second and third years and thereafter multiplied it to $16 billion (4th year) $28 billion [5th] $38 billion (6th) $48 billion (7th), $78 billion (8th) and $89 billion (9th). The government repeatedly said oil prices and high gold imports are the culprits for the relentless CAD. Is the story of oil and gold as culprits true? Or the complete truth?

Reckless imports destroy production

A closer look at the import data reveals a shockingly different picture. Unnoticed (or suppressed?) in popular discourse, capital goods import skyrocketed under the UPA rule. The capital goods import during the NDA period averaged about $10 billion a year. But in 2004-2005, the very first year of the UPA, it leaped to $25.5 billion and then relentlessly rose year after thus: to $38 billion in the second year, $47 billion (3rd), $70 billion (4 th), $72 billion (5th), $66 billion (6th), $79 billion (7th), $99 billion (8th) and $91.5 billion (9th), aggregating to $587 billion in nine years.

Import of capital goods is a sign of vibrant economy. And in theory it generates higher national production. But, see what happens. The Index of Industrial Production (IIP) annually averaged 11.5 percent during the first four years of UPA rule. But in the next five years the annual average IIP came down to less than 5 percent — finally to a peanut of 2.9 percent for 2012-2013. Far from rising with the import of capital goods, the IIP growth has fallen from 11.5 percent in the first four years to 5 percent in the latter five years, a fall of over 56 percent. In contrast, it was in the latter five-year period the capital goods import was $407 billion (79 percent) out of the $587 billion for the UPA’s entire nine years, the average in the first four years being $45 billion and the later five years was $80 billion.

A rise of 78 per cent

Is it not shocking that when the capital goods import rises by 79 percent, the national production falls by 56 percent. The 2008 meltdown cannot be cited as an alibi for the decline in the IIP. Because the GDP has risen from 6.7 percent in 2008-2009 to 8.6 percent in 2009-2010 and to 9.3 percent in 2010-2011. Also, an economic slowdown affects investment first and production later.

Production falls after investment contracts. But here investment (read capital goods import) has risen by two thirds but production has fallen by half. Why this conundrum? The reason for the fall in national production in the latter five years itself is the rise in imports. The domestic capital goods industry slowed down and later declined because of the import of capital goods. Even as the GDP rose to 8.6 percent in 2009-2010, the IIP rise of 5.3 percent did not keep pace with it. Later the index of domestic capital goods production fell — yes actually fell — by 4 percent in 2011-2012 and 5.7 percent in 2012-2013. More, in the last three years to 2012-2013, the production of intermediate goods hardly grew. If capital goods import under the UPA hit the capital goods industry like a tsunami, foreign-manufactured goods flooded the Indian market.

The average annual import of manufactured goods during 2001-2004 (the NDA period) was just $600 million. But from 2004-2005 to 2012-2013, the average soared to $5.5 billion, by 8 times. The nominal national GDP grew by 3.2 times in this period, by just a third of the growth of manufactured goods imports. The 9-year UPA regime saw manufactured goods imports of $50 billion against just $2.3 billion during the NDA regime. Obviously, the capital goods import did not add to, but actually destroyed, national production, ably aided by import of manufactured goods.

CAD kills GDP growth

It is basic economics that trade surplus adds to national wealth (GDP) and trade deficit cuts into it. So, the CAD, which is the trade deficit, brings down the nominal GDP by a like amount. Calculations show that the CADs have brought down the real GDP by 0.8 percent in 2007-2008, by 1.5 percent (2008-2009) by 2.1 percent (2009-2010) by 1.4 percent(2010-2011) by 2.6 percent (2011-12) and by 3.9 percent (2012-13). If the CADs were removed, theoretically, the real GDP of India would have been 10.8 percent (not 9.3 percent) in 2007-2008, 8.2 percent (not 6.7 percent) in 2008-2009, 10.7 percent (not 8.6 percent) in 2001-2011, 8.8 percent (not 6.2 percent) in 2011-2012, and 8.9 percent (not 5 percent) in 2012-2013. True, oil and gold too have eaten into the forex holdings. But there is a fundamental difference between them and capital goods. Indians buy a quarter to a third of the global supply of gold, which is not produced in India. Domestic oil production is just a quarter of national needs, necessitating the import of the balance three-fourths. But most imported capital goods, which are actually produced in India, has displaced domestic production of capital goods and brought down the GDP.

