Indian Economic Survey: Sid Harth
Sid Harth
...and I am Sid Harth
Sid Harth
Sid Harth
http://www.domain-b.com/economy/ecosurvey2006/index.html
http://www.domain-b.com/economy/ecosurvey2005/index.html
http://www.domain-b.com/economy/ecosurvey2004/index.html
http://www.domain-b.com/economy/ecosurvey2003/index.html
http://www.domain-b.com/economy/ecosurvey2002/index.html
http://www.domain-b.com/economy/ecosurvey2001/index.html
http://www.domain-b.com/economy/ecosurvey2000/index.html
http://www.domain-b.com/economy/ecosurvey1999/index.html
chhotemianinshallah
New Article
7 Sep 2009, 0245 hrs IST, Mythili Bhusnurmath, ET Bureau
A little less than a year ago, on 15 September 2008, Lehman Brothers,
the once venerated US investment bank, filed for bankruptcy. Though
death throes began more than a year earlier in August 2007 when the
bank was forced to close down its sub-prime lender, it was events of
the last few days, from 9 to 15 September that really sealed its fate.
And with it, the fate of the world as well!
In the year since then, the global economy has turned topsy-turvy. To
understand just how dramatically Lehman's collapse impacted the world
economy, take a look at the London Economist's table of GDP growth
estimates for 42 select countries that together account for close to
90% of world's GDP, before and after the bank's collapse (see table).
The contrast could not be starker.
From a scenario (pre-Lehman) where every country was expected to
register positive growth in 2009, a year after the event, there are
only a handful, China, India, Indonesia, Pakistan and Egypt that can
hope to see any economic growth at all. Every country, bar these five
emerging market economies, is expected to end the year poorer than it
started.
The extent of decline varies — from 6.4% in Japan to a mild 2.6% in
the US, the epicentre of the crisis. But there's no getting away from
the cataclysmic change in the global economic outlook triggered by
Lehman's collapse.
Our 'goldilocks globalisation' (not too much, not too little) in the
words of Arvind Subramaniam, is likely to see us emerge as the second-
fastest growing economy, after China. But will we be able to put
Lehman behind us and return to the 'nice' (non-inflationary continuous
expansion in the words of Bank of England governor, Mervyn King)
period of 9% GDP growth and 3% inflation a year from now?
No! The global economy and its financial under-pinning have changed in
fundamental ways. As far as India is concerned, these changes can be
categorised under six broad heads.
First, and foremost, the crisis has brought us down to earth. The
irrational exuberance that saw the sensex zoom past the 21,000 mark
(intra-day) and had starry-eyed observers see double-digit GDP growth
as the new Sardar rate of growth has been replaced by a welcome
sobriety.
From the highs of 9% GDP growth we are now down to 6% or thereabouts.
And though there is no doubt growth will improve in tandem with global
recovery, there is now much greater realisation that if high growth is
to be sustained, we need to do more. Trickle-down will not work. We
will have to pay more attention to long-neglected areas like
infrastructure, physical and social, agriculture, governance and so
on.
Second, it has brought home the importance of fiscal discipline. Good
times are meant for governments to build nest eggs so that they have
the fiscal space needed to embark on counter-cyclical policies in bad
times. In a crunch when private spending dries up, governments have to
step into the breach.
This means governments like Chile (which saved the equivalent of 12%
of GDP in a special fund during the boom) are on a much stronger
wicket than India where the government used higher tax revenues in
good years to boost (wasteful) spending. Hopefully, we've learned our
lesson; even if is the hard way.
chhotemianinshallah
Cash transfers better than drought relief works
30 Aug 2009, 0611 hrs IST, Swaminathan S Anklesaria Aiyar , TNN
I became a journalist in 1965, when two successive droughts killed
thousands and forced India to beg for US food aid. India’s share of
global food aid was so large then that a best-selling book claimed
that India was unviable and should be left to starve, conserving food
aid for viable countries.
How distant those dark days seem ! This year another drought has
struck, but we have no panic or talk of food aid. India withstood a
terrible drought in 2002, so Indians are confident that the government
knows how to tackle droughts. That’s a revolutionary change from the
1960s.
Most people think that the Green Revolution ended mass starvation. Not
so. The Green Revolution improved yields, and made India self-
sufficient . Yet, it did not raise yields sufficiently to increase
foodgrain availability per head. Remarkably, grain consumption per
head in later years rarely reached the 1964 level.
Why, then, did droughts cease to cause mass starvation? Because of
better food distribution, not production . In subsequent droughts,
enough food got through to the worst hit.
Rural employment was the key to success. Maharashtra first
experimented with an Employment Guarantee Scheme when hit by
successive droughts in the early 1970s. Simultaneously, countries of
the Sahel region in Africa suffered repeated drought. Food aid was
rushed to Sahel, while very little came to India or Maharashtra . Yet,
there was mass starvation in the Sahel, and none in Maharashtra.
Economists Amartya Sen and Jean Dreze explained the paradox. In
Maharashtra, grain availability per head was just half that of the
Sahel. But employment schemes enabled hungry Maharashtrians to earn
just enough to stave off death. Maharashtra suffered mass hunger, but
not mass starvation.
The opposite was true in Sahel. Food aid piled up in ports and
godowns , but there was no mechanism to get it to those starving.
NGOs, government agencies and free kitchens did not have the necessary
reach.
In Maharashtra, the market provided the reach. Once the needy obtained
purchasing power through employment schemes, the market drove grain to
where the money was. This reached the needy more efficiently and
completely than free government kitchens.
Other states did not follow Maharashtra’s lead in enacting employment
guarantee legislation. But when a drought occurred, they would rush to
create emergency employment schemes. Gujarat, for instance , created
millions of man-days of work to successfully combat the 1987 drought.
This approach aimed to relieve distress, not improve economic
efficiency . Yet, economic efficiency improved too. Research across
the world shows that, other things equal, small farmers are more
efficient than large ones, mainly because they maximize the use of
family labour.
Markets usually drive assets to those who use them most efficiently .
When industries suffer a recession , inefficient industries fail and
are acquired by efficient ones. But this does not happen in rural
India in a drought: efficient small farmers do not acquire the land of
inefficient absentee landlords. On the contrary, many small farmers
make distress sales of their land and cattle to large farmers.
Why such perverse results? Because rural credit and insurance markets
are missing or incomplete. Big farmers dominate access to credit , and
enjoy the lion’s share of huge rural subsidies for electricity,
water , fertilizers and credit. In these conditions, small-farm
efficiency does not translate into superior yields or income.
Rural employment schemes plug the financial gaps of small farmers and
thwart distress sales. This not only relieves suffering but improves
economic efficiency: small landholders are efficient.
How should rural employment be tailored to meet needs in the current
drought? First, the financial allocation must be raised: the budget
has already done this. Second, the spending share of the states should
be reduced in the worst-hit areas, enabling them to tap more central
money. In 2008, Bihar provided just 23 days work per applicant,
Chhattisgarh 30 days, Jharkhand 44 days and Uttar Pradesh 26 days.
These states are badly hit by drought this year, and must expand
person-days of work massively.
Third, payments to workers must be prompt. Many states routinely delay
payments, hitting the neediest. Dreze rightly calls this deplorable.
A radical solution would be for states to stop rural works and simply
pay the legal compensation to job-card holders. This will cost less
than rural works, since money will not be spent on materials or
supervision : it will go entirely to the needy. In effect, cash
transfers will replace rural works. Activists like Dreze will demur:
they think rural works create durable assets, despite evidence to the
contrary. I believe that in a major drought, we should focus on
getting cash to the needy, not on building mud roads that vanish in
the next monsoon.
Financial crisis? No, capitalism as usual
5 Aug 2009, 0055 hrs IST, Swaminathan S Anklesaria Aiyar , ET Bureau
Just five months ago, when stock and commodity markets hit rock
bottom, capitalism was viewed as seriously if not terminally sick. The
Financial Investing in an uptrend Is it right time to take a plunge?
Will the markets rally from here?
Signs of the Times
Times ran a series of articles titled ‘The Future of Capitalism.’
Economists, politicians, and philosophers saw the Great Recession of
2007-09 as a historic watershed, and produced new visions of a changed
capitalism.
Today, that looks like much ado about nothing. Stock markets are
booming, commodity prices are rising, and shipping rates have tripled.
Pessimists warn of rising defaults in credit cards, commercial realty
and corporate debt, so we could have a double-dip recession. But
markets believe the worst is over. Despite political and public
outrage over “casino capitalism” the financial reforms being
contemplated across the world are not fundamental.
Four months ago, pundits waxed eloquent about learning lessons for
reform from the financial crisis. Today the greatest lesson of all
seems to be that capitalism, with all its flaws, can cope with Great
Recessions. We have always had financial crises and always will:
that’s the nature of capitalism. The system will always need reforms
to keep pace with changing technologies and innovations. Yet it has
proved its resilience. Mark Twain once said that rumours of his death
were greatly exaggerated. The same can be said of capitalism.
In years ahead, financial regulation will definitely increase. But
this will change capitalism’s profile only slightly, since the
financial sector was the most regulated one even before the crisis.
Hedge funds, the least regulated financial entities of all, survived
the crisis without bailouts, even as banks, the most regulated
entities, suffered badly. Regulation does not prevent all crises:
Japan had the most regulated financial sector among developed
countries but suffered a lost decade in the 1990s. Lesson: while the
future will see more regulation, financial crises will still happen.
Stiffer capital adequacy norms look certain, to check the excessive
leverage of the last decade. Yet history suggests that financial
innovation will ultimately find ways round regulations. Bank
regulation was ultimately circumvented by a shadow banking system, and
off-balance sheet vehicles. Expect ultimate circumvention of the new
regulations. This will not be entirely a tragedy. The gains of
financial innovation may initially be eclipsed by losses, but the
losses are typically checked after a fiasco whereas the gains become
permanent.
In future, most derivatives will have to be traded through a clearing
house, ending the counterparty risk that sank the asset-backed
securities market. Despite criticism, securitisation will continue
with modifications. Banks will be able to securitise mortgages subject
to retaining a certain proportion of mortgages they originate, a
safeguard against excessive risk-taking in mortgage origination.
Some flaws will not be reformed at all. A special US problem is that
its mortgages are non-recourse loans: the lender can get back the
house after a default, but cannot go after the other assets of the
borrower. This encourages massive willful default. Mortgage lenders in
India, Europe and most countries, can go after other assets. But US
politicians portray the entire housing bust as an evil perpetrated by
lenders on innocent home buyers, and this political theatre avoids
making borrowers accountable too. This carries the seeds of a future
bust.
chhotemianinshallah
The 'Davos Man' is back, back to his bad old ways
29 Jun 2009, 0212 hrs IST, Sudeshna Sen, ET Bureau
Wall Street types, it seems, are back to their bad old ways. Hiring
and poaching is back, astronomical salaries are being justified,
bonuses have just been moved from one part of salary slips to
another.
The word in the City is that most bankers are just sort of keeping
their heads under the parapet, and planning to return to their
profligate ways, sooner than later. Banking big shots are openly and
actively pushing back against any attempt to regulate them, cut them
down to size, or even change their compensation patterns. The same
faces that were trashed last year, are popping up elsewhere, with mega
salary deals.
Well. And nobody is noticing much, with everyone focused on every sign
of economic recovery. Economists are busy squabbling about what shape
the future is, and ever more obscure models, as if we care, tell us
where the money and jobs are.
Meanwhile, there's a battle for world domination going on. This battle
isn't about investment banks, or hedge funds, or economists or
politicians. It's not even about the Swiss, Chinese or India.
It's the battle between those who controlled the global economy,
through the complex financial system, call him the Davos Man if you
will, fighting for their survival — if kings and Brahmins thought they
had a divine right to rule, the Davos Man thinks so too.
From where I stand, looks like they're winning, for now. The
unprecedented consensus forged among countries even as late as April
at the G20 summit is slowly dissolving into various patterns of
oblivion, like those funny screensavers.
The Davos Man isn't just a banker. They're the crony capitalists, with
their insiders scattered through regulators, IMF, World Bank,
investors, governments, economists, analysts, media — in every
country, including India. In India, it's just that the status quo the
privileged want to maintain is slightly different.
One banker (who hadn't lost his job) told me last winter, that after
the shake-out, the financial services sector that emerged would not be
stronger, more resilient, efficient or cleaner. It would just be
dirtier, nastier and even greedier. Why, I asked. Because in the job
purges that swept through the sector, many of the 'nicer', more
ethical, less political people lost out.
They're running ski resorts or pounding the streets now. The political
animals survived, the ones, to quote another were, "the worst sort of
Hollywood villain types." And this time, they know that there's no
penalty for failures, they can always fleece those taxpayer sheep any
time. I didn't believe them then, but maybe the insiders had a point.
Take a look at where we are on various issues today. Global regulatory
reforms. The opinion is split 20 different ways, not on how, but if at
all. In UK, there's a strong lobby claiming that EU regulatory
proposals are just some sort of continental 'land grab' to topple
London's premier financial centre position.
There's no consensus within the EU itself. In the US, various lobbies
are split right down the middle. Should banks be allowed to become too
big to fail? Should they be cut down to size? The discussion has got
bogged down in 'how to evaluate connectivity and risk taking.' Not how
to ensure that any corporate entity cannot, in future, hold an entire
world to ransom.
Because that's precisely what happened. The political class it seems,
has been almost beaten into submission by a winter of, umm, blackmail.
The financial sector just cut off global credit lines, choking the
real economy, until first their own jobs, power bases, balance sheets
and pay packets were saved.
chhotemianinshallah
A greater role for local bodies for faster urban renewal
30 Jul 2009, 0107 hrs IST, Jaideep Mishra, ET Bureau
A great city is that which has the greatest men and women, mused the
poet. That was then, in the grim decades of the nineteenth century,
long before bright city lights. Fastforward to the here and now, and
latest figures do show that the majority of the world’s population is
resident in urban areas.
The corresponding figure for India is far lower, just about 30%. The
urban development ministry at the Centre has chalked out a multi-phase
plan for renewal and change pan-India. Yet reform on the ground would
require financing urban infrastructure in a fiscally sustainable and
decentralised manner, with far greater say for city governments.
The Centre’s urban renewal mission is already going places. It would
now involve 28 more municipalities, with population over 5 lakh. When
launched in 2005, the flagship scheme envisaged ‘coverage’ of 65
cities with population of over 10 lakh, state capitals and tourist and
pilgrimage centres.
The plan essentially is for investment support for stepped-up public
transport, sewage disposal and water supply etc. For instance, what’s
on the agenda is to provide funding–shared equally between the Centre
and the respective state–for modern, low-floor buses in 118 towns and
urban centres with population over 2 lakh. It’s really a top-down
approach, more likely to make a difference at the margin. Instead,
visible change would require increased resort to public-private
partnerships for rapid coagulation of resources for urban growth, and
real provision for devolution of financial resources to local
municipal bodies.
Given the ambitious target to make India by and large “slum-free”
within five years, the way ahead is to suitably structure transferable
development rights (TDRs) to catalyse urban investment in affordable
yet aesthetic housing. Such an instrumentality would provide dwelling
units for low-income households “squatting” on government land,
particularly if there’s scope to rationalise and raise floor space
index norms for builders and developers to rev up requisite
investments. Well designed TDRs can garner substantial resources in
the medium-term. It has the potential to shore up urban infrastructure
right across the board.
However, the fact remains that the Constitution places the onus,
authority and responsibility for creating modern urban environs on
state governments. The 74th Amendment of the Constitution in 1992 did
seek to bring about “major change” in the institutional framework for
urban local governments.
Municipal bodies were really identified as the third tier of
governance and development. The amendment envisaged an enabling
framework for state governments to ‘fully empower’ municipalities to
plan, finance and carry out a comprehensive list of functions as per
the Twelfth Schedule. But parliament stopped short of actually
conferring the devolution on the municipalities, leaving it up to the
state governments to delegate the functions (powers).
chhotemianinshallah
Economic growth: Luck by chance
23 Feb 2009, 0155 hrs IST, Rajrishi Singhal, ET Bureau
Print EMail Discuss Share Save Comment Text:
As the government prepares to empty its filing cabinets and heads for
the hot and dusty plains to solicit votes, it is visibly exuding
optimism
about the economy. According to its non-elected representatives, all
the lead indicators seem to be showing some signs of a revival with
the first glimmer of some incipient growth pushing through the
enveloping gloom.
Steel, cement, auto, fast moving consumer goods (such as soaps and
detergents), food items, beverages, volume of goods moved by the
railways, have all shown some improvement in January, after having
shrunk in the previous two months.
With the government and other political parties having begun their
courtship dance with the ballot box, this feat is sure to figure high
on the Congress’ list of achievements. The economic slowdown in the
past six months has certainly become a sore point with the Congress
and threatens to blot its legitimate bragging rights of delivering an
average growth rate of 9% year on year over the past four years. This
year it may drop to 7%.
But before we start congratulating the government for its excellent
economic management, let’s hit the pause button (a la P Chidambaram)
for a moment. How much of the Indian economy’s resilience is owed to
governmental intervention? Which parts of the successful India story
can be credited to government strategy? Or, is there a strategy at
all? Let’s find out.
One of the economy’s mainstays for over a decade has been services.
This contributes to over 50% of the country’s GDP and has been
providing enormous growth impulse over the past few years. If you were
to listen to the government representatives, it would seem as if they
had foreseen the coming age of services and had designed this
structure.
The truth is somewhat different. There are many reasons behind the
extraordinary growth of services. One of the reasons is the kind of
elaborate rent-seeking structures erected by the government in the
manufacturing sector. Any person wanting to set up a manufacturing
facility in India still has to fill a large number of outstretched
palms, making the operations costly from day one.
Here’s another unique aspect of the economy for which politicians
routinely take credit. One of the saving graces for the Indian economy
during this episode of the downturn is the safety net expected to be
provided by Indian consumers, even as the international economy winds
down and eschews consumption of goods made in India.
This has had a deleterious impact on Indian exports, leading many
exporters to scale down their operations and restructure their
businesses. Fortunately, for the planners and the administrators, the
impact of the global slowdown is likely to be cushioned, to a large
extent, by the gigantic Indian domestic market, which will continue
consuming and providing the growth push to the economy.
Again, it’s not as if some wise person in the government woke up one
morning and presciently decreed that henceforth the country would
focus only on the domestic markets. The government has always felt
that exports should be the apposite strategy for economic growth, just
like some of the other emerging countries.
Guess what? Exporters also have to manufacture and that, as we said
earlier, is quite an endurance test in India. Plus, the intricate
structure built around promoting exports also worked as a huge
deterrent. The government also did not quite see exports as an
alternative, viable economic growth model till the Southeast Asian
success story burst on to the scene. Hence, till then exports did not
quite get the required push. So, no grand design here too.
Savings, especially by households, is another strong point for the
economy. But, there is a difference here. This strong economic
foundation has developed for two reasons — partly by government
design, and, partly because of deficiencies in services that
governments elsewhere in the world provide to their citizens.
The government in the 1960s and thereafter made a huge push to develop
the banking branch network to funnel savings into the formal system.
While that is good, the same savings were then used to finance the
government’s various profligate expenses.
The government harvested savings not to strengthen the economy but to
finance its populist policies. Secondly, savings also grew in the
economy because the Indian government has failed to provide any social
safety nets for its citizens.
Unlike in USA and various other European economies, where the
government provides unemployment benefits as part of their social
contract, Indians have to fend for themselves. In the current
downturn, for example, many Indians – especially in the urban and semi-
urban settlements — are wary of spending because of uncertainties
surrounding their jobs. This has impacted consumption but, conversely,
is bound to improve the savings rate.
The credit, therefore, should go to the Indian citizen who, despite
the various hurdles and inconveniences, is using his ingenuity to
improve his lot at all times. This collective strength has not been
forged by some steely policy push, but has developed by default,
almost in line with Charles Darwin’s theory of survival.
Budget: Will it poll-vault or prop up economy?
16 Feb 2009, 0324 hrs IST, Rajrishi Singhal, ET Bureau
What rotten luck! Writing a column for a business newspaper on the
morning of major policy announcements is replete with its own peculiar
set of hazards. Damned if you write about it, and double-damned if you
don’t. Look at the quicksand here. Speculate and you could end up with
egg on your face. Ignore it, and readers wonder if you’ve finally
tipped over to the other side. The only way one can salvage the
situation is by moving beyond the present and the immediate.
Today’s column will try to raise some issues that might help readers
determine whether the measures have enough horsepower to drag the
economy out of the quagmire. Given that there is a general election
coming up, it might also be useful to differentiate between pre-poll
bluster and genuine economic largesse. It might also help to remember
that this is going to be one hell of a tightrope walk for this
government — throwing cash at the economy at a time when its finances
are deteriorating and the global economic environment is in crisis.
The first, and most obvious, question is: will zapping the economy
with large doses of stimuli really help? The only way to find out is
if the measures announced in the interim budget by stand-in FM Pranab
Mukherjee really induce you to go out and spend some of your savings.
Given the uncertainty over retaining jobs in most of the urban
centres, consumption spending in the metros is likely to remain tardy
for some time to come. The next best bet therefore is the rural areas,
where the successful monsoons of the past few years have left many
people with some disposable incomes. And, there is no immediate threat
of layoffs here. So, how does the budget address this constituency?
Another broader question: does the interim budget do anything to boost
overall consumption — whether it’s rural or urban — and does it manage
to put more money into wallets?
Remember, there is a hidden layer just below the level of economic
stimulus, and it is called elections. It might be interesting
therefore to see how they camouflage some of the political handouts as
a part of the stimulus package. Here’s a pointer: with crude oil
prices now crashing below $40 per barrel, the government might have
slightly greater leeway in their spending plans over the next 15
months. Lower oil prices have direct and indirect effects. It not only
reduces India’s import bill immediately, but will also reduce the
subsidy bill that the government incurs for compensating oil companies
(which had to sell petroleum products to the pubic at a price below
their raw material cost). Ditto for fertilisers.
So, despite the larger-than-estimated total subsidy bill by the end of
the year — primarily because of the high food subsidy bill and the
huge oil and fertiliser subsidies incurred in the first six months —
the government will have acquired some headroom on the fertiliser and
oil subsidy bills now. The question to ask is: are funds being spent
on growth-inducing areas, or are they being diverted towards
expenditure under the spurious head of “social sector expenditure,”
that does nothing to the economy but pays enormous political
dividends?
Which brings us to the next question: will this budget create some
long-term fiscal burdens? You bet! Government finances are already
creaking under the strain of so many stimulus packages and give-aways.
Tax collections have already slowed down. The government has already
revised its tax collection estimates downwards once. Given the
continuing slowdown, experts are wondering whether the government will
need to recalibrate its tax revenue estimates further downwards.
Whatever might be the analysis, one thing is sure — the government’s
tax collections will not only miss this year’s target, but will most
certainly further dip in the next financial year. At the same time,
with so much money being spent on prodding the economy, the government
will have to keep borrowing to finance its ballooning expenses.
The trick might therefore lie in additional revenue-raising
strategies. One, there is a sure source of revenues in the scheduled
auctions for 3G spectrum. The second is, of course selling some of the
family property — it is high time the government resumed its
divestment programme. The pause button was pressed on this revenue
source soon after the UPA government got the Left Front on board. As a
result, it missed out on the bull run and an excellent opportunity to
bolster revenues. It may not be too late even now. In fact, the
government’s selective divestments also could, theoretically, even
give the stalled stock markets some sort of a push. Did you spot any
additional revenue-raising items?
Finally, it might be a fun idea to try and use the interim budget
document to figure out if this government is confident of returning to
power. Who knows what clues might be available here. Have fun.
chhotemianinshallah
http://www.organiser.org/dynamic/modules.php?name=Content&pa=showpage&pid=308&page=4
2009 Issues > September 13 2009
Editorial
The 100-Day Hoax
The first hundred days of UPA-II passed off without much fanfare
though the government had launched its 100-day agenda with great
flourish. The establishment would feel too uncomfortable to be
reminded of its utter failure on all fronts and that all the grandiose
promises made three months ago now sound hollow.
The security environment of the country has only worsened in these 100
days. Sugar is sold at Rs 40 a kilo and rice and wheat cost equally
high. A commentator characterised it as 100 per cent inflation in 100
days. The clouds of scarcity and scandal are gathering thick with the
nasty odour of import-export scams involving thousands of crores.
Another aspect that hit headlines is the brazen partisanship and
corruption exposed in open corporate warfare that tumbled out of the
UPA closet.
We may not have written this editorial but for the contrived target of
hundred days set by the UPA Prime Minister. That he has nothing
substantial to show as an achievement is proved by the lacklustre
response of the media to the deadline that passed off unnoticed but
for the lavish government advertisements to mark the occasion.
The pre-poll promises of generating jobs, improving law and order,
streamlining infrastructure with special emphasis on roads and power
generation, ensuring food security, bettering environment for health
service and education, all to be fulfilled within the first 100 days
have proved no more than tall talk. In fact, nobody expected the UPA
to achieve any of this. Hundred days are not enough to achieve these
targets. But the government has failed in taking even the first step
in this direction. The price rise has made things worse for the
commoner.
The Prime Minister while commending the Food Security Act claimed that
nobody would go to sleep with empty stomach. The fact however is that
at least one-third Indians go to bed hungry. India still is home to
the largest number of poor in the world. The spiralling price rise in
essential commodities during this festival season will further make
life miserable for the poor. The government cannot be blamed for the
drought condition in many parts of the country. But the lack of
preparedness on the part of the government has made the situation
grave. Ministries of agriculture, education, and rural development
reportedly prepared ambitious plans but the implementation report card
is not very encouraging.
The agriculture ministry has declared 171 districts the drought hit
and the kharif crops are lost. Now the only hope is the rabi crop. The
government has hiked the minimum support price for food procurement
which is likely to further push the cost of essential items.
The government has resorted to making false claims on the price line
quoting outdated data of the Whole Sale Price Index and the fall in
inflation rate. This is a crude joke. For over a year now, prices of
essential commodities are jumping from one peak to another. The
cockamamie claim of the government spokesmen is that the people are
paying less than before for items of daily use. For this they quote
WPI and inflation rate. This campaign based on WPI, which actually
fails to reflect the real price rise in the market, is deceptive and
misleading. The falsehood of the government claims can be easily
exposed if one is to refer to the Consumer Price Index, which is a
more reliable indicator of market price. Price rise is a real assault
on the livelihood of the ordinary people. The government has again
proved that it is more at ease with big time-bound agendas and heavy
rhetorics than sincere efforts to ameliorate the suffering of the
people.
chhotemianinshallah
Back on the road
Doha Round may re-start, but don't expect early conclusion
Business Standard / New Delhi September 07, 2009, 0:14 IST
The “informal ministerial” meeting of key members of the World Trade
Organisation (WTO), held in the capital last week, has been declared a
success because it has paved the way for fresh, formal negotiations to
re-start at the WTO headquarters in Geneva. In the process, India has
played the role of successful host and shown itself to be a member in
good standing, intent on making the Doha Round of trade negotiations
come to a successful end. This was a useful purpose to achieve because
many developed countries had blamed India and its commerce minister of
the time for the talks being stalled in the summer of 2008. While
Kamal Nath may have had an abrasive style and rubbed some of his
counterparts the wrong way, the “blame” cap did not fit India; more
correctly, it should have sat on the US negotiator’s head—as Europe’s
negotiators too felt at the time. President Bush had become a lame-
duck president in an election year, and it was clear that he had no
mandate to undertake serious negotiations. That situation does not
seem to have changed even now, under President Obama, as the comments
by the new US negotiator made clear in New Delhi last week. So, while
the New Delhi meeting can be considered a success (because,
tactically, it focused not on the substance of the negotiations but
the process by which to move things forward), it does not spell any
quick conclusion to the Doha Round. Both the US negotiator as well as
Pascal Lamy of WTO seem to be pointing to a fairly distant deadline as
being realistic.
That underlines the difficulties involved in extracting concessions
when national economies are going through a rough patch. World trade
is still shrinking, and the different economic agents (companies,
farmers, traders, etc) are already struggling to cope with the
adjustments forced on them by the worldwide recession of the past
year. Any further adjustments provoked by trade negotiations would be
unpalatable and therefore politically not feasible. Placing a
maximalist agenda before the trade ministers assembled in New Delhi
would therefore have been an invitation to disaster. The wisdom of
focusing on achieving what was feasible shows through clearly.
India needs to continue its twin-track approach to the rules governing
its international trade. On the one hand, it must continue pressing
for the multilateral forum to become functional and to stay relevant;
on the other, it should continue to focus on bilateral trade pacts of
the kind signed recently with Asean and South Korea. These latter
demonstrate that India is not anti-trade reform (it would not have
escaped notice that the European Union is even now unable to conclude
its bilateral trade agreement with South Korea). They also encourage a
push for greater domestic competitiveness, through the pressure
applied by bilateral trade concessions.
chhotemianinshallah
'Don't deny people of Andhra Pradesh their due share'
Business Standard / New Delhi September 06, 2009, 0:54 IST
The first thing that our government did in 2004 was to implement a
large number of programmes to immediately reach out to the farmers and
other rural artisans who were in serious distress. These included
waiver of the power dues of farmers, supply of seven hours free power
to farmers, reschedulement of loans and interest, etc.
AP's Capital Expenditure in absolute terms is the highest for any
state in the country. As private investments always grow in proportion
to public investments, there was an overall spurt in investments in
the state in an unprecedented manner, leading to the highest ever
economic growth rate of 9.1 per cent for the five-year period 2004-09,
higher than the national growth rate of 8.5 per cent for the same
period.
With the revenues of the state registering a healthy growth, the
government implemented a large number of welfare schemes to benefit
the poorest of the poor like never before, not only in our state but
in any other part of the country.
We have provided good health security to about 80 per cent of the
state's population. Our women SHG programme is one of the best in the
world. Half of the country's bank lending in this sector is in AP. The
state has implemented a scheme for complete reimbursement of tuition
fees in an unprecedented manner to benefit more than 20 lakh post-
metric students belonging to BC, SC, ST and minority communities in
the state.
As per the latest report of RBI on state finances for the year
2008-09, AP stood first in the country in respect of its allocation on
plan expenditure, development expenditure, social sector expenditure
and capital expenditure.
We have done a commendable job even in the industries sector by
achieving an annual growth rate of 10 per cent, as against the
country's growth rate of 8.8 per cent. Our greatest performance was,
however, in agriculture.
As against the national target of 4 per cent annual growth rate, our
state achieved a very high growth rate of 6.4 per cent for the period
2004-09 — up from 3 per cent in the preceding five years. We have been
supplying more than 1,500 crore units of free power annually, catering
to about 60 lakh acres. We firmly believe that as long as the
subsidies go towards enhancement of production and increases in rural
incomes, they cannot be considered populist.
Nevertheless, we are no exception to the ongoing global economic
slowdown. As per the recently revised CSO data, our state — which
registered an annual GSDP growth rate of 10.08 per cent in constant
terms for the four-year period 2004-08, as against a national growth
rate of 8.92 per cent — has to be content with just 5.6 per cent
growth rate for the year 2008-09, because of the slowdown.
Consequently, financial resources too fell sharply. As per latest
estimates, revenue receipts are likely to fall short by Rs 8,000 crore
from the budgeted estimates, while there will be a short-fall of Rs
10,000 crore on account of capital receipts.
This is quite a big resource gap. The enhancement of fiscal deficit
eligibility to 4 per cent is a small concession. The need of the hour
is to raise resources and spend it on capital asset creation
(infrastructure), even if it means a little rise in inflation figures
in the short run.
We cannot afford to allow our economy to get into a morass. The 13th
Finance Commission should give a serious thought on how to make more
resources available to states like ours which are already mid-way in
the implementation of a large number of infrastructure projects.
