Indian Economy: News and Discussion (Jan 1 2010)

Suraj · Post by **Suraj** » 04 Aug 2010 03:25

SwamyG: Thanks for the detailed response. I don't have a vested interest in pushing a point of view, but I do have one in pushing people to post in more detail

Good stuff.

Sanjay M · Post by **Sanjay M** » 04 Aug 2010 06:42

SwamyG, the modern model is WalMart - they have grown to their mammoth size by steamrollering all the little MomNPops, offering a streamlined. efficient procurement and distribution model. Their prices can't be beat.

All these Reliance Fresh, etc have been hounded because they were displacing the existing little people. Perhaps instead of inflicting such a shock on the marketplace, they should have first started franchises involving the little people, and then later on gradually bought them out. That way they could have gotten some traction first, with the market being more receptive to them.

Even WalMart and other big chain stores have eventually turned to local tailorized marketing. In North America, in various ethnic neighborhoods they will feature ethnic food/goods that reflect the local market. With franchising, that flexibility and local knowledge would be there right off the bat.

abhischekcc · Post by **abhischekcc** » 04 Aug 2010 09:41

Sanjay,

AFAIK, all the ~~big~~ deep pocket retailers combined in India have lower growth rate than the overall retail market. Hence, their impact is absorbed. Indian purchase behaviour is different from US, big format will always have a limited appeal in this country. One of themain economic constraints is the high price of land/retail space in desirable areas - it limits the amount of discount that can be offered over a sustained period of time. This limits predatory pricing - the main tool WalMart used to throw small retailers out of business.

The main reason for earlier opposition to corporate retailers was because everybody thought they would take over the entire market.

Sanjay M · Post by **Sanjay M** » 04 Aug 2010 10:00

Well, it's true that India does not yet have the same kind of transportation-heavy society and suburban sprawl that developed countries have, and so perhaps this limits people's ability to get to a Wal-Mart, or low-cost discount megastore.

Hari Seldon · Post by **Hari Seldon** » 04 Aug 2010 10:05

^^^ Even if efficient mass transit were to one day magically appear in say, our top 10 cities, it still doesn't necessarily mean the aam aadmi will clog walmart here.

The reason being that the famed walmart model also depends on 'large basket' shopping - i.e. volumes also at the indiv shopper level to make up for low margins.

And desis doing large-basket shopping on public transit will have trouble ferrying the booty home.
/Just wondering only.

abhischekcc · Post by **abhischekcc** » 04 Aug 2010 10:46

That's the point. Indians have different shopping behaviour - the shopping lots are smaller, because thrift and control over purse is the primary concern. And despite all the talk of high salaries, chi chi apartments, 2nd most billionaires in the world, majority of Indians still have limited salaries and need to monitor it closely. That is one more reason why pantaloons type of retail will have a small clientele (compared to the overall population).

---------

Hari,
Indians are nothing if not smart shoppers. I have gone to malls to look at the variety of furniture (and get ideas). It is convenient to look at many options in one place. Now plan to buy from a cheaper market, or have it built

. I am sure everybody does the same.

Adrija · Post by **Adrija** » 04 Aug 2010 11:51

The reason being that the famed walmart model also depends on 'large basket' shopping - i.e. volumes also at the indiv shopper level to make up for low margins.

And desis doing large-basket shopping on public transit will have trouble ferrying the booty home.

Not just a question of public transit, large basket shopping may be depressed in desh due to small size of homes, and poor power situation, both of which contribute to lack of storage options at home (big fridges)........ latter is correctable but former is not. So the cash-n-carry format aimed at retailing to the parchoon/ kirana/ mom n pop is probably a better idea........ also a win-win in the medium term at least...........

JMT/ 2 paise

ShivaS · Post by **ShivaS** » 04 Aug 2010 12:32

Bulk supplies purchase for consumption need Refrigeration and space.
So Sams club Walmart may have to change the operational strategy or change habits to ape Khan consumptions.

ShivaS · Post by **ShivaS** » 04 Aug 2010 13:12

Indians are more JIT believers than Japanese in time. Hari Dhaniya aka Kothmeer is bought just rasam is boiling...