Oil and Gold as alibis

And see how the oil and gold story is not true or is true only partly. The gross value of gold, silver and precious stones import of $402 billion during the UPA’s nine years looks huge. But if the export of jewellery and precious stones of $251 billion is set off, the net deficit is $161 billion in nine years. Likewise, the petroleum imports of $804 billion in nine years look gargantuan. But, if the export of petroleum products ($279 billion) is set off, the net import is down to $515 billion. It is less than the capital goods import of $587 billion. In the last five years, the net petroleum import is worth $360 billion, but the capital goods import is worth $407 billion. Does it need a seer to say that the real culprit is the reckless capital goods import and that it has killed the rupee through the CAD and hit domestic production and GDP? Just see one fallout of rupee depreciation. A calculation shows that for every additional rupee paid to buy dollars for oil imports, the additional oil bill for India is Rs 9,500 crore. In today’s rupee value, the extra annual petrol bill will be Rs 1,60,000 crore. But the CAD is only part one of the story of destruction. Await further testimony on the decade-long destruction.



S Gurumurthy is a well-known commentator on political and economic issues. Email:

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[svinayak]

http://newindianexpress.com/opinion/Eco ... 742733.ece

But what has ultimately saved India from internal and external bankruptcy is not fully evident in the public discourse. How were the fiscal deficits financed? Simply by the government issuing bonds to the commercial banks and the Reserve Bank and borrowing. The government could borrow within India because the traditional Indian families ‘safely’ bank their savings. They deposit close to Rs 10 lakh crore a year in the banks, which saves India from internal bankruptcy. But how is the bankrupting CAD really met? The truth, an untold story, may shock. It is the ‘remittances from the Indian workers for family expenses’ and ‘local withdrawals’ from the non-resident Indian accounts that has saved India from external insolvency. The forex contributed by Indian families totalled $335 billion during the nine-year UPA regime, almost equal to the CAD. Not a single dollar of this remittance is returnable. It bears no interest. This huge lifeline remittance is not the product of economics laws or the government policies. It is the traditional, cultural gift to the Indian economy. Had the traditional Indian families, struggling against modern individualism, not held together, would there have been such remittance?

Never. More. If the Indian workers did not remit for the maintenance of their kith and kin, besides the loss of the $335 billion lifeline for India, the state will have to fend for them. Has the Indian establishment discourse ever noticed this culturally devised protection to the economy? The relation-based nature of the Indian society makes this remittance culturally mandatory.

[svinayak]

http://newindianexpress.com/opinion/UPA ... 743728.ece

The way out

Now, what is the way out? Not begging for inflow of hot money or external borrowing like the UPA government is doing. It is like applying ointment on cancer. How about these two big things? First, an announcement that the food security bill, that adds additional Rs 2 lakh crore fiscal deficit a year, will be deferred till after the looming crisis is over. This will instantly shock the market to think that the government is serious, to begin regaining confidence. Next, announce complete tax immunity, bring out the un-ornamented hidden gold, estimated at 3000-6000 tons, into interest-bearing government gold bonds, securitise gold, which has the potential to turn $200 billion investment into the economy and add equal amount of stable forex reserves. This can transform the internal and external economy dramatically. [see the detailed scheme in the web-edition] Pranab Mukherjee was keen to do it in the 2012 budget, but he was scared of being bracketed with black-money holders by the anti-corruption road show heroes fashionable then. Will the government have the political will to do it? If not, later, it will do something like this or more drastic, helplessly. It is time that the government worked with the opposition to build consensus, like they did in 1991, to tackle this serious situation which has the potential to develop into a financial emergency.

[svinayak]

http://newindianexpress.com/opinion/UPA ... 743728.ece

The way out

Now, what is the way out? Not begging for inflow of hot money or external borrowing like the UPA government is doing. It is like applying ointment on cancer. How about these two big things? First, an announcement that the food security bill, that adds additional Rs 2 lakh crore fiscal deficit a year, will be deferred till after the looming crisis is over. This will instantly shock the market to think that the government is serious, to begin regaining confidence. Next, announce complete tax immunity, bring out the un-ornamented hidden gold, estimated at 3000-6000 tons, into interest-bearing government gold bonds, securitise gold, which has the potential to turn $200 billion investment into the economy and add equal amount of stable forex reserves. This can transform the internal and external economy dramatically. [see the detailed scheme in the web-edition] Pranab Mukherjee was keen to do it in the 2012 budget, but he was scared of being bracketed with black-money holders by the anti-corruption road show heroes fashionable then. Will the government have the political will to do it? If not, later, it will do something like this or more drastic, helplessly. It is time that the government worked with the opposition to build consensus, like they did in 1991, to tackle this serious situation which has the potential to develop into a financial emergency.

[Theo_Fidel]

Gurumurthy is selling snake oil.