Keeping them on hold for whatever reason is not in national interest.
There are varying estimates about the gas availability in the K-G
basin. RIL has already started commercialisation of gas from their D6
block. The first land fall point for the gas in K-G basin is in East
Godavari District of Andhra Pradesh. It is unfortunate that our state
does not get any share in the royalty or in the profit share.
We do not enjoy any priority in allocation nor in pricing. This is
completely unjust. The extreme interpretation of the Constitutional
provisions about the offshore resources should not be invoked to deny
the people of our state their due share.
(Excerpts from the speech of Andhra Pradesh Chief Minister YS
Rajasekhara Reddy at a meeting of the 13th Finance Commission on July
20, 2009)
chhotemianinshallah
Markets end at 15-month high
BS Reporter / Mumbai September 7, 2009, 16:21 IST
The Sensex soared above 16,000 on the back of strong global cues and
hopes of an easing recession. The Nifty too ended at a fresh 15-month
high at 4,783.
The Bombay Stock Exchange benchmark index opened with a positive gap
of 104 points at 15,793, mirroring gains in Asian markets. The index
surged towards the end of the trading day and touched a high of 16,035
- up 346 points. The Sensex finally ended with a gain of 327 points
(2%) at 16,016.
All the sectoral indices were in the green barring FMCG. The BSE
realty index surged 5.5% to 4,533. The metal and bankex also added 4%
and 3%, respectively.
The NSE Nifty ended at 4,783 - its highest since May, 2008. Earlier in
the day the index opened at 4,682 and touched a high of 4,790.
Global markets had gone up on the news that US job losses were the
lowest in a year. The Hang Seng ended at a three-week closing high of
20,629. The Nikkei added 133 points to 10,320.
The market breadth was positive. Out of 2,885 stocks traded 2,243
advanced while 589 declined.
INDEX MOVERS...
Tata Motors soared over 11% to Rs 566. Reliance Communications surged
6.5% to Rs 312.
ICICI Bank and Jaiprakash Associates gained 6% each at Rs 789 and Rs
231, respectively.
Sterlite added 5.3% to Rs 707. DLF advanced 5% to Rs 435.
Bharti Airtel, TCS, Hindalco, SBI, Tata Steel, HDFC, Tata Power and
Larsen & Toubro moved up 2-3% each.
Among the Nifty stocks, Jindal Steel rallied 7% to Rs 3,507. BPCL
added 6.5% to Rs 596 while Siemens moved up 4% to Rs 526.
...AND SHAKERS
FMCG major ITC slipped 1% to Rs 231. Mahindra & Mahindra dropped 1% to
Rs 857.
VALUE & VOLUME TOPPERS...
The combined value chart was topped by Unitech with a turnover of Rs
1,106.95 crore, followed by Tata Motors (Rs 749.31 crore), ICICI Bank
(Rs 627.19 crore), Reliance (Rs 631.62 crore) and IFCI (Rs 653.59
crore).
IFCI led the combined volume chart with trades of over 110 million
shares, followed by Unitech (98.88 million), Ispat Industries (91.19
million), NHPC (79.56 million) and Suzlon (73.62 million).
Sid Harth
Downturn blues for Left
- Likely political beneficiaries miss the bus in Europe
CRAIG WHITLOCK
Hanover, Sept. 6: Among the victims of the Great Recession are
Europe’s big-government, welfare-loving socialist parties, which so
far have been unable to exploit voter anxiety over the perils of
runaway capitalism.
In Germany, which will hold national elections on September 27, the
pro-labour Social Democrats are headed to their worst showing in at
least a generation, paving the way for the easy re-election of
Chancellor Angela Merkel.
Despite public anger over rising joblessness and the souring of
attitudes toward unregulated markets, the story is similar for Left-
wing parties across Europe.
In France, the Socialist Party is in tatters and poses little threat
to President Nicolas Sarkozy. In Italy, the weakness of the Left
Opposition has helped Prime Minister Silvio Berlusconi, a billionaire,
weather a series of personal scandals. In Britain, voters are poised
to toss out the Labour Party.
Social Democrats in Europe have warned for years of the dangers of
untamed markets and unchecked globalisation. Although some of their
predictions have proved prescient in the aftermath of the financial
meltdown, they have struggled to convince voters that they have the
tools or expertise to fix ailing economies.
In Germany, Frank-Walter Steinmeier, the Social Democrats’ candidate
for Chancellor and Merkel’s chief rival, unveiled a plan last month to
create four million jobs and bring “full employment” to the country by
2020. But surveys found that only one in seven Germans found the
proposal believable. Pundits mocked it as a modern-day version of the
five-year plans that never worked in communist East Germany.
“The main problem is that people think the Social Democrats have no
economic competence,” said Manfred Guellner, the chief pollster for a
German survey firm. “They have this impression that they cannot rule,
cannot govern.”
The Social Democrats are the junior partner in a coalition government
led by Merkel’s Christian Democrats. Merkel is hoping to ditch the
Social Democrats and form a new government with the Free Democrats, a
smaller party that favours pro-business policies.
At a campaign kickoff rally on Monday in Hanover, the mood among
Social Democrats was grim. The crowd of about 4,000 people barely
mustered polite applause when Steinmeier took the stage.
Steinmeier, who is Germany’s foreign minister, conceded he faced an
uphill battle.
Steinmeier’s primary challenge is that Merkel remains highly popular
among voters, who credit her with adopting sensible middle-of-the-road
policies while shying away from overly partisan politics.
LOS ANGELES TIMES- WASHINGTON POST NEWS SERVICE
chhotemianinshallah
An aam aadmi Budget
COMMENT: Nilesh Shah
Business Standard / July 07, 2009, 3:14 IST
The market was euphoric as it expected many reforms from the Budget.
The Budget has pragmatically projected a slowing revenue growth and
stressed the need for spending money on supporting the economy. It is
clearly an aam aadmi Budget that has tried to put money in the hands
of the consumer by increasing spending and cutting taxes. On the
positive side, the abolition of fringe benefit tax (FBT) and surcharge
on the income tax will help the aam admi. Introduction of GST by April
1, 2010 will also help in blocking the tax leakage and reducing
regulatory arbitrage between unorganised and organised sectors.
The equity market has given an adverse reaction to the Budget due to a
lack of big-bang announcements on FDI in insurance and retail sectors.
Aggressive divestment expectations and immediate steps to realign the
fiscal scenario (higher than expected), which have not been met, have
also led to short-term market disappointment. The increase in minimum
alternate tax (MAT) has probably affected the market sentiment.
On the broader front, the government has focused on inclusive
participation in the India story. It has substantially stepped up
spending on social sectors, clearly emphasising its stance on
inclusive growth. If this spending is carried out wisely rather than
being pushed through a leaky pipeline, it will certainly have a major,
positive, long-term impact on the economy and the market.
Nilesh Shah, Deputy Managing Director, ICICI Pru Asset Management
Company
chhotemianinshallah
Take the chill out of Doha
Hindustan Times
September 06, 2009
First Published: 23:00 IST(6/9/2009)
Last Updated: 23:05 IST(6/9/2009)
The world is again ready to talk trade. A year after India was accused
of putting the World Trade Organisation’s negotiations on the Doha
Development Round into deep freeze, New Delhi last week succeeded in
getting 35 trade ministers to agree to resume discussions in Geneva
from September 14. The development should be read with the usual
disclaimer. The entrenched positions that caused the deadlock still
prevail. The principal characters involved in the more contentious
haggling — the United States, European Union, Brazil and India — have
not yet signalled a softening of their stance. Yet, India has brought
everybody back to the table after walking off last July and the new
Obama administration has indicated it does not want to re-invent the
Doha round.
Good. But is it good enough to make the horse drink? The standoff is
over cuts in subsidies and taxes on farm produce in the West, in
return for emerging economies taking in more of their industrial
goods. India has an added concern over dumped food. This has held all
other aspects of the Doha round to ransom. The principles are not
being contested, the degree of accommodation to reach a deal is. A
wider body of view is seeking to take less knotty issues — the
treatment of extremely poor countries, for instance — onto a different
track. And there is growing realisation that talking in smaller groups
has more chance of yielding acceptable outcomes.
A world sobered up by shrinking trade is trying to stitch together a
rule-based system by 2010. It is also a world where Asia is emerging
as a competitor to the US as the consumer of last resort. Both events
will have shaped attitudes around the negotiating table. For example,
trade is exerting an inordinate influence on India’s growth momentum
although it has less than a 2 per cent share of global exports. Nomura
Research reckons that net exports contributed half of the 6.1 per cent
GDP growth in the last quarter because imports shrank twice as fast as
exports on falling oil prices. This makes the domestic demand argument
slightly wobbly. The rash of bilateral trade treaties being signed
across the globe cannot hope to match the gains of a multilateral
framework. The New Delhi meeting was an admission of this reality. Now
it’s time to get cracking. The world is losing an estimated $250
billion every year after the lapse of the original deadline of 2005
for completing the Doha round.
bademiyansubhanallah
Tuesday, September 8
Government will fight economic winter with full force : Mukherjee
by Bhavesh on Tue 08 Sep 2009 10:32 AM IST
Finance Minister Pranab Mukherjee revealed on Tuesday that India’s
export to its major traditional markets in the developed economies has
contracted in the last ten months to combat this downturn in the
economy, the government has announced a slew of measures.
Addressing a two-day Annual Conference of the Directors General and
Chief Commissioners of Customs, Central Excise and Service Tax here,
Mukherjee said the government is taking steps, including reduction in
indirect taxes, to put more money into the hands of the consumers.
Mukherjee said, the government is taking all measures to counter the
economic swing.
The fiscal deficit is presently on the higher side and the Government
is determined to revert to the path of fiscal consolidation at the
earliest, Mukherjee said.
Emphasising the role that central excise officers comply Mukherjee
said, “As we rapidly integrate with the global economy, the role of
Customs and Central Excise officers has to be redefined. They are as
much facilitators of trade as tax collectors. CBEC’s role is multi-
faceted. It is one of the largest contributors to the central
government revenues.”
Analysing tax collection in the country, Mukherjee said: “I note with
satisfaction that the tax base of the indirect taxes has grown
steadily and as a share of GDP has gone up from 9.2 percent in 2003-04
to 12.6 percent in 2007-08. However, a matter of worry is that
indirect tax receipts during 2009-10 upto July 2009 have shown a
negative growth of 28 percent as compared to the last year.”
“We need to focus on continuous reduction in dwell time and
transaction cost for export and import so that the Indian industry
gains an extra edge to compete in the world market. Further, it not
only has to meet its traditional challenges of combating smuggling and
commercial fraud, but has to respond to new challenges in areas as
diverse as environment protection, transborder movement of goods
having a bearing on national security and international negotiations
in multilateral and bilateral for a,” Mukherjee added.
For strengthing the central excise forces, Mukherjee said: “A
multidimensional professional demand requires a paradigm shift in the
way the department functions. In this regard, I am very glad to note
the large-scale use of information technology in the department’s day–
to-day functioning. Equally heartening to note is the use of modern
gadgets like container scanners and baggage scanners at ports and
airports to detect smuggling in a more non-intrusive and real time
basis.”
Appreciating the work done by central excise in the field of risk
management system,Mukherjee said : “All this not only reduces public
interface but also provides more efficient and scientific basis for
improving tax compliance and enforcement measures. I believe, the
introduction of Risk Management System at main customs stations has
considerably reduced dwell time of goods at ports and airports.”
He also stressed on the need of creating a system of administration
which is transparent, fair and conducive to realisation of the full
potential of the officers at all levels.
“In order to improve professional efficiency, regular training of
officers at every level needs to be given high priority. While corrupt
elements should be dealt with sternly, the process of vigilance
enquiry should not itself take the form of punishment. Such inquiries
must be disposed of in a time bound manner,” Mukherjee said.
Source ANI
chhotemianinshallah
India weathered crisis 'extraordinarily well': WB
Agencies
Posted: Sep 11, 2009 at 1509 hrs IST
Bangalore World Bank said India has done ‘extraordinarily well’ in
tackling the global economic crisis with sound fiscal and monetary
policies.
"India has done extraordinarily well in weathering a global crisis
which was the most severe in 70 years," WB Country Director Roberto
Zagha told PTI here.
"India is fortunate to have had a macro economic management that it
has," he said.
Noting that the global crisis was of unprecedented proportions and
nature, he said India handled it remarkably well on fiscal and
monetary fronts as also on issues relating to contraction in credit.
"WB is very much appreciative of how India tackled the global crisis.
We are very impressed. (Indian) Government has a situation very well
in hand in the short term and the 11th Plan gives a very good
perspective for the medium term," Zagha said.
On WB's short-term goals for the country, he said essentially it would
be on how best it can support the country's priorities as set out in
the 11th Plan.
Zagha said if India continued to grow the way it's been growing, it
would be an industrialised country (in terms of per capita income
level) in about 25 years which (also) "means that need for the bank
(to extend loan to India) will no longer be there
chhotemianinshallah
Economic downturn sees an upsurge in labour unrest
Ranju Sarkar / New Delhi September 14, 2009, 0:12 IST
Sam Thomas, looking dapper in his red tie and half-sleeve striped
shirt, hardly shows the nervousness of a man who has been sacked by
his employer. A couple of days before the pilot finally forced a
reluctant Jet Airways to reinstate him after a five-day “sick out” —
the official term for mass sick leave by 650 of his colleagues that
crippled India’s largest private airline, Thomas told Business
Standard he was “fighting for dignity and not money”.
If Thomas represents the new face of India’s trade union leaders (he
is the joint secretary of the National Aviators’ Guild or NAG, the
union of Jet pilots), the old guard isn’t short of new-found
confidence either. The past year has seen a rising incidence of labour
strife in India, with strikes at Hyundai, Mahindra & Mahindra, Nestle,
banks and oil companies. The dissatisfaction varied from delayed wage
negotiations to appointment of contract workers to summary dismissal.
Though none of these protests were as violent as the killing of the
CEO of an Italian auto component maker by fired workers exactly a year
ago, and the scale isn't as big as it used to be in the sixties and
seventies, employers are worried by the rising employee unrest that
has coincided with the downturn, which saw companies curb production
and costs.
Sona Group Chairman Surinder Kapur says the strikes have cropped up
because there’s a contraction in business. “It’s a difficult time to
make settlements; we can't give people good increases but their
expectations have gone up,” he says.
Kapur, however, is quick to add that labour is generally becoming much
more responsive. “Gone are the days of animosity, they are working in
partnership,” he adds.
Kapur may have reason to mask his thoughts, but the “partnership” he
refers to is becoming less visible by the day.
Most unions attribute this to the fact that companies are increasingly
using contract workers who often account for 40 to 60 per cent of the
workforce. This has weakened the position of the semi-skilled
permanent workers, since contract workers are willing to work for one-
third of a permanent employee’s pay.
The downturn led companies to curb production and costs, which meant a
loss of incentives, holiday-working and overtime for workers. This
curtailed their take-home salaries in many cases by 30 per cent. As
incomes went down, the cost of living went up with rising prices.
“There’s increasing resentment among workers, which gets channelled in
other demands, stoppages and strikes,” says Franklin D’souza, joint
convener, Trade Union Solidarity Committee in Mumbai, which represents
20 unions.
Take the three-week strike at Nestle at its Pantnagar plant in April.
Unions allege that workers at the company’s plant at Samalkha in
Haryana were not getting dearness allowance, while all other new
plants were.
Salaries of officers have doubled or trebled in the last few years but
workers, on an average, received only a 6.5 per cent hike. The company
is growing by 20 per cent, paying dividends every year but there’s no
equity for us,’’ says D’souza. Nestle, which does not have a previous
history of strikes, did not reply to an email query.
Though the Nestle workers have returned to work long ago, the strike
created is an environment of fear. Managers of other plants at
Pantnagar say “If it’s Nestle today, can we be far behind?”
Their nervousness may not be misplaced. For example, auto majors
Hyundai and M&M lost two weeks of production to strikes in May while
MRF’s Arakkonam unit was paralysed for most of that month.
Besides bank employees, officers of oil companies and employees of Air
India, MTNL and Airport Authority (AAI) have been on warpath over the
implementation of new pay scales.
In many cases, disputes have risen as managements refused to recognise
the majority union. Union leaders say this was the cause of strikes at
Hyundai and MRF, and is also partly the case in Jet Airways.
“Employers are becoming arrogant. The formation of unions is being
vehemently opposed by managements who victimise employees,’’ says
Damodaran Thankappan, vice-president, New Trade Union Initiative, an
association of 260 independent labour unions in the country.
‘‘Employers don’t want unions nor do they want to have any dialogue
with employees. The state labour departments have become impotent; the
conciliation machinery is almost defunct… The government has paralysed
the labour department on the plea of the employers, who now want the
government to do away with inspection of labour laws,’’ he added.
Experts say that labour, which has been neglected since the early
1990s, has been numb for fear of losing their jobs. But pushed to the
wall, it is trying to fight back. The economic crisis has acted as a
trigger; a large number number of small-scale and unorganised units
have been closed and left thousands without jobs.
chhotemianinshallah
WTO talks resume in Geneva today
Press Trust Of India / New Delhi September 14, 2009, 0:59 IST
Negotiators from the World Trade Organization (WTO) member countries
will meet in Geneva tomorrow to kickstart trade talks that broke down
14 months ago and will focus on specifics like farm and industrial
products.
India’s negotiating team, headed by Additional Secretary in the
Commerce Minister D K Mittal, has already reached the WTO
headquarters, where it would be assisted by the country’s permanent
mission there.
An informal ministerial held here earlier this month helped break the
ice on the talks.
For about two weeks, the officials would deliberate mainly on the
issues of opening global trade in agriculture and industrial products
(Non-agriculture Market Access or Nama).
“They will make efforts to resolve the issues of livelihood security
of poor farmers and the flexibility for the developing countries in
Nama,” an official said.
It was mainly on these two contentious issues that the July 2008 talks
in Geneva collapsed, when India insisted on seeking adequate
protection for its farmers against import surges, while the US was not
willing to give much.
The negotiations then remained in limbo and it was at India’s
initiative that about 30 trade ministers met here during the September
3-4 period and agreed on resumption of talks.
India, to some extent, was blamed as a “fall guy” for the collapse of
ministerial talks, when the then Commerce and industry Minister Kamal
Nath held his ground against immense pressure from the developed
world.
The ministers agreed to send their chief negotiators back to Geneva
for, in the words of WTO Director General Pascal Lamy, “the real
engagements”.
It was only in this month that the Obama administration appointed the
US permanent WTO representative Michael Punk, who would be the main
interlocutor for the Indian team.
A study by Washington-based Peterson Institute for International
Economics has said that with the opening of the global trade through
the Doha agreement, the world economy may get a booster dose of
$300-700 billion a year. The Doha negotiations, which were launched in
the Qatari capital in 2001, were to complete by the end of 2004.
chhotemianinshallah
Abheek Barua: Preparing for recovery
Abheek Barua / New Delhi September 14, 2009, 0:25 IST
The RBI may be concerned about inflation but it is unlikely to put an
abrupt end to monetary accommodation, says Abheek Barua
The revival of the monsoon in north India over the last few weeks
certainly seems to have cheered the stock markets. The assumption
seems to be that while the damage to the summer crop is difficult to
undo, delayed rain will help the winter or rabi crop. A consensus also
seems to be emerging in the analyst community that while poor
agricultural output might have a simple arithmetical impact on growth,
the second-round effect on industry and services is likely to be
fairly muted. As a result, the impact on company profits could be much
less than what initial predictions suggested.
International news has also been positive. US labour market data for
August was better than expected for the fourth month in a row.
Manufacturing indices both in Europe and the US have been fairly
strong confirming that a recovery (even if temporary) is under way.
Risk appetite has improved as result — equity prices, for example, are
up across a range of markets as are other high-yielding asset markets.
I am not entirely convinced that this will sustain. For one, there is
a fairly large section of market analysts and academic economists who
seem to believe that the industrialised economies are headed for
another sharp dip in the business cycle. Their argument is now well
known — the current recovery is being driven by inventory restocking
and stimulus that will peter out by the year-end. The structural
changes that the US economy is going through (households rebuilding
their balance sheets by pushing up their savings, for instance)
restrain demand, not augment it. The net result is likely to be
another contraction in growth in the developed economies that will
affect the emerging economies as well. If this happens, it could
trigger a massive flight of capital from risky assets to the safety of
US treasury bonds. The dollar could appreciate as a result and other
currencies like the rupee could come under pressure.
The “double-dip” scenario is a contingency we must be prepared for
from the policy perspective. Thus it would be foolhardy at this stage
to extrapolate the future path of growth from current data, however
encouraging they may seem. The finance ministry has clearly decided to
wait and watch before withdrawing some of the fiscal stimuli and that
seems eminently sensible. The RBI may be extremely concerned about
inflation but it is unlikely to put an end to monetary accommodation
abruptly. As I have argued before, the first round of monetary
tightening is likely only in January. By that time we will hopefully
have a better sense on where the global economy and the domestic
economy are headed.
We must also prepare for a scenario in which the current recovery in
the global economy and markets sustains and ramps up risk appetite
further. Were that to happen, there is every chance that global
capital will flood economies like India that are growing much faster
than the rest of the world. This has implications both for the rupee
and money supply and we perhaps need to think out a clear strategy to
handle this.
For one, I think it is time we jettisoned the debate on whether the
RBI should or should not intervene to prevent excess appreciation of
the rupee. We cannot afford overvaluation of the currency. While
domestic markets might fetch us the base rate of 6-7 per cent, the
ability to grow faster will depend on how effectively we can
participate in the global recovery through exports of goods and
services. Unfortunately, every other economy in the world is likely to
think on the same lines. Our success then will depend on how
effectively we can prevent the rupee from appreciating against both
our trading partners and our competitors.
This calls for both market intervention by the RBI and a longer-term
strategy for the current account. One must remember that appreciation
of the rupee is not just the result of strong capital flows. It is
also the result of an inability to utilise these capital flows to feed
growth. If capital flows were to pick up and show signs of sustaining,
it is imperative to run a larger current account deficit in the long
term to avoid prolonged overvaluation. This in turn could be linked to
the import needs of the sectors that are likely to lead the next phase
of high growth — infrastructure, for instance. In short, we must (at
least analytically) link the need to step up project implementation in
infrastructure with the objective of preventing excessive appreciation
of the currency.
If the RBI does need to intervene more aggressively in the market, how
does it deal with the monetary consequence? There are two “comforts”
on this front. First, the government is likely to be a fairly large
bond issuer in the medium term given the size of the fiscal deficit.
This would lead to automatic “sterilisation”. Second, the recent
financial crisis has shown that the monetary stabilisation scheme
(MSS) has worked rather well. The stock of sequestered liquidity built
up during the phase of excess capital flows has come in handy in
dealing with both the liquidity crisis that came in the wake of the
Lehman collapse as well in funding some of the fiscal stimulus.
The benefits of sterilisation and the use of MSS bonds certainly
outweigh the static accounting “quasi-fiscal” costs of sterilised
intervention. If capital flows become difficult to handle we should
not hesitate to issue another large tranche of bonds designed to suck
out liquidity.
Both the prospects of sustained recovery and downturn are equally
challenging for policymakers. The right formula might be to stick to
what has worked best in the past and let prudence, not dogma, guide
policy.
The author is chief economist, HDFC Bank. The views here are personal
chhotemianinshallah
Reassuring numbers
More evidence that a recovery has begun
Business Standard / New Delhi September 14, 2009, 0:18 IST
The numbers for the Index of Industrial Production (IIP) for July 2009
reinforce the perception that the economic recovery is gaining a firm
foothold. Although the 6.8 per cent growth recorded over July 2008 was
somewhat lower than in the previous month, both June and July indicate
a sharp break from the sluggishness visible over previous months as
the index veered from negative to marginally positive growth rates.
Concerns about sustainability in the face of a weak monsoon persist.
However, given the fact that July was a rather bad month as far as
rainfall was concerned, the impact is apparently yet to be felt. Many
forecasters expect the growth numbers to moderate a bit as the effect
of the sub-normal monsoon sets in, but they support a relatively
optimistic view of the economy. The most striking feature of the
numbers is the fact that the manufacturing sector, which accounts for
almost 80 per cent of the Index, is more or less keeping pace with the
overall index. Overall, the July numbers take the year-on-year growth
rates of the overall IIP and the manufacturing sector for the first
four months of the financial year to 4.6 per cent and 4.3 per cent,
respectively.
Within the manufacturing sector, the pattern across industrial
segments is relatively uneven, as would be expected in this phase of
the recovery. Twelve out of the 17 segments recorded positive growth
in July, but a few did far better than the others. Key sectors like
Transportation Equipment, Machinery & Equipment and Metal Products all
saw growth rates of over 10 per cent, over July 2008. Non-metallic
Mineral Products, largely cement, also did reasonably well at 8.3 per
cent. The export-intensive Cotton Textiles and Textile Products
segments continued to be sluggish, though with positive growth rates.
Somewhat surprisingly, Wool and Man-made Textiles and Leather
Products, both also export-intensive, did really well, turning in
growth rates of about 30 per cent and 15 per cent, respectively. From
the use-based perspective, the most outstanding performer was Consumer
Durables, which grew 19.8 per cent, maintaining its 15 per cent-plus
streak over the past two months. This is clearly driven by the Sixth
Pay Commission payout, which will continue for a while as state
governments and other components of the public establishment roll out
their hikes.
From a policy standpoint, if this is indeed the beginning of a
sustained recovery, the focus should rightly shift to exit, in line
with the global pattern. For a government trying to rein in fiscal
over-commitment, this will provide relief in the form of higher tax
revenue. For the central bank, the broad base of the recovery across
industrial segments will lessen the dilemma about raising interest
rates when the time comes. Overall, while the impact of the global
recession is still evident in the sluggishness of some key export
sectors, domestic demand seems to be taking up the slack and not just
because of government largesse.
chhotemianinshallah
Land dilemmas
A 'hands off' policy by the govt is not enough
Business Standard / New Delhi September 14, 2009, 0:22 IST
The economic future of West Bengal has received a second major blow
with the state government cancelling a major information technology
project that was to come up on the outskirts of Kolkata, one in which
anchor investors like Infosys and Wipro had been allotted land. This
comes after the cancellation of the Nano project of Tata Motors, which
ended the state’s attempt to emerge as an automobile hub. Both the
projects have come to grief for the same reason — farmers’
disaffection over losing their land to proposed new projects. In the
case of the Nano project at Singur, Trinamool Congress leader Mamata
Banerjee led a successful agitation against state acquisition of
fertile agricultural land. The proposed central land acquisition
legislation, which would have allowed the government to acquire the
balance provided private promoters first acquired 70 per cent of the
land required for a project, was also subsequently stalled as Ms
Banerjee was opposed to even this limited role for the government.
Ironically, the land for the IT project was not being acquired
directly by the government from the farmers but by a private developer
who was to hand over a part of the land to the government for the IT
project and retain the rest for the development of a resort, spa and
housing. Things boiled over when a shootout over the outcome of a
local football match (of all things) led to the destruction of the
Vedic Village resort. Farmers who felt that they had been cheated out
of their land by musclemen of private promoters, who enjoyed the
support of local political leaders, gave vent to their anger. Unlike
in Singur, Ms Banerjee has not been upfront in crying foul. She has
made a token protest at a single public meeting in which she has
promised that she will not protect her own partymen if they are found
to be involved. This suggests that the nexus between private entities
and local politicians stretches across party lines. The underlying
politics goes deeper. The abruptness with which the West Bengal
government has cancelled the project is being interpreted as chief
minister Buddhadeb Bhattacharjee’s attempt to get at some of his
opponents within his own CPI(M) who are reportedly part of the
promoter-politician nexus in the IT project area.
Where does industrialisation go from here? While some of the elements
of the present episode are peculiar to West Bengal (which has a high
land-man ratio, so that buying even small tracts of land for industry
displaces many people), similar disputes have erupted elsewhere. A
proposed expressway from Bangalore to its new international airport
has not been built because of a plethora of court cases. Private
interests which had acquired land in anticipation of the project have
reportedly been pressurising the Karnataka government to change the
alignment of the road to suit them. It seems that the government’s
keeping out of land acquisition for private projects may not be
enough, because a variety of other rackets can thrive. Among other
things, payment for land could be part lump sum (which can easily get
spent) and part annuity, so that a minimum income is assured for those
who lose their land.
chhotemianinshallah
FDI up 56% as India beats recession blues
Press Trust of India / New Delhi September 10, 2009, 15:47 IST
India is back on the radar of global investors even in the midst of
the global financial crisis, with 56 per cent year-on-year rise in
inflows of foreign direct investment in July this year, an official
said.
The FDI inflows in July this year were at $3.51 billion against $2.25
billion in the same month last fiscal. In June this year the figure
was at $2.58 billion.
However, the total inflows during the April-July period contracted by
about 15 per cent to $10.53 billion over the same quarter of 2008-09,
due to poor accruals in the opening months of the fiscal.
In the first four months of 2008-09 it was at $12.32 billion.
"We are hopeful that by the end of this financial year, FDI would be
over $30 billion," the official added.
In 2008-09, the government had set a target of $35 billion, but was
able to receive only $27.3 billion due to the meltdown in the global
financial markets.
The FDI inflows fell significantly from October 2008 and the monthly
data remained lacklustre till June.
chhotemianinshallah
FM sticks to 6% plus growth forecast for FY10
Press Trust of India / New Delhi September 7, 2009, 14:26 IST
The second and third quarters of FY10 are unlikely to see the economy
expanding at the pace it did in April-June period, but that does not
warrant a downward revision of growth forecast, Finance Minister
Pranab Mukherjee said today.
The government estimates that the economy would grow by more than six
per cent this fiscal. While the first quarter growth was a healthy 6.1
per cent, the numbers for the following two quarters are expected to
be inadequate.
Mukherjee, addressing the forum of financial writers, said that he
was, however, not revising the target of six per cent-plus growth rate
for the fiscal as the economy will expand at a higher pace in the
fourth quarter.
"So far as growth is concerned, I am a little doubtful whether the
economy will grow at the same level in second quarter and third
quarter as in first quarter. Agriculture growth may be a little less,"
he said in his opening remarks.
The first quarter growth reflected the stimulus measures provided by
the government and the Reserve Bank.
There are apprehensions that erratic monsoon and drought in many parts
of the country will slow down farm output in the next six months. The
agricultural sector grew by 2.4 per cent in the first quarter of this
fiscal as compared to 3 per cent in the same period last year.
chhotemianinshallah
Hiring to pick up in Q3 due to economic recovery: Naukri.Com
Press Trust of India / Chandigarh September 4, 2009, 16:29 IST
Hiring activity particularly in the manufacturing and infrastructure
sectors is expected to pick up in the third quarter of this fiscal on
the back of the country's economy showing signs of recovery, a top
official of online recruitment portal Naukri.Com said.
"We expect the hiring exercise to pick up a bit, particularly in key
sectors like manufacturing and infrastructure in the third quarter of
2009-10," Info Edge (that runs Naukri.Com portal) Managing Director
Sanjeev Bikhchandani told reporters here today.
Bikhchandani said as per our job index, the overall hiring activity
has increased by 8 to 10 per cent in the last three months, although
it is not on the higher side. "It indicates that the economy is
getting into the recovery mode which will boost recruitment market,"
he said.
He further said six other industry sectors such as information
technology, real estate, retail advertising, media and exports would
continue to exhibit less job creation in these segments.
"I do not think there will be much job creation in these sectors this
year," he asserted.
Info Edge has a network of 60 offices located in 40 cities throughout
India. To cater for the Gulf market it has two offices in Dubai and
one in Bahrain and Riyadh each.