ManjaM · Post by **ManjaM** » 04 Aug 2010 21:51

George Soros to buy 4% in BSE. An analysis by MR Venkatesh
Part 1
http://www.vigilonline.com/index.php?op ... 7&Itemid=1

Part 2
http://www.vigilonline.com/index.php?op ... 9&Itemid=1

Press reports across the globe in the last week of July 2010 suggest that billionaire financier George Soros is in advanced talks to buy a 4 per cent stake in the Bombay Stock Exchange (BSE). Valued at approximately US$ 35-40 million, this deal involving Soros and the largest bourse of the country has set the cat among the pigeons in several countries. But strangely despite the strategic issues involved in the deal, the media, experts and analysts and more importantly the financial sector including other shareholders of the BSE are inexplicably silent.

But Soros is no ordinary financial speculator who has made billions by making or marring markets. Soros is the chairman of Soros Fund Management, Open Society Institute and a former member of the Board of Directors of Council on Foreign Relations.........In short, his ability to influence geo-political developments, his advocacy of open markets (with absolutely no or very little regulation) and his innate ability to seamlessly link the two and profit from it makes him one of the most influential persons of our times, not only in shaping and de-shaping currency or other markets but even in shaping or de-shaping geopolitical developments. That makes the deal intriguing

It may be recalled that as the East Asian Crisis unfolded in 1997, Dr. Mohammad went on to blame "international speculators for villainous acts of sabotage" and "height of international criminality." In fact he was directly referring to Soros and his complicity in dynamiting the Asian economies

If the speculative attack on Asian currencies that began on July 2 was merely a coincidence to the political happenings the day before, it must be a remarkable coincidence. Soros, it is generally believed even to this day, did have a role to play in triggering the depreciation of Southeast Asia’s currencies because of these or other reasons.

Suraj · Post by **Suraj** » 04 Aug 2010 22:25

Please, no conspiracy theories on this thread; sidetracking of the sort will be deleted.

If Soros wanted to speculate, he'd be better off buying stocks in companies or futures contracts, rather than a tiny stake in the stock exchange. Deutsche Borse, Singapore Stock Exchange, LIC, SBI all have 5% or more holdings in BSE. Even Bajaj had 3% holding the last time I checked, though it doesn't appear to have helped their stock in any way.

svinayak · Post by **svinayak** » 05 Aug 2010 02:00

Deleted.

Suraj · Post by **Suraj** » 05 Aug 2010 05:16

xposted from manufacturing thread, since steel production is a principal component of industrial output:

Jan-Jun 2010 world steel production
In million tonnes:

Code: Select all

China   323.17
Japan   54.57
US      41.00
Russia  32.68
India   32.53
Korea   28.34
Germany 22.74

We should overtake Russia this year, and soon exceed US and subsequently Japan, in steel output.

enqyoob · Post by **enqyoob** » 05 Aug 2010 05:49

PRC produces more than the rest of the world combined?

Rahul M · Post by **Rahul M** » 05 Aug 2010 08:58

suraj, I'll get back to you about the kiranas. will ask around a bit about among people who do that kind of thing for a living.

Vipul · Post by **Vipul** » 05 Aug 2010 23:48

Direct tax kitty jumps 15.7% in April-July.

Patna region which include Bihar and Jharkhand, showed the highest growth in personal income tax collection at 93 per cent against the national composite figure of 8.5 per cent.

In terms of growth in corporate income tax, the Bhopal region, which include Madhya Pradesh and Chhattisgarh, clocked the highest growth of a whopping 219.2 per cent compared to the national average of 21 per cent.

VenkataS · Post by **VenkataS** » 06 Aug 2010 00:28

China vs. India: The Hare vs. the Tortoise

The verdict? Over the next 10 years, look for the Indian stock market to outperform China- for India’s tortoise to over take the Chinese hare

There were some factual errors in the article. The author mixed up nominal and PPP per capita GDP data for the two countries:

The Chinese are also just plain richer. China’s per capita income is about six times that of India — $1,016 compared to $6,100 in China.

Sanjay M · Post by **Sanjay M** » 06 Aug 2010 09:02

Since China is performing vigorous stress-testing on its banks just like the Europeans, I'm wondering if India shouldn't also be performing stress tests on its banks? After all, the real estate market has been quite heated in recent years.