A country at India's level of development must run a Capital goods deficit. We need tons of machinery, from the TBM for our metros to Ships and Jet turbines for our aircraft. Even during NDA we ran a Capital goods deficit.

WRT gold even during NDA India imported 500-800 tonnes of gold annually so it is nothing new. It is just that the price of gold has sky rocketed and instead of cutting back on market signals, Indians have continued to buy as before. The India gold market is disconnected from price. If anything the NDA benefited from the crash in gold price in the 2001 period when gold was 1/10th the present cost. Well now there is a massive market signal saying India is not credit worthy to buy the same amount of gold at these new prices. No different than a normal household belt tightening. Some of us have been pointing this out for some time now.

BTW did anyone else notice the gurumurthy slick trick of not deducting the capital goods exports from imports.

We can cry and squeal or work to improve our exports. One of the unremarked reasons for the USA growing again is Obama's quiet focus on tripling USA exports. Triple India's exports and all the rhona-dhona will go away.

[Manish_Sharma]

http://newindianexpress.com/opinion/UPA ... 743728.ece

The way out.....

Acharya ji is there a website which lists items which we have started to import like edible oil etc(Just example may not be true) in last 9 years killing domestic production?

Also the list of items stopped to be exported like cotton?

[Arjun]

A country at India's level of development must run a Capital goods deficit.

Completely wrong attitude to have. Capital goods import needs to be allowed - but the attitude should be to view it as a necessary evil so that industry and government simultaneously work on all fronts to turn the tables on capital goods production and convert it to a surplus.

"Capital Goods import is good for the country and deficit in capital goods is a good sign" is the standard left liberal moron formulation.

The correct attitude, from the EXIM Bank chief, is encapsulated here: Exim Bank chief urges more investment in high-tech goods

With the entire global economy going through a churn now, “this is the right time to weed out inefficiencies in our system and gear up our manufacturing capacity to emerge successful in the global economic scenario”, said T.C.A. Ranganathan, Chairman and Managing Director of Export-Import Bank of India.

Technology manufacturing in particular is something Indian manufacturers should focus on, he said. India has the necessary manpower for that. State and Union Governments too should encourage investment in this sector, and one must seize this opportunity to produce high-tech capital goods, he said.

Delivering his special address at the 177th annual general meeting of the Madras Chamber of Commerce and Industry here today, he said India’s total manufacturing is valued at $300 billion, while it imports $90-billion worth of high-tech capital goods alone. It would be much cheaper to manufacture them in India. “We must produce what we import more,” he said.

Pointing out that over 25 per cent of the world’s total export is made up of high-tech capital goods, and India’s participation in that is very negligible, he said it is crucial to raise the country’s contribution in the global high-tech goods export. This would enable Indian companies to gain product competitiveness in the international markets, he insisted.

[RamaY]

Hmm... Arjun garu...

Only PC, MMS, MSA, Moily and Rajdeep Turdesai have the qualifications to make suggestions on economic policy. If they say sell gold, we go sell gold along with our mothers. If they say shut down gas stations after 8PM, we go shut down factories too.

Everything else is politics and OT for this this thread.

[Sri]

"Capital Goods import is good for the country and deficit in capital goods is a good sign" is the standard left liberal moron formulation.

Well I stand with liberals on this point. Investing in capital goods is a good thing as they create capacity. When you are at it you should invest in the best there is in the world as it leads to best quality, best reliability and best processes.

[RamaY]

"Capital Goods import is good for the country and deficit in capital goods is a good sign" is the standard left liberal moron formulation.

Well I stand with liberals on this point. Investing in capital goods is a good thing as they create capacity. When you are at it you should invest in the best there is in the world as it leads to best quality, best reliability and best processes.

If that is the case, we should be producing the highest quality goods for past 60 yrs for we have been importing them all along.

[Arjun]

"Capital Goods import is good for the country and deficit in capital goods is a good sign" is the standard left liberal moron formulation.

Well I stand with liberals on this point. Investing in capital goods is a good thing as they create capacity. When you are at it you should invest in the best there is in the world as it leads to best quality, best reliability and best processes.

And I stand with you on your point. Btw, 'right wing liberal' is how I describe myself.

Please read what I wrote: Deficit in capital goods is NOT a good sign.

If you are an entrepreneur needing to buy capital goods - you should definitely invest in the best from overseas as long as quality difference with Indian products is high.

But simultaneously, the government needs to work with Indian entrepreneurs in the capital goods sector, to ensure that Indian industry becomes equally competitive over a period of time. That is the part that has not happened.