IMF remains cautious about global economic recovery
Lalit K Jha/PTI / Washington September 4, 2009, 12:57 IST
Acknowledging that the global economy appears to be emerging from the
worst financial and economic crisis in the post-war period, the
International Monetary Fund(IMF) Managing Director, Dominique Strauss-
Kahn Friday said the recovery will be sluggish and that a jobless
recovery remains a risk.
Delivering the 2009 Bundesbank Lecture in Berlin, Strauss Khan argued
that the stimulus measures adopted by countries to combat the global
crisis should be withdrawn only when the economic recovery has taken
hold and unemployment is set to decline.
"I am concerned about the social and economic costs of high
unemployment, which will persist even as financial markets and output
stabilizes," the IMF Managing Director said.
Given the fragility of the recovery, Strauss-Kahn warned that
"Policymakers should err on the side of caution as they decide when to
exit from their crisis response policies."
However, governments should develop their exit plans now so that they
are able to build public support and act when the time is right, he
said.
Strauss-Kahn underlined that international policy coordination has
been an essential part of the response to the crisis and that
"coordination of exit strategies will be just as important."
Thanks to concerted and forceful policy actions, the crisis had been
contained, he said. Expecting recovery to be relatively sluggish, he
said in the advanced economies, it is still largely driven by policy
stimulus and restocking, with underlying private demand remaining
weak. The outlook for the emerging economies is considerably better,
though the pace of recovery in advanced trading partners remains a
risk, he said.
In his address the IMF Managing Director said there needs to be focus
on three policy areas which are essential to ensure a sustainable
recovery –identifying new source of growth, reforming the financial
sector and strengthening the international monetary system.
While noting that many proposals had emerged for reforming the
international monetary system, he said "the current system, despite
its problems, is working better than is often said." The US dollar had
actually strengthened during the crisis, which in his view "reflects
the dollar's status as an unrivalled safe haven asset."
To make the international monetary system more stable, he emphasized
that reducing countries’ demand for reserves and strengthening
insurance mechanisms would be essential.
The IMF could play an important role in this regard and ideas that
could be explored include: making access to its funding more
predictable; making Special Drawing Right allocations more responsive
to global developments;and increasing the Fund’s resource base.
Expressing concern that the improvement in financial markets "is
leading to complacency in dealing with remaining and difficult
problems in the banking system", he urged policy makers to remain
focused on the crisis response agenda, which includes undertaking a
comprehensive diagnosis of banking systems and launching asset-
management programs to deal with banks’ bad assets.
Strauss-Kahn also called for a global rebalancing of demand across
countries, which would require strong policy actions — including
fixing the financial system in advanced economies and boosting
domestic spending in emerging Asia.
chhotemianinshallah
September: 22 mnths of US recession, 1st yr of Lehman demise
Press Trust of India / Washington August 31, 2009, 11:58 IST
Weathering the worst ever financial storm in nearly 80 years, the US
economy in September, will not only be in recession for 22 consecutive
months but the month also marks the first anniversary of Lehman
Brothers' failure.
Unlike last September, this time around, the financial conditions have
improved and the pace of GDP contraction is slowing down.
A slew of unprecedented measures including mammoth stimulus packages
and near-zero interest rate seem to have helped in bringing the
nation's economy on stabilisation path.
Despite the efforts, the US economy next month would be in recession
for 22 months continuously, the longest ever since the 1930s Great
Depression.
The American economy officially slipped into recession in December
2007 and the situation turned for the worse, with the bankruptcy of
then Wall Street giant Lehman Brothers on September 15, 2008.
Indicating that the worst could well be over, the US GDP shrank less
than expected at one per cent in the second quarter of 2009 and is
widely anticipated to exit recession later this year.
In the first quarter, the GDP contracted 6.4 per cent. Moreover, the
jobless rate slipped to 9.4 per cent in July while the count of people
seeking unemployment benefits came down for the week ended August 22.
Since Lehman Brothers bankruptcy, the country has seen millions of job
losses, rising bank failures and massive public spending, to name a
few.
The unemployment rate is currently hovering around 9.4 per cent and is
anticipated to remain higher, till the economy stabilises.
Further, so far this year, the number of US bank failures has shot up
to 84, over three times that of just 25 in 2008.
Apart from a stimulus package worth $787 billion, the Federal
government has also pumped in billions of dollars into the system by
way of various programmes and bailout measures.
Moreover, since late last year, the benchmark interest rate is at near-
zero.
With huge public spending, the country's fiscal deficit for 2009 is
projected to be around $1.6 trillion.
Nonetheless, recently, US Federal Reserve Chairman Ben S Bernanke said
that economic activity is "levelling out" and that financial
conditions have improved.
chhotemianinshallah
Attrition rate Indian BPO industry's biggest challenge: Book
Press Trust of India / New Delhi August 27, 2009, 13:19 IST
The BPO industry in India has undoubtedly been a very popular field of
employment in recent years but one of the biggest challenges it is
facing is a phenomenal rise in attrition rate, says a new book.
"On its flip side, it (the BPO industry) is characterised by lopsided
working hours, high-stress work culture and extremely high attrition
rates. Apart from other factors such as recession, currency dynamics
and higher wage arbitrage, one of the biggest challenges which will
have a lasting impact on the Indian BPO sector is the upswinging
attrition rate," says writer-teacher Shalini Verma in "Soft Skills:
For the BPO Sector."
"Of late, attrition rate in the BPO sector has risen phenomenally.
Retaining manpower at the mid and senior management levels, where
there is a visible significant movement, is proving to be a
particularly challenging job," the book published by Pearson, says.
According to the author, the rationale behind job-switching is that a
year or so at the mid-managerial level in some large BPO is supposed
to be a ticket to the senior management level somewhere else in the
industry.
"This growing trend could prove fatal for the growth of the sector and
could even derail its stability. The widening demand-supply gap and
the dearth of skill sets required to handle the scalability and
multilateral integration at the top level may only lead to the opening
of doors for experienced expatriates.
"This could be a jolt to India's prospects of remaining the most
sought-after BPO destination because that would eventually scale up
costs further," she writes.
Verma says soft skills are very important in the BPO-ITES sector.
"It is essential to be technically sound, but one should also have the
ability to convey the idea to the client in the simplest possible
manner," the book says.
India is undoubtedly one of the most favoured BPO destinations in the
world. According to a NASSCOM study, the Indian BPO sector has been
growing at a rate of over 35 per cent in the past three years
(2005-08).
The book also says BPO is the fastest growing segment of the overall
offshore market, and currently estimated at $26-29 billion.
According to another study, India has established a fairly substantial
lead over competing countries with a market share of 37 per cent
compared to Canada's 27 per cent and Philippines' 15 per cent.
Countries like Ireland, Mexico and China have single-digit market
shares.
The author says that the recent global economic slowdown has, to some
extent, adversely affected the growth of the ITES-BPO sector.
"But the Indian ITES-BPO sector and BPO exports, with the sector’s
youth power will soon turn around and reclaim their high growth rate,"
Verma writes.
chhotemianinshallah
Portal comes to the help of IT workers battling recession
Press Trust Of India / Bangalore August 26, 2009, 0:43 IST
Gripped by despair after being handed out pink slips, IT professionals
now have help at hand, with a group of concerned fellow professionals
hosting a website to help them.
Seven professionals from this IT hub developed and launched the
website to help the IT and ITeS (business process outsourcing)
community, which is the worst-hit due to recession.
“Part of this idea came three months ago, when we were moved by
newspaper reports that two IT professionals have committed suicide in
Bangalore and one in Chennai,” team head, T N Thandava Gowda told
reporters here.
“Through this portal, we have created a platform for IT professionals
to share their thoughts and post vacancies, if available, in their
respective companies”, he said, noting that employees letting known
openings in their firms is a unique model and such opportunities won’t
find mention in various jobsites.
Quoting industry sources, Gowda said approximately 3,000 IT jobs were
lost last month alone in Bangalore. “Prior to that, the figure was
higher.” Unfortunately, there were no openings for those who picked up
pink slips.
The new web forum that the team has launched has interesting sections.
Recession forum allows one to blog about anything related to recession
and lightens one’s burden. They can talk about their layoff
experiences and seek counselling.
In the ‘Hot Jobs — A helping hand’, there are leads for those on the
lookout for jobs. ‘India & recession’ has several tips and advice on
coping with recession, on entrepreneurship ideas, stress busting and
related issues. ‘News update’ has industry news that keeps one up to
date with the recent happenings in the industry and thus helps one
stay competitive.
“This website is not just about getting jobs. We talk a lot about
recession, where it’s moving and trends. We give tips to people on
what they have to do to keep their jobs”, Gowda, who runs an IT firm
focussed on e-governance projects, said.
The other six members of the team were not willing to be quoted as
they are working in private companies and want to steer clear of any
attention on them.
“They (the six members) certainly have concerns. They have been seeing
that (job losses) in their own companies on a daily basis. Certainly
there is a fear that they might lose jobs. There is a lot of turmoil,”
Gowda said.
The website is receiving a good response with one lakh hits per month,
he claimed.
chhotemianinshallah
Garment markets thrive amid recession
Rajat Roy / Kolkata August 24, 2009, 0:34 IST
If there is one market which remains totally unaffected by the current
recession, then it is the garment markets of Howrah and Metiaburuj.
These two markets together cater to the need of the rural population
in West Bengal, as well as the Eastern and North Eastern states. Now
that the festival season is just four weeks away, the two markets are
thriving with activities. Both these markets engage in wholesale
trade, and buyers from other states are flocking here to purchase
readymade garments at bargain price.
Every week hundreds of trucks loaded with bales of readymade garments
are leaving for distant places from Metiaburuj and Howrah. The last
week's sales tax collection from the Howrah Haat (a conglomeration of
11 markets) alone was to the tune of Rs13.5 lakh, according to Rakhal
Chowdhury, the secretary of Howrah Haat Samannay Samiti. By
arrangement with the state government his Samiti is also responsible
for collecting the sales tax. According to traders, the Metiaburuz
market yielded another 8-10 lakhs in the same week. At 4% rate of
sales tax, the total volume of trade in one week in these two markets
comes to around 5.75 crore.
If we reckon that these two markets are kept open only for two days a
week, and that a good number of small traders are still not required
to pay sales tax, the total volume of trade in these two markets is
quite substantial.
Alamgir Fakir, the secretary of Metiaburuj's Bangla Readymade Garment
Manufacturers and Traders Welfare Association, told Business
Standard,"This year Eid and Durga Puja festival will be held in the
fourth week of September, so both Metiaburuj and Howrah wholesale
garment markets are busy with the festive season buying from the first
week of August onwards."
The wholesalers of both these markets are of the view that there is no
downward trend in the sales. "We have not felt any impact of the
global recession," opined Rakhal Chowdhury, who has been doing
business from Howrah Haat for the last 45 years. Last year (2008-09)
the total sales tax collection from Howrah Haat was around Rs.2.97
crore. Going by the present trend in business, Chowdhury expects this
year's sales tax collection would be far in excess of Rs. 3 crore.
In Howrah Haat's 11 markets there are around 20-25,000 traders
registered with the association. Besides them there are another 10,000
unregistered small traders who are doing business in the fringe areas
of the markets. In Metiaburuj, another 30,000 manufacturer cum traders
are engaged in this business. According to Alamgir Fakir, in
Metiaburuj, most of the traders have dual identity as they also run
units to manufacture the garments with the help of tailors located in
various parts of south
Bengal. "Every year we keep a tab on the readymade garment market in
Mumbai for the latest fashions, and then customise those to suit our
need," said Chowdhury. The key to the proliferation in business is to
keep the manufacturing cost at a very low level and also to sell the
product keeping a small margin for them. "Even today we can sell a
shirt or a shalwar-kurta at a very low price," confided he.
Since the trade in this wholesale readymade garment industry is
heavily depended on extending credit facility to the buyers, the
traders are worried. Alamgir Fakir explained, "This year agriculture
is badly hit because of drought. That means the payment will be late".
Ironically, the entire garment industry in Howrah and Metiaburuj
hardly gets any access to the bank credit. For that they are dependent
on the moneylenders. Here, the wholesale cloth merchants from whom
they buy the cloth provide them with the required credit. "Basically,
we buy cloths from the wholesalers in Burrabazar on credit, and then
engage our workers to stitch the garments according to prescribed
designs, and then bring that in the market."
The small margin they keep for themselves is the reason for the
thriving business which attracts wholesale traders of readymade
garments from far off places like Assam, Tripura, Meghalaya, Manipur,
Bihar, North Bengal, Sikkim and Orissa.
Sid Harth
India's economy will stabilise in 6 months, says Montek
Reuters
Published on Mon, Sep 14, 2009 at 15:08,
Updated on Mon, Sep 14, 2009 at 15:28 in Business section
New Delhi: India's economy is stabilising and will remain a favoured
destination for foreign investors as normality returns to global
markets, Planning Commission Deputy Chairman Montek Singh Ahluwalia
said on Monday.
Ahluwalia said there had been a pick-up in credit growth and foreign
capital inflows were expected to rise in coming months, adding to
signs the economy was finding a footing.
"I think in the next six months, you will see the evidence of
stabilisation," Ahluwalia told reporters after a conference. Earlier
this month, the Planning Commission forecast economic growth of 6.3
per cent for 2009/10.
In a worst-case scenario, it said growth could fall to 5.5 per cent if
farm output was badly hit by the worst dry spell in nearly four
decades.
Asia's third-largest economy grew 6.7 per cent in 2008/09, slower than
9 per cent or more expansion clocked in the previous three years.
Ahluwalia said the collapse of Lehman Brothers a year ago sparked
serious concerns about stabilising the financial system, but noted the
worst fears had not been realised.
"I think the capital flows into India will not be adversely affected.
In fact, when (the global financial) system stabilises, I think people
will recognise India remains one of the fastest-growing countries in
the developing world," he said.
"I don't think we will have difficulty in getting the amount of
capital that we want. It may not go to the level that we had in 2007
but that flow was more than we needed," he said.
Foreign funds have been net buyers of $8.75 billion of Indian shares
so far this year, after selling more than $13 billion last year.
In 2007, foreign funds were net buyers of $17.4 billion of stocks.
Data last week showed foreign direct investment (FDI) in the first
four months of 2009/10 (April-March) was $10.5 billion, down about 15
percent from a year earlier.
Earlier this month, the G20 finance leaders agreed on the need to
continue economic stimulus until recovery was well entrenched, and
strengthen financial regulations.
"We are concerned that in the guise of improving regulation, they
should not be putting in place rules that end up discriminating
against the developing countries," Ahluwalia said.
Sid Harth
MONTEK SPEAKS ON ECONOMY
India's GDP to grow by 6.5 pc in 2009: Montek
CNN-IBN
Published on Sat, Feb 21, 2009 at 14:32,
Updated on Sun, Feb 22, 2009 at 11:36 in Business section
MORE BAD NEWS: Montek Singh Ahluwalia says the economic situation will
improve next year.
Mumbai: Planning Commission Deputy Chairperson Montek Singh Ahluwalia
says the global financial crisis would slow down India's Gross
Domestic Product (GDP) growth to just 6.5 per cent in the second half
of this fiscal.
"India will see 6.5 per cent growth in second half of this fiscal.
Growth has been targeted at seven per cent in financial year 2010 as
the global economy will revive in the second half of 2010 on the back
of various stimulus measures," Montek said in Mumbai on Saturday.
"Probably in the second half of the current fiscal year 08-09, the
growth rate was 6.5 per cent or something like that. Many people think
that the economy will get better in the second of the next fiscal
year. so then maybe we can hope for atleast seven," he added.
Montek's statement indicates the government is scaling down its growth
projections. The government had earlier said that the Indian economy
will grow by 7.1 per cent this year, despite the global economic
slowdown,
The GDP growth last year was nine per cent and the slowdown is largely
due to a fall in industrial and agricultural sectors.
Agriculture grew by 2.6 per cent this year, compared to 4.9 per cent
in the previous year while industrial growth nearly dropped to half
slipping to 4.8 per cent from last year's 8.1 per cent.
Growth rate in the service sector have also fallen.
chhotemianinshallah
Pakistan Economy Survey: 2008-2009
Economy claws back two per cent growth rate belying international
recession
ISLAMABAD, Jun 11 (APP): Notwithstanding flagging economic scenario on
domestic and international horizon, the country’s economy clawed back
2 per cent growth rate during outgoing fiscal 2008-09. Unveiling the
pre-budget document- Economic Survey for 2008-09 at the joint news
conference here Thursday at P Block Auditorium, the Advisor to Prime
Minister on Finance said country’s economy encountered diminishing
growth in vital sectors barring agriculture sector.
The economy plunged in the red for external factors which continued to
exacerbating the economic climate, the Economic Survey said adding,
agriculture sector however served as bulwark against recession and
economic meltdown looming over the global economic fronts.
The fragile economic conditions affected the growth of country’s
economy dropping its rate to merely two percent against the target of
4.5 percent during the outgoing fiscal 2008-09.
However the agriculture sector depicted stellar growth of 4.7 percent,
as compared to 1.1 percent witnessed last year and the target of 3.5
percent for the year.
Mainly better weather conditions and good support price to wheat
growers led to progress of agriculture sector.
“The intensification of war on terror into settled areas, coupled with
other domestic factors like political turmoil and an unstable law and
order situation, acute energy shortages, supply shocks, augmented by
external factors like worsening of international financial crisis
feeding into shrinkage of external demand and uncertainty about global
recession, tested the resilience of economic fundamentals,” said the
Economic Survey jointly launched by Advisor to Prime Minister on
Finance and Revenue Shaukat Tarin and Minister of State for Finance
and Economic Affairs.
The overall FBR tax collection remained less and witnessed
deceleration in real terms. The GDP ratio is likely to deteriorate to
around 9 percent of GDP as against the target of bringing it in the
vicinity of 10 percent of GDP.
The survey shows that the economy moved to a higher growth trajectory
during 2002-07 on the back of heavy reliance on external financing and
use of sale proceeds from some public sector assets to meet growing
current account deficit.
Output in the manufacturing sector contracted by 3.3 percent in
2008-09 as compared to expansion of 4.8 percent last year and
overambitious target of 6.1 percent. Small and medium manufacturing
sector maintained its healthy growth of last year at 7.5 percent.
Large-scale manufacturing depicted contraction of 7.7 percent as
against expansion of 4.0 percent in the last year and 5.5 percent
target for the year. The massive contraction has been because of acute
energy outages and security environment.
The services sector grew by 3.6 percent as against the target of 6.1
percent and last year’s actual growth of 6.6 percent. The value-added
in the wholesale and retail trade sector grew at 3.1 percent as
compared to 5.3 percent in last year and target for the year of 5.4
percent.
Finance and insurance sector witnessed a slowdown to 12.9 percent in
2007-08 but registered negative growth of 1.2 percent in 2008-09.
The Transport, Storage and Communication sub-sector depicted a sharp
deceleration in growth to 2.9 percent in 2008-09 as compared to 5.7
percent of last year.
Pakistan’s per capita real income has risen by 2.5 percent in 2008-09
as against 3.4 percent last year. Per capita income in dollar terms
rose from $1042 last year to $1046 in 2008-09, thereby showing
marginal increase of 0.3 percent.
Real private consumption rose by 5.2 percent as against negative
growth of 1.3 percent attained last year. However, gross fixed capital
formation could not maintain its strong growth momentum and real fixed
investment growth contracted by 6.9 percent as against the expansion
of 3.8 percent in the last fiscal year.
National savings rate has nose-dived to 14.4 percent of GDP in 2008-09
as against 13.5 percent of GDP last year. Domestic savings also
declined substantially from 16.3 percent of GDP in 2005-06 to 11.2
percent of GDP in 2008-09.
The survey shows that net domestic assets (NDA) increased by Rs 443.8
billion as compared to increase of Rs 702.5 billion last year, thereby
showing an increase of 11.0 percent in this period, whereas last year
the growth in the comparable period was 22.8 percent.
Net foreign assets (NFA) recorded a contraction of Rs 227.3 billion
against the contraction of Rs 322.8 billion in the comparable period
of last year.
Government borrowing for budgetary support has recorded an increase of
Rs 332.2 billion as compared to Rs 361.0 billion in the comparable
period of last year. The SBP financing has shown a net increase of Rs
198.2 billion and financing from scheduled banks witnessed a net
increase of Rs 134.0 billion during July 1, 2008-May 16, 2009.
Credit to private sector witnessed a net disbursement of Rs 26.8
billion as compared to Rs 369.4 billion in the comparable period of
last year.
Weighted average lending rate witnessed a decline from 15.5 percent in
October, 2008 to 14.3 percent in March, 2009. Weighted average
deposit rate, on the other hand, decreased from 9.5 percent in October
2008 to 8.0 percent in March 2009, which implies increase in the
spread amid intensive deposit mobilization efforts on the part of the
banks.
The weighted average yields on 6 months T-bill declined by almost 250
basis points to 11.5 percent in March 2009 as against 14 percent in
November 2008 but inched up to 12.4 percent in April 2009.
The inflation rate as measured by the changes in Consumer Price Index
(CPI) stood at 22.3 percent during July-April 2008-09, as against 10.3
percent in the comparable period of last year. However, year-on-year
inflation decelerated from 25.3 percent in August 2008 to 17.2 percent
in April 2009. The food inflation is estimated at 26.6 percent and
non-food 19.0 percent against 15.0 percent and 6.8 percent in the
corresponding period of last year.
The increase in inflation rate during the current year 2008-09 is
attributable to the increase in food price inflation which has been
due to increase in prices of edible oil, pulses, rice, milk, poultry,
meat, wheat, wheat flour, fresh vegetables and fruits.
On current trends, and barring any adverse shocks, it is expected that
the average inflation for the year (2008-09) as measured by CPI will
be close to 21.0 percent.
The core inflation which represents the rate of increase in cost of
goods and services excluding food and energy prices also went up from
7.5 percent to 20.3 percent.
The Wholesale Price Index (WPI) increased by 21.4 percent, as against
13.7 percent of last year.
The Sensitive Price Indicator (SPI) has recorded an increase of 26.3
percent during July-April 2008-09, as against 14.1 percent of last
year.
Tax Revenue collected by the FBR amounted to Rs 898.6 billion during
the first ten months (July-April) of the current fiscal year, which is
17.7 percent higher than the net collection of Rs 763.6 billion in the
corresponding period of last year.
The net Direct tax collection was estimated at Rs 332.5 billion
against the target of Rs 496 billion which implies a growth of 16.9
percent during July-April 2008-09.
Indirect taxes grew by 18.2 percent during July-April 2008-09 and
accounted for 62 percent of the stake in overall tax revenue. The
sales tax collections grew by 22.2 percent and stood at Rs 358.9
billion as against Rs 293.6 billion in comparable period of last
year.
The net customs duty collection inched up from Rs 114.9 billion in
2007-08 to Rs 117.2 billion in 2008-09, thereby showing modest growth
of 2.1 percent. The net collection of federal excise stood at Rs 90.0
billion during July-April 2008-09 as against Rs 70.6 billion in the
corresponding period of last year, thereby showing an increase of 27.5
percent.
Despite a decline in fiscal deficit in the first nine months of
2008-09, the growth in domestic debt accelerated, reflecting non-
availability of financing through external sources. The stock of
domestic debt grew by Rs 484.4 billion during July-March 2008-09.
The public debt-to-GDP ratio, which stood at almost 55.5 percent in
end June 2007, increased to 57.4 percent by the end of June 2008
mainly because of high fiscal deficit resulting in massive borrowing.
However, by end-March 2009 public debt declined to 55.5 percent of the
GDP for the year mainly because of better fiscal discipline displayed
during 2008-09. In absolute terms, public debt grew by 23.2 percent in
the first nine months (July-March 2008-09).
Exports were targeted at $19.0 billion, or 6.9 percent lower than last
year. Exports started to face heat of global recession since January
2009 and the contraction of world demand for major exports exacerbated
export contraction. The exports witnessed negative growth of 2.6
percent—declining from $16.4 billion of last year to $16.0 billion in
July-April 2008-09.
Imports registered a negative growth of 9.8 percent in July-April
2009. The imports stood at $26.77 billion as against $28.715 billion
in the comparable period of last year. The growth in imports reflects
impact of substantial fall in oil and food imports in monetary terms
and these two items were responsible for 80 percent of additional
import bill of last year. Import compression measures, coupled with
massive fall in international oil prices, have started paying
dividends and imports witnessed marked slowdown during the last two
months.
The merchandise trade deficit improved by 12.3 percent and declined
from $10.7 billion in July-April 2008-09 to $12.3 billion in July-
April 2008-09. The substantial decrease of 9. 8 percent in imports
outstripped otherwise significant decrease of 3.0 percent in export
growth which caused the trade deficit to improve by 12.3 percent.
Workers’ remittances totalled $6.4 billion in July-April 2008-09 as
against $5.3 billion in the comparable period of last year, depicting
an increase of 19.5 percent.
Current Account Balance Pakistan’s current account deficit shrank by
23.5 percent during July-April 2008-09. Current account deficit shrank
to $8.5 billion as against $11.2 billion last year.
Foreign Exchange Reserves declined substantially in the initial months
of 2008-09, dropping from $11.4 billion at end-June 2008 to a low of
$6.4 billion by November 25, 2008. This depletion of reserves in the
five months was lower than fall in forex reserves for the whole of
2007-08. The subsequent partial recovery in November 2008 owed
essentially to the inflow of $3.1 billion from the IMF following
Pakistan’s entry into a macroeconomic stabilization program. The
import coverage ratio declined to an uncomfortable level of 9.1 weeks
as of end-October 2008 from 16.8 weeks of imports as of end-June 2008,
but it improved to 18.0 weeks of imports by end-April 2009.
The Economic Survey of 2008-09 shows that Exchange rate after
remaining stable for more than 4 years, lost significant value against
the US dollar and depreciated by 21 percent during March-December
2008.
With successful signing of Standby arrangement with the IMF, the
rupee regained some of its lost value.
During the first ten months (July-April) of the current fiscal year
foreign investment declined by 42.7 percent and stood at $2.2 billion
against $3.9 billion in the comparable period of last year.
Foreign direct investment (private) showed some resilience and stood
at $3205.4 million during the first ten months (July-April) of the
current fiscal year as against $3719.1 million in the same period of
last year thereby showing a decline of 13.8 percent.
Private portfolio investment on the other hand showed an outflow of
$451.5 million as against an inflow of $98.9 million during the
comparable period of last year, showing a decline 25.7 percent.
Manufacturing sector is the second largest sector of the economy,
contributing 18.4 percent to GDP. This sector has recorded its weakest
growth in a decade during current fiscal year. Overall manufacturing
posted a negative growth rate of 3.3 percent during the current fiscal
year against the target of 6.1 percent and 4.8 percent of last year.
chhotemianinshallah
Remittances reached record level of $6.5 bln
ISLAMABAD, Jun 11 (APP): The total remittances inflow during 2001-02
and 2007-08 amounted to $ 31 billion, equivalent to 18.3 percent of
GDP and in 2007-08, remittances reached a record level of $ 6.5
billion. Remittances supplement the household income, uplift life
standard and thus reduce absolute poverty.
According to the Economic Survey 2008-09, remittances help the
household to increase their consumption expenditure on food, develop
expenditure on housing, skill development and establishment of small
businesses thus improving the scope for higher future income.
Remittances from expatriate Pakistanis are believed to have had a
major impact on the reduction in the incidence of poverty.
This massive inflow of foreign remittances, when translated into
increased consumption expenditures and greater employment
opportunities generated through greater investments in the
construction industry, the SME sector, and other businesses
contributed to the decline in poverty in the country.
The record workers remittances ($739.43 million) in March 2009, could
serve as a major source of satisfaction. It is also worrisome with the
apprehension that big rise in remittances may indicate that those
Pakistani workers abroad who have lost work are moving their capital
back home.
There are downside risks to remittances in the wake of ongoing
recession in the source countries.
Almost all Pakistani overseas workers’ destination countries are
projected to grow at lower rate in 2008-09 compared 2007-08 which will
influence overseas migration of Pakistan labour and thus lower
remittance.
All such factors are likely to serve as a stress on poverty reduction
strategy and would necessitate further pro growth strategic measures
and further strengthening of social safety nets.
chhotemianinshallah
Highlights of Economic Survey 2008-09
ISLAMABAD, June 11 (APP): Following are the highlights of Economic
Survey 2008-09 launched by Advisor to Prime Minister on Finance
Shaukat Tarin on Thursday.
--- Real GDP grew by 2.0 percent in 2008-09 against 4.1 percent last
year and growth target of 4.5 percent. The modest growth of just 2.0
percent is shared between Commodity Sector (0.08 percentage points)
and services sector (1.92 percentage points.
--- Agriculture sector has depicted a stellar growth of 4.7 percent as
compared to 1.1 percent witnessed last year and target of 3.5 percent
for the year.
--- Output in the manufacturing sector contracted by 3.3 percent in
2008-09 as compared to expansion of 4.8 percent last year and target
of 6.1 percent.
--- The services sector grew by 3.6 per cent as against the target of
6.1 percent and by last year’s actual growth of 6.6 percent.
--- Pakistan’s per capita income has risen by 2.5 percent in 2008-09
against last year.
--- Real private consumption rose by 5.2 percent against negative
growth of 1.3 percent attained last year.
--- Total investment declined from 22.5 percent of GDP in 2006-07 to
19.7 percent of GDP in 2008-9.
--- The national saving declined to 14.4 percent of GDP in 2008-09
against 13.5 percent of GDP last year.
--- The overall foreign investment during the first ten months (July-
April) of the current fiscal year has declined by 42.7 percent and
stood at $ 2.2 billion against $ 3.9 billion in the comparable period
of last year.
--- Foreign direct investment (private) showed some resilience and
stood at $3205.4 million during the first ten months (July-April) of
the current fiscal year as against 3719.1 million in the same period
last year thereby showing a decline of 13.8 percent.
--- The agriculture growth this year is estimated at 4.7 percent as
compared with 1.1 percent during 2007-08.
--- Overall manufacturing posted a negative growth of 3.3 percent
during the current fiscal year against the target of 6.1 percent and
4.8 percent of last year.
--- Large-scale manufacturing witnessed an across the board decline of
7.7 percent during ongoing fiscal year against the growth rate of 5.2
percent last year.
--- The mining and quarrying sector registered a growth of 1.3 percent
during the current fiscal year against the target of 4.5 percent and
4.4 percent last year.
--- The overall fiscal balance has recovered from a sizeable slippage
of 2007-08 amidst substantial decline in revenues and elimination of
some subsidies like on petroleum products.
--- During 2007-08, the SBP continued with tight monetary policy
stance, thrice raising the discount rate and increased the Cash
Reserve Requirement (CRR) and Statutory Liquidity Requirement (SLR).
--- Net Domestic Assets (NDA) was limited to just Rs 442.1 billion as
compared to Rs 655.4 billion in FY 08.
--- Net Foreign Assets (NFA) of the banking system recorded a decline
of over Rs 227.1 billion during the first ten months of the current
fiscal year to May, 9.
--- Government borrowing from the central bank has been dampened since
December 2008 in line with the target set under the macroeconomic
stabilization programme as part of the IMF Stand-By Agreement.
--- Credit to private sector grew by Rs. 21.8 billion during July-May
09 as compared to Rs. 369.8 billion during the corresponding period
last year.
--- The weighted average lending rate has risen by 210 bps during the
same period accompanied by 180 bps addition in the deposit rates.
--- During the outgoing fiscal year 2008-09, the benchmark stock
exchange KSE-100 index demonstrated acute volatility owing to
fluctuating outlook on political, macroeconomic and global grounds.
--- Aggregate Market Capitalization declines abruptly by Rs. 1,621
billion from Rs. 3,777 billion in June 2008 to Rs. 2,156 billion in
May 2009.