Suraj · Post by **Suraj** » 06 Aug 2010 09:30

Some time ago there was talk about greater interest from large western institutional investors to invest in the Indian equity markets due to the range bound bear market situation in the west. Here are some moves afoot:
Global alliances to change Indian exchange scene

The National Stock Exchange’s (NSE’s) deal with the London Stock Exchange (LSE) for working out a joint business strategy is significant in many ways.

If the deal happens, NSE’s equity benchmark index, S&P CNX Nifty, will become a globally traded contract. Also, NSE will be able to offer a basket of top traded global indices once the FTSE 100 index is listed on its floor in India. The idea is to allow Indian investors take positions in every top world market at a low cost.

NSE already has a licence to list Dow Jones Industrial Average and S&P 500 through its alliance with the Chicago Mercantile Exchange (CME) and the process to list them in rupee-denominated contracts is on. FTSE, as a independent company, manages over 1,20,000 equity, bond and alternative asset class indices and its owned by LSE and Financial Times. FTSE 100 is among the top ten popular stock indices along with S&P and Dow Jones globally.

Other stock exchanges have taken the cue. The Bombay Stock Exchange (BSE) has tied up with the Deutsche Boerse Group, a strategic investor in it, to explore cross-listing of indices and other products.

“While NSE will have an edge due to its dominant position in derivatives at home, the cross-listing of indices in the US and Europe, the world's largest derivatives hubs, will change the market dynamics,” said an analyst.

In the US, the Nifty is traded on CME Globex, the most widely-distributed electronic trading platform in the world. It is the largest hub for derivatives in the US and the second largest globally. This will help NSE increase its reach as the CME Group has ties with Brazil’s Bolsa de Mercadorias & Futuros, Bovespa, Bursa Malaysia, Dubai Mercantile Exchange, KRX Exchange of Korea, Paris Bourse SBF SA, Montreal Exchange, Spain’s MEFF and SGX (Singapore Stock Exchange).

The members of all these exchange get several trading privileges in terms of direct access and cross-margining. For instance, CME positions in Nifty futures can be offset on SGX and vice versa. Also, OneChicago, the electronic platform which is a joint venture of IB Exchange Corporation, the Chicago Board Options Exchange and CME, is a unique example, as members of three owner exchanges are automatically members of OneChicago and there are no separate membership fees for trading.

Interestingly, the BSE's benchmark index, Sensex, would have a greater reach in Europe. The derivatives exchange market there is dominated by Eurex, controlled by German operator Deutsche Boerse and SIX Swiss Exchange. Eurex dominates trading in derivatives on indices such as Eurostoxx 50, Dax and SMI Swiss index, as well as German and euro zone equity options on single stocks. Its global liquidity network comprises around 410 direct exchange members in 25 countries.

The second-largest player in derivatives market in Europe is Liffe, owned by the NYSE Euronext. NYSE Liffe dominates the market for UK equity options and options on stocks offered on the Euronext markets.

LSE, with which NSE is seeking an alliance, is ranked a distant third behind Eurex and Liffe. At present, LSE's derivatives operations are centred around Italian exchange IDEM and its London-based Russian derivatives exchange, EDX.

LSE chief Xavier Rolet is banking on regulatory changes that will put the $615-trillion over-the-counter derivatives onto exchanges. LSE will launch equity derivatives on a new trading system provided by TMX Group, the Canadian exchange operator, where it is believed Nifty options too will be traded.

Pranab, Asim to discuss GST deadlock today

After the BJP-ruled states led the latest round of dissent over the Centre’s proposal to roll out the much-awaited Goods and Services Tax (GST), Finance Minister Pranab Mukherjee would hold an emergency meeting with Asim Dasgupta, West Bengal Finance Minister and chairman of the empowered group of state finance ministers, on Friday.

The BJP leaders, however, also mentioned that among all the BJP-ruled states, only two — Uttarakhand and Madhya Pradesh — had reservations about the draft Bill. The top BJP leaders have categorically conveyed to the government that even their high-profile chief minister of Gujarat, Narendra Modi, understand the importance of GST and favours its rollout in 2011.

The central leadership of the CPI(M), another Opposition party, has also pledged support even as Kerala Chief Minister Thomas Issac raised objections over the veto power of the Union finance minister. A prominent politburo member of the party said, “We are on board with the government on the GST issue. Our own finance minister of West Bengal is heading the empowered group of ministers. How can we oppose it?”