Also - please note that most of Indian import of capital goods is not necessarily the 'best in the world'. They would import from China because of lower price even if Indian quality is better.

[Adrija]

Agree with Arjun on this one- being able to manufacture high-end capital goods is the best index of a nation's technological sophistication. BTW, US, Japan and Germany (and even Italy, in some segments!) lead the world on this one, and this is correctly a major focus area for Chipanda

Normally I would not be fussed about too much import of capital goods, as it means that at least our ability to manufacture is being upgraded and medium/long term we should see an increase in domestic output of industrial goods. However, what is alarming is that it was followed by a decline in overall industrial output. Which may mean that what we were importing was actually end-user heavy machinery (e.g., turbines) which IMHO should not really be classified as capital goods but industrial equipment.........so we are repeating the defense story here as well, spending all the money but pretty much all of it leaking out and benefiting everyone except Indians..........lost chance to invest in upgrading our own capabilities

The policies of this government are seriously short-sighted! We are just becoming have become a consuming nation, no thought to upgrading our capabilities base...

[Suraj]

A significant volume of capital goods imports are not TBMs but power equipment that we're capable of producing ourselves. Here's an interesting site I found with sectional breakdown of exports and imports:
April-May 2013 Export Breakdown
April-May 2013 Import Breakdown

Check out the import breakdown, especially page 4: nuclear and electric power equipment adds up to Rs.30,000cr just for the first two months of the fiscal year, while the likes of BHEL maintains an order backlog of Rs.1,20,000 crore. We're importing tens of billions of power equipment while our largest heavy engineering firm runs a $20-30 billion backlog in any given year, with annual revenues of just ~$9 billion. That points to really bad policymaking in the heavy engineering sector.

BHEL is the sole heavy engineering firm in the list of PSU maharatnas and navratnas. BEML doesn't qualify, and its turnover is a tiny $0.6 billion. The remaining *ratnas are utilities, finance companies, oil refiners, iron/steel makers or miners.

[Theo_Fidel]

^^^^^^^
This is not correct.

I spoke with my relative at Neyveli and he said BHEL imports much of the components for its super critical equipment from foreign suppliers. This is essentially the only model power producers want. So BHEL is now out of its depth. We lack even the ability to make the alloys required he said. Even China per his knowledge still lacks the knowledge though it is trying to copy.

India simply does not have the skill base yet to make these things. I can't even find a decent domestic source for weldable T-6061 Aluminium piping. I thought I was buying the aluminium from a domestic manufacturer but turns out the entire thing was being imported and all the local guys do is cut it to spec. BTW the welder+equipment had to be flown in from Dubai! I have pointed this out many times before that we pay peanuts in design and engineering and get monkeys.

The concept of 1/64 inch tolerance is lost on India. Without this how do you make anything at the higher end.

I also saw the $37 Billion for Nuclear boiler etc. So I drilled down further and know what, the big pieces all had to do with specialized components and parts. $500 million for turbine parts. $150 million for ball bearing larger than 2 inches. Microprocessors for machines $650 million. Digital weighing machines $1.7 Billion. yes really. PC/Laptop $1.4 Billion. Gas compressor parts for A/C & Fridge $90 million. I could go on and on and on. All the critical parts of every Indian device you see on the road/house/factory/shop are imported.

Without these bits and peices there will be no Indian economy and you can kiss your $2 Trillion GDP good bye.

Someday we may make these things in India but it will need a sea change in mindset and single minded focus.

[Suraj]

Err, what is not correct ? If BHELs output is partly composed of imports, the situation is even worse than its revenue data suggests. There's no excuse for not having more domestic heavy engineering firms. A significant component of PRC's exports to India are capital goods. Even if they've not mastered the high end technologies, they produce in enough scale to export and serve their even bigger domestic market. BHEL is way behind even satisfying domestic demand, much less exporting.

[Theo_Fidel]

....but power equipment that we're capable of producing ourselves.

This part.
We are very far behind and there is a ton of catch to do.
Instead we have spent 90% of our focus on Telangana.

The problem BHEL faces is not China. It competition is all domestic. Right now the domestic power producers from JSW, L & T, BHEL can add 50,000 MW of power annually. GoI has said domestic companies will be favored. instead of figuring out how to innovate and produce SC equipment the parts are all being imported wholesale learning zero.

Technology transfer makes no sense if the folks on India side don't understand the information being given. I have faced this problem first hand. When a set of piping is modeled and engineered it must be engineered to 1/64 inch standard and every single connection HAS to be right or you will be fired. This never seems to get through.