--- The inflation rate as measured by the changes in Consumer Price
Index (CPI) stood at 22.3 percent during the first ten month (July-
April) of the current fiscal year, 2008-09, as against 10.3 percent in
the comparable period of last years.
--- Overall exports recorded a negative growth of 3.0 percent during
the first ten month (July-April) of the current fiscal year against
positive growth of 10.2 percent in the same period of last year.
--- Imports during the first ten months (July-April) of the current
fiscal year 2008-09 decline by 9.8 percent compared with the same
period of last year, reaching to $28.92 billion.
--- Trade deficit decelerated by 12.3 percent during July-April
2008-09.
--- Services account deficit shrank by 41.3 percent during July-April
2008-09 to reach $3.2 billion.
--- Financial account contracts from $6,224 million to $3,476 million
during July-April 2008-09 against corresponding period last year.
--- Workers remittances amounted to $ 6355.6 million in July-April
2008-09 as against $ 5319.1 in corresponding period last year, thereby
showing an increase of 19.5 percent.
--- Pakistan’s total liquid foreign exchange reserves amounted to $
11.6 billion by the end of May, 2009.
--- External and Domestic debt as percentage of GDP increased from
28.1 percent at end-June 2008 to 30.2 percent by end-March 2009.
--- Total public debt increased by Rs. 1367 billion in the first nine
months of 2008-09, reaching a total outstanding amount of Rs. 7268
billion; an increase of 23.2 percent in nominal terms.
--- The total domestic debt is positioned at Rs. 3758 billion at end-
March 2009 which implies net addition of Rs. 484 billion in the nine
months of the current fiscal year.
--- The overall literacy rate (10 years and above) which was 55
percent in 2006-07 has increased to 56 percent in 2007-08, indicating
1.8 percent increase over the same period last year.
--- During 2008-09, 35 basic health units and 13 rural health centres
have been constructed, while 40 rural health centres and 850 basic
health units have been upgraded.
--- The population of Pakistan is 163.76 in 2008-09. At the existing
trend, the total population will reach 167 million by the year 2010
and 194 million by 2020.
--- Economic growth has slowed down considerably during the last
three years.
--- During the outgoing fiscal year, the length of the high typed
road network increased by 1.3 percent, while the length of low type
road network declined by 2.7 percent.
--- Karachi Port Trust handled 21.4 million tons cargo during current
fiscal year, depicting a growth rate of 44.3 percent.
--- Port Qasim Authority handled 18.01 million tons cargo during the
current financial year, depicting a shortfall of nine percent over Jul
07-Mar 08 owing to global economic crisis.
--- Pakistan Shipping Corporation lifted 5762.2 million tons of
liquid cargo and 865.0 million tons of dry cargo during the current
fiscal year.
--- PIA international passenger traffic, excluding Hajj, registered
an increase of 3.5 percent from 3,069,717 passengers during 2008 over
2,964,830 passengers last year despite the seat (capacity) reduction
of 2.3 percent.
--- Telecom sector exhibited positive but slow growth in terms of
revenue, subscribers and tele-density. total tele-density reached 60.6
percent during the current year.
--- Total fixed line subscribers in Pakistan stood at a total of 3.7
million as of March, 2009, yielding total tele-density of 2.3 percent.
Today there are 384,187 fixed, mobile and WLL payphones available
across the country. There are currently 267,180 broadband subscribers
showing almost 59 percent growth in six month time.
--- Production of crude oil per day has decreased to 66,531 barrels
during July-March 2008-09 from 70,165 barrels per day during the same
period last year, showing a decrease of 5.2 percent.
--- The average production of natural gas per day stood at 3,986.5
million cubic feet during July-March 2008-09 as compared to 3,965.9
million cubic feet over the same period last year, showing an increase
of 0.5 percent.
--- The total installed generation capacity has increased to 19754 MW
during July-March 2008-09 from 19566 MW during the same period last
year, showing a marginal increase (1.0 percent).
--- Presently, some 2,700 CNG stations are operating in the country.
By March 200 about 2.0 million vehicles were converted to CNG as
compared to 1.70 million vehicles during the same period last year,
showing an increase of 17.6 percent.
--- The current year was kicked off with regional level workshop on
climate change, which was inaugurated by the prime minister.
chhotemianinshallah
Fiscal deficit dropped to 4.3 percent of GDP: Economic Survey
ISLAMABAD, Jun 11 (APP): There has been significant improvement in
fiscal performance during 2008-09 due to the policy shift, with the
overall fiscal deficit estimated to have dropped to 4.3 percent of
annual GDP. According to Economic Survey 2008-09 jointly launched by
Advisor to the Prime Minister on Finance Shaukat Tarin and State
Minister for Finance Hina Rabbani Khar here today, in the current
fiscal year, the potential risk exists of tax-to-GDP ratio below 10
percent of GDP for the first time in the last two decades.
On revenue side, tax-to-GDP and hence, revenue-to-GDP, ratios either
remained stagnant or showed a decline, owing mainly to structural
deficiencies in the tax system and administration, both at federal and
provincial government levels.
The expenditure of the government in relation to GDP exhibited similar
pattern, with total expenditures showing an overall decline since the
beginning of the 1990s.
However, in 2008-09 total revenue as percentage of GDP slightly
recovered, due to a marginal improvement in non-tax revenues as
percent of GDP. Total revenue is expected to reach Rs 1910 billion, as
compared to Rs 1499.5 billion during the 2007-08.
The FBR revenue collection for the fiscal year 2008-09 was targeted at
Rs 1,250 billion at the time of presentation of the Federal Budget
2008-09. Tax collection during the first ten months (July-April) of
the current fiscal year amounted to Rs 898.6 billion, which is 17.7
percent higher than the net collection of Rs 763.6 billion in the
corresponding period of last year.
The tax collection performance felt the heat of slowing economy and
falling imports. Customs duty collection deviated from its recent past
track record of high growth mainly because of the fact that dutiable
imports underwent negative growth. Notwithstanding its meager share
even in indirect taxes, federal excise duty collections registered a
vibrant growth of 27.6 percent.
The sales tax collections are also relying heavily on imports and
sales tax at import stage witnessed marginal growth. On the other
hand, 47 percent growth in sales tax on domestic economic activity
helped it to grow overall by 22.2 percent.
When viewed in the backdrop of 23 percent growth in national income,
the growth of 16.9 percent in direct tax looks dismal. The overall FBR
tax collection remained less than satisfactory and actually witnessed
deceleration in real terms.
Resultantly, the FBR tax collection to GDP ratio is likely to
deteriorate to around 9 percent of GDP as against the target of
bringing it into the vicinity of 10 percent of GDP. Apart from FBR
revenue, total tax revenue growth also lagged behind the growth in
nominal GDP, as it exhibited a decline in tax-to-GDP ratio from 10.3
percent in 2007-08 to around 10 percent in 2008-09.
Notwithstanding all lackluster and half-hearted attempts to reform tax
administration and procedures, the tax-to-GDP ratio fluctuated in a
narrow band of 10 to 11 percent for almost one decade.
He budgeted total expenditure for the fiscal year 2008-09 was Rs 2391
billion, which is 4.9 percent higher than last year’s revised
estimate. On the other hand, current expenditures were envisaged to
remain more or less stagnant at Rs 1876 billion.
The stake of federal government in the current expenditure was to the
extent of Rs 1359 billion and the remaining Rs 517 billion were
earmarked for provincial governments. Development expenditure (after
adjusting for net lending) was targeted at Rs 396 billion in 2008-09,
which is up by 7 percent in comparison to last year.
On the basis of revenue and expenditure projections, the overall
fiscal deficit is estimated at Rs 562 billion or 4.3 percent of GDP as
against 7.4 percent last year.
Interest payments surpassed their budgeted level by a significant
margin. A sum of Rs 557 billion was budgeted for interest payments in
2008-09. The year is likely to end with interest payments of Rs 618
billion which are higher by Rs 61 billion over the budgeted amount.
chhotemianinshallah
Inflation rate in CPI stood at 22.3 percent during July-April
2008-09:Economic Survey
ISLAMABAD, Jun 11 (APP): The inflation rate as measured by the changes
in Consumer Price Index (CPI) stood at 22.3 percent during July-April
2008-09,as against 10.3 percent in the comparable period of last year.
However, year-on-year inflation decelerated from 25.3 percent in
August 2008 to 17.2 percent in April 2009, Economic Survey 2008-09
said.
According to the Survey which was launched jointly by Advisor to the
Prime Minister on Finance Shaukat Tarin and State Minister for Finance
and Economic Affairs Ms.Hina Rabbani Khar here today, the food
inflation is estimated at 26.6 percent and non-food 19.0 percent
against 15.0 percent and 6.8 percent in the corresponding period of
last year.
The survey said that the increase in inflation rate during the current
year 2008-09 is attributable to the increase in food price inflation
which has been due to increase in prices of edible oil, pulses, rice,
milk, poultry, meat, wheat, wheat flour, fresh vegetables and fruits.
On current trends, and barring any adverse shocks, it is expected that
the average inflation for the year (2008-09) as measured by CPI will
be close to 21.0 percent.
The core inflation which represents the rate of increase in cost of
goods and services excluding food and energy prices also went up from
7.5 percent to 20.3 percent.
The Wholesale Price Index (WPI) increased by 21.4 percent, as against
13.7 percent of last year.
The Sensitive Price Indicator (SPI) has recorded an increase of 26.3
percent during July-April 2008-09, as against 14.1 percent of last
year.
...and I am Sid Harth
chhotemianinshallah
Climate, MDGs emerge as major challenges
ISLAMABAD, Jun 11 (APP): The government during last one year focussed
on number of initiatives to meet Millennium Development Goals and
avert the climate change impacts. Economic Survey of Pakistan launched
here Thursday revealed that to achieve the MDGs targets of vegetation
cover of 6 percent by 2015, the Planning Commission proactively
interacted with the Ministry of Environment and the Provincial Forest
Departments.
Main aim of interaction was to come up with project for afforestation
and reforestation to meet the MTDF and MDGs targets.
The President of Pakistan launched a Mass Afforestation Programme on
December 22, 2008. This programme will spread over a period of five
years and shall largely be sponsored by private entrepreneurs for
planting trees on state and other suitable lands.
Climate change is an emerging concern for Pakistan because of the
impact it will have on glaciers releasing water for crops. The
receding glaciers will increase water flows in the Indus basin,
followed by permanent reductions.
The main challenge has been to develop an understanding of how climate
change could affect Pakistan’s uplands and rivers, its agro-ecological
zones and sub-zones in the Indus Plain, and coastal lands.
Planning Commission established a task force to investigate the impact
of climate change on the country’s agriculture, economy and natural
resources.
The Government also initiated the Technical Advisory Panel (TAP) on
Climate Change that was officially launched on February 15, 2008.
TAP is expected to provide the requisite input to the government to
combat the threat of climate change by an enabling policy, regulatory
framework and vulnerability assessments of Climate Change.
Pakistan is blessed with a strategic location that enhances its
capacity to benefit from natural resources, provided these resources
are efficiently managed and maintained.
So far the government has taken significant initiatives in
collaboration with international agencies to counter complex issues
responsible for environmental degradation.
A pragmatic approach towards multifarious challenges requires in depth
and focused research, without which desired results will remain
unachievable.
chhotemianinshallah
Economy attains low growth due to diverse stresses and constraints
ISLAMABAD, Jun 11 (APP): The fragile economic conditions affected the
growth of country’s economy dropping its rate to merely two percent
against the target of 4.5 percent during the outgoing fiscal 2008-09.
However the agriculture sector depicted growth of 4.7 percent, as
compared to 1.1 percent witnessed last year and the target of 3.5
percent for the year. Mainly because of better weather conditions and
good support price to wheat growers led to progress of agriculture
sector.
“The intensification of war on terror into settled areas, coupled with
other domestic factors like political turmoil and an unstable law and
order situation, acute energy shortages, supply shocks, augmented by
external factors like worsening of international financial crisis
feeding into shrinkage of external demand and uncertainty about global
recession, tested the resilience of economic fundamentals,” says the
Economic Survey jointly launched here by Advisor to Prime Minister on
Finance and Revenue Shaukat Tarin and Minister of State for Finance
and Economic Affairs at a press briefing here on Thursday.
The overall FBR tax collection remained less and witnessed
deceleration in real terms. The GDP ratio is likely to deteriorate to
around 9 percent of GDP as against the target of bringing it in the
vicinity of 10 percent of GDP.
The Survey shows that the economy moved to a higher growth trajectory
during 2002-07 on the back of heavy reliance on external financing and
use of sale proceeds from some public sector assets to meet growing
current account deficit.
Output in the manufacturing sector contracted by 3.3 percent in
2008-09 as compared to expansion of 4.8 percent last year and
against the contraction of Rs 322.8 billion in the comparable period
of last year.
Government borrowing for budgetary support has recorded an increase of
Rs 332.2 billion as compared to Rs 361.0 billion in the comparable
period of last year. The SBP financing has shown a net increase of Rs
198.2 billion and financing from scheduled banks witnessed a net
increase of Rs 134.0 billion during July 1, 2008-May 16, 2009.
Credit to private sector witnessed a net disbursement of Rs 26.8
billion as compared to Rs 369.4 billion in the comparable period of
last year.
Weighted average lending rate witnessed a decline from 15.5 percent in
October, 2008 to 14.3 percent in March, 2009. Weighted average
deposit rate, on the other hand, decreased from 9.5 percent in October
2008 to 8.0 percent in March 2009, which implies increase in the
spread amid intensive deposit mobilization efforts on the part of the
banks.
The weighted average yields on 6 months T-bill declined by almost 250
basis points to 11.5 percent in March 2009 as against 14 percent in
November 2008 but inched up to 12.4 percent in April 2009.
The inflation rate as measured by the changes in Consumer Price Index
(CPI) stood at 22.3 percent during July-April 2008-09, as against 10.3
percent in the comparable period of last year. However, year-on-year
inflation decelerated from 25.3 percent in August 2008 to 17.2 percent
in April 2009. The food inflation is estimated at 26.6 percent and
non-food 19.0 percent against 15.0 percent and 6.8 percent in the
corresponding period of last year.
The increase in inflation rate during the current year 2008-09 is
attributable to the increase in food price inflation which has been
due to increase in prices of edible oil, pulses, rice, milk, poultry,
meat, wheat, wheat flour, fresh vegetables and fruits.
On current trends, and barring any adverse shocks, it is expected that
the average inflation for the year (2008-09) as measured by CPI will
be close to 21.0 percent.
The core inflation which represents the rate of increase in cost of
goods and services excluding food and energy prices also went up from
7.5 percent to 20.3 percent.
The Wholesale Price Index (WPI) increased by 21.4 percent, as against
13.7 percent of last year.
The Sensitive Price Indicator (SPI) has recorded an increase of 26.3
percent during July-April 2008-09, as against 14.1 percent of last
year.
Tax Revenue collected by the FBR amounted to Rs 898.6 billion during
the first ten months (July-April) of the current fiscal year, which is
17.7 percent higher than the net collection of Rs 763.6 billion in the
corresponding period of last year.
The net Direct tax collection was estimated at Rs 332.5 billion
against the target of Rs 496 billion which implies a growth of 16.9
percent during July-April 2008-09.
Indirect taxes grew by 18.2 percent during July-April 2008-09 and
accounted for 62 percent of the stake in overall tax revenue. The
sales tax collections grew by 22.2 percent and stood at Rs 358.9
billion as against Rs 293.6 billion in comparable period of last
year.
The net customs duty collection inched up from Rs 114.9 billion in
Workers’ remittances totalled $6.4 billion in July-April 2008-09 as
against $5.3 billion in the comparable period of last year, depicting
an increase of 19.5 percent.
Current Account Balance Pakistan’s current account deficit shrank by
23.5 percent during July-April 2008-09. Current account deficit shrank
to $8.5 billion as against $11.2 billion last year.
Foreign Exchange Reserves declined substantially in the initial months
of 2008-09, dropping from $11.4 billion at end-June 2008 to a low of
$6.4 billion by November 25, 2008. This depletion of reserves in the
five months was lower than fall in forex reserves for the whole of
2007-08. The subsequent partial recovery in November 2008 owed
essentially to the inflow of $3.1 billion from the IMF following
Pakistan’s entry into a macroeconomic stabilization program. The
import coverage ratio declined to an uncomfortable level of 9.1 weeks
as of end-October 2008 from 16.8 weeks of imports as of end-June 2008,
but it improved to 18.0 weeks of imports by end-April 2009.
The Economic Survey of 2008-09 shows that Exchange rate after
remaining stable for more than 4 years, lost significant value against
the US dollar and depreciated by 21 percent during March-December
2008. With successful signing of Standby arrangement with the IMF,
the rupee regained some of its lost value.
During the first ten months (July-April) of the current fiscal year
foreign investment declined by 42.7 percent and stood at $2.2 billion
against $3.9 billion in the comparable period of last year.
Foreign direct investment (private) showed some resilience and stood
at $3205.4 million during the first ten months (July-April) of the
current fiscal year as against $3719.1 million in the same period of
last year thereby showing a decline of 13.8 percent.
Private portfolio investment on the other hand showed an outflow of
$451.5 million as against an inflow of $98.9 million during the
comparable period of last year, showing a decline 25.7 percent.
Manufacturing sector is the second largest sector of the economy,
contributing 18.4 percent to GDP. This sector has recorded its weakest
growth in a decade during current fiscal year. Overall manufacturing
posted a negative growth rate of 3.3 percent during the current fiscal
year against the target of 6.1 percent and 4.8 percent of last year.
...and I am Sid Harth
chhotemianinshallah
Real GDP grew by 2 percent :Syrvey 2008-09
ISLAMABAD, Jun 11 (APP): The real GDP grew by 2.0 percent in 2008-09
as against 4.1 percent last year and growth target of 4.5 percent,
says Economic Survey 2008-09. The survey was jointly launched by
Advisor to the Prime Minister on Finance Shaukat Tarin and State
Minister for Finance Hinna Rabbani Khar here at a press conference
today.
According to the survey, the modest growth of just 2.0 percent is
shared between Commodity Producing Sector (CPS) (0.08) and services
sector (1.92).
Within the CPS, agriculture contributed 1.0 percentage points, or 50.1
percent, to overall GDP growth (a significant increase from its
contribution of only 5.0 percent last year) while industry dragged
0.92 percentage points or 46.1 percent to neutralise positive
contribution of the agriculture.
In the services sector, major contributions to GDP growth came from
transport, storage & communication (0.3 percentage points or 14.6
percent), wholesale & retail trade (0.7 percentage points or 27.1
percent) and social services (0.8 percentage points or 38.6 percent).
chhotemianinshallah
Index crosses 9000 level as bulls dominate KSE
KARACHI, Sep 4 (APP): Heavy buying pushed up prices of leading scrips
at Karachi Stock Exchange (KSE) Friday as 100-Index surged by 185.08
points or 2.10 percent to close at 9002.68, dealers said.The turnover
volume was high at 194.855 million shares as prices of 227 scrips
record gains and 129 sustained loss while 22 remained unchanged.The
market capitalization was improved by Rs 50.2 billion to Rs 2.622
trillion.
A dealer at a leading brokerage house said that market was opened on a
positive note, but slipped on some selling pressure. However, bulls
entered the market once again and chased out bears till the close. The
bulls are in total control of the main bourse for the last one week,
he added.
D G Khan Cement was the volume leader with a turnover of 18.046
million shares followed by OGDC 15.205 million shares, NBP 12.899
million shares, Azgard Nine 11.585 million shares and Bank Al-Falah
10.417 million shares.
NBP closed at 77.33, OGDC 115.01, POL 201.10, Engro Chemical 159, Bank
Al-Falah 13, DG Khan Cement 34.89, Arif Habib 37.03 and Azgard Nine
28.35.
Bata Pak recorded the highest increase of Rs 42.80 to 898.80 followed
by Unilever Food which moved up by 20 to 1380 while Treet Corp dipped
by 8 to 400 and Sapphire Fiber went down by Rs 6 to 119.
chhotemianinshallah
Foreign investors return to Pakistan: FT
ISLAMABAD, Sep 7 (APP): The investors are looking at stability and
opportunity returning to Pakistan and that was why bringing foreign
investors back,” said Shaukat Tarin Federal Minister for Finance in an
interview with the Financial Times.Pakistan has “come a long way from
the end of last year when we were basically looking at a default [on
foreign debt payments]”,he told the newspaper.
Shaukat Tarin said that it seems foreign investors agree with his
assessment, returning in force to the Karachi stock exchange (KSE),
Pakistan’s main stock market, just 18 months after many chose to exit
in the midst of economic, political and security related turmoil.
In August, foreign equity investments rose to approximately $95m
(œ58m, ?66.4m), a higher monthly average than the $85m a month seen in
2007 when the KSE figured prominently as a destination for foreign
investors. Investor enthusiasm has been strengthened by the KSE
recently becoming the most undervalued market across Asia, the
Financial Times reported.
The report said that Mr Tarin routinely flicks through the afternoon
business news update to get the latest on the KSE’s performance.
“People are looking at a country where economic fundamentals are
improving,” he says just moments after the KSE closed yet again on a
positive note.
In August, the KSE rose 12 per cent in a sign of growing interest from
investors.
Key economic variables that Mr Tarin cites as evidence of growing
comfort both for the government and investors include a significant
fall in inflation to 11 per cent, down from almost 25 per cent a year
ago, and an increase in foreign currency reserves to about $14bn from
$3.5bn towards the end of 2008. The result is “the knowledge among
investors that this economy is gaining strength”, the Financial Times
report said.
Mr Tarin’s analysis is supported by independent watchers. “The KSE’s
outlook for the foreseeable future has improved,” says Muhammad Suhail
of Karachi’s Topline Securities, a KSE equity investment company. Many
investors previously eager to leave the market are returning, he
adds.
“The valuations [of individual stocks] are just too attractive to be
easily ignored.”
The turnround has been helped by a loan of $11.6bn from the
International Monetary Fund to stabilise the country’s economy. Adnan
Mazarei, the head of the IMF staff mission that negotiated the loan,
says: “The financial markets performance is improving, there is a
renewal of foreign interest in Pakistan.”
Economists have repeatedly urged Pakistan to work to improve key
aspects of its economic structure, notably its chronically
underperforming tax collection machinery and public investments for
the benefit of the poor.
As Pakistan braved an attempt by Taliban militants just in the past
year to advance from its northern Swat valley to the country’s
heartland, economists warn that such militancy has an economic angle.
Repeated calls by western donors to revamp the tax collection network
have been ignored by past governments.
The resultant fiscal deficits have been reduced repeatedly under
successive governments by enforcing cuts in development expenditure,
the Financial Times report said.
These issues are unlikely to curtail the KSE’s forward march
immediately, say commentators, it added.
“The perspective that people take on the market will essentially be
that of a few months,” says the chairman of a company listed on the
KSE.
“Everyone is deeply aware of the long term challenges faced by the
economy and of course that matters ultimately for the KSE’s long term
future, but there is money to be made in the short term.”
Sid Harth
No adverse impact on flow of capital to India: Ahluwalia
14 Sep 2009, 1603 hrs IST, IANS
NEW DELHI: India is concerned about protectionism in the global
financial markets in the guise of regulation but does not see any
adverse impact on the inflow of overseas funds, Planning Commission
Deputy Chairman Montek Singh Ahluwalia said Monday.
"We are concerned that in the guise of improving regulations, they
should not be putting in place rules that end up discriminating
against developing nations," Ahluwalia said on the margins of a
conference on the upcoming G20 Summit in Pittsburgh.
"But I think capital flows into India won't be adversely affected. In
fact, when the system stabilises, people will recognise that India
remains among the fastest-growing countries in the developing world,"
he said.
"I don't think we will have difficulty in getting the amount of
capital we want. It may not go to the level we had in 2007. But that
kind of flow was actually more than we needed."
The event, titled "International Cooperation in Times of Global
Crisis: Views from G20 countries" - was organised by the Indian
Council for Research on International Economic Relations (Icrier).
Ahluwalia, who leaves for Pittsburgh later this week for official-
level talks before the summit Sep 24-25, will also be Prime Minister
Manmohan Singh's "sherpa" or his key aide there.
According to the Planning Commission deputy chairman, the Indian
economy will attain a fair amount of stability in the next six months,
having predicted a 6.3 per cent growth for the current fiscal if there
are no further shocks like the one because of drought.
"In the next six months, you will see evidence of stabilisation."
He said there was a realisation now that the worst was finally over in
the global economy, unlike what happened during the Great Depression
eight decades ago when economies contracted 40 per cent in six
months.
The real issue, Ahluwalia said, was how fast the contagion of global
meltdown gets overturned, as the worst fears following the collapse of
Lehman Brothers exactly a year ago and the financial crisis were
thankfully belied.
chhotemianinshallah
The GDP fetishism
17 Sep 2009, 0101 hrs IST, Joseph E Stiglitz, ET Bureau
Striving to revive the world economy while simultaneously responding
to the global climate crisis has raised a knotty question: are
statistics giving us the right “signals” about what to do? In our
performance-oriented world, measurement issues have taken on increased
importance: what we measure affects what we do.
If we have poor measures, what we strive to do (say, increase GDP) may
actually contribute to a worsening of living standards. We may also be
confronted with false choices, seeing trade-offs between output and
environmental protection that don’t exist. By contrast, a better
measure of economic performance might show that steps taken to improve
the environment are good for the economy.
Eighteen months ago, French President Nicolas Sarkozy established an
international Commission on the Measurement of Economic Performance
and Social Progress, owing to his dissatisfaction — and that of many
others — with the current state of statistical information about the
economy and society.
The big question concerns whether GDP provides a good measure of
living standards. In many cases, GDP statistics seem to suggest that
the economy is doing far better than most citizens’ own perceptions.
Moreover, the focus on GDP creates conflicts: political leaders are
told to maximise it, but citizens also demand that attention be paid
to enhancing security, reducing air, water, and noise pollution, and
so forth — all of which might lower GDP growth.
The fact that GDP may be a poor measure of well-being, or even of
market activity, has, of course, long been recognised. But changes in
society and the economy may have heightened the problems, at the same
time that advances in economics and statistical techniques may have
provided opportunities to improve our metrics.
For example, while GDP is supposed to measure the value of output of
goods and services, in one key sector — government — we typically have
no way of doing it, so we often measure the output simply by the
inputs. If government spends more — even if inefficiently — output
goes up.
In the last 60 y ears, the share of government output in GDP has
increased from 21.4% to 38.6% in the United States, from 27.6% to
52.7% in France, from 34.2% to 47.6% in the United Kingdom, and from
30.4% to 44.0% in Germany. So what was a relatively minor problem has
now become a major one.
Likewise, quality improvements — say, better cars rather than just
more cars — account for much of the increase in GDP nowadays. But
assessing quality improvements is difficult. Health care exemplifies
this problem: much of medicine is publicly provided, and much of the
advances are in quality.
The same problems in making comparisons over time apply to comparisons
across countries. The United States spends more on health care than
any other country (both per capita and as a percentage of income), but
gets poorer outcomes. Part of the difference between GDP per capita in
the US and some European countries may thus be a result of the way we
measure things.
Another marked change in most societies is an increase in inequality.
This means that there is increasing disparity between average (mean)
income
and the median income (that of the “typical” person, whose income lies
in the middle of the distribution of all incomes). If a few bankers
get much richer, average income can go up, even as most individuals’
incomes are declining. So GDP per capita statistics may not reflect
what is happening to most citizens.
We use market prices to value goods and services. But now, even those
with the most faith in markets question reliance on market prices, as
they argue against mark-to-market valuations. The pre-crisis profits
of banks — one-third of all corporate profits — appear to have been a
mirage.
This realisation casts a new light not only on our measures of
performance, but also on the inferences we make. Before the crisis,
when US growth (using standard GDP measures) seemed so much stronger
than that of Europe, many Europeans argued that Europe should adopt US-
style capitalism. Of course, anyone who wanted to could have seen
American households’ growing indebtedness, which would have gone a
long way toward correcting the false impression of success given by
the GDP statistic.
Recent methodological advances have enabled us to assess better what
contributes to citizens’ sense of well-being, and to gather the data
needed to make such assessments on a regular basis. These studies, for
instance, verify and quantify what should be obvious: the loss of a
job has a greater impact than can be accounted for just by the loss of
income. They also demonstrate the importance of social connectedness.
Any good measure of how well we are doing must also take account of
sustainability. Just as a firm needs to measure the depreciation of
its capital, so, too, our national accounts need to reflect the
depletion of natural resources and the degradation of our
environment.
Statistical frameworks are intended to summarise what is going on in
our complex society in a few easily interpretable numbers. It should
have been obvious that one couldn’t reduce everything to a single
number, GDP. The report by the Commission on the Measurement of
Economic Performance and Social Progress will, one hopes, lead to a
better understanding of the uses, and abuses, of that statistic.
The report should also provide guidance for creating a broader set of
indicators that more accurately capture both well-being and
sustainability; and it should provide impetus for improving the
ability of GDP and related statistics to assess the performance of the
economy and society. Such reforms will help us direct our efforts (and
resources) in ways that lead to improvement in both.
(The author, Professor at Columbia University, served as Chairman of
the Commission on the Measurement of Economic Performance and Social
Progress. ) (C): Project Syndicate, 2009.
....and I am Sid Harth
chhotemianinshallah
Caution warranted for now in markets, but, economic recovery on: V P
Chaturvedi, Tata AMC
16 Sep 2009, 1748 hrs IST, ET Now
Ved Prakash Chaturvedi, MD, Tata Asset Management Company, is positive
on the markets from a longer term perspective but advises caution for
the
time being in view of the sharp run up. Future stock price increases,
he feels, will be based on earnings growth and visibility. He believes
that a good portfolio of mid-cap stocks can help outperform the
indices over a period of time. Here is a transcript of his interview
with ET Now.
We have heard out Punita Kumar-Sinha of Blackstone and also Robert
Parker of Credit Suisse, both of them are saying that this asset
bubble is not here yet, but, we are seeing signs of extreme valuations
already kicking in, in Asian markets. How do you read India now - all
set to touch 5000 on the Nifty?
Obviously there has been a very sharp rally in the last 6 months. The
index has approximately doubled. If you look at mid-cap fund returns,
they are even higher. So obviously there has been a sharp price run up
and that leads to apprehension about what will happen in the future.
My sense is that this mood of good cheer will continue, obviously
these sharp run ups will have corrections. Advance tax numbers seem to
indicate that maybe there would be some more earnings upgrades for
this year and for next year and valuations will have to be looked at
in that perspective, but, I agree with the fact that the run has been
sharp from a historical perspective and from a near term perspective,
valuations look stretched and after any such sharp run up, some amount
of caution is warranted.
So what is the logic for not booking profits right now and waiting for
lower levels to get back into the market?
Various funds would obviously be doing their own thing, they would be
booking profits in some stocks creating liquidity to enter maybe some
other stocks, buying at maybe lower levels in the future etc. but my
sense is that from a 3-year perspective and a 5-year perspective our
sense is that we are into an incipient economic recovery. From an
Indian perspective, both the consumption and investment demand looks
to be picking up. We see early stages of what could be a longer term
bull run.
This market is making higher tops and technically that is a very
strong indicator. Declines are turning out to be good buying
opportunities, are these classic signs that the rally is not over
yet?
I have been saying for the last 3 months that I see an incipient
economic recovery in a bull market. I feel that earnings will recover
in the next few quarters. Valuations hence will have to be looked at
in that perspective. I am also of the view that at this point of time
from a very-very short term perspective there is risk in the market
because the run up has been so steep and it has been driven by the
huge amount of liquidity which has come in from overseas and it has
been synchronised with the rally in some of the overseas markets and
if some of this sentiment reverses even for a short period of time, I
think we will also see some reversal in our markets. But, again from a
more longer term perspective we are very positive, we see that these
could be early stages what is longer term secular bull run.