But only the Left’s support will not be enough for the government to go ahead and pass the constitutional amendment Bills in Parliament. It requires two-thirds majority in both Houses and then majority states will have to ratify the Bill. If the BJP-ruled states refuse to endorse the Bill in their respective state assemblies, the constitutional amendment Bill cannot be implemented.

hshukla · Post by **hshukla** » 06 Aug 2010 10:01

Sanjay M wrote:Since China is performing vigorous stress-testing on its banks just like the Europeans, I'm wondering if India shouldn't also be performing stress tests on its banks? After all, the real estate market has been quite heated in recent years.

@Sanjay: regarding Euorpean stress test..check out the link here for the farce it is :-
http://www.atimes.com/atimes/Global_Eco ... 31Dj02.htm

From the article :-"if all the Greek banks passed, the Stress Test failed"

Bottom line being...is the stress test just for show or is it a genuine measure of a Bank's fundamentals??

rohitvats · Post by **rohitvats** » 06 Aug 2010 13:33

Sanjay M wrote:Since China is performing vigorous stress-testing on its banks just like the Europeans, I'm wondering if India shouldn't also be performing stress tests on its banks? After all, the real estate market has been quite heated in recent years.

What needs to be seen is the payment potential of Developers after the one time readjustment facility allowed by RBI last year. there is lot of unsold stock lying with the developers in the residential domain.

Rupesh · Post by **Rupesh** » 06 Aug 2010 20:37

PowerMin bans NTPC from open market sale of electricity

Although the power ministry has filed an affidavit opposing Karnataka’s prohibition of power trading beyond their borders, the ministry has banned its own power generator, NTPC, from publicly selling electricity generated at two of its plants on the open market. With the support of the Central Electricity Regulatory commission, among the chief proponents of open access power trading, the ministry is maintaining that government public sector undertakings (PSU) should not be selling their product at a profit. “For Korba and Farakka, they have asked for permission to sell at the market price; we received the proposal last month and will take a call accordingly,” a power ministry official said under a condition of anonymity. Historically, the ministry has maintained that power generated by its maharatna power generator should be distributed with the intention of electrifying, not for profit.

The 32,000 MW company had hoped to sell the new units as merchant power. “Open access is a mandate for transmission companies, they cannot stop the transmission of power, but if a generator does not want to sell, no one can make them,” said Alok Kumar, Secretary CERC. “Although NTPC is willing, it is the ministry’s decision. If the ministry does not want it, there's nothing NTPC can do.”

My guess if such things continue, then NTPC will end up like BSNL in a few years time once the private sector builds up sufficient capacity.

Abhijeet · Post by **Abhijeet** » 06 Aug 2010 23:50

Petrol prices are apparently going to go up yet again in a few days, by Re. 1 per litre. Yet the high tax component of fuel prices does not seem to be a part of mainstream discussion in India at all. Today, for the first time, I did see a discussion on TV where an economist asked why the government could not reduce fuel taxes, which contribute 50% to the retail price of petrol. This is very much an exception.

Suraj · Post by **Suraj** » 07 Aug 2010 01:31

GoI to divest 5% in ONGC, 10% in IOC, raise $5 billion

The government has initiated a proposal to sell five per cent of its stake in Oil and Natural Gas Corporation (ONGC) and 10 per cent in Indian Oil Corporation (IOC) to raise about Rs 20,000 crore during this financial year. “We have received a proposal for stake sale in these two companies from the Department of Disinvestment. The ministry is studying it and an approval will be taken from Petroleum Minister Murli Deora,” said S Sundareshan, petroleum secretary. The proposal, he said, was for sale of five per cent, or 10.6 crore equity shares, in ONGC through a follow-on public offer (FPO). This, at today’s closing price of Rs 1,231.70 per share, would fetch the government Rs 13,056 crore.

Commodity market regulatory movies. The Indian commodity exchange market ($2.3 trillion annualized turnover) exceeds the market caps of BSE and NSE equity markets (approx $1.6 trillion each):
FMC to join bank of independent regulators

The commodities futures market is poised to get an independent regulator. The government has decided to designate the Forward Markets Commission (FMC) as the regulator for this market, according to a top government official. This market is now bigger than its equities counterpart.

At present, FMC is part of the consumer affairs department, which will soon approach the Union Cabinet for approval to introduce a Bill to amend the Forward Contracts Regulation Act (FCRA) in a way that gives statutory backing to FMC.