[Suraj]

Why is that incorrect ? Even PRC are incapable of making high end equipment, in your own words. But they have substantial capacity to export bread and butter products that we don't have the capacity to produce in enough volume domestically, because we lack the number and scale of domestic firms they have. A substantial volume of power equipment comes from Dongfang Electric or Shanghai Electric, or even Doosan in SoKo. Not all of that is cutting edge equipment that we lack the technology to produce - we can alleviate a lot of our problems just by having far greater manufacturing scale.

[Theo_Fidel]

PRC has imported the machinery to make these things even if it hasn't mastered them. Our companies are not even bothering to import the machines.

Arjun,

Politics has nothing to do with it. TN has had no congress for 50 years and still the processes have not changed. It comes from the work ethic and drive of the population. You think the PRC is better than congress. Yet the Chinese are pulling themselves forward. Some tiny bits and pieces of India are pulling things forward the vast majority are not interested. Most are not even trying.

Coming from TN I have no love lost for the congress but it seems like just another excuse to do nothing right now.

[Arjun]

PRC has imported the machinery to make these things even if it hasn't mastered them. Our companies are not even bothering to import the machines.

And who or what is responsible for that ? Are you blaming Indian entrepreneurs or the government ?

[Suraj]

The fact remains that they export tens of billions in capital goods to Indian every year. And they run an overall trade surplus of $200-250 billion. So what if they have to import high end stuff just as we do ? The problems isn't that we or they need to import cutting edge equipment or technology - the problem is we lack even basic manufacturing capacity to produce things in sufficient scale domestically, something they don't lack, because they supported the establishment and growth of those companies.

[Theo_Fidel]

Suraj,

I agree fully with you. We export a lot of capital goods too. Notably $12 Billion in cars/vehicle parts/etc. We should continue to drive our exports that we can do forward. Right now madam in her insanity has shut down the road the car exporters need to increase exports out of chennai! And we had folks supporting her in this.

We lack the ability to make all the bits and pieces come together. I recently had to import the smoke detectors for an alarm system into india. All it is is a piece of uranium, a radiation counter and a microprocessor with software. This can only be supplied by small and medium companies. The company I sourced the smoke detectors from in USA has 7 employees. Their claim to fame is that their detectors were in Fukushima and continue to operate in the very high radiation environment. Another company makes a specialized dynamic sensor activated valve I use. This is $2 Billion company. It has 200 employees. It doesn't take a lot of people but these are key people with carefully prepared skills.

I don't know the answer. India's lack of capital has a lot to do with it. As does the lack of skill amongst our folks. Lack of drive and dedication even amongst the educated dismay me.

[Arjun]

Politics has nothing to do with it. TN has had no congress for 50 years and still the processes have not changed. It comes from the work ethic and drive of the population. You think the PRC is better than congress. Yet the Chinese are pulling themselves forward. Some tiny bits and pieces of India are pulling things forward the vast majority are not interested. Most are not even trying.

No Theo, I disagree.

It has been standard Dynasty philosophy to blame the people of the country in order to cover up their own culpability - and your approach whenever you are cornered is no different.

What India needs is very simple - it needs a government that is focused on making India competitive with the best in the world. The dynasty simply does not have that motivation - you know it and I know it. If you are truly interested in a wealthy India like you used to be - listen to your conscience and make your voice heard.

[Theo_Fidel]

^^^^

What can one say. Continue, we will see how far you get.....

[Suraj]

Arjun, there are multiple threads for the purpose of debating the politics of the matter. Please use them for the purpse - this forum actually provides enough latitude to discuss such topics within its own threads - instead of interjecting here or elsewhere in the forum. Further political posts will be deleted without notice, as your previous post was.

[Theo_Fidel]

Anyway. Time for bed. After a long always interesting trip through India. I have a brutal day and week ahead so may not be able to continue this conversation except in bits....

[Atri]

Fantastic lecture by Dr. subbu Swamy. Explaining the vision document of BJP.

[Arjun]

Arjun, there are multiple threads for the purpose of debating the politics of the matter. Please use them for the purpse - this forum actually provides enough latitude to discuss such topics within its own threads - instead of interjecting here or elsewhere in the forum. Further political posts will be deleted without notice, as your previous post was.

Suraj, I understand your compulsions.

But the sequence of arguments above went like this-

1. Gurumurthy: Capital goods imports is a big reason for India's economic troubles.
2. Theo: Gurumurthy is wrong. India must run a capital goods deficit.
3. Me: Capital goods deficit widening over a long period indicates that India is failing to compete effectively
4. Theo: We are failing to compete because Indian entrepreneurs and workers are no good
5. Me: That is BS. The government needs to be held accountable for India failing to compete

Theo's line of thinking is something I simply don't agree with. If I see him blaming Indian workers / society / entrepreneurs again - I am afraid I will have to point out that leadership comes from the top and accountability needs to be assigned. I don't see a way of getting around this.