There are 2 sectors, 2 sub sectors which have made a new high, one is
auto, second is FMCG. Are these 2 sectors where you need to be
significantly
overweight in your portfolios to maximise gains?
Historically, it has been seen that automobiles is a sector which
picks up ahead of a broader market economic recovery. I think we are
seeing it in some measure in the Indian markets now. The FMCG sector
has held up as far as demand is concerned throughout the last 18
months, throughout this period which was otherwise a difficulty, for
some other sectors, the consumer demand has really kept going. So I
would say that what I have said earlier that running from a near term
perspective all these valuations look very stretched and hence if
there is a correction one should not be very surprised. One would
really have to wait for the earnings to pick up over the next many
quarters and for markets to reflect that earnings pickup. Market
obviously many times react ahead of the actual event happening and I
guess some of that is happening now. So my personal feeling is that
there is some level of valuations stretch which is there in the market
and purely from a valuation perspective, some amount of caution is
warranted.
Relative to the broader industries, FMCG has underperformed in the
last 3 months, would you play these as a rotation game now, is it a
sector that still needs to see some more buying coming in?
I guess what has happened that FMCG as a sector has really performed
over the entire cycle as I mentioned earlier and given the fact that
some of the other sectors, for example IT had significantly
underperformed in 2008. I guess some of that underperformance has
bounced back in the current year. My personal feeling is that this
bounce back of sectors which underperformed earlier and have simply
bounced back because valuations were low is now behind us and the
future growth will really be driven by what earnings growth,
visibility is there in these various sectors. I personally feel that
the consumption story will continue to run and maybe the-performance
will not be as stark as what we saw in the downmarket, but, it would
be a good story and it will drive market sentiment in the future.
If you are looking at mid-cap as a space now what is a good earnings
number to look at, you know, is 20% earnings growth good enough, is a
PE multiple of 15 cheap enough, what would you look in terms of
valuation parameters, now that we have already come to a level of 5000
to reckon with?
I do not know if one can really talk about very specific numbers, but,
if you look at the last 15 years and the last decade of Indian stock
markets, it is the mid-cap sector which really has outperformed and
which actually creates out-performance versus benchmark indices.
That’s because you find companies which are multi-baggers and which
actually become large caps over a period of time. So, I have no doubt
in my mind that if you look at next 5 years, again the mid-cap sector
from here will outperform. A carefully selected basket of 5 quality
mid-cap companies can significantly deliver delta earnings growth over
what the market delivers.
While we might be celebrating that liquidity is very high at
institutional level, look at MFs. The latest AMFI release says that
the money commitment NFOs have got for the month of August, is not
even Rs 1000 crore. How will the local mutual industry move up if
there is not fresh money which is coming via the NFO route, SIPs are
good but SIP is just bread and butter?
That is a very good point. What happens in a market recovery, we have
seen earlier also, is that investors would have invested at similar
levels in the past and have seen lower levels, have been very worried
about it. They tend to exit the market in the first phase of the rally
and hence what you have with the situation -where you may have
significant mobilisations- but because we run open ended funds and
investors can redeem when they want, the redemptions cause net inflows
to look moderate. I guess that is what is happening in this phase of
the market. While there are reasonably good mobilisations, because of
redemptions the net mobilisations are looking muted.
bademiyansubhanallah
Kaushik Basu tipped for CEA's post
Aditi Phadnis / New Delhi September 17, 2009, 0:11 IST
Kaushik Basu, the C Marks Professor of International Studies,
professor of economics, and director of the Center for Analytic
Economics at Cornell, has been asked informally if he would consider
becoming Chief Economic Advisor (CEA), a post that will fall vacant
after Arvind Virmani ends his tenure and leaves to join the
International Monetary Fund at the end of the month.
“I have been asked informally (to become CEA) but do not have anything
formal in hand as yet,” he said in reply to an email query on 14
September.
The CEA holds the rank of a Secretary to the Government of India. He
heads the Economic Division in the finance ministry and offers
directions of an advisory nature.
The division he heads examines trends in economy and conducts techno-
economic studies that go into economic policy formulation. It also
keeps a close watch on economic developments both internal and
external.
THE CEA LINEAGE
* Manmohan Singh
* Bimal Jalan
* Nitin Desai
* Deepak Nayyar
* Shankar Acharya
* Rakesh Mohan
* Ashok Lahiri
* Arvind Virmani
Basu was honoured with the Padma Bhushan in 2008. He was a columnist
with Business Standard for several years.
Among many of his published works, he has edited the Oxford Companion
to Economics in India, which was released by Prime Minister Manmohan
Singh in New Delhi in February 2007.
“The compendium includes 198 authors and 204 entries and, according to
one reviewer, weighs 5 kilograms, but Basu puts in the disclaimer that
he has not weighed it himself”, the Cornell Chronicle noted.
In June last year, when inflation was at its peak and economists
sounded dire warning about a precipitous dip in India’s growth rate,
Basu said in a newspaper article that if a poor country like India
could “put its house in order and be pro-active in the global market,
it can be a critical player in helping corporations cut costs. At the
same time it would improve its own economic prospects”. He concluded:
“Expect some belt tightening, but don't expect the trousers to fall
down”.
Basu is a colleague and friend of Manmohan Singh from the early 1980s,
when Basu taught economics in Delhi and Singh was between jobs —
retired as secretary in the department of economic affairs and yet to
become governor of the Reserve Bank.
“A friend of mine called to ask if he could bring Manmohan Singh — I
knew of him as an economist and he was already prominent as a policy
technocrat — to take a look at our flat. He was looking to buy ‘a
simple apartment’, my friend explained. I subsequently got to know
Manmohan Singh well enough to know that that would indeed be his
preference,” said Basu in an article for the BBC, in which he noted
Singh’s contribution to the Congress-led United Progressive Alliance’s
victory in 2009 general elections
Basu was born in Calcutta and schooled at St Xavier’s. In 1969, he
moved to Delhi to do his undergraduate studies in Economics from St
Stephen’s College and then to the London School of Economics, from
where he got his MSc in Economics in 1974.
Over the years, he has held positions at the Institute for Advanced
Study (Princeton), CORE (Louvain-la-Neuve) and the London School of
Economics (where he was Distinguished Visitor in 1993); he has been
visiting professor at MIT, Harvard and Princeton; and visiting
scientist at the Indian Statistical Institute.
bademiyansubhanallah
No price caps, please
Superior regulatory options are available
Business Standard / New Delhi September 17, 2009, 0:36 IST
Price controls have rarely been known to solve problems caused by
supply-demand mismatch, without provoking attendant aberrations or
unwanted consequences. Yet the power regulator has gone ahead and
notified a price cap on short-term power trades. According to an order
of the Central Electricity Regulatory Commission (CERC), issued on
Friday, there will be a price cap of Rs 8 per unit on inter-state day-
ahead power transactions. This is said to be a transient measure for a
limited period of 45 days, triggered by the high price volatility
observed in this segment of the market. The move is ostensibly to
protect the interests of consumers while balancing the regulator’s
statutory obligation to ensure “reasonable” return for the investor.
These investors are said to be comfortable with a selling price of no
more than Rs 7-8 per unit. However, prices are crossing the double-
digit mark as buyers — the various distribution companies — are under
pressure to procure power at any price to ensure uninterrupted power
supply. These price spikes then reflect the actual demand and supply
position rather than exploitative behaviour by a player or group of
players in the market. After all, the price would not cross Rs 8 per
unit if no one bought power at that price. So why the cap?
The cap would work against the interests of consumers who would have
gained from the increased investment in power generation capacity that
would have resulted from the market signal of high prices. Such a
price signal is after all the whole purpose of having a market
mechanism in place, with all its imperfections. There is another
problem with the price cap, in that it is arbitrary. There is no
explanation for why it has been fixed at Rs 8 per unit, and not the Rs
11 proposed originally. This latter price may have made more sense as
it probably reflects the cost of alternative power through diesel
generating sets. In any case, a superior alternative to a fixed price
cap would be to follow stock market practice and to have a more
dynamic structure. This could be done by defining high price
volatility (which could be a 20 or 40 per cent variation in price over
a particular period), and a formula which would stipulate the price
cap as a certain premium over the price of a previous period of some
weeks).
The CERC also needs to acknowledge the changing character of Indian
power consumers (retail and commercial). Many now have the ability,
and more importantly the willingness, to pay more for power, as long
as supply is assured. A whopping Rs 100,000 crore have already been
invested in private power generation solutions (back-up power
equipment) according to a study commissioned by Wärtsilä India, and an
additional Rs 30,000 crore are spent every year to run this. CERC
should look at how it can tap this changed consumer sentiment to
augment supply rather than focusing on prices, and that too in a
segment of the market which is just about 1 per cent of the overall
power market.
bademiyansubhanallah
Sweet 16 for Sensex: Time to rejig portfolio
Joydeep Ghosh / Mumbai September 17, 2009, 0:30 IST
On September 7, the Bombay Stock Exchange’s Sensitive Index, or
Sensex, closed over 16,000 points for the first time in over a year.
And the good news is that it has consistently been able to close above
this mark.
For retail investors, who had suffered big losses in the mayhem that
started in January 2008, this is certainly a good news. Since mid-
March, when the Sensex was languishing at 8,000 levels, there has been
a sharp change in the mood. Markets have risen over 100 per cent. Even
returns from mutual funds have improved substantially.
In the last six months, equity funds have given very high returns. For
instance, the returns from technology and banking funds have been a
whopping 110.19 per cent and 100.57 per cent, respectively.
Even equity diversified funds have given 86.74 per cent returns,
better than 85.17 per cent returned by the Sensex. In fact, the best
performing fund has returned 154 per cent in the period. Retail
investors would be wondering if the good times will continue and if
there were specific strategies to be followed. Here are a few tips:
Going forward, market experts felt that though the undercurrent was
bullish in the short term, there could be some correction once the
second quarter results start coming from October.
Said Amitabh Chakraborty, head (securities), Religare Securities,
“While the mood is quite bullish now, expectations about corporate
results are quite high. There could be some correction, if they are
not up to the expectation.”
As an investment strategy, continue with your systematic investment
plans (SIPs). While the returns might have improved significantly, it
is important to remember that SIPs are meant for the long term.
Withdrawing now will deprive you of the benefits of multiplying your
money.
However, for the already invested, this rise offers a good opportunity
to rejig the portfolio. That is, move money from those funds or stocks
that are doing badly to good stocks and diversified funds. Said Kartik
Jhaveri, director, Transcend India, “A lot of people bought small caps
on rumours during the boom time and got stuck with them. If these
stocks have appreciated because of the overall rise, investors could
exit such stocks and move to good large caps.”
He suggested that this could be a good time to raise some funds if
investments have risen sharply. “If any stock holding has risen too
sharply, it could be a good time to book profits. Use that money to
invest in mutual funds through systematic investment plans (SIPs) or
in the stock market over the six to twelve months.”
Another strategy, which a new investor or one with excess cash can use
is to invest in debt funds and move the money through systematic
transfer plans (STPs) to equities over time. STPs are plans where
investors can move their money from one fund to another on a monthly
basis at net asset value-based prices. Hitungshu Debnath, executive
director, Angel Broking, said, “For a long-term investor, the best
idea could be to invest through SIPs in index funds.”
He feels that over a long period, these funds will give stable returns
at a very low cost.
Sid Harth
‘Business confidence in India on the rise’
Thursday, September 17, 2009, 14:25
Add a commentWashington/New York, Sep 17 (Inditop.com) Business
confidence in India is on the rise, defying the global downturn, says
the country’s apex business chamber as India pitches here strongly to
attract more foreign investment in the core sectors of industry.
“Certainly there is a movement in foreign institutional investment and
foreign direct investment has also begun to pick up,” said Amit Mitra,
secretary general of the Federation of Indian Chambers of Commerce &
Industry (FICCI).
“While rest of the world is shrinking, core sectors of steel, cement
and auto industry in India are beginning to grow,” Mitra told Inditop
on phone ahead of an institutional investors conference in New York
starting Thursday.
Noting that the FICCI business confidence survey index for India which
had plunged to 44 in the third quarter of 2008-09 had risen to 64 in
the first quarter and 67 in the second quarter, Mitra said: “We are
here to further kindle these forces.”
Besides supporting the institutional investors conference, FICCI has
also organised a round table for US businessmen Thursday with TKA
Nair, Principal Secretary to the Prime Minister, Ajay Shankar,
Secretary, Department of Industrial Policy Promotion, and Meera
Shankar, India’s ambassador to US.
It’s also hosting a dinner Thursday with India’s Power Minister Sushil
Kumar Shinde for major power companies including General Electric and
Price Whitney.
These meetings are being organised ahead of Prime Minister Manmohan
Singh’s state visit here in November.
Meanwhile, Kamal Nath, India’s Minister for Road Transport and
Highways held a roundtable in America’s financial capital focusing US
investment attention on India’s roads and highways. India’s road
network of 3.32 million km is second only to the United States and is
in need of major upgrades.
Speaking to premier US engineering, construction and investment firms,
Nath said: “This is one of the most important projects the Government
of India has ever undertaken. Roads and Highways cross the country and
touch every facet of life, as well as provide vital connectivity for
trade and commerce.”
India is set to launch the world’s biggest Public Private Partnership
programme that will result in the development of 15,000 km of roads
and highways over the next three years at a cost of $70 billion. The
current five year plan calls for $500 billion in upgrades to India’s
infrastructure sector-with about one-third of the investment coming
from the private sector.
The roundtable was hosted by the US-India Business Council, in
partnership with the Confederation of Indian Industry (CII).
Sid Harth
Cops nab juvenile with arms, bust plan to attack Agartala
Thursday, September 17, 2009, 13:26
Add a commentAgartala, Sep 17 (Inditop.com) A 16-year-old boy was
arrested with three US-made pistols and ammunition as authorities
claimed to have foiled a terror strike planned during the upcoming
Durga Puja celebrations in Tripura, officials said Thursday.
Based on specific intelligence inputs, security forces arrested Shiva
Das from this Tripura capital late Wednesday and recovered three US-
made pistols, five loaded magazines, and a large cache of other
ammunition, police said.
“The arms and ammunition were smuggled from Bangladesh by an arms
racket to sell them to terrorists using the juvenile arms carrier,”
west Tripura district police chief K.V. Sreejesh told Inditop.
“At the moment we shall not disclose anything about the development as
we are getting interesting clues about the trans-border arms
smuggling.”
In a separate development, police arrested three wanted criminals,
including their leader Sahadeb Das, 42, and uncovered a plan by them
to attack Agartala before or during the Durga Puja festivities that
begin next week.
bademiyansubhanallah
India to see signs of recovery this fiscal: Rangarajan
IANS 17 September 2009, 04:41pm IST
HYDERABAD: Indian economy will see "definite signs of recovery" in the
second half of the current financial year and will grow between 6 and
6.5 per
cent in the fiscal, Prime Minister's Economic Advisory Council
chairman C. Rangarajan said on Thursday.
India's growth rate in 2008-09 was 6.7 percent as compared to 9 per
cent in the previous year. "Prospects for the current fiscal do not
appear to be better. While in 2008-09, the first half escaped the
impact of global recession, in the current year the impact will be
felt throughout the year," Rangarajan said.
"However, the country will see definite signs of recovery from the
second half of the current fiscal," he said while delivering a keynote
address at a conference on the global economic meltdown.
According to Rangarajan, next fiscal would see a distinct improvement
in growth and the economy would grow between 7 and 8 per cent.
However, to go back to 9 per cent growth, "we have to wait for the
world economy to improve and world trade to pick up", he said.
The former Reserve Bank of India (RBI) chief said the Indian economy
was not directly impacted by the global meltdown as the country's
financial system was not directly exposed to the "toxic" or
"distressed" assets of the developed world.
"This is not surprising since Indian banks have very few branches
abroad. However, the indirect impact on the economy because of the
recession abroad is very much there."
While India's import bill reduced sharply as a result of the fall in
international commodity prices, particularly crude oil, the recession
abroad had adverse effect on exports of goods and services.
The capital flows were also hit. "In contrast to the strong inflow of
over $108 billion in 2007-08, last year saw a net increase of only
$9.1 billion in capital flows," Rangarajan said.
The budget estimates of total expenditure for 2009-10 are 37 percent
higher than the budget estimates of last fiscal.
Rangarajan later told reporters that central fiscal deficit during the
current fiscal would not exceed the estimated 6.8 per cent.
bademiyansubhanallah
Keeping it simple
Rajdeep Sardesai
September 18, 2009
First Published: 00:36 IST(18/9/2009)
Last Updated: 01:24 IST(18/9/2009)
In this period of competitive austerity, there can be nothing more
tiresome than a sanctimonious politician. With netas offering to
travel in the cargo holds of aircraft, a senior minister called up to
say, “I haven’t taken salary from the Government of India for the last
five years, what greater evidence can there be of my commitment to
austerity!” What he forgot is that such is his personal wealth that a
government salary was loose change that he could easily forego.
Unfortunately, in the cacophony over our netas’ flying preferences,
we’re ending up engaging in farcical paise-pinching. If the government
and the Congress are serious about curbing expenditure in times of
drought, then flying cattle (sorry, aam admi) class on a low cost
airline is hardly the answer. The saving of a few thousand rupees is
the kind of effete tokenism India seems to specialise in.
If Prime Minister Manmohan Singh — himself almost Gandhian in his
habits — was serious about tightening the sarkari belt then he should
have downsized the government. After all, why does he need a 78-member
council of ministers, including around 38 ministers of state? Cutting
his ministry by half will be a much bigger saving.
Moreover, the real hidden costs confronting a government come from the
corruption that is endemic to the state system. If Singh is truly
serious about austerity, why doesn’t he sack those in the government
who stand accused of corruption? Why, does a Buta Singh remain the
chairman of the SC/ST commission even after the CBI arrested his son
for abusing his father’s position to amass crores? Why does a minister
accused of manipulating spectrum allocation continue to retain his
ministry?
Then there are those who believe that government privileges are
lifelong entitlements. Why, does a Ram Vilas Paswan continue to occupy
prime property in Lutyens’ land for over four months after his party
lost the Lok Sabha polls?
A recent RTI petition revealed that about 14 defeated MPs, including
eight ministers, from the previous Lok Sabha continue to occupy their
bungalows. Why doesn’t the prime minister’s office act against them?
Or against those who make lavish renovations to their government
houses in violation of all laws?
Downsizing government, acting against the corrupt and snatching away
the privileges of the political elite require courage and conviction —
qualities that often go missing when confronted with the compulsions
of coalition politics. Forcing S.M. Krishna and Shashi Tharoor to
vacate five-star hotels was always a soft option. Neither of them can
be remotely described as a mass politician — one a dinosaur, the other
a debutante MP, both of whom were easy targets for a political
leadership determined to make a point.
In a sense, both Krishna and Tharoor represent a certain class of
elite English-speaking politicians who are now an endangered species.
One is a tennis-playing Fulbright scholar. The other, a ‘twittering’
former UN diplomat-novelist who is already a posterboy for the
capital’s chattering classes.
Their ‘crime’ isn’t that they were staying in a five-star hotel for
the last three months: after all, there is no evidence of their having
used public money for the luxury. Their failing, perhaps, is that
their lifestyle was seen as a symbol of a certain social elitism,
which a class-conscious Indian political system is still uncomfortable
with.
A Mayawati, for example, can still get away with her grotesque
exhibition of opulence (notice how she hasn’t said a word on the
austerity debate) because she has been successfully projected as a
‘Dalit ki beti’, whose wealth makes her an aspirational symbol for an
entire community. In politics, perceptions do matter.
In the Indian context, a neta must always project a common man’s
touch, negated by the extravagance of living in the presidential suite
of a five-star hotel. The ‘privacy’ argument simply doesn’t hold. Once
you are in public life, your private realm is no longer clearly
delineated.
One contemporary elite politician who has realised this better than
most is Orissa Chief minister Naveen Patnaik. The Doon school-educated
urban sophisticate who lived on plush Aurangzeb road, night clubbed in
New York with Jackie Onassis and Gore Vidal, wrote books on herbs and
gardens and relished his smoke and scotch, is now transformed into a
tough and rooted regional satrap.
When in Delhi, he stays at Orissa Bhavan, hasn’t travelled abroad
since becoming the chief minister, will happily entertain tribal
dancers from his state and is always seen in public in a crumpled
kurta-pajama. He may still drink the finest chota pegs in private, but
in public he is what his followers want to see him as: an austere,
committed mass leader.
Austerity, then, for a true Indian politician, is not so much about
which class you fly by or which hotel you stay in: it is about
consciously shedding a certain elitism that can, at times, be
incongruous in a country where a majority of the people still struggle
at subsistence level.
Post-script: Maybe, some of our ‘austere’ Indian netas need to follow
the British example where in the past few months over a dozen MPs have
been forced to resign for claiming all kinds of ‘allowances’,
including mortgages of second homes, maintaining housekeepers,
cleaning swimming pools, buying chandeliers and — in one case —
putting up the family in a hotel. If that principle of accountability
was followed, many of our MPs would have been forced out of office.
The views expressed by the author are personal.
bademiyansubhanallah
Pulling our legspace
Hindustan Times
September 18, 2009
First Published: 00:47 IST(18/9/2009)
Last Updated: 01:27 IST(18/9/2009)
Do those strange people who usually travel business class — but may
not be travelling in this category for a while now — really think that
the people who fly economy are angry by a wisecracking Minister of
State with trendy sideburns calling economy class ‘cattle class’? The
poor dearies must be so sweet — and silly — to think that us cattle-
classers would mind.
Heck, that’s what all those people travelling economy class call
economy class: cattle class. To think that those travelling within the
relatively crammed confines of an economy class ticket (and the
‘cramminess’ of the confines does depend on the airline one is flying)
have no idea of the relative luxury of flying business class is to be
downright patronising.
Shashi Tharoor responded to a question on his Twitter page that read,
“Tell us minister, next time you travel to Kerala, will it be cattle
class?” Perhaps, being a career diplomat Mr Tharoor should have
answered, “Absolutely, I will out of solidarity with all our holy
cows” instead of repeating the questioner’s term, ‘cattle class’. But
one thing is certain. Mr Tharoor’s colleagues, if not his superiors,
don’t know a witticism even if they were squeezed between one
witticism sitting in the aisle seat and another in the window seat.
Dalits shot down Mahatma Gandhi’s term ‘Harijan’ as they considered it
too patronising — as if they needed to be taken special care of. They
preferred the term ‘Dalit’, or ‘oppressed’, for themselves. So dear
sweeties, don’t fret about calling economy class ‘cattle class’.
That’s what we call it ourselves.
bademiyansubhanallah
The buck stops here?
Rajesh Mahapatra, Hindustan Times
September 16, 2009
First Published: 21:38 IST(16/9/2009)
Last Updated: 21:42 IST(16/9/2009)
This is not the first time that a government has gone on an austerity
drive. The first call for austerity dates back to the time India went
to war with Pakistan in 1965 and suffered a devastating drought the
following year.
Prime Minister Lal Bahadur Shastri called upon people to “miss a meal”
and urged them to cut guest lists at wedding parties so that the
country could tide over a food shortage. Indira Gandhi’s ‘Garibi
Hatao’ (banish poverty) campaign was perhaps one of the most
successful acts of symbolism that nudged politicians to avoid
conspicuous consumption.
When P.V. Narasimha Rao was prime minister in the early 1990s, he
appointed an austerity panel under Orissa Chief Minister Biju Patnaik.
Patnaik recommended a slew of measures
— from downsizing government to freezing salaries of officials — in
what could be described as the first comprehensive attempt to cut
wasteful expenditure.
Each time fuel prices shot through the roof, we have heard of
government orders asking officials and ministers to go short on travel
— although there is no empirical evidence if those orders ever worked.
That said, never before has a call for austerity from the ruling
coalition generated as much drama and hype as we are seeing today.
Rahul Gandhi’s travel in the Shatabdi Express from Ludhiana to Delhi
was a nightmare for security officials and may have actually cost the
government much more than the Rs 10,000 saved by the economy class
rail journey.
A visible flaw in the campaign is that ministers and officials are
being encouraged to fly economy class, while a previous government
order requires them to travel by only Air India that is often more
expensive than other airlines.
But nothing undermines the campaign more than the Cabinet’s decision
last week to increase the dearness allowance (DA) by 5 per cent. The
hike would cost the exchequer Rs 2,300 crore in a full year — nearly
10 times the money the government would save annually through a 10 per
cent cut in travel expenses of ministers and bureaucrats.
In a broader context, the scenario is not very different. The
government has done little to keep its non-plan spending under check —
namely salaries and subsidies that have ballooned in recent years and
taken the fiscal deficit to an alarming level. The money saved through
the ‘austerity drive’ may at most add to some hundreds of crores — a
flash in the pan given a fiscal deficit of about Rs 4 lakh crore.
So what is all this ‘austerity’ brouhaha now about? The only major
elections that are round the corner are in Haryana and Maharashtra,
where voters care little about what their politicians wear, eat or do
with their money.
One theory has it that the ‘austerity campaign’ has snowballed from an
action that was intended to nix the embarrassment caused by news
reports on how some ministers opted to stay in five-star hotels
because the government had not been able to allot them houses in
Lutyens’ Delhi. This is too naïve a view to take seriously.
That leaves us with one other conclusion: that there is no method to
this madness.
chhotemianinshallah
India's FX reserves at $280.978 bn as on Sept 11
18 Sep 2009, 1815 hrs IST, REUTERS
MUMBAI: India's foreign exchange reserves rose to $280.978 billion as
on Sept 11 from $277.649 billion a week earlier, the central bank said
in its weekly statistical supplement on Friday.
Changes in foreign currency assets, expressed in dollar terms, include
the effect of appreciation or depreciation of other currencies held in
its reserves such as the euro, pound sterling and yen, the central
bank said.
Foreign exchange reserves include India's Reserve Tranche position in
the International Monetary Fund, the central bank said.
Revaluation of non-$ assets adds $3.3 bn to forex kitty
19 Sep 2009, 0504 hrs IST, ET Bureau
MUMBAI: Foreign exchange reserves rose $3.3 billion during the week
ended September 4, largely on account of revaluation of non-dollar
assets in reserves vis-à-vis the dollar. Also, a general allocation of
special drawing rights (SDR) — the reserve currency with IMF— worth
$430 million has helped boost reserves during the week.
According to the latest figures released by RBI, total foreign
exchange reserves rose $3,329 million to touch $280.9 billion. Foreign
currency assets rose $2,905 million, largely on account of cross-
currency revaluation as the dollar has weakened against major global
currencies of late.
Almost 40% of the reserves is believed to be comprised in non-dollar
assets, including the sterling pound, yen, euro and the yuan, though
no central bank makes their currency composition of reserves public.
In such a situation, it is estimated that a sizeable portion of the
rise in reserves during the week has been on account of revaluation.
The SDR allocation amounted to SDR 214.6 million, which is equivalent
to $430 million. This is the second tranche of SDR that the central
bank received from IMF in the past two weeks.
The value of SDR is a weighted average of a basket of currencies,
which includes the US dollar, the Sterling pound, the yen and the
euro. The weightage to each currency which is revised at regular
intervals depends on their prevailing relative importance in the
global markets. The value of gold in reserves remained unchanged
during the week. Under its Articles of Agreement, IMF may allocate
SDRs to members in proportion to their IMF quotas. Such an allocation
provides each member with a costless asset.
Decisions to allocate SDRs have been made three times. The first
allocation was for a total amount of SDR 9.3 billion, distributed in
1970-72 in yearly instalments. The second allocation, for SDR 12.1
billion, was distributed in 1979–81 in yearly instalments. The third
general allocation was approved on August 7, 2009, for an amount of
SDR 161.2 billion, which took place on August 28, 2009.
In other developments, the central government has kept its ways and
means advances (WMA) account with RBI vacant during the week ended
August 21. WMA is a facility under which the government (state as well
as the Centre) can borrow from the central bank to meets its daily
revenue mismatches.
While borrowings within the limit is at the prevailing repo rate,
borrowings above the agreed limit (between the government and RBI) is
at 2% higher than the repo rate.
State governments on the other hand have reduced their outstanding WMA
to Rs 90 crore as on August 28.
chhotemianinshallah
IMF to sell 403 tonnes of gold to boost lending to poor
19 Sep 2009, 0957 hrs IST, AGENCIES
WASHINGTON: The International Monetary Fund said its executive board
endorsed the sale of 403 tonnes of gold, worth an estimated 13 billion
dollars, to boost its lending capacity to poor countries.
The IMF said in a statement the sales would be "in a volume strictly
limited to 403.3 metric tonnes, with these sales to be conducted under
modalities that safeguard against disruption of the gold market."
The 186-nation institution said the decision was a core element of a
new income model to make it less dependent on its lending revenue to
cover expenses, such as surveillance of members' economic and
financial policies, that the board had approved in April 2008.
The Group of 20 key developed and developing countries, at their April
summit in London, agreed the gold sales should allow the IMF to offer
favorable conditions on loans to the poorest countries.
The IMF decision comes ahead of a two-day G20 summit in Pittsburgh,
Pennsylvania, that opens next Thursday.
Hosted by US President Barack Obama, leaders are to discuss efforts to
recover from the worst global recession in six decades and financial
regulatory reform.
"The new income model is designed to provide the fund with more
diverse income sources that are better aligned with the variety of
functions performed by the fund, with a central component being the
funding of an endowment with the profits from these limited gold
sales," the 186-nation institution said.
Sid Harth
Sensex, Nifty hits nearly 16-month high in the week
STAFF WRITER 14:0 HRS IST
Mumbai, Sep 19 (PTI) Sharp rally in most of the sectors paved the way
for both the key indices, Sensex and Nifty, to hit a nearly 16-month
highs and improved further by about three per cent during the week
under review, stimulated by a host of positive factors.
Sensex was in the vicinity of 17K-mark, while Nifty pierced through 5K-
mark during the intra-day trade.
After moving in a range of 16,820.02 and 16119.95, the Bombay Stock
Exchange 30-share index ended the week at 16,741.30, the level not
seen since May 22, 2008, a rise of 477.00 points or 2.93 per cent over
its last weekend close.
The broader 50-issue Nifty of the National Stock Exchange touched a
high of 5,003.05 before concluding the week at 4,976.05, a net gain of
146.50 points or 3.03 per cent.
Sid Harth
Govt to wait before reversing stimulus packages
STAFF WRITER 18:21 HRS IST
Bangalore, Sep 19 (PTI) The government would "wait and watch" the
situation before deciding on rolling back the stimulus packages
announced after India's economic growth slackened impacted by the
global financial crisis.
"We will have to wait and watch the situation," Finance Minister
Pranab Mukherjee told reporters on timing of reversal of the stimulus
package.
The government had slashed excise duty by six per cent and service tax
by two per cent in various phases and increased Plan expenditure. This
has pushed the fiscal deficit higher.
The fiscal deficit is projected to rise to 6.8 per cent of GDP in
2009-10. The Finance Minister has already said this level of fiscal
deficit cannot be sustained and aims to bring it down to 5.5 per cent
next fiscal and 4.4 per cent in 2011-12.
Sid Harth
September 14, 2009
Another Stock Market Bubble?
C. P. Chandrasekhar
Special Arrangement FII investments in Equity in India's Stock markets
($ mn)
India’s stock market recovery over the last six months is a bit too
remarkable for comfort. From its March 9, 2009 level of 8,160, the
Sensex at closing soared and nearly doubled to touch 16,184 on
September 9, 2009. This is still (thankfully) well below the 20,870
peak the index closed at on September 1 2008, but is high enough to
cheer the traders and rapid enough to encourage a speculative rush.