The Bill proposes to provide more teeth to FMC. It will get powers to levy fines and penalties and allow options trading in commodities as well as in commodities indices. The Bill is also likely to pave the way for the entry of institutional investors in trading of commodities.

In an acknowledgement of FMC’s imminent status as an independent regulator, it has been decided to give it a seat on the High Level Coordination Committee on Financial Markets (HLCC), an inter-regulatory coordination agency, according to the government official.

The commodity futures market is the largest exchange-traded futures market in India. It has clocked Rs 57.29 lakh crore ($1.25 trillion) in trading volume since the beginning of this year. The decades-old stocks futures — including the index variety — have done no more than Rs 52.15 lakh crore ($1.13 trillion).

RBI signals rate pause:
RBI has done enough to manage inflation: Subir Gokarn (Deputy Gov)

The Reserve Bank of India (RBI) on Friday said it had done enough to tackle inflation. This allayed the fear of aggressive rate action among bond dealers.

“We have done enough to manage inflation. We expect to see the effect in the second half of the year because policy action acts, or has an effect, with a lag. You will see it manifested over the next few months,” RBI Deputy Governor Subir Gokarn said on Friday.

Government bonds extended gains after Gokarn’s comment. The yield on 7.80 per cent government bond 2020 closed at 7.83 per cent, down from 7.91 per cent at the end of trading yesterday, according to Negotiated Dealing System (NDS) data.

Shipping Corp of India plans IPO

The Shipping Corporation of India is planning to raise 10 per cent additional equity through a public offer for part-funding its acquisition plans. The government is also planning to divest 10 per cent of its stake in the domestic shipping company.

The public issue is likely to hit the market during the current financial year. “The public issue would be launched keeping in mind the market conditions and share prices. By the end of this fiscal, the IPO would come. The proposal is being discussed by the government,” said K Mohandas, secretary, shipping ministry.

SCI plans to buy 30 vessels by 2012. It has already ordered 39 vessels at an investment of $2-billion. “We require $1 billion per annum for the next two-three years to fund the acquisitions plan," said SCI chairman S Hajara. The company's capacity is expected to go up by 2.5 million dead weight tonnage (DWT) from 5.2 million DWT.

For vina

GoI says no to sovereign wealth fund

The government today said it had examined a proposal to set up a $5-billion sovereign wealth fund for financing overseas acquisitions by companies but decided against it.

In response to a question in the Lok Sabha, Minister of State for Finance Namo Narain Meena said that it was felt at that time that a number of avenues for funding of overseas acquisitions was available and money was not the primary constraint for Indian companies.

“However, the consideration for creating a sovereign wealth fund depends on a number of circumstances including the evolving nature of the financial systems in India and in the world, and it is a dynamic and continuous process,” he said.

The idea to set up the fund was pursued when foreign currency inflows were large and the government was planning to increase its earnings.

abhishek_sharma · Post by **abhishek_sharma** » 07 Aug 2010 08:56

Border Bill Aims at Indian Companies

http://www.nytimes.com/2010/08/07/us/po ... order.html

chetak · Post by **chetak** » 07 Aug 2010 09:36

Suraj wrote:RahulM: I'm not familiar with how the average kirana works within the financial system. Any gyan and data on how many of them record revenues, report and pay taxes, and how these are enforced?

There was a scheme where by a shopkeeper could pay a certain amount of tax and the IT dept would simply accept it as the gospel truth. Tax received, no investigation.

A large number of guys paid such a tax.

There is a petty shopkeeper where I live who has built a house for 87 lakhs, not counting the cost of land which must have exceeded a crore and a half.

Additionally he owns a large multi story building on a main road not costing less than six crores!!

And multiple shops.

He was paying this minimum tax to the IT dept.

Such is life.