[Suraj]

Arjun, if you really posted as you just summarized, that would have been perfectly fine. But that's NOT what you did - you wrote two posts basically bringing up politics, and particularly political characters, i.e. the dynasty. There's another thread for those posts, and in fact the thread has the word 'dynasty' in its very title. What more do you need ?

Here's a simple test - if you want to write a post that's all about apportioning blame on characters, use one of the politics threads. This clearly isn't the place. If you want to analyze data and policies without making it a diatribe about individuals, you'll find yourself very productive here.

Lest you be misled, these aren't my compulsions - they're a testament to your lack of self-moderation. With multiple threads for the purpose, you still can't stop yourself from turning other threads into places to attack your chosen political personas ? Enough of this.

[Arjun]

Here's a simple test - if you want to write a post that's all about apportioning blame on characters, use one of the politics threads.

I can assure you, Suraj - that none of my arguments are with a partisan motive. I have a particular viewpoint and my political leaning follows as a result of this viewpoint - it's not the other way around.

I will try and comply, though, with the way you want to run the thread.

[panduranghari]

http://newindianexpress.com/opinion/UPA ... 743728.ece

Acharya ji,
Mr Gurumurthy has got the right idea. But he is trying to bring in a solution which should be ideally deferred after the economic crisis is through. The bitter medicine of devaluation and simultaneous issues will have to be swallowed. But bringing gold into play now, it giving the west an additional life line. Not a good idea right now.

[panduranghari]

This part.
We are very far behind and there is a ton of catch to do.
Instead we have spent 90% of our focus on Telangana.

The problem BHEL faces is not China. It competition is all domestic. Right now the domestic power producers from JSW, L & T, BHEL can add 50,000 MW of power annually. GoI has said domestic companies will be favored. instead of figuring out how to innovate and produce SC equipment the parts are all being imported wholesale learning zero.

Technology transfer makes no sense if the folks on India side don't understand the information being given. I have faced this problem first hand. When a set of piping is modeled and engineered it must be engineered to 1/64 inch standard and every single connection HAS to be right or you will be fired. This never seems to get through.

Who says that there are no attempts to innovate?

The overall 'chalta hai' attitude is percolated down to the aam abdul. But I agree with you that the pursuit of excellence is a long hard path. Its not impossible. It will perhaps improve with change in Indian economy where more engineering graduates prefer to do engineering than join financial services. A cousin who is a IIT alumni and a Harvard post graduate and had 3 patents by the time he left IIT, joined Goldman Sachs and is working in financial industry. What a waste of talent!

[RamaY]

^^^^^^^
This is not correct.

<snip>

Theo ji,

1. The numbers seem to be in Rs. Lakhs. So the numbers are much lower than you mentioned.
2. While the imports under Nuclear Boiler section are Rs 15,349 Crores in May'2013, exports under the same section are Rs 5,191 crores. So the net imports in this category are Rs 10,000 crores in this category alone.
3. However your main point is very valid. India need to develop the infrastructure and skill-base in certain fields where it becomes a net-exporter.

This can be similar to what Reliance is doing in petro-chemicals area. While we are a net importer of petrochemicals, we are making some money by bringing some part of the service chain to desh. We need to work towards a situation where the net revenue of Indian oil companies from external operations equals India's net oil consumption bill.

India need to develop strategies to achieve this trade balance in each area that it has a 'natural' disadvantage.

[Suraj]

We are too big a net oil importer to really implement a policy where we generate enough from value added refined petroleum exports to make up for the entire net import bill. Attempting to do so would face the law of diminishing returns - there's simply not enough incremental global demand to add that much export-oriented refining capacity, and doing so would push down refining margins due to additional supply generated by such capacity, which in turn would make the investment less viable. We are not little Singapore, which can do this using its ExxonMobil export-oriented refinery .

This doesn't mean we can't run the export-oriented refinery approach. It's smart policy, and has worked very well; it just cannot be scaled up all the way to cover our entire net import bill. Additional viable options are:
* Expand domestic hydrocarbon exploration and extraction
* Expand hydrocarbon trade in Rupees, and/or bilateral swap deals to minimize forex requirement, by targeting promotion of exports of value to hydrocarbon source countries to cover the import bill.