There are two noteworthy features of the close to one hundred per cent
increase the index has registered in recent months. First, it occurs
when the aftermath of the global crisis is still with us and the
search for “green shoots and leaves” of recovery in the real economy
is still on. Real fundamentals do not seem to warrant this remarkable
recovery. Second, the speed with which this 100-percent rise has been
delivered is dramatic even when compared with the boom years that
preceded the 2008-09 crisis. The last time the Sensex moved between
exactly similar positions it took a year and ten months to rise from
the 8,000-plus level in early 2005 to the 16,000-plus level in late
2007. This time around it has traversed the same distance in just six
months.
With firms just looking to exit from a recessionary phase, this rapid
rise in stock prices cannot be justified by movements in sales and
profits. In fact, as the Business Line noted in its editorial on
September 9, 2009 [http://www.thehindubusinessline.com/2009/09/09/
stories/2009090950560800.htm ], the price earnings ratio of Sensex
companies now stands at 21, which is much higher than an average of
17, which itself many would claim is on the high side. Those
comfortable with the market’s rise would of course argue that
investors, expecting a robust recovery, are implicitly factoring in
future earnings trends, rather than relying on earnings figures that
are the legacy of a recession.
That would be stretching the case. Once the next round of arrears has
been paid, the once-for-all component in the stimulus that the Sixth
Pay Commission’s recommendations provided would wane. With the deficit
on the government’s budget expected to reach extremely high levels
this fiscal, a cutback of government expenditure is likely. Further,
exports are still doing badly and the global recovery is widely
expected to be gradual and limited. That would limit the stimulus
provided by India’s foreign trade. And, finally, a bad monsoon
threatens to limit agricultural growth and accelerate inflation. This
would dampen the recovery in multiple ways. Given these circumstances,
excessive optimism with regard to corporate earnings is hardly
justified. The change in perception from one in which India was a
country that weathered the crisis well to one that sees India as set
to boom once again is not grounded in fundamentals of any kind.
This implies that the current bull run can be explained only as the
result of a speculative surge that recreates the very conditions that
led to the collapse of the Sensex from its close to 21,000 peak of
around two years ago. This surge appears to have followed a two stage
process. In the first, investors who had held back or withdrawn from
the market during the slump appear to have seen India as a good bet
once expectations of a global recovery had set in. This triggered a
flow of capital that set the Sensex rising. Second, given the search
for investment avenues in a world once again awash with liquidity,
this initial spurt in the index appears to have attracted more
capital, triggering the current speculative boom in the market.
While these are possible proximate explanations of the transition from
slump to boom, they in turn need explaining. In doing so, we have to
take account of the fact that, as in the past, foreign investors have
dominated stock market transactions and had an important role in
triggering the current stock market boom. As compared to the net sales
of equity to the tune of $11.97 billion by foreign institutional
investors during crisis year 2008, they had made net purchases of
equity worth $8.75 billion in the period till September 11 during
2009. According to the Securities and Exchange Board of India, net
purchases were negative till February, but turned positive in March
with the net purchases figure being high during April ($1.3 billion),
May ($4.1 billion), July ($2.3 billion) and August ($1 billion).
It is not surprising that foreign institutional investors have
returned to market. They need to make investments and profits to
recoup losses suffered during the financial meltdown. And they have
been helped in that effort by the large volumes of credit provided at
extremely low interest rates by governments and central banks in the
developed countries seeking to bail out fragile and failing financial
firms. The credit crunch at the beginning of the crisis gave way to an
environment awash with liquidity as governments and central bankers
pumped money into the system.
Financial firms had to invest this money somewhere to turn losses into
profit. Some was reinvested in government bonds, since governments
were lending at rates lower than those at which they were borrowing.
Some was invested in commodities markets, leading to a revival in some
of those markets, especially oil. And some returned to the stock and
bond markets, including those in the so-called emerging markets like
India. Many of these bets, such as investments in government bonds,
were completely safe. Others such as investments in commodities and
equity were risky. But the very fact that money was rushing into these
markets meant that prices would rise once again and ensure profits.
In the event, bets made by financial firms have come good, and most of
them have begun declaring respectable profits and recording healthy
stock market valuations.
It is to be expected that a country like India would receive a part of
these new investments aimed at delivering profits to private players
but financed at one remove by central banks and governments. However,
India has received more than a fair share of these investments. One
way to explain this would be to recognise the fact that India fared
better during the recession period than many other developing counties
and was therefore a preferred hedge for investors seeking investment
destinations.
The other reason is the expectation fuelled by the return of the UPA
to government, this time with a majority in Parliament and the
repeated statements by its ministers that they intend to push ahead
with the ever-unfinished agenda of economic liberalisation and
“reform”. The UPA II government has, for example, made clear that
disinvestment of equity in or privatisation of major public sector
units is on the cards. That caps on foreign direct investment in a
wide range of industries including insurance are to be relaxed. That
public-private partnerships (in which the government absorbs the
losses and the private sector skims the profits) are to be encouraged
in infrastructural projects, with government lending to or
guaranteeing private borrowing to finance private investments. That
the tenure of tax concessions given to STPI units and units in SEZs
are to be extended. And that corporate tax rates are likely to be
reduced and capital gains taxes perhaps abolished.
All of this generates expectations that there are likely to be easy
opportunities for profit delivered by an investor-friendly government
in the near future, including for those who seek out these
opportunities only to transfer them for profit soon thereafter. These
opportunities, moreover, are not seen as dependent on a robust revival
of growth, though some expect them to strengthen the recovery. In sum,
whether intended or not, the signals emanating from the highest
economic policy making quarters have helped talk up the Indian market,
allowing equity prices to race ahead of earnings and fundamentals.
Once the speculative surge began, triggered by the inflow of large
volumes of footloose global capital, Indian investors joined the game
financed very often by the liquidity being pumped into the system by
the Indian central bank. The net result is the current speculative
boom that seems as much a bubble as the one that burst a few months
back.
There are three conclusions that flow from this sequence of events.
The first is that using liquidity injection and credit expansion as
the principal instrument to combat a downturn or recession amounts to
creating a new bubble to replace the one that went bust. This is an
error which is being made the world over, where the so-called stimulus
involves injecting liquidity and cheap credit into the system rather
than public spending to revive demand and alleviate distress.
The second is that so long as the rate of inflation in the prices of
goods is in the comfort zone, central bankers stick to an easy money
policy even if the evidence indicates that such policy is leading to
unsustainable asset price inflation. It was this practice that led to
the financial collapse triggered by the sub-prime mortgage crisis in
the US. Third, that governments in emerging markets like India have
not learnt the lesson that when a global expansion in liquidity leads
to a capital inflow surge into the country it does more harm than
good, warranting controls on the excessive inflow of such capital.
Rather, goaded by financial interests and an interested media, the
government treats the boom as a sign of economic good health rather
than a sign of morbidity, and plans to liberalise capital controls
even more. In the event, we seem to have engineered another
speculative surge. The crisis, clearly, has not taught most policy
makers any lessons.
Sid Harth
Mumbai, September 17, 2009
Rupee rises by 26 paise in opening trade
PTI
The Indian rupee rose to a new one-month high after gaining 26 paise
against the US currency in the opening trade today as exporters sold
dollar, which weakened against major currencies.
At the Interbank Foreign Exchange (Forex) market, the domestic unit
gained 26 paise at 47.97 a dollar over the previous close.
On Wednesday, the rupee closed 40 paise higher at 48.23/24.
Dealers attributed persistent rise in the rupee to strong rally in
equities.
The BSE benchmark Sensex climbed to a 16-month high in Wednesday’s
trade.
They said weak dollar against euro and some other currencies and
dollar selling by exporters and also boosted the rupee sentiment.
Sid Harth
Mumbai, September 17, 2009
Sensex extends gains for third day; up by 34 points
PTI
The benchmark Sensex on Thursday closed with modest gains of 34 points
after surrendering most of its early lead due to a fall in index
heavyweight Reliance Industries.
The BSE barometer closed at 16,711.11 points, a rise of 34.07 points
or 0.20 per cent over its previous closing. It had rose by 143 points
to a high of 16.820.02 in early trade.
The broad-based Nifty of the National Stock Exchange crossed 5,000-
mark to touch a high of 5,003.05, the level not since May 23, 2008.
The Nifty closed at 4,965.55 points, a net gain of 7.15 points or 0.14
per cent.
Brokers attributed an initial rise in share values to strong Asian
cues on the back of firm Wall Street advices after US economic data
raised hopes that the global economic recovery is strengthening.
Besides Straits Times which ended barely flat, other Asian indices
ended in the green with a gain between 0.5 to 2.0 per cent. European
markets also were trading higher in their afternoon trade.
However, fall in the top heavyweight, RIL, mainly weighed on the
bourses as the share was down by Rs 97.15 or 4.45 per cent and was the
top loser from the Sensex pack. RIL informed BSE that Petroleum Trust
sold over one crore equity shares of the company today.
IT and auto counters attracted good buying while refinery and realty
stocks were at the receiving end.
http://beta.thehindu.com/business/markets/article21870.ece
Profit-booking pulls Sensex down
PTI
The Bombay Stock Exchange benchmark Sensex slipped by over 80 points
in opening trade on Friday snapping its three-session winning streak
on emergence of profit-booking at higher levels amid weak Asian
markets.
However, gains in some heavy-weight stocks capped losses.
The BSE-30 share benchmark Sensex, which had gained over 495 points or
3.06 per cent in the past three sessions, fell by 80.22 points or 0.48
per cent at 16,630.89 in opening trade with retreating banking, realty
and metal stocks.
Similarly, the Nifty on the wide-based National Stock Exchange plunged
by 24.80 points to 4,965.55 after hitting the 5,000-point level for
the first time since May last year.
Brokers said emergence of profit-booking by fund as well as retail
investors after recording handsome gains in the past three sessions
and weakening trends on the other Asian bourses attributed to the
decline in stock prices.
The major losers were the State Bank of India — down by 1.12 per cent
to Rs 2,083, ICICI Bank by 1.43 per cent to Rs 860.05, HDFC Bank by
0.28 per cent to Rs 1,532.10, Sterlite Industries by 1.94 per cent to
Rs 457, Hindalco by 0.40 per cent to Rs 135.50, DLF Ltd by 0.66 per
cent to Rs 417, Bharti Airtel by 0.15 per cent to Rs 432.50 and Larsen
and Toubro by 0.33 per cent to Rs 1,639.
Bucking the trend, Reliance Industries after Thursday’s plunge, traded
0.71 per cent higher at Rs 2,101.10 and Infosys Technologies rose by
0.60 per cent to Rs 2,375.
chhotemianinshallah
Posted: Wed, Sep 16 2009. 8:51 PM IST
Views
Defending Norman Borlaug
When he saw that people didn’t have food, he figured out how to
produce more; he did not force people to eat less Here, There,
Everywhere | Salil Tripathi
It is a tragic irony of our times that we find it easier to name some
of the worst mass murderers in history —Hitler, Pol Pot, Mao, Idi
Amin, Milosevic and Stalin—but find it relatively harder to remember
silent heroes who helped fight hunger. One such hero was Norman
Borlaug, the agricultural scientist, who died last week at the ripe
old age of 95.
Astounding though it might seem, not everyone sees him as a hero. Some
environmentalists have tried blaming Borlaug for introducing
technologies which made the Green Revolution possible, because they
hate the idea of technology-dependent farming. They believe that
agriculture that depends on chemicals and fertilizers, which
experiments with the structure of seeds and may alter their genetic
pattern, and which uses machinery, is responsible for much that ails
humanity. And some blame Borlaug.
At heart, that argument is misanthropic. It is also morally perverse.
It sees people as a problem, not as a resource. People pollute the
environment; they aspire for better lives; once they prosper, if they
have been vegetarians, they start eating meats; to feed them the world
will need more animals, more plants, and more seeds with higher
yielding potential; and to reduce the cost of operations and improve
efficiency, farms will have to be consolidated, and the world will
have to grow more food. The horror of it all! It will spawn wasteful
consumption and reduce topsoil. It will destroy the idyllic, pastoral
image of the lone farmer tilling his small plot of land. O tempora, o
mores!
We have been through this ritual before. In the late 18th century, the
Anglican clergyman Thomas Malthus argued that the power of population
was far greater than the power of the planet to produce food.
Population rises in geometric proportion; food increases only in an
arithmetical ratio. Malthus feared catastrophe ahead. Fast forward to
1968, and Paul Ehrlich warned of The Population Bomb. In 1972, the
Club of Rome published the report it had commissioned, Limits to
Growth, which provided some statistical evidence backing up Malthusian
fears. China imposed its one-child policy, and during the Emergency,
India forcibly sterilized thousands.
Note that the concern was about population growth among the poor—in
poor countries, or in poor families. What the pessimists were missing
was that Borlaug’s magic was radically transforming the rural
landscape of India. In the 1960s, his techniques doubled food
production in India: In a crop-breeding programme that won him the
Nobel Peace Prize, he developed wheat with short stems, which shifted
a much higher proportion of plant sugars into the plant’s ear,
yielding significantly higher yields. Wheat yield in India grew to 20
million tonnes (mt) by the late 1960s. In 2008, the harvest stood at a
record 73.5mt of wheat.
From being the poster child of international aid, it was becoming
among the world’s biggest producers of certain grains and milk, and,
on paper, becoming self-reliant and self-sufficient in food. The rise
of China and India is due to many reasons, but being able to feed
their people is certainly an important one.
But that rise requires a change in the pecking order: it means the
furniture has to be rearranged (G-8 has already become G-20). And so,
as the global concern about climate change becomes more serious, some
alarmist environmentalists in the West are painting lurid scenarios of
what might happen if all Chinese or all Indians were to start eating
meat, instead of cereals. The current effort to ask China and India to
restrain their insatiable demands “for the sake of the planet” is part
of that piece.
Borlaug didn’t succumb to the pessimism. He saw a problem and wanted
to fix it. When he saw that people didn’t have enough food, he figured
out ways of producing more; he did not force people to eat less, or to
reduce their numbers. As a result of his genius, today millions of
people are alive, who would otherwise not have survived the spectre of
shortages and droughts.
To be sure, agricultural productivity has declined, but that drop is
due to a complex set of reasons: Nothing, not even population, rises
at the same rate over a period of time. The drop in the size of a farm
due to inheritance leads to a drop in productivity. Politicized
subsidies encourage waste of water and power, as well as overuse of
fertilizers and pesticides by the well-connected farmers, skewing
distribution of resources. Warehouses are poorly managed, and a chunk
of what is produced gets wasted in transit, or consumed by rats.
Insufficient and inefficient irrigation means Indian agriculture
remains a gamble with monsoon. Borlaug wanted poor farmers to be paid
remunerative prices; governments avoided that, in order to placate the
influential urban constituencies.
There is a lot that needs to be fixed in Indian agriculture. But don’t
blame Borlaug for these problems. His legacy is the gift of life for
millions.
Salil Tripathi is a writer based in London. Your comments are welcome
at sa...@livemint.com
bademiyansubhanallah
September 27, 2009
A Matter Of Economics
Austerity is a good idea. But the Congress is faking it
By R. Balashankar
The Congress cannot be serious or convincingly carry on with its
cosmetic austerity façade. Either it will have to reverse the world
trend or Indianise its economic thinking on lines of Gandhiji,
Deendayalji and Swadeshi. For the world, market is money and there is
where growth is determined. Capitalists often claim that somebody’s
expenditure is somebody else’s income. Another form of trickle-down
effect. They say, talk more, spend more, as if there is no tomorrow.
The Indian says hold your purse, for a rainy day, save today, to spend
when you need it the most.
Austerity is a good idea in economics. But the Congress is faking it.
The brazen ostentation of two Congress ministers in enjoying their
first hundred days in five-star hotel suites has exposed the ruling
party’s soft underbelly. This was followed by another expose in The
Indian Express (September 16) that UPA ministers want Spanish tiles in
office rooms and Italian porcelain in their toilets. The CPWD, the
report said, was flooded with requests from ministers for urgent
renovation of houses and offices. Perhaps, these ministers were under
the impression that India has to play its role in European recovery.
Sonia Gandhi was not impressed by her ministers’ elitist ways. And the
party’s kneejerk response at austerity has made it a laughing stock.
In the wake of recession, the economists suggested spending as the new
mantra, though there was nothing new as the West has all the time
promoted it. India too joined the bandwagon by announcing three
stimulus packages. Without changing their basic nature of saving, the
Asian economies have made an astonishing rebound. In a market economy,
they say, consumption is the engine of growth. In these columns we
have opposed this craze for unsustainable consumption. The first step
in austerity is to avoid needless spending. The Congress has made the
whole debate into a political stunt by reducing it to a few icons of
the party ostentatiously travelling economy class. The question the
Congress has to answer is if the party leadership is satisfied by
enacting such tamasha in a year of world recession.
The country is facing an unprecedented drought. The price of food is
galloping by the day and according to the National Sample Survey (NSS)
of the government 700 million Indians live on less than fifty rupees a
day. Estimates have shown that 80 per cent of India’s wealth is
concentrated in the hands of less than 100 million people and these
are the real spendthrifts and shopaholics. The UPA in the last five
years followed a pro-rich policy whose emphasis was on encouraging
consumerism through various tax-cuts, incentives and creating a
wellness euphoria.
Now, with great media glitz Sonia Gandhi travels economy class on a
visit to Mumbai and her son Rahul travels by chair car in a train
journey to Ludhiana. The party wants its ministers and Members of
Parliament to follow suit to convey the message of low living and high
ideals. This way, the high command believes, the party will be able to
convince the common man that it is sharing his burden and sympathising
with his agony. One only hopes that Sonia Gandhi will continue the
lead by setting new examples like surrendering at least a few of the
sprawling bungalows of high market rental values her family has been
occupying in the posh New Delhi area for the last two decades.
According to an estimate, the Congress and its tributary organisations
have cornered as many as two dozen central Delhi buildings for the
last many decades. The party has perfected the art of using power for
the aggrandizement and comfort of its leaders. If it is serious it can
also reduce the size of the airbus cabinet Dr. Manmohan Singh is
presiding over.
RSS is perhaps the only mass movement in the country which has made
simple living part of its training. If the Congress is serious about
promoting austerity, it can ask its workers to take an internship with
the Sangh. The uniqueness of the Sangh is that from its top leaders to
ordinary workers, the same austere lifestyle is practised.
Most ministries have become redundant, in fact, that was the promise
of liberalisation. This aspect was covered in great detail in two
installments in these columns earlier. Rather, the downsizing of the
government has become a far cry under the UPA, and more than 80 per
cent of government spending is on maintaining its paraphernalia in
good shape. The perks and privileges of the ministers and the people’s
representatives are many times higher than their salary. As a measure
of austerity, it will be a good beginning if the government decides to
do away with all the perks and privileges of politicians and top
bureaucrats in government and public sector and reward them by
increasing their salary by say, four fold. Still, I am sure the
country will save thousands of crores. Conspicuous consumption has
become a habit with politicians. They live high, their children study
and settle abroad, still year after year, their assets grow manifold
as they themselves confess in their wealth declarations before the
Election Commission. There is no exception to this trend. During the
first term, at least on two earlier occasions, the Prime Minister had
announced austerity measures including curbs on compulsive foreign
travels. But there was no visible impact. Can the government convince
the public that it is serious this time?
Frugality arguments sound hypocritical in the face of lavish iftar
parties the Congress ministers are hosting in luxury hotels. The fact
is there is no accountability in public life. Then there is the other
aspect of the impact of misplaced frugality on economic stimulus.
India has not completely insulated itself from world recession.
Consumerism and excessive spending are being increasingly promoted as
the pre-requisite for recovery. The latest Newsweek (September 21,
2009) based on a study by Boston Consulting Group suggests that the
future growth of the global economy will largely depend on how the
untapped spending power of women on cosmetics, beauty industry, health
and education is encouraged. This study claims women in the emerging
markets could save the world from recession, through their higher
spending. Citing another study by the National Bureau of Economic
Research, it said, in rural India within six months of getting cable
TV, men and women alike had become more open to the idea of women’s
autonomy and more accepting of female participation in household
decision-making. Women make the majority of world’s purchasing
decisions, which, according to BCG, is some $12 trillion of the
world’s $18.4 trillion in annual consumer spending and that percentage
will likely rise as a new upwardly mobile class of young female
professionals overtakes its male peers in developing countries.
Obviously, the Congress cannot be serious or convincingly carry on
with its cosmetic austerity façade. Either it will have to reverse the
world trend or Indianise its economic thinking on lines of Gandhiji,
Deendayalji and Swadeshi. For the world, market is money and there is
where growth is determined. Capitalists often claim that somebody’s
expenditure is somebody else’s income. Another form of trickle-down
effect. They say, talk more, spend more, as if there is no tomorrow.
The Indian says hold your purse, for a rainy day, save today, to spend
when you need it the most. This is the disconnect, dichotomy of two
parallel worldviews.
The Congress has a choice, it can fake and get beaten or turn the
economic thinking back on Indian values.
(The writer can be contacted at edi...@organiserweekly.com)
bademiyansubhanallah
COLUMN
Another bubble?
C.P. CHANDRASEKHAR
When a global expansion in liquidity leads to a surge of capital
inflow into the country, it does more harm than good.
INDIA’S stock market recovery over the past six months is a bit too
remarkable for comfort. From its March 9, 2009, level of 8,160, the
Sensex at closing soared and nearly doubled to touch 16,184 on
September 9, 2009. This is still (thankfully) well below the 20,870
peak that the index closed at on September 1, 2008, but is high enough
to cheer the traders and rapid enough to encourage a speculative rush.
There are two noteworthy features of the close to 100 per cent
increase the index has registered in recent months. First, it occurs
when the aftermath of the global crisis is still with us and the
search for “green shoots and leaves” of recovery in the real economy
is still on. Real fundamentals do not seem to warrant this remarkable
recovery. Second, the speed with which this 100 per cent rise has been
delivered is dramatic even when compared with the boom years that
preceded the 2008-09 crisis. The last time the Sensex moved between
exactly similar positions it took a year and 10 months to rise from
the 8,000-plus level in early 2005 to the 16,000-plus level in late
2007. This time around it has traversed the same distance in just six
months.
With firms just looking to exit from a recessionary phase, this rapid
rise in stock prices cannot be justified by movements in sales and
profits. In fact, as Business Line noted in its editorial on September
9, 2009, the price to earnings ratio of Sensex companies now stands at
21, which is much higher than an average of 17, which itself many
would claim is on the high side.
Those comfortable with the market’s rise would of course argue that
investors, expecting a robust recovery, are implicitly factoring in
future earnings trends, rather than relying on earnings figures that
are the legacy of a recession. That would be stretching the case. Once
the next round of arrears has been paid, the once-for-all component in
the stimulus that the Sixth Pay Commission’s recommendations provided
would wane. With the deficit on the government’s budget expected to
reach extremely high levels this fiscal, a cutback of government
expenditure is likely.
Further, exports are still doing badly and the global recovery is
widely expected to be gradual and limited. That would limit the
stimulus provided by India’s foreign trade. And, finally, a bad
monsoon threatens to limit agricultural growth and accelerate
inflation. This would dampen the recovery in multiple ways. Given
these circumstances, excessive optimism with regard to corporate
earnings is hardly justified. The change in perception from one in
which India was a country that weathered the crisis well to one that
sees India as set to boom once again is not grounded in fundamentals
of any kind.
Speculative surge
This implies that the current bull run can be explained only as the
result of a speculative surge that recreates the very conditions that
led to the collapse of the Sensex from its close to 21,000 peak of
around two years ago. This surge appears to have followed a two-stage
process. In the first stage, investors who had held back or withdrawn
from the market during the slump appear to have seen India as a good
bet once expectations of a global recovery had set in. This triggered
a flow of capital that set the Sensex rising. Second, given the search
for investment avenues in a world once again awash with liquidity,
this initial spurt in the index appears to have attracted more
capital, triggering the current speculative boom in the market.
While these are possible proximate explanations of the transition from
slump to boom, they in turn need explaining. In doing so, we have to
take account of the fact that, as in the past, foreign investors have
dominated stock market transactions and had an important role in
triggering the current stock market boom. As compared to the net sales
of equity to the tune of $11.97 billion by foreign institutional
investors during crisis year 2008, they had made net purchases of
equity worth $8.75 billion in the period until September 11 during
2009. According to the Securities and Exchange Board of India, net
purchases were negative until February, but turned positive in March
with the net purchases figure being high during April ($1.3 billion),
May ($4.1 billion), July ($2.3 billion) and August ($1 billion).
Foreign Institutional Investors
It is not surprising that foreign institutional investors have
returned to market. They need to make investments and profits to
recoup losses suffered during the financial meltdown. And they have
been helped in that effort by the large volumes of credit provided at
extremely low interest rates by governments and central banks in the
developed countries seeking to bail out fragile and failing financial
firms.
The credit crunch at the beginning of the crisis gave way to an
environment awash with liquidity as governments and central bankers
pumped money into the system. Financial firms had to invest this money
somewhere to turn losses into profit. Some of it was reinvested in
government bonds, since governments were lending at rates lower than
those at which they were borrowing. Some was invested in commodities
markets, leading to a revival in some of those markets, especially
oil. And some returned to the stock and bond markets, including those
in the so-called emerging markets like India.
Many of these bets, such as investments in government bonds, were
completely safe. Others such as investments in commodities and equity
were risky. But the very fact that money was rushing into these
markets meant that prices would rise once again and ensure profits. In
the event, bets made by financial firms have come good, and most of
them have begun declaring respectable profits and recording healthy
stock market valuations.
It is to be expected that a country like India would receive a part of
these new investments aimed at delivering profits to private players
but financed at one remove by central banks and governments. However,
India has received more than a fair share of these investments. One
way to explain this would be to recognise the fact that India fared
better during the recession period than many other developing counties
and was, therefore, a preferred hedge for investors seeking investment
destinations. The other reason is the expectation fuelled by the
return of the United Progressive Alliance to government, this time
with a majority in Parliament and the repeated statements by its
Ministers that they intend to push ahead with the ever-unfinished
agenda of economic liberalisation and “reform”.
The UPA-II government has, for instance, made clear that disinvestment
of equity in, or privatisation of, major public sector units is on the
cards: that caps on foreign direct investment in a wide range of
industries, including insurance, are to be relaxed; that public-
private partnerships (in which the government absorbs the losses and
the private sector skims the profits) are to be encouraged in
infrastructural projects, with government lending to or guaranteeing
private borrowing to finance private investments; that the tenure of
tax concessions given to Software Technology Parks of India (STPI)
units and units in Special Economic Zones (SEZs) are to be extended;
and that corporate tax rates are likely to be reduced and capital
gains taxes perhaps abolished.
All of this generates expectations that there are likely to be easy
opportunities for profit delivered by an investor-friendly government
in the near future, including for those who seek out these
opportunities only to transfer them for profit soon thereafter. These
opportunities, moreover, are not seen as dependent on a robust revival
of growth, though some expect them to strengthen the recovery.
In sum, whether intended or not, the signals emanating from the
highest economic policymaking quarters have helped talk up the Indian
market, allowing equity prices to race ahead of earnings and
fundamentals. Once the speculative surge began, triggered by the
inflow of large volumes of footloose global capital, Indian investors
joined the game financed very often by the liquidity being pumped into
the system by the Indian central bank. The net result is the current
speculative boom, which seems as much a bubble as the one that burst a
few months ago.
Three Conclusions
There are three conclusions that flow from this sequence of events.
The first is that using liquidity injection and credit expansion as
the principal instrument to combat a downturn or recession amounts to
creating a new bubble to replace the one that went bust. This is an
error which is being made the world over, where the so-called stimulus
involves injecting liquidity and cheap credit into the system rather
than public spending to revive demand and alleviate distress. The
second is that so long as the rate of inflation in the prices of goods
is in the comfort zone, central bankers stick to an easy money policy
even if the evidence indicates that such policy is leading to
unsustainable asset price inflation. It was this practice that led to
the financial collapse triggered by the subprime mortgage crisis in
the United States.
Third, that governments in emerging markets like India have not learnt
the lesson that when a global expansion in liquidity leads to a
capital inflow surge into the country it does more harm than good,
warranting controls on the excessive inflow of such capital. Rather,
goaded by financial interests and an interested media, the government
treats the boom as a sign of economic good health rather than a sign
of morbidity, and plans to liberalise capital controls even more. In
the event, we seem to have engineered another speculative surge. The
crisis, clearly, has not taught most policy-makers any lessons.
bademiyansubhanallah
COLUMN
Measuring progress
JAYATI GHOSH
A commission set up to look into alternative ways of measuring
economic and social progress has added to the existing debate but not
made any real advances.
FOR some time now it has been clear that standard measurements of
growth and development are inadequate and possibly even misleading.
The problem of looking at only the aggregate gross domestic product
(GDP) has been widely noted: its blindness to distributional issues
and its inability to measure either the quality of life or the
sustainability of any particular system of production, distribution
and consumption. Despite these obvious limitations, however, the GDP
remains the most widely used indicator of any economy and is generally
the benchmark used to determine both performance and policy
orientations of most governments.
The more wide-ranging human development index, or HDI, (which is the
simple average of income measured by the GDP, health measured by life
expectancy and education measured by literacy/enrolment) is clearly
superior to the simple per capita GDP indicator. It is particularly
useful because it often provides rankings of economies that are quite
different from those based purely on per capita income. Nevertheless,
even the HDI is increasingly being viewed as limited because it does
not fully capture the complex relationships between current levels of
income and growth, basic health and education indicators, and quality
of life.
Several recent economic processes have made the need to search for
alternative indicators of human well-being even more pressing. The
global financial and economic crisis has exposed the problems and
contradictions inherent in the earlier boom, which were not recognised
by the wider public even though they were certainly discussed among a
segment of largely unnoticed economists. Meanwhile, climate change and
other evidence of ecological damage have highlighted how fragile and
eventually unsustainable current patterns of economic activity are.
And the distributional issues that were swept under the carpet in the
age of dominant finance and resurgent capital are becoming prominent
once again.
Sarkozy’s initiative
These may be what prompted President Nicolas Sarkozy of France (whom
some may otherwise have considered to be an unlikely candidate for
alternative economic thinking) to set up a commission in the middle of
last year to deliberate alternative measures of economic and social
progress. The commission has Joseph Stiglitz as chair, Amartya Sen as
chair adviser and Jean-Paul Fitoussi as coordinator and an impressive
list of economists and social scientists from across the world as its
members. The commission has now submitted its report, “Report by the
Commission on the Measurement of Economic Performance and Social
Progress”, available at http://www.stiglitz-sen-fitoussi.fr/documents/rapport_anglais.pdf.
The commission’s terms of reference were nothing if not sweeping: “To
identify the limits of GDP as an indicator of economic performance and
social progress, including the problems with its measurement; to
consider what additional information might be required for the
production of more relevant indicators of social progress; to assess
the feasibility of alternative measurement tools, and to discuss how
to present the statistical information in an appropriate way.”
These are huge issues, and not only because of the philosophical and
methodological concerns they raise. The empirical and statistical
issues may well present the greater challenge. After all, one of the
reasons for the continued domination of the GDP as the basic measure
despite its many limitations is its apparent simplicity and ease of
availability across countries and time periods. This is also why the
HDI remains the most popular alternative measure. Any new measure will
have to confront the basic problem of providing correct insights on
the basis of readily available data across different countries and
time periods.
For this reason, the commission’s report was eagerly awaited in the
hope that it would provide some feasible alternatives that could be
used and disseminated and that it would provide both alternative
measures for analysts as well as alternative goals for policymakers.
However, while the report makes a number of useful and often profound
points, it may have failed to fulfil this most urgent of goals.
Instead, it seems designed to open up a discussion, thereby leaving
some of the most crucial questions unanswered.