Raghavendra · Post by **Raghavendra** » 08 Aug 2010 13:41

Tough times ahead for common man
अगले 2 महीने में 15% पर पहुंच सकती है महंगाई: एसोचैम http://hindi.economictimes.indiatimes.c ... 274601.cms

Manishw · Post by **Manishw** » 08 Aug 2010 14:45

Raghavendra wrote:Tough times ahead for common man
अगले 2 महीने में 15% पर पहुंच सकती है महंगाई: एसोचैम http://hindi.economictimes.indiatimes.c ... 274601.cms

India does not have a choice.The G-8 are printing bonds like hell to stave off deflation.Indians have to match them in printing cash and issuing credit otherwise the rupee becomes uncompetitive in the export market.Inflation shoots up.This is going to end badly but when does it end and how? Nobody knows I guess.

wig · Post by **wig** » 08 Aug 2010 16:43

it would be instructive to observe the tax component in the cost incurred by the consumer of petrol and diesel.
one feels strongly that far from subsidising the consumer the government is fleecing the consumer and the nation at large.
the government seems to have willfully created a cost transfer mechanism that leads to losses to the oil PSU's

the break up of the price of petrol and diesel from an unstarred question in the Lok Sabha
Petrol Diesel
cost 51.4% 70.8%
Stae VAT 16.7% 11.8%
Excise 28.7% 12.6%
Customs 3.2% 4.8%

http://www.tribuneindia.com/2010/20100803/biz.htm

Manishw · Post by **Manishw** » 08 Aug 2010 19:02

^^^ Fully 50% is the extra cost of petrol and Roughly 30% is the extra cost in everything we buy that we have to pay because of corruption/inefficiency in just one department of G.O.I ie the I.T department, since they will not collect from the really rich.

enqyoob · Post by **enqyoob** » 08 Aug 2010 19:40

Well... the State charges 100% tax, then gives 10% "subsidy" from that. So the tax is ****ONLY**** 80%. Gotta try out this new smiley

enqyoob · Post by **enqyoob** » 08 Aug 2010 19:53

So per my Simplified E-CON-comics 4 dummies, I have figured out the Indian Economic Engine.

{A generation of expats bring Hard-earned Gulf expat petrodollars and western expat technodollars, buy urban real estate at steep premium since the transportation infrastructure stinks and they want some place accessible to water, shops, hospitals, cars and airports.

Sellers and Agents take the Rs Lakhs/Crores to the auto dealerships and gold stores, and take out bank loans to buy other real estate to subdivide and sell to other expats.

Expats pay $$$$ to get their lazy offspring into Paid Management Quota seats in the "Self-Financed Degree Mills".

Next generation of expats bring (repeat above algorithm), at even steeper prices, subdividing the urban pieces.

Repeat for generatio i+1, i= 1... infinity. }

So its the same resource (real estate) that forms the core of e-con-comic activity, plus this drives a booming consumer market.

The whole engine has

Input resource:: expat $$
Gets converted to: concrete, consumer goods, luxury items, carbon dioxide, soot.

By-product: real estate becomes more expensive in each cycle of conversion.

Real output: pretty-much nothing, or negative, as agricultural output drops as rubber plantations and paddy fields get converted to ugly high-rises.
**********************************

How long does this last and what is the endgame?

SwamyG · Post by **SwamyG** » 08 Aug 2010 21:06

Somewhere in the infinite loop, the domestic demand will becoming a major economic driver. The above infinite loops assumes Indians have no capability to learn, copy and innovate even after infinite iterations.

enqyoob · Post by **enqyoob** » 08 Aug 2010 21:26

Domestic DEMAND, yes, but what about domestic generation of prime wealth (as opposed to wealth generation by just swapping the same stuff back and forth)? What is being produced?

SwamyG · Post by **SwamyG** » 08 Aug 2010 21:37

If one looks at Western prosperity, one sees the countries became rich as more people became productive, roads, houses, bridges, dams, cities & huge industries were built. These countries did not become rich because they build 2500sqft houses or they juggled money like the modern banks. They rose because of innovation and good old hard work + plus exploitation. Exploitation goes without saying.

An impoverished India has tremendous room to grow. More villages can gain electricity, cell phone access, modern irrigation, improving supply chain (especially on the agricultural products cutting down wastage), India needs more roads and houses. All to take care of basic needs.

Granted, India will be impacted and will fall to some extent, when the FDI are reduced. But India has the potential to grow moderately even without them.

Manishw · Post by **Manishw** » 08 Aug 2010 21:45

^^^ Swamy Ji this the reason that many are saying that this decade will be India's. Are we up to it.I say Yes.

abhischekcc · Post by **abhischekcc** » 08 Aug 2010 23:13

N^3, you are overestimating the importance of NRI dollars to India.