[Philip]

Right now we are in an acute crisis,the economy is on the ventilator,and in an apparent uncontrollable downward spiral. There are short.med., and long term measures to be taken.The first is to take immediate most urgent measures that will not harm Indian industry and restore some confidence,a few suggestions below.We must first remember that India has a market of 1 billion and we must look and plan our economy to be as totally self-sufficient both in food and consumer goods through production from Indian companies.Unless we return to being an Industrial nation,we will end up being a coconut or banana republic which has to import almost everything,except unproductive labour,on the NREGA dole!

1.Massive duty indefinite hikes/ban on goods from China (no friend of India) and with nations with whom we have a huge trade imbalance,other than petro-products.

2.Increase duties on 100% finished goods across the board.Lesser hike for imported components.This will give a boost to local industry.

3.Reduce foreign exchange allowed to be moved out for investment by half,no restriction on business/travel expenses and funds for educational purposes.

4.Reduce govt. spending/recruitment by 15%.Slash manpower,just simply remove two or three levels of red-tape in every dept.

5.Reduce NRGEA dole by 15%

6.Postpone FSB,tell the people that it will be implemented only after the economy recovers.

7.Hand over the PDS system, to the armed forces,ex-servicemen's organisation.

8.Start barter trade with friendly nations,rupee payments,etc. Buy as much oil.etc., from Iran,Venezuela,etc. as we can and build up stocks for a year,so that petrol and diesel prices can be stabilised and not hiked every week or so.

8.Improve coal,mining and power production by PSUs by handing over management control to the armed forces,consider these key industries as essential strategic industries/production
Improve power transmission loss on a war footing.Incentives for alternative energy projects,wind,solar,etc.Give incentives.

9.Reduce subsides on fertilisers in stages,ban GM crops,incentives for agriculture,build massive storage facilities so that as much grain,etc. produced by Indian farmers is bought and stored properly.

10.Accelerate N-power production through new plants,both indigenous and imported.

11.Export incentives for all manufactured goods and services like IT.

12.Accelerate passports for all Indians.Encourage them to go abroad and work!

13.Start covert project to print fake Paki currency notes in bulk.In case people have forgotten,the Re. is also being hurt by the massive amt. of fake currency smuggled in by Pak.

[Theo_Fidel]

Ramay,

Something must have gone wrong from your end.
I populated my chart in $ and Total imports were $490 Billion and Nuclear, etc was $37 Billion. Not crores. Did you check your total import number?

Arjun,

I have no idea why you feel personally assaulted by the idea that we pay peanuts to our engineers and get monkeys. Pay the designers/installers of our equipment better and you will get better performance. The Indian attitude is we can hire 4 unskilled folks to do the work of 1 skilled employee. As long as this continues our ability to manufacture will suffer.

Folks are importing equipment into India because they are unable to get world class quality out of our manufacturing. Gurumurthy is simple talking for the purpose of talking. Stopping the import of critical components will only mean a return to 1990 era of Ambassador and fiat & Bullet.

http://www.thehindubusinessline.com/com ... 166414.ece

Take a look at this. TaTa motors is importing $500 Million worth of auto components annually. All the critical parts of even the nano are imported. With all its resources why is TATA not making these critical pieces here?

[Austin]

Raghuram Rajan raises hopes with action plan

[RamaY]

Ramay,

Something must have gone wrong from your end.
I populated my chart in $ and Total imports were $490 Billion and Nuclear, etc was $37 Billion. Not crores. Did you check your total import number?

I think we are looking at different numbers. I was talking about the links Suraj referred. Probably you are looking at annual figures?

exports and imports:
April-May 2013 Export Breakdown
April-May 2013 Import Breakdown

[chaanakya]

Raghuram Rajan unveils ‘big initial package’, allays fears


MUMBAI: New RBI governor Raghuram Rajan on Wednesday came out with a slew of measures, including more trade settlement in rupees to rescue the battered financial markets and hinted at a shift in focus from inflation control, doggedly pursued by his predecessor, to boosting growth.

Shortly after he took over as the 23rd governor of the central bank, Rajan, 50, addressed the media with a prepared statement in which he laid out a detailed road map for his innings in the short term, which he called a "big initial package."

Full text of Rajan's speech

He also rescheduled by a few days the date for his much- anticipated first monetary policy statement to September 20.

The new governor set up a number of committees for revising and strengthening monetary policy framework, financial stability, financial inclusion, NPAs and an outside panel of experts headed by former governor Bimal Jalan to screen applications for new bank licenses.

Rajan said the new bank licences will be issued around January next year.