The report notes that there often seems to be a marked distance
between the standard measures of important socio-economic variables,
such as economic growth, inflation and unemployment, and public
perceptions about them. It accepts that these differences are often
too large and persistent to be simply attributed to money illusion or
similar features. Instead, it notes that these differences can arise
from flawed measurement processes, inadequate concepts, income
distribution effects or because the measures do not capture other
phenomena or features that affect well-being. It recognises that
conceptual issues and socio-economic inequalities are particularly
important.
Therefore, the report advocates a shift of emphasis from a “production-
oriented” measurement system to one focussed on the well-being of
current and future generations. This in turn means shifting from
measuring economic production to measuring people’s well-being in an
overall context of sustainability. This means that when evaluating
material well-being it is necessary to look at income and consumption
rather than production; to emphasise the household perspective
including unpaid labour; to consider income and consumption jointly
with wealth; to give more prominence to the distribution of income,
consumption and wealth; and to broaden income measures to non-market
activities.
The last is a complex and potentially controversial matter. Non-market
activities constitute a significant part of both production and
consumption in many societies, and the gender dimension of this is
well known. The lack of recognition and social reward for such
activities has also been identified as a major problem. However,
including some valuation of such activities in estimates of income may
have the perverse effect of increasing the estimated incomes of
households and societies that are currently perceived as poor. In
other words, the presence of a high proportion of non-market
activities, which are associated with lack of development and greater
poverty, may well become a false indicator of better living conditions
and thereby do the poor (and women who typically perform a greater
part of such non-monetised activities) a double disservice.
In other areas, the conclusions of the commission are certainly not
objectionable, but since they are expressed in a general way, they
appear to be somewhat banal. Thus, the report states that well-being
is multidimensional and includes not only material living standards
(such as income, consumption and wealth) but also health, education,
personal activities including work, political voice and governance,
social connections and relationships, present and future conditions of
the environment, and physical and economic security.
Happy planet index
This in turn means that quality of life depends not only on people’s
objective conditions and capabilities but also on their subjective
perceptions of life satisfaction. The report argues that statistical
offices should incorporate questions to capture people’s life
evaluations, hedonic experiences and priorities in their own surveys.
This is something that has already been attempted by the new economics
foundation (nef), London, which recently produced an extremely
interesting “Happy Planet Index” (HPI), which uses survey-based data
on life satisfaction in addition to other “hard” variables to arrive
at the index as follows:
HPI = (Life expectancy × Life satisfaction)/Ecological footprint.
(According to this index, Costa Rica emerges as the “happiest”
country, with the United States and several other rich countries
rather low down in the list.) However, unlike the HPI, the
commission’s report does not really present very clear methodological
answers on how to go about taking both life satisfaction and hard
variables into consideration. Similarly, because the commission
recognises the critical role of inequalities, its report notes that
quality-of-life indicators in all the dimensions covered should assess
inequalities in a comprehensive way. This is certainly desirable but
does not provide a useful alternative measure that would incorporate
inequalities in a feasible way.
Similarly, the issues of measuring sustainability and environmental
indicators are also effectively side-stepped. According to the report:
“Sustainability assessment requires a well-identified dashboard of
indicators. The distinctive feature of the components of this
dashboard should be that they are interpretable as variations of some
underlying ‘stocks’. A monetary index of sustainability has its place
in such a dashboard but, under the current state of the art, it should
remain essentially focussed on economic aspects of sustainability. The
environmental aspects of sustainability deserve a separate follow-up
based on a well-chosen set of physical indicators. In particular there
is a need for a clear indicator of our proximity to dangerous levels
of environmental damage (such as associated with climate change or the
depletion of fishing stocks.)”
Once again, this is too general to be really useful. In that sense,
the commission has not really been able to provide a conceptual or
measurement breakthrough even along the lines of the HDI. It is not
surprising that one is left asking for more. The authors of the report
seem to be aware of this. In a closing section, they note: “The
commission regards its report as opening a discussion rather than
closing it.” But this discussion has been open, and indeed ongoing,
for quite a while, even if not in the rarefied corridors of mainstream
economics. he commission must be credited for contributing sensibly
and wisely to the existing global conversation on this important
matter but cannot be congratulated for making any new advances.
Sid Harth
Sensex inches close to 17k, Nifty breaches 5,000
STAFF WRITER 16:47 HRS IST
Mumbai, Sep 22 (PTI) The benchmark Sensex today rose by over 145
points and the wider index Nifty regained the crucial 5,000 level
after 16 months on cues like expectation of better corporate earnings
and reports of growth in advance tax to extend the gaining trend for
the fifth day in a row.
After rising pretty close to the 17,000-level, the Bombay Stock
Exchange benchmark index Sensex settled at 16,886.43 points, higher by
145.13 from its last close.
During intra-day it jumped to the day's high level of 16,943.49. The
bellwether index had notched up 672 points in past five trading
sessions,
Wider National Stock Exchange index Nifty shot up by 44.15 points to
5,020.20, retaining over 5,000 level for the first time since May 22,
last year.
Sid Harth
ADB upgrades India's growth forecast to 6 per cent
STAFF WRITER 13:38 HRS IST
New Delhi, Sep 22 (PTI) Multilateral lending agency Asian Development
Bank has revised upwards India's growth projection to 6 per cent for
the current fiscal on account of rising business confidence but warned
that inflationary pressure would continue.
"Emerging signs of a recovery in private business confidence and a
continued large fiscal stimulus announced in the July 2009 budget
helped bolster India's projected economic expansion to 6 per cent this
year, upgraded from 5 per cent in March," ADB said in its on Asian
Development Outlook 2009.
India, it added, would be able to clock 7 per cent growth rate during
2010-11. Country's growth rate slipped from 9 per cent to 6.7 per cent
in 2008-09 on account of the impact of the global financial crisis.
Sid Harth
Missed policy opportunitySeptember 22nd, 2009
By Jayati Ghosh Did we just miss a major opportunity? For a short
while, it seemed that the global financial crisis would focus minds on
what is wrong with the current economic growth model and how we can go
about changing it. Unfortunately, that moment seems to have passed, at
least until the next crisis comes along (which, in current trends,
will not be long, since all the major forces that led to the previous
crisis are still in place).
The enthusiastic talk of recovery has spread from stock markets to
government policymakers, who are already talking of unwinding their
stimulus packages. Yet this is not only premature, it is also
disheartening because all the major changes that were required to
restructure economic relations in a more democratic and sustainable
way have simply not been considered.
For example, the point seems to have been missed that there is no
alternative to systematic state regulation and control of finance.
Since private players will inevitably attempt to circumvent
regulation, the core of the financial system — banking — must be
protected, and this is only possible through social ownership.
Therefore, some degree of socialisation of banking (and not just
socialisation of the risks inherent in finance) is also inevitable. In
developing countries this is also important because it enables public
control over the direction of credit, without which no country has
industrialised.
Second, the obsessively export-oriented model that has dominated the
growth strategy of the region for the past few decades needs to be
reconsidered. This is not just a desirable shift — it has become a
necessity given the obvious fact that the United States can no longer
continue to be the engine of world growth through increasing import
demand in the near future. Developing countries, particularly those in
developing Asia that continue to rely on the US and the European Union
as their primary export markets, must seek to redirect their exports
to other countries and most of all to redirect their economies towards
more domestic demand, towards wage-led growth. This can happen not
only through direct redistributive strategies but also through public
expenditure to provide more basic goods and services.
Third, this means that fiscal policy and public expenditure must be
brought back to centrestage. This is not only for countercyclical
measures, important though they are. Public expenditure is required to
manage the effects of climate change and promote greener technologies,
in addition to being crucial to advance the development project.
Fourth, we have to recognise the need to reduce inequalities in income
and wealth both globally and nationally, and also most significantly
in the consumption of natural resources. This is even more complicated
than might be imagined, because unsustainable patterns of production
and consumption are now deeply entrenched in the richer countries and
are aspired to in developing countries. But many millions of citizens
of the developing world still have poor or inadequate access to the
most basic conditions of decent life, such as minimum physical
infrastructure including electricity and transport and communication
links, sanitation, health, nutrition and education. Ensuring universal
provision of this will inevitably require greater per capita use of
natural resources and more carbon-emitting production. So both
sustainability and equity require a reduction of the excessive
resource use of the rich, especially in developed countries, but also
among the elites in the developing world.
Fifth, then this requires new patterns of both demand and production.
This makes it important to develop new means of measuring genuine
progress, well-being and quality of life. Quantitative gross domestic
product (GDP) growth targets, that still dominate the thinking of
regional policymakers, can be counterproductive. For example, a
chaotic, polluting and unpleasant system of privatised urban transport
involving many private vehicles and over-congested roads actually
generates more GDP than a safe, efficient and affordable system of
public transport that reduces vehicular congestion and provides a
pleasant living and working environment. So it is not enough to talk
about “cleaner, greener technologies” to produce goods that are based
on the old and now discredited pattern of consumption. Instead, we
must think creatively about such consumption itself, and work out
which goods and services are more necessary and desirable for our
societies.
Sixth, this cannot be left to market forces, since the international
demonstration effect and the power of advertising will continue to
create undesirable wants and unsustainable consumption and production.
But public intervention in the market cannot be knee-jerk responses to
constantly changing short-term conditions. Instead, planning — not in
the sense of the detailed planning that destroyed the reputation of
command regimes, but strategic thinking about the social requirements
and goals for the future — is absolutely essential.
Seventh, since state involvement in economic activity is now an
imperative, we should be thinking of ways to make such involvement
more democratic and accountable within our countries and
internationally. Large amounts of public money are being used for
financial bailouts and to provide fiscal stimuli, and how this is done
has huge implications for distribution, access to resources and living
conditions of the ordinary people whose taxes pay for this. So states
across the world have to become more open and responsive to the needs
of the majority of their citizens.
Finally, we need an international economic framework that supports all
this, which means more than just that capital flows must be controlled
and regulated so that they do not destabilise any of these strategies.
The global institutions that form the organising framework for
international trade, investment and production decisions also need to
change and become not just more democratic in structure but more
genuinely democratic and people-oriented in spirit, intent and
functioning. Financing for development and conservation of global
resources must become the top priorities of the global economic
institutions, which means in turn that they cannot continue to base
their approach on a completely discredited and unbalanced economic
model.
bademiyansubhanallah
World Bank approves $4.3bn loan for infrastructure in India
PTI 23 September 2009, 11:27am IST
WASHINGTON: The World Bank has approved four projects worth $4.3
billion to India to bolster its economic stimulus programme and
support the infrastructure sector.
Of this $2 billion is Banking Sector Support Loan, which will provide
budgetary support to India, helping it maintain its broad economic
stimulus program by enhancing the capital of select public sector
banks.
This loan will help maintain credit growth levels, support social
banking and employment growth, and help strengthen the economic
recovery ahead, the World Bank said in a media statement.
Another loan of $1.2 billion to the India Infrastructure Finance
Company Ltd. (IIFCL) is designed to support its role to catalyze
private financing for public-private partnerships in (PPPs)
infrastructure and stimulate the development of a long-term local
currency debt financing market, the Bank said.
The World Bank also approved another $1 billion loan to the Power Grid
Corporation of India for the Fifth Power System Development Project.
It is designed to help address India's acute deficit of power, the
bank said.
Lastly, the Bank approved $150 million for the Andhra Pradesh Rural
Water Supply and Sanitation Project, aimed at improving water supply
and sanitation services in 2,600 villages across six districts of the
State
bademiyansubhanallah
Posted: Tue, Sep 22 2009. 9:28 PM IST
Columns
Sex and the economy
India cannot accelerate growth and meet social security goals unless
there is more focus on the role of womenCafe Economics | Niranjan
Rajadhyaksha
Aright to food activist who I met in New Delhi last week made a very
perceptive remark about the state of family dynamics in India.
We were discussing the relative merits and demerits of handing out
cheap food to poor families versus handing them cash.
Several economists have seen the success of conditional cash transfer
schemes in Latin American countries such as Brazil, and they believe
that a similar system would work very well in India. In short, the
government should bypass its expensive, inefficient and corrupt social
security apparatus— such as the ration shops in the public
distribution system—and give the poor cash to spend. There is a lot of
meat in this line of thought.
This activist offered several reasons why giving subsidized food is a
better option than doling out cash in the case of India, but one of
these reasons was remarkably insightful. He said that much depends on
the state of gender rights in a country. Women in Brazil have far more
rights in a household than Indian women do.
And this unarguable but important fact has important ramifications on
the design of social security initiatives such as the right to food.
In a typical Indian household, men control the cash while women
control food. His point was that if the policy aim is to ensure that
no Indian goes to bed hungry, then it is a far better idea to give
food directly rather than hand over cash that the husband may spend on
other things.
There is not adequate appreciation of the fact that gender rights and
economic development are inextricably linked. The Economist in April
2006 had provocatively, but correctly, pointed out that women joining
the labour force have contributed more to economic growth than the
usually cited factors such as China, India and the Internet. Besides:
“Women will…be better equipped for the new jobs of the 21st century,
in which brains count a lot more than brawn.”
But the entry of more women into the labour force is a positive even
in developing countries, where growth tends to be driven more by the
growing use of capital and labour rather than better use of these
resources through innovation. There is enough research that shows how
economic growth picks up when more women enter the labour force. “…in
developing countries where girls are less likely to go to school than
boys, investing in education would deliver huge economic and social
returns. Not only will educated women be more productive, but they
will also bring up better educated and healthier children,” added The
Economist in an editorial.
These issues came to mind as I read a new research paper by economist
Raquel Fernandez of New York University, published by the National
Bureau for Economic Research in September. Fernandez tries to “shed
light on the relationship between women’s rights and development by
focusing on a fundamental economic right: property rights”.
As wealth accumulates and families have fewer children, the incentives
for males in a patriarchal system change. “At some critical level of
fertility or capital, the disparity in the welfare of daughters versus
sons implies that a father would be better off sacrificing the
consumption benefits he obtains from being selfish with his wife in
order to ensure that his sons-in-law are forced to be generous to his
daughters,” writes Fernandez.
India has recognized property rights for daughters since 1956, at
least for the Hindu community. Some states have since moved further to
ensure that women automatically get property rights. Goa introduced a
law whereby a woman automatically gets a share of her husband’s
property when she marries, subject to certain conditions. Yet, in a
poor country such as India where most people do not have too much
property, such rights could have less of an impact on development than
in many other countries.
Gender equality is a fundamental good. But there are also important
economic benefits.
Getting more women out of the house into the workforce would help both
economic development and empowerment. And there could be a positive
feedback mechanism as well. Economist Gary Becker has shown in his
pioneering work on the economics of the family how higher real wages
raise the opportunity cost of staying at home and bearing children.
Also, rising wages for skilled labour is an incentive for parents to
invest more in a child’s education and thus have fewer children.
The broader point here is that India cannot hope to accelerate growth
and meet key social security goals unless there is more focus on the
role of women in our system. Higher investments in school education
for girls and policies to lower fertility are two obvious policy
responses. The first will help more women participate in the modern
economy and the second will help them improve their economic position
relative to the position of men.
Niranjan Rajadhyaksha is managing editor of Mint. Comments are welcome
at cafeec...@livemint.com
bademiyansubhanallah
Posted: Mon, Sep 21 2009. 9:28 PM IST
Columns
A bloated public sector
Facts and our analysis suggest that investors, betting on further rise
in asset prices, should be aware of the risksBare Talk | V. Anantha
Nageswaran
FT Alphaville has reproduced some interesting statistics from the
research of David Rosenberg, well known as the former chief economist
for North America at Merrill Lynch with respect to valuation for the
S&P 500 stock index.
According to him, the trailing price-earnings multiple (P-E multiple)
of S&P 500 on operating earnings is 26 times and on reported earnings
is 184 times! Certainly, even based on operating earnings, the stock
index is not priced cheaply. Based on what S&P 500 companies are
likely to earn next year, as forecast by analysts, the P-E multiple is
15.4 times—the highest in five years. Yes, even higher than in 2007.
This is the punchline: The S&P 500 stock index is trading at more than
20% above its 200-day moving average —a condition not seen in the last
27 years.
Of course, extrapolation of the past has limitations. No two
situations are similar. This time round, investors are basing their
optimism on the unprecedented stimulus given by governments and
central banks. That is true. Policy intervention has been huge and
global. But imagine a medical parlance. A massive amount of pain is
numbed with a sufficiently high dose of painkiller. Two possibilities
arise: one is that painkillers do have side effects and second, if
painkillers are withdrawn, what happens? Suppose the answer is that
the painkillers won’t be withdrawn quickly, there would be more side
effects.
We are seeing that already in exchange rate movements and in the price
of gold. Regardless of the current deflationary pressure, some
investors believe that such a massive fiscal spending programme
coupled with the US Federal Reserve support to the mortgage market and
purchase of government bonds issued by the government to support its
spending programme would result in inflation some years ahead and
weaken the currency. They are reacting now and the weakness is brought
forward. But how long before other countries react to their currencies
appreciating despite their own weak growth prospecst? How long before
exchange rate skirmishes break out and then grow into currency wars?
Has the stock market sufficiently priced in these risks?
Last week, the Fed released the second quarter flow of funds data for
the US. This report helps us to verify the health of the balance
sheets of the various entities—households, businesses (corporate and
non-corporate), state, local and federal governments.
Several things stand out in this report. The overall debt level in the
country relative to gross domestic product keeps rising because the
federal government is borrowing massively—more than it has ever done
since the 1950s. This is offsetting debt reduction by US households
and businesses. Businesses? The year 2009 has seen record issue of
bonds by US companies in the first nine months that has dwarfed new
debt issued even in 2007. So, what is causing the level of business
debt outstanding to fall? Well, businesses do not just mean
corporations.
Small and medium enterprises are more important for the economy. They
have not been able to obtain credit. Right up to September, the credit
conditions they face have remained tight and they have been getting
tighter. So much for the systemic importance of banks. They have been
paring back their loans. Without expanding assets, how are they making
profits? Flexible accounting rules and practices, under-provisioning
for fast rising non-current assets and trading for their own account
have been the drivers of profitability.
Consequently, it appears likely that the contraction in debt owed by
businesses would have continued even in the third quarter. Equally, if
not more important, is that debt owed by households has been dropping
for the last four quarters. If so, this would be the first time that
both sets of private entities would be shrinking their balance sheets
whereas the government’s is exploding.
Now, the shrinking of private sector balance sheets is desirable for
long-term sustainability of the US economy. But it has not been good
for stock market performance in the past. Certainly, it will not
deliver the kind of growth rates that US stock prices currently
discount. In the past, total returns to investors were helped by
dividends, but they are paltry now. The golden years for the US were
the 1990s when government debt shrank, household debt growth remained
stable at low levels and the business sector borrowed and invested.
That explains how the technology boom started and later morphed into a
bubble.
It is possible that stocks keep climbing. As someone reminded me
recently, financial markets exist to make most participants humble. I
have had more than my fair share, of course! Nonetheless, facts and
our analysis suggest that investors, betting on further rise in asset
prices, should be aware of the risks and know how to limit their
fallout. When the lights go out, there would be a stampede to the
exit. One could be left behind.
V. Anantha Nageswaran is chief investment officer for an international
wealth manager. These are his personal views. Your comments are
welcome at bare...@livemint.com
Sid Harth
Jobs are back! India Inc on manhunt as slump eases
STAFF WRITER 14:49 HRS IST
New Delhi, Sep 28 (PTI) Jobs are back and India Inc is witnessing an
upsurge of 15 per cent in hiring trend, thanks to the improving
economic climate.
However, experts say it is too early to say that the situation has
returned back to 'normalcy'.
"We see the movement happening across the sectors and it looks like
worst is over. But the current scenario can not be considered as
normal but it is better than bad," executive search firm GlobalHunt
India professional leader Sunil Goel said.
If everything goes fine then it will take a year to reach to a normal
situation, he added.
In last two quarters (January?March and April?June), hiring was almost
0?5 per cent across industries but in current quarter, average hiring
has increased 5?15 per cent across industries.
Sid Harth
ICAI finds ex Satyam CFO, Price Waterhouse auditors guilty
STAFF WRITER 20:1 HRS IST
Mumbai, Sep 28 (PTI) The Institute of Chartered Accountants of India
has found two top officials of Satyam Computer and four auditors of
Price Waterhouse prima facie guilty in the Rs 7,800-crore fraud case,
a top ICAI official said today.
Besides, the apex body of Chartered Accountants has also found audit
firms - Price Waterhouse, Kolkata and Price Waterhouse, New Delhi -
prima facie guilty of misconduct.
"The Director (Discipline) has found two officials of Satyam Computer,
Price Waterhouse and its four auditors prima facie guilty of
professional misconduct in the Satyam case," ICAI President, Uttam
Prakash Agarwal, told PTI here.
The opinion of Director (Discipline) was considered and has been
approved by ICAI's disciplinary committee, Agarwal said.
Two Satyam officials found "prima facia guilty" are Ex CFO V Srinivasu
and Senior Vice-President, Internal Audit Cell, V S Prabhakara Gupta.
Sid Harth
'ArcelorMittal to step up focus on emerging mkts'
STAFF WRITER 13:53 HRS IST
New York, Sep 28 (PTI) World's largest steel-maker ArcelorMittal will
focus more on emerging markets, including India, and expects to return
to the pre-crisis level by 2012, the company's chief Lakshmi N Mittal
has said.
"Growth will be a slow, progressive recovery. Maybe by 2012, we could
come back to the pre-crisis level. Growth will only come from emerging
markets. That is where we will focus," India-born Mittal told the Wall
Street Journal in an interview.
"On the steel sector, we will start looking at Brazil and India and
(Commonwealth of Independent States) countries."
Mittal, one of the world's 10 richest people, said the worst is
probably behind but the growth trajectory the company had been on
since the merger of Arcelor SA and Mittal Steel Co in 2006 is not
going to return anytime soon.
Sid Harth
Govt committed to expedite new co. law: Khursheed
STAFF WRITER 11:51 HRS IST
New Delhi, Sep 27 (PTI) Corporate Affairs Minister Salman Khursheed
has said the government is committed to introducing the new Companies
Bill expeditiously as it would help firms grow fast.
"It is our responsibility to pass the Companies Bill so that in the
modern times they get an opportunity to progress fast ... (We want) to
implement the bill fast. We are committed to it", he said while
talking to reporters on the sidelines of India Leadership Conclave
organised by Assocham and Wockhardt Foundation.
The government introduced the Companies Bill 2009 in August in the Lok
Sabha which seeks to replace the earlier law which was enacted in
1956.
Pointing out that the bill is pending before the Standing Committee,
Khursheed said, "People can put their views before the committee.
Based on their suggestions, further steps would be taken.
bademiyansubhanallah
India's cotton exports decline by 55 pc in 2008-09
STAFF WRITER 15:42 HRS IST
New Delhi, Sep 30 (PTI) India's cotton exports in 2008-09 season,
which ends today, are estimated to have plummeted by a whopping 55 per
cent to about 38 lakh bales due to higher prices in the domestic
market.
"According to provisional data, cotton exports stand at about 38 lakh
bales for 2008-09," a senior government official said. The country had
exported 85 lakh bales in 2007-08 season, which runs from October to
September.
The Cotton Advisory Board, headed by the Textile Commissioner, in
October 2008 had estimated cotton export to be at 75 lakh bales during
2008-09. However, the estimate was later downsized to 50 lakh bales
considering poor demand in the overseas market.
Trade experts blamed high domestic prices following a sharp increase
in Minimum Support Price (MSP) the main reason for poor export.
bademiyansubhanallah
Sugar stocks can meet only 3 mths' demand: report
STAFF WRITER 14:36 HRS IST
New Delhi, Sep 30 (PTI) India's sugar stocks from this season, ending
today, are just enough for domestic consumption of a little over three
months, says a report, indicating a surge in prices that have doubled
in a year to Rs 36 a kg.
Worse still, even import may not ensure a fall in sugar prices because
of the prevailing high global rates, according to the latest report by
commodity brokerage firm Religare.
"Domestic sugar inventory is expected to decline sharply from 5.9
months of consumption in (the opening of) sugar year 2008-09 to 3.1
months in (that of) the sugar year 2009-10 (starting tomorrow)," it
said.
In quantity terms, closing stocks of this season, or the opening
reserve for the next season, would be only 5.6 million tonnes, down
from 10.4 million tonnes a year earlier.
Sid Harth
Sensex closes above 17k level, gains 274 poitns
STAFF WRITER 17:31 HRS IST
Mumbai, Sep 30 (PTI) The benchmark Sensex today surged by over 270
points to close above the psychologically crucial 17,000-level for the
first time in more than 16 months.
Marketmen said anticipation of strong earnings by India Inc for the
second quarter of the fiscal sparked hectic buying across banking,
auto, consumer goods and realty counters.
Netting a gain of 273.93 points or 1.63 per cent over its previous
close, the 30-share index on the the Bombay Stock Exchange ended the
day at a fresh 16-month high of 17,126.84, a level last achieved on
May 21, 2008.
Meanwhile, after plunging to its lows since Lehman collapse, Dow Jones
Industry Average is hovering around 10,000-level, boosting confidence
in investors worldwide.
Brokers said market was also driven by strong optimism among foreign
funds, largely prompted by higher advance tax payments by companies
which grew by over 13 per cent.
bademiyansubhanallah
Sample surveys and their pitfalls
The effort to construct a single index to assess a region for its
investor-friendliness is laudable. But in doing so, more attention
should be paid to fine-tuning statistical methods, so that such
indices can be used as a reliable tool for policymaking.
R. Srinivasan
Nilgiris district is a pretty place, but is it one of the most
attractive investment destinations in Tamil Nadu? A report on Economic
Environment Index (EEI) for districts in Tamil Nadu makes precisely
such a claim.
It has been prepared and released by Centre for Development Finance,
IFMR, Chennai, and explains the index as “a measure of enabling
environment (for industrial investment) provided by the local bodies
for private enterprises and households̶ 1;. In other words, it looks
at the suitability of a district as an investment destination within
the State. .
The overall ranking of districts based on EEI scores puts Nilgiris
ahead of such places as Coimbatore, Tuticorin, Tiruchi, well known
industrial hubs, and even places such as Thiruvallur and Kanchipuram
that are close to Chennai and are currently the beneficiaries of a
vast amount of investments by enterprises in automobile and
information technology sectors.
Are these enterprises consumed by a death wish that they should seek
to locate themselves in places that are not as investment-friendly as
the IFMR survey makes them out to be?
Alternatively, is there something in the way the index has been
constructed that could potentially lead an investor to locate his unit
in a place that not only goes against the received wisdom but also
against a framework of rational decision-making?
The issue is not without its implications to public policy.
TOO SUBJECTIVE
The ranking of districts based on EEI scores is contrary to both the
government and public perception on favoured destination for
investments. One simple test is to correlate the ranks based as EEI
scores with the ranks based on the relative contribution of non-farm
sector to GSDP of the districts. If the EEI rankings hold good, then
the top districts should have already attracted substantial
investments.
A statistical test of ‘rank correlation’ between the ranks of
districts based on their non-farm sectors’ contribution to their GSDP
(say for 2005-06) and the ranks based on EEI, should bear this out.
As it happens, it throws up a number (0.05) that is too low to
consider any significant correlation between these two variables. Thus
the EEI scores do not reflect the size of non-farm sector in these
districts.
The EEI is constructed using data on 57 indicators classified under
seven heads with varying weights for each group.
The weights are assigned using principal component analysis, for the
following categories (i) physical infrastructure (20 per cent) (ii)
local infrastructure (12), (iii) governance (11), (iv) law and order
(9), (v) business establishment cost (18), (vi) cost of doing business
(18) and (vii) environmental sustainability (12).
Of the 57 indicators used in this EEI, 31 are subjective variables or
perceptions on various issues. Why would this be so ?
An attribute such as the extent of prevalence of law and order in a
district — so essential for a decision on committing investments —
could be captured by data on first information reports registered by
police stations in that district or by quizzing the sample respondents
as to how they assess the level of law and order on a scale of one to
five.
There can be no two values for the number of FIRs, for the simple
reason that it can be objectively verified. In contrast, a measurement
of the same phenomenon (extent of law and order) based on people’s
perception is fraught with risk of error. A measurement error could
translate into erroneous choices on the most preferred investment
destinations.
SAMPLING ERRORS
Such surveys could suffer from another infirmity. In this case,
perceptions on various issues have been collected from households and
firms through a sample survey. The report says the survey was
conducted in both households and business firms in all districts of
Tamil Nadu. The sample size (with 95 per cent confidence level and 10
per cent confidence interval) of 100 households per district and 50
business firms was used for the study.
In all, 3,200 households and 1,600 firms were included in the survey.
The issue as to how the sample size is the same for every district
when they are heterogeneous in every respect is a source of bother.
So, the sample methodology is one of the major areas that needs
substantial improvement, particularly when it has to supply more than
50 per cent of the data for the construction of EEI.
Given these methodological inadequacies, the EEI report needs further
refinement in (i) replacing perceptive/categorical data with
quantifiable data; (ii) designing an appropriate sampling technique;
(iii) revising the methodology of assigning weights; and (iv) removing
unreliable data and including new data sets.
ANALYSING OUTLIERS
It is important that indices such as these are calculated, interpreted
and released at regular time intervals, so that refinements can be
made on a regular basis . After reaching a reasonable level of
acceptability, the index could be used for policy analysis.
Normally, when an index is constructed from a set of data that
exhibits a high degree of variability, it is important to discuss
extreme cases, or outliers, and special cases as case studies.
In spite of a district being categorised as the least preferred
destination for investments, it may have some best practices and,
similarly, the most preferred district may have glaring shortcomings.
Therefore, sample surveys such as this should highlight extreme
instances as case studies.
Index numbers are always essential both for policy analysis and in
public debate, as they capture multi-dimensional growth scenario in a
single number.
In this context, EEI is a novel effort. Such exercises should be made
into an annual feature and construction of similar indices for other
sectors encouraged. These indices can evolve as reliable guides to
policymaking.
(The author is Reader, Department of Econometrics, University of
Madras.)
bademiyansubhanallah
India ranks 134th in human development index: UNDP
Norway, Australia, Iceland, Canada in top 10.
The Deputy Chairman of the Planning Commission, Mr Montek Singh
Ahluwalia, and the Resident representative and UN Resident
coordinator, Mr Patrice Coeur-Bizot, at the launch of the Human
Development Report 2009 in the Capital on Monday.
Our Bureau
New Delhi, Oct. 5 India ranks 134th out of 182 countries in the world,
with the human development index (HDI) estimated at 0.612, based on
2007 data in terms of a long and healthy life, access to knowledge and
a decent standard of living to its citizens, according to the United
Nations Development Programme (UNDP).
In its 2009 Human Development Report released on Monday worldwide, the
UN body contends that an earlier statistical update last year ranked
India 132nd out of 179 countries with an HDI value of 0.609 which was
based on 2006 data available then. It thus appears that India has
dropped two slots in rank but gained 0.003 in value between last
year’s report and this year’s.
The top 10 countries in the HDI 2007 include Norway, Australia,
Iceland, Canada, Ireland, Netherlands, Sweden, France, Switzerland and
Japan.
The US was on 10th slot, down a point from 2006, while at the bottom
of the index were Sierra Leone (180), Afghanistan (181) and Niger
(182).
The report, however, claims that progress in basic human development
indicators for India has been consistent over the past 27 years since
the UN body computed this index for all the countries across the
world.
Thus, during that period, life expectancy at birth rose by
approximately 8 years, adult literacy increased by 25 percentage
points and combined gross enrolment increased by 20 percentage points.
GDP per capita (in constant 2007 purchasing power parity dollar ) also
increased by 199 per cent from a level of $921 in 1980 to $2,753 in
2007.
It is no big solace that currently India’s 2007 HDI is the same as the
average for South Asia but below the average of 0.686 for medium human
development countries. India’s nearest “HDI neighbours” are Bhutan and
Pakistan ranked at 132 and 141 respectively.