If you really want to understand Indian economy, you have to begin with elections/government contracts/defence deals/and terrorism, and the black money they generate.

Rishirishi · Post by **Rishirishi** » 09 Aug 2010 04:04

SwamyG wrote:If one looks at Western prosperity, one sees the countries became rich as more people became productive, roads, houses, bridges, dams, cities & huge industries were built. These countries did not become rich because they build 2500sqft houses or they juggled money like the modern banks. They rose because of innovation and good old hard work + plus exploitation. Exploitation goes without saying.

An impoverished India has tremendous room to grow. More villages can gain electricity, cell phone access, modern irrigation, improving supply chain (especially on the agricultural products cutting down wastage), India needs more roads and houses. All to take care of basic needs.

Granted, India will be impacted and will fall to some extent, when the FDI are reduced. But India has the potential to grow moderately even without them.

Economic sucess can be summed to.
1 The rule of law and order (India is very corrupt, where people partly have lost fait in the leagal system)
2 Government ability to raise funds for development and running the society in a good way. Basically there has to be certain level of taxes, that are used on productive projects. (In India taxation rate is low, and a lot of the money goes in corrution)
3 Good predictable env. for businesses, so that they make long term investments.
4 Social harmony

enqyoob · Post by **enqyoob** » 09 Aug 2010 05:38

N^3, you are overestimating the importance of NRI dollars to India.

If you really want to understand Indian economy, you have to begin with elections/government contracts/defence deals/and terrorism, and the black money they generate.

Good point, but there as well, the basic source of incoming wealth is "FDI" hey? I interpret the "NRI" term very liberally. If I read u right, u r saying that there is also a huge FDI from sheer investment of "floating wealth" as in black money, which can be focused or distributed to achieve specific goals, completely outside the official "government" but by the ppl in power.

The first point that scares me is that the dominant components of desi wealth generation are not indigenous legitimate, productive, innovative work. It is not manufacturing, or oil dug up (some raw ore and coal may be exported, I know).

Software / BPO are legitimate products & services, of course, but entirely dependent on the "pull" from abroad (IOW, beyond control of those doing the work), not a unique shrink-wrapped product that the duniya cannot do without.

Textiles and Bollywood movies are legit products even if investment in Bollywood comes from the underworld. Demand exists outside and inside, generated solely by the quality of the product.

Food exports are marginal, given still-rising population, and inflation isn't helping that.

Machine tools etc. are still very small components of the overall picture.

Big-ticket items like defense equipment, railway equipment, cars, are still a very small component.

Drugs are a small component.

So the scary part is that the bulk of real wealth inflow is from "FDI", at the whim of outsiders and/or outright crooks, or from "FDI" from successive generations of expats seeking the same real estate because other real estate does not offer basic conveniences.

Next question:

Why does "black money" seek to invest in India, esp, real estate? Isn't it extremely dangerous, given that real estate is immobile and ownership can be tracked down?

Why doesn't the black money go buy flats in, say, Singapore or Khanate, or somewhere else? What might induce them to go massively out of India in a hurry?

Like, say, a quick switch to electronic searchable databases that allow the actual ownership and source of funds for every parcel of real estate in India, tied to the income tax records? Or a total breakdown of the Swiss and Mauritius and Luxembourg and Dubai and Caymans banks' commitment to sovirginity, so that they "tell all" regarding every customer account? The new desi TDS scheme (totally electronic) must be very very scary, already some mutual funds are being hit for not holding TDS on foreign/NRI stock transactions.

So the question is, even though there may be no possibility of individual sleuths tracking down all black money in India, some seemingly small systematic steps might trigger a mudslide of exodus by the Black Money.

After all, why invest in sdre kuffar land when TFTA Krachi beckons?

SwamyG · Post by **SwamyG** » 09 Aug 2010 06:12

Rishirishi: India is a perfect candidate for "half full half empty" thought. I am sure both of us can google and provide plenty of supporting evidences, so let me just skip all the process and accept your 'half empty' argument. The 'half emptiness' of India offers enormous opportunity for improvement, even if we (start to) fix or improve the efficiency the productivity gains would be exponential. Imagine the growth of India with such a bag baggage around its ankles, now imagine what it could do if those baggage are reduced or removed! India has made lot of progress in all those fronts you mention, still lots of room to go though.