Apparently reflecting a shift in the approach from his predecessor D Subbarao, who had serious differences with the government of late, Rajan said the primary role of the bank is monetary stability to sustain confidence in the value of the rupee.

"Ultimately, this means low and stable expectations of inflation, whether that inflation stems from domestic sources or from changes in the value of the currency, from supply constraints or demand pressures.

"... but we have two other important mandates; inclusive growth and development, as well as financial stability," he said.

Asked about Subbarao's focus on targeting inflation, Rajan said he would reserve his comments till September 20.

Rajan said the bunch of reforms has been unveiled today to enhance growth.

"I think there are so many low-hanging fruits in the economy that if we only pluck them we can accelerate growth substantially."

The former IMF chief economist and economic advisor to the finance ministry said there were some positive developments in the economy which will help to boost growth.

The measures disclosed to support the rupee include liberalisation of the financial market by enhancing the limits for exporters to re-book cancelled forward exchange contracts and opening a special concessional window for swapping foreign currency non-resident (FCNR) deposits and dollar funds.

"My sense is that we certainly don't need false optimism. But I think there is good reason to believe that in the medium run, the future of the country is strong," he said.

Asked about Standard & Poor's downgrade threat, he said the international rating agency "nearly reiterated what has been its long standing claim about there being one-third possibility of a rating downgrade ... it is not something new. So I won't read too much into the statement."

The measures announced by Rajan include enhancing the re-booking limit on cancelled forward exchange contracts for exporters to 50 per cent, extending a similar facility to importers and introducing cash settlement in 10-year interest rate future contracts to develop the money and G-sec markets.

Rajan indicated the RBI will take steps to reduce the statutory liquidity ratio (SLR) and introduce greater regulatory and supervisory control over the domestic operations of foreign banks. He promised to give freedom to banks to open branches without prior RBI permission.

The new RBI chief also said he will steadily liberalise the markets and lift restrictions on investment and position-taking, together with Sebi, and will examine introduction of interest rate futures on overnight interest rates.

While the RBI has enhanced the re-booking limit on cancelled forward currency contracts to 50 per cent for exporters, importers will be allowed a 25 per cent limit.

The central bank will push for more trade settlements in rupees and open up the financial markets for those who receive rupees to invest it back in.

Rajan said the RBI will raise the overseas borrowing limit of 50 percent of unimpaired Tier I capital to 100 per cent for banks and will introduce cash-settled 10-year interest rate future contracts.

The central bank will also examine introduction of interest rate futures on overnight interest rates; steadily but surely liberalise markets, restrictions on investments and position-taking; and issue inflation-indexed savings certificates tied to CPI to retail investors by end November.

He stressed on the need to reduce the requirement for banks to invest in government securities in a calibrated way and will push foreign banks to set up wholly owned subsidiaries.

Rajan proposes to collect credit data, examine large common exposures among banks and encourage banks to clean up their balance sheets.

Referring to the announcements, he said, "This is a part of my short-term time-table for the Reserve Bank. It involves considerable change, and change is risky. But as India develops, not changing is even riskier. We have to keep what is good about our system, of which there is a tremendous amount, even while acting differently where warranted."

He also announced a committee headed by RBI Deputy Governor Urjit Patel to strengthen monetary policy framework. The panel will submit its report in three months.

Rajan said that a committee under former Governor Bimal Jalan would screen bank license applicants after an initial compilation of applications by the RBI staff.

He said new bank licences will be announced "within, or soon after, the term of deputy governor Anand Sinha, who has been shepherding the process. His term expires in January 2014."

Financial sector expert Nachiket Mor will head a panel to suggest steps to promote financial inclusion. Another committee, to be headed by deputy governor KC Chakrabarty, will take a close look at rising NPAs and suggest steps to improve the recovery of bad debts.

"While the resumption of stalled projects and stronger growth will alleviate some of the banking system difficulties, we will encourage banks to clean up their balance sheets and commit to a capital-raising program where necessary. The bad loan problem is not alarming yet, but it will only fester and grow if left unaddressed," Rajan said.

Stressing that India is a fundamentally sound economy with a bright future, the new RBI chief said, "Our task today is to build a bridge to the future, over the stormy waves produced by global financial markets. I have every confidence we will succeed in doing that."

[Cosmo_R]

The sad part about all these 'solutions' is that they are all right in their own way. And they always have been: in the 1960s with the devaluation demanded by the IMF, 1970s after the oil shocks, the 1990s when the country almost went bankrupt and now.

Different people are proposing the same solutions to the same problems nearly 50 years later. Which brings me to observe that when you pay the monkeys in Delhi, you get peanuts.