Poverty index
The Human Poverty Index (HPI-1), focusing on the proportion of people
below certain threshold levels in each of the dimensions of the HDI,
is estimated at 28 per cent for India, placing the country in the 88th
slot among 135 countries for which the index has been calculated. It
is also instructive to note that India’s gender-related development
index (GDI) capturing the inequalities in achievement between women
and men, at 0.594 should be compared to its HDI value of 0.612.
India’s GDI value is 97.1 per cent of its HDI value, though out of the
155 countries with both HDI and GDI values, 138 countries have “a
better ratio than India’s”, the report said.
On migration, the main topic of this year’s report, India has an
emigration rate of 0.8 per cent and its major continent of destination
for migrants is Asia with 72 per cent of emigrants living there.
In 2007, of the total $370 billion remitted in 2007, India received
$35.26 billion and its average remittances per person were $30,
compared with the average for South Asia of $33.
bademiyansubhanallah
Rupee at four-month high, rises by 26 paise to 47.25 a dollar
6 Oct 2009, 1040 hrs IST, PTI
MUMBAI: The rupee strengthened by 26 paise to hit a four-month high of
47.25 against the US currency in opening trade today on increased
dollar Forex Converter selling by exporters amid expectations of fresh
capital inflows by foreign funds.
The dollar's weakness against major currencies also supported the
Indian rupee.
At the Interbank Foreign Exchange (Forex) market, the domestic unit
gained 26 paise to quote at 47.25 a dollar, a level not seen since
June 5.
The rupee closed 23 paise higher at 47.51/52 in the previous session.
Dealers said increased dollar selling by exporters supported the
rupee.
bademiyansubhanallah
With 66% gain, it's early Diwali for markets
6 Oct 2009, 0655 hrs IST, Vijay Gurav, ET Bureau
MUMBAI: Come October 17, stock brokers, investors and their families
will get together and participate in Muhurat Trading, the most
auspicious occasion for the country's broking and trading
communities.
Unlike this time last year, when the stock market was mid-way through
its turbulent journey, market participants can now look forward to
celebrating Diwali with some cheer, thanks to the sharp rebound in
shares since April. Still, scope for further upsides may be limited
near term, following the spurt in valuations.
In the past, the market had risen in the run-up to Diwali on a few
occasions, despite the overall mood being subdued. This time around,
the mood is positive, but brokers feel that it may not translate into
any major gains.
Motilal Oswal Securities chairman Motilal Oswal feels there may not be
any pre-Diwali rally. "The market looks heavy and odds are in favour
of some short-term correction," he said. The Sensex has rallied
smartly from 10,349 on April 1 to a 52-week high of 17,135 on October
1, recording a gain of 66% in the past six months.
The strong upmove was supported by robust inflows from foreign
institutional investors (FIIs) who have pumped in more than $10
billion into equities at the net level in 2009 so far. Old-timer
Jasvantlal Shah, who has been one of regular participants in BSE's
Muhurat Trading function, is cautious about the short-term outlook.
"Valuations appear a bit stretched after a sharp and speedy recovery
in September. The market will remain range-bound in the run-up to
Diwali," he said. Mr Shah, however, says retail investors tend to make
some purchases, albeit in small quantities, on Muhurat days.
The recovery in the stock market has come as a big relief to investors
who were traumatised by last year's stock market meltdown. The festive
mood was completely missing in 2008 amid a grim scenario in economies
across the world. The Sensex tanked 28% in a month before Diwali
though it managed to end with smart gain of 6% during the Muhurat
trading session on October 28, 2008.
During 2006-07, the market remained firm ahead of Diwali, with the
Sensex rising 3.4-5.2% on a monthly basis. The trend on Muhurat days
showed the index was down in 2007 and was up in the previous year. In
2005, the market slipped 9% on a monthly basis, but gained 0.7% on
November 1, the Muhurat day.
bademiyansubhanallah
In October, Sensex down 11 times in 18 years
5 Oct 2009, 0714 hrs IST, M Allirajan, TNN
COIMBATORE: After a spectacular September, which saw Sensex clocking
more than 9% returns, will the markets usher in a crackling festival
bonanza? Experts' take on Sensex @ 17k
While there has been much talk about "valuations getting stretched"
and a "correction", October hasn't really been an exciting month for
Sensex in the past.
The Sensex has given negative returns in nearly two out of three
occasions since 1991 when the economy opened up. The benchmark index
has declined in 11 out of 18 years in October, data with BSE and
domestic brokerage firm Anand Rathi financial services shows.
"October would be (a) volatile (month). But even if there is a
correction it will not be big," reckons Ajay Parmar, head, research,
Emkay Global financial services. "Markets have fallen most of the
times either before or after Diwali in the past 15 years," says D D
Sharma, senior vice-president , research, Anand Rathi.
The onset of the festival season and the announcement of corporate
results act as a trigger for booking profits, he explains. "Barring
some pockets of undervaluations, most of the large cap segment is
fully valued discounting (2010-11) earnings expectations." Investors
get into the exit mode when the results start trickling in and make a
re-entry once the earnings get fully reflected ,” say market
observers.
Though observers expect the quarter-ending September to be strong as
advance tax payments have been buoyant, some believe earnings might
lose steam after the festival season gets over.
bademiyansubhanallah
Sensex erases early gains as IT stocks tumble
STAFF WRITER 13:30 HRS IST
Mumbai, Oct 7 (PTI) Erasing early gains, the Bombay Stock Exchange
benchmark Sensex tumbled by over 98 points at midsession today on
emergence of selling by funds in stocks led by information technology
segment after the rupee rose to the highest in more than a year.
The Sensex, which rose by 162 points at the outset, fell to show a
loss of 98.54 points to 16,860 at 1300 hrs with stocks of Infosys,
Tata Consultancy and Wipro recording fresh losses as investors felt
the firm rupee against the dollar would reduce revenue of software
exporting company stocks.
More than 50 per cent of the Indian software export business comes
from the US markets. The rupee firmed up to Rs 46.71 against the
dollar.
Similarly, the wide-based National Stock Exchange index Nifty fell by
30.25 points at 4,997.15 at the same time.
Infosys Technologies lost 2.
chhotemianinshallah
Rationality, Trust & Development
Kaushik Basu
January 05, 2008
First Published: 22:21 IST(5/1/2008)
Last Updated: 23:01 IST(21/6/2008)
Individual rationality is a central concern of economics. This is
because of the influential view, associated with Adam Smith, that,
even if all individuals are selfishly rational, the ‘invisible hand’
of the market will guide society to achieve efficiency. Smith’s work
in the late eighteenth century had a huge impact because it seemed to
controvert Thomas Hobbes’ thesis that human beings, left to themselves
without the controlling hand of the government, would end up in
anarchy and chaos.
Over time, neo-conservative writers contorted Smith’s thesis to assert
that, as long as the government does not interfere with the
individuals’ pursuit of self-interest, an economy will prosper. All
the government has to do is not be there.
But this thesis is flawed. First of all, modern game theory
illustrates that rationality itself is a contentious idea. In
‘strategic’ situations, where several ‘rational’ agents confront one
another, the meaning of rationality may be innately contested. Last
year I published a paper in Scientific American, called ‘The
Traveler’s Dilemma’, to demonstrate this. I had also hoped that it
would rid some of our public intellectuals of their neo-conservative
predilections. But, while I got a lot of response from around the
world, the article went virtually unread in India. However, my paper
now shows up on a travel and tourism website next to the announcement:
“Fight Traveler’s Diarrhea, developed by a gastroenterologist.” Given
the Indian obsession with gastric health, my hope is that people will
find this website and then mistakenly read my paper.
Second, new research in economics shows that while the individual urge
to maximise income and accumulate are stimulants to growth, a society
also needs altruism, integrity and trust. These are the flora and
fauna which enable industrialised economies to flourish, and their
absence can doom an economy to stagnation. In some of the poorest
parts of India, there is no trace of government. By the conservative
argument these should be the most prosperous regions. One reason they
are not is because they lack the enabling social norms and customs.
If a group of people is known to be trustworthy, they will find jobs
more easily (since they will not have to be monitored closely), others
will be willing to sign business contracts with them (since they will
be less likely to renege), and, over time, this society will become
more advanced. There is evidence that some groups are believed to be
more trustworthy than others. Some recent laboratory experiments in
Israel show that Ashkenazi Jews are more trustworthy than Eastern
Jews. In Delhi, South Indians were believed to be more trustworthy as
used-car sellers. I remember in the early eighties numerous car
advertisements in newspapers claiming: “car owned by South Indian”.
(When I went to see some of these cars, on more than one occasion I
was met by a large North Indian, who assured me that the South Indian
owner was having a bath.)
The reason why individual rationality is not sufficient to generate
trust is the ‘free-rider problem’ — If your community is known to be
trustworthy and you are not, you will do even better. Others will
trust you and you will benefit by betraying the trust. Hence,
trustworthiness and pro-social behavior survive only when these are
social norms, and people adhere to them instinctively, without
thinking of self-interest.
Inculcating the norms of honesty and pro-social behavior is important
not only as an end in itself but because it is good for development. A
part of the trust problem can however be solved, without overcoming
the free-rider hurdle, if people become far-sighted. Being more
trustworthy means being willing to take some immediate losses in order
to build up a good reputation and do better in the future. I believe
this is happening in India. It is difficult to provide hard data for
this, but there is one piece of indirect evidence. India’s savings
rate has risen sharply in recent years. But saving is the desire to
sacrifice current consumption for future gain. This suggests that
Indians are beginning to taker a longer run view of their own welfare.
This in turn is making them more trustworthy. And from the point of
view of development, this is reason for hope.
Kaushik Basu is Professor of Economics and Director, Center for
Analytic Economics, Cornell University
bademiyansubhanallah
A great scientist and humanist
M. S. Swaminathan
The greatest hunger fighter of our time warned against complacency,
observing even towards the end of his life that ‘the battle to ensure
food security for hundreds of millions of miserably poor people is far
from won.’
I had the privilege of knowing and working with Norman Borlaug — who
has been aptly described by the Nobel Peace Prize Committee as the
greatest hunger fighter of our time — for nearly 50 years. I first
heard him in 1953 outline an innovative strategy for combating wheat
rusts at the University of Wisconsin, Madison.
From 1963 onwards, he visited India in March every year to see the
wheat crop. During his extensive travels by road, he used to stop
frequently, talk to the farmers, and examine the state of the health
of the plants. Plants and farmers became his life-long friends and
companions. Eliminating the wheat rust menace became his unrelenting
mission.
Dr. Borlaug started his research career in agriculture in Mexico at a
time when the world was passing through a serious food crisis. During
1942-1943, nearly two million people died of hunger during the Great
Bengal Famine. China also experienced widespread and severe famine
during the 1950s. Famines were frequent in Ethiopia, the Sahelian
region of Africa, and many other parts of the developing world. It was
in this background that Dr. Borlaug decided to look for a permanent
solution to recurrent famines by harnessing science to increase the
productivity, profitability, and sustainability of small farms.
The work he did in Mexico during the 1950s in breeding semi-dwarf,
rust-resistant wheat varieties and its extension to India, Pakistan,
and other countries during the 1960s brought about a total
transformation in the atmosphere for the possibility of achieving a
balance between human numbers and the human capacity to produce food.
Developing nations gained in self-confidence in their agricultural
capability. He disproved prophets of doom like Paul and William
Paddock and Paul and Anne Ehrlich — who even advocated the application
of the ‘triage’ principle in the selection of countries that should
and should not be saved from starvation through American assistance.
The introduction of Mexican semi-dwarf varieties of wheat in India in
the early 1960s not only helped improve wheat production but also led
to the union of brain and brawn in rural areas. The enthusiasm
generated by the new technology can be glimpsed in the following
extract from an article I wrote in 1969 for an Indian magazine:
“Brimming with enthusiasm, hard-working, skilled and determined, the
Punjab farmer has been the backbone of the revolution. Revolutions are
usually associated with the young, but in this revolution, age has
been no obstacle to participation. Farmers, young and old, educated
and uneducated, have easily taken to the new agronomy. It has been
heart-warming to see young college graduates, retired officials, ex-
armymen, illiterate peasants and small farmers queuing up to get the
new seeds. At least in the Punjab, the divorce between intellect and
labour, which has been the bane of our agriculture, is vanishing.”
The five principles Dr. Borlaug adopted in his life were (to use his
own words): give your best; believe you can succeed; face adversity
squarely; be confident you will find the answers when problems arise;
then go out and win some bouts. These principles have shaped the
attitude and action of thousands of young farm scientists across the
world. He applied these principles in the field of science and
agricultural development, but I guess he developed them much earlier
in the field of wrestling, judging from his induction into the Iowa
Wrestling Hall of Fame in 2004.
Having made a significant contribution to shaping the agricultural
destiny of many countries in Asia and Latin America, Dr. Borlaug
turned his attention to Africa in 1985. With support from President
Jimmy Carter, Ryoichi Sasakawa, Yohei Sasakawa and the Nippon
Foundation, he organised the Sasakawa-Global 2000 programme. Numerous
small-scale farmers were helped to double and triple the yield of
maize, rice, sorghum, millet, wheat, cassava, and grain legumes.
Unfortunately, such spectacular results in demonstration plots did not
lead to significant production gains at the national level, owing to
lack of infrastructure such as irrigation, roads, seed production, and
remunerative marketing systems. This made him exclaim: “Africa has the
potential for a green revolution, but you cannot eat potential.” The
blend of professional skill, political action, and farmers’ enthusiasm
needed to ignite another Green Revolution as in India was lacking in
Africa at that time.
Concerned with the lack of adequate recognition for the contributions
of farm and food scientists, Dr. Borlaug had the World Food Prize
established in 1986, which he hoped would come to be regarded as the
Nobel Prize for food and agriculture. My research centre in Chennai,
India [the M.S. Swaminathan Research Foundation] is the child of the
first World Food Prize I received in 1987. Throughout his professional
career, Dr. Borlaug spent time in training young scholars and
researchers. This led him to promote the World Food Prize Youth
Institute and its programme to help high school students work in other
countries in order to widen their understanding of the human
condition. This usually became a life-changing experience for them.
When Mahatma Gandhi died in January 1948, Prime Minister Jawaharlal
Nehru said: “The light has gone out of our life, but the light that
shone in this country was no ordinary light. A thousand years later,
that light will be seen in this country, the world will see it, and it
will give solace to innumerable hearts. For that light represented the
living, eternal truth, reminding us of the right path, drawing us from
error, taking humankind to freedom from hunger and deprivation.” The
same can be said of Norman Borlaug. His repeated message that there
was no time to relax until hunger became history will be heard so long
as a single person is denied the opportunity for a healthy and
productive life because of malnutrition.
Norman Borlaug was a remarkable man who was supported by a remarkable
family —wife Margaret, son William, and daughter Jeanie. To my mind,
Margaret who died in 2007 is the unsung heroine of the Green
Revolution. Without her unwavering support, Dr. Borlaug might not have
accomplished nearly so much in his long and demanding career.
Dr. Borlaug was not only a great scientist but also a humanist full of
compassion and love for fellow human beings, irrespective of race,
religion, colour, or political belief. This is clear from his last
spoken words on the night of Saturday, September 12, 2009. Earlier in
the day, a scientist showed him a nitrogen tracer developed for
measuring soil fertility. His last words were “Take the tracer to the
farmer.” This life-long dedication to taking scientific innovation to
farmers without delay set Dr. Borlaug apart from most other farm
scientists carrying out equally important research.
I was present when he was awarded the Congressional Gold Medal in
2007. He pointed out that between 1960 and 2000, the proportion of
“the world’s people who felt hunger during some portion of the year
had fallen from about 60 per cent to 14 per cent.” But the latter
figure still “translates into 850 million men, women and children who
lack sufficient calories and protein to grow strong and healthy
bodies.” So he added: “The battle to ensure food security for hundreds
of millions of miserably poor people is far from won.”
This is the unfinished task Norman Borlaug leaves scientists and
political leaders worldwide. It will be appropriate for the Norman
Borlaug Institute for International Agriculture to become the flagship
of the movement for a world without hunger.
(This article is based on the Norman Borlaug memorial address given by
the author at the Rudder Auditorium, Texas A&M University, U.S., on
October 6, 2009.)
chhotemianinshallah
India Stocks Rise, Led by Larsen, Maruti on Factory Output
By Rajhkumar K Shaaw
Oct. 12 (Bloomberg) -- India’s benchmark stock index rose the most in
more than six weeks after the nation’s industrial production staged
its steepest advance in 22 months and Prime Minister Manmohan Singh
said economic growth will accelerate.
Larsen & Toubro Ltd., the nation’s largest engineering company,
climbed 1.5 percent after data showed output at factories, utilities
and mines jumped 10.4 percent in August and Singh said stimulus
measures to bolster the economy will continue. Maruti Suzuki India
Ltd., the maker of half the cars sold in India, added 2.4 percent.
“The industrial production numbers clearly show that a revival is
under way,” said Prateek Agrawal, a fund manager in Mumbai with Bharti
Axa Investment Managers Pvt. “We expect the IIP numbers to stay in
double digits for at least the next few months.”
The Bombay Stock Exchange’s Sensitive Index, or Sensex, climbed
384.01, or 2.3 percent, to 17,026.67, the most since Aug. 24. The S&P
CNX Nifty Index on the National Stock Exchange rose 2.2 percent to
5,054.25. The BSE 200 Index increased 2 percent to 2,099.50. The stock
markets are closed tomorrow for a public holiday.
Reliance Industries Ltd. advanced 3.3 percent on speculation it may
settle a legal dispute. Tata Consultancy Services Ltd. paced gains
among software developers after Mint newspaper said planemaker Airbus
SAS may shift some engineering and design work to India.
Larsen & Toubro gained 1.5 percent to 1,657 rupees after data from the
statistics agency in New Delhi today showed growth in output at
factories, utilities and mines in August was better than the 9.7
percent median estimate of economists.
Stimulus
Industrial production data indicates signs of economic recovery,
Finance Minister Pranab Mukherjee told reporters in New Delhi today.
Growth may accelerate in the second half of the fiscal year ending
March, he said. The trend in factory output is likely to have
continued in September, Finance Secretary Ashok Chawla said
separately.
Maruti added 2.4 percent to 1,515.65 rupees. Mahindra & Mahindra Ltd.,
India’s largest maker of sport-utility vehicles and tractors, rose 2.7
percent to 915.1 rupees.
India’s economy may expand as much as 6.5 percent in the year ending
March, and inflationary concerns from government stimulus efforts are
“minimal,” Singh told reporters in the southern city of Hyderabad
during the weekend. Stimulus measures will continue for the time
being, he said.
The economy grew 6.1 percent in the three months to June 30.
State Bank of India Ltd., the biggest lender, jumped 5.1 percent, the
most since Aug. 13 to 2,172.7 rupees. ICICI Bank Ltd., India’s second-
largest bank, gained 2 percent to 920.2 rupees.
Ambani Brothers
Reliance Industries increased 3.3 percent to 2,169.05 rupees.
Billionaire Anil Ambani, who runs Reliance Natural Resources Ltd.,
asked his older brother Mukesh, who runs Reliance Industries, to
settle a dispute over a natural gas contract a week before the
nation’s top court starts hearing their lawsuit. Reliance Natural
Resources soared 5.4 percent, the most since Aug. 26, to 87.55
rupees.
Tata Consultancy advanced 3.2 percent to 579.85 rupees. Airbus will
move 20 percent of its engineering and design activities to low-cost
countries, the majority going to India, by 2012 to cut costs and
enable it to compete better against Boeing Co., the Mint reported on
its Web site, citing a company executive.
Infosys, Wipro
Infosys Technologies Ltd., the second-largest software services
provider, rose 2.8 percent to 2,239.4 rupees. Wipro Ltd., the No. 3,
advanced 4 percent to 573.5 rupees.
Reliance Capital Ltd., the finance company also controlled by Anil
Ambani, gained 4.7 percent to 950.6 rupees, its highest since June 29,
after it was raised to “hold” from “reduce” at BNP Paribas, which said
a rally in capital markets has improved its outlook.
Tata Steel Ltd., the biggest producer of the alloy, gained 2.5 percent
to 545.6 rupees after the World Steel Association said the global
steel market has bottomed and will grow 9.2 percent next year as
demand rebounds in the U.S., Europe and Japan.
Overseas investors sold a net 3.62 billion rupees ($78.2 million) of
Indian stocks on Oct. 8, the Securities & Exchange Board of India said
on its Web site. The funds have bought 617 billion rupees of Indian
stocks this year to date, compared with record net sales of 530
billion rupees for the whole of 2008.
To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at
rsh...@bloomberg.net
Last Updated: October 12, 2009 07:11 EDT
chhotemianinshallah
India’s Output Surges, Policy Tightening More Likely (Update1)
By Kartik Goyal
Oct. 12 (Bloomberg) -- India’s industrial production rose the most in
22 months, suggesting the central bank may have scope to make an early
exit from emergency stimulus measures.
Output at factories, utilities and mines jumped 10.4 percent in August
from a year earlier after gaining a revised 7.2 percent in July, the
statistics agency said in New Delhi today. Economists were expecting a
9.7 percent increase.
Manufacturing across Asia is showing signs of recovery, prompting
policy makers to consider when they can begin to withdraw the monetary
and fiscal stimulus initiated to protect their economies from the
global recession. Central bank Governor Duvvuri Subbarao last week
said India may need to act ahead of advanced economies due to
“incipient” inflation pressures.
“With doubts over the durability of India’s upswing fading all the
time, and inflation pressures already high, policy rates look certain
to move up soon,” said Kevin Grice, an economist at Capital Economics
Ltd. in London. “We still expect a first hike in January but the
possibility of a first move at the Oct. 27 monetary policy meeting now
looks close to a 50:50 call.”
Benchmark 10-year bonds declined, pushing yields to the highest in a
month. The yield on the most-traded 6.90 percent note due 2019 added
one basis point, or 0.01 percentage point, to 7.36 percent. The rupee
was little changed, trading at 46.595 a dollar at 12:30 p.m.
Foreign Investors
India’s benchmark stock index has more than doubled from a three-year
low in March as foreign inflows rebounded and demand improved for
cars, air conditioners, refrigerators and homes.
The central bank cut interest rates six times between October and
April and the government reduced taxes on consumer products and
imports, together providing a stimulus worth more than 12 percent of
India’s gross domestic product.
At its last meeting on July 28, the Reserve Bank held its reverse
repurchase rate at 3.25 percent and maintained the repurchase rate at
4.75 percent. The cash reserve ratio was kept unchanged at 5.0
percent.
Manufacturing, accounting for about 80 percent of industrial output,
rose 10.2 percent, compared with a 7.4 percent gain in July, today’s
report showed. Mining increased 12.9 percent in August from 9 percent
in the previous month and electricity gained 10.6 percent from year
ago period.
Industrial production data show signs of economic recovery, Finance
Minister Pranab Mukherjee told reporters in New Delhi today. Growth
may accelerate in the second half of the fiscal year ending March, he
said. The trend in factory output is likely to continue in September,
Finance Secretary Ashok Chawla said separately.
‘Sure Signs’
India’s industrial production probably continued to improve last
month. The Purchasing Managers’ Index compiled by HSBC Holdings Plc
and Markit Economics increased for a sixth straight month in
September, according to an Oct. 1 report. The gauge rose to 55 last
month from 53.2 in August.
“There are sure signs of a durable manufacturing recovery,” said Sonal
Varma, an economist at Nomura Securities Co. in Mumbai. “The downside
is clearly behind us and we think India and China will lead the
recovery in the Asia-Pacific.”
Factory output is improving across Asia as close to $1 trillion in
government stimulus and record-low interest rates help the region lead
the world economy out of the worst global recession since the 1930s.
China’s industrial production rose 12.3 percent in August from a year
earlier, the most in 11 months. Malaysian output fell the least in 10
months.
Tax Revenue
Indian factory output may rise by more than 10 percent in the coming
months as indicated by tax-collection figures and companies’ sales,
according to Nomura’s Varma.
Reliance Industries Ltd., India’s most valuable company, paid 11.6
billion rupees ($249 million) in advance taxes in the quarter to Sept.
30, 69 percent more than the April-June period, the finance ministry
said Sept. 22. State Bank of India paid 18.3 billion rupees and Oil &
Natural Gas Corp. provided 17.96 billion rupees. Higher tax payments
indicate rising sales.
Bajaj Auto Ltd., India’s second-largest motorcycle maker, sold 14
percent more vehicles in September from a year earlier and Tata Motors
Ltd., India’s biggest maker, reported a 5.8 percent increase in sales
in the month.
Policy makers will have to “strike a balance” in setting interest
rates and shouldn’t compromise on growth in order to tame inflation,
Finance Minister Mukherjee said Oct. 8.
India’s economic growth accelerated in the June quarter for the first
time since 2007, with GDP increasing 6.1 percent from a year earlier.
The central bank expects the $1.2 trillion economy to expand 6 percent
in the year to March 2010, slower than the 8.7 percent average growth
in the previous four years.
“Growth is recovering fast,” said Chetan Ahya, an economist at Morgan
Stanley in Singapore. There’s “more than an even chance” the Reserve
Bank in this month’s monetary policy statement will increase its cash
reserve ratio by 50 basis points, he added.
To contact the reporter on this story: Kartik Goyal in New Delhi at
kgo...@bloomberg.net.
Last Updated: October 12, 2009 04:17 EDT
chhotemianinshallah
Stimulus
Industrial production data indicates signs of economic recovery,
Finance Minister Pranab Mukherjee told reporters in New Delhi today.
Growth may accelerate in the second half of the fiscal year ending
March, he said. The trend in factory output is likely to have
continued in September, Finance Secretary Ashok Chawla said
separately.
Maruti added 2.4 percent to 1,515.65 rupees. Mahindra & Mahindra Ltd.,
Ambani Brothers
Infosys, Wipro
Last Updated: October 12, 2009 07:11 EDT
Sid Harth
Investors look at the screen, displaying the stock prices at Bombay
Stock Exchange. PTI Photo Photograph (1)
Markets in festive mood, Sensex up 384 points
STAFF WRITER 17:10 HRS IST
Mumbai, Oct 12 (PTI) Markets today soared by over 380 points to regain
the 17,000-level after the investor sentiment was bolstered by robust
industrial production in August and hopes of a truce between warring
Ambani brothers.
Markets witnessed frantic rally soon after the news of 10.4 per cent
growth in industrial output, the highest in 22 months, came out.
Brokers said atmosphere was euphoric with a slew of goods news adding
to the festive cheer.
The Bombay Stock Exchange benchmark index, Sensex, opened on a strong
note after Anil Ambani yesterday extended an olive branch for peace
with elder Mukesh Ambani, fuelling investor hopes of an end to one of
the most intense corporate battles.
The market also got support from Prime Minister Manmohan Singh's
statement that the economic growth will accelerate.
Brokers said investors, fortunes of many of them are tied up with
frims run by Ambani brothers, cheered the development.
chhotemianinshallah
IIP growth raises hopes of recovery
BS Reporter / New Delhi October 13, 2009, 0:57 IST
Mining, manufacturing grow in double digits.
Industrial output grew the most in 22 months to 10.4 per cent in
August, indicating a steady turnaround in the economy but also raising
worries that the government and the central bank would roll back
fiscal and monetary stimulus measures.
Output at factories, utilities and mines, which account for about 17
per cent of GDP, exceeded economists’ expectations of a 9.7 per cent
increase and was significantly higher than 1.7 per cent in the same
month last year, causing some analysts to attribute this year’s
performance to the low base effect.
Most, however, also supported the official claim that the impressive
IIP figures were due to the trickle-down effect of the government
stimulus packages, though the strength of the private sector demand
remained uncertain.
The central bank cut interest rates six times between October and
April and the government reduced taxes on consumer products and
imports, together providing a stimulus worth more than 12 per cent of
India’s GDP.
BASE METTLE
April-
August August
(in %)
2007
9.72 10.90
2008
4.39 1.70
2009
5.80 10.40
“The good IIP numbers are a result of stimulus packages. These numbers
were anticipated,” said Ajay Shankar, secretary, department of
industry policy and promotion.
Finance Minister Pranab Mukherjee termed it as a good sign of
recovery. “We are hoping that when the final figure of second quarter
will be available, there will be some higher growth so that we can
make up even higher growth in the third and fourth quarters.” The
economy grew 6.1 per cent in the first quarter of this year, exceeding
most analysts’ expectation.
Expressing the possibility of sustained growth in industrial
production from now on, Finance Secretary Ashok Chawla said, “We
expect the trend to continue and expect better numbers in September.”
Reacting to the news, the Bombay Stock Exchange’s 30-share index rose
384 points or 2.31 per cent to close above the 17,000 mark.
Other signs
The August IIP numbers appear to confirm signals of an upturn emerging
from other indices, such as the HSBC India Manufacturing Purchasing
Managers Index, based on data compiled from monthly replies to
questionnaires sent to purchasing executives. An index above 50
implies expansion and the index has indicated this for the last few
months, though the rate of improvement in August and September has
slowed over that of July.
“The purchasing manager’s index indicates new orders and rise in
production. An inventory adjustment effect will also boost production,
with many firms having run down stocks earlier this year in
anticipation of a prolonged downturn that looks increasingly unlikely
for many sectors,” said Nikhilesh Bhattacharyya, associate economist
with Moody’s Economy.com.
The steady upturn in IIP was also preceded by rising business
confidence According to the CII M-Ascon survey of the manufacturing
industry for the April-June period — the latest data available — 10.4
per cent of the 77 sectors reporting production were in the excellent
growth category (more than 20 per cent), compared to 7 per cent in the
same period last year.
Mining leads the charge
Leading the August numbers was mining, which rose 12.9 per cent
compared to just 2.8 per cent in August 2008. Manufacturing, which
accounts for about 80 per cent of industrial output, continued the
strong growth trend of July, growing 10.2 per cent in August against
1.7 per cent in the same month last year. Electricity output also grew
by 10.6 per cent against 0.8 per cent in the corresponding month in
2008.
In aggregate terms, industrial growth stood at 5.8 per cent against
4.3 per cent in April-August year ago, though this is still behind the
2007 figure (see table).
According to Bhattacharyya, “The strength of private sector demand
remains somewhat uncertain, with weak expansion in production of
consumer non-durables, which is the area likely to have received the
least assistance from government spending and price control measures.”
DK Joshi, principal economist with Crisil India, attributed doubt over
sustaining growth to the lack of strong credit offtake. “However, I
expect private consumption to bounce back by 2010-11 fuelled by rising
incomes and an improved global situation. Interest rates are unlikely
to shoot up and will continue to support growth for the coming
months,” he added.
Industry optimistic
Industry is also optimistic about the coming months and expects the
central bank to continue to keep interest rates low. At its last
meeting on July 28, the Reserve Bank held its reverse repurchase rate
at 3.25 per cent and maintained the repurchase rate at 4.75 per cent.
The cash reserve ratio, was kept unchanged at 5.0 per cent.
“It is important to nurture this economic recovery by continuing with
the current fiscal and monetary space which has been given to industry
to recover, especially during a year of poor monsoons that could
impact agricultural growth. CII hopes that the RBI would give the
welcome signal of an accommodative monetary policy when the half
yearly review is done,” said Chandrajit Banerjee, director
general,CII.
Ficci president Harsh Pati Sighania also maintained that it was
critical that the overall policy parameters and stimulus measures were
not reversed at this point of time.
Of 17 industry groups in the index, 14 showed positive growth. Use-
based categories like basic goods grew by 10 per cent against 3.9 per
cent in the same period last year. Capital and consumer goods also
grew an impressive 8.3 and 8.5 per cent respectively against 0.9 and
6.4 per cent in August 2008. Intermediate goods which had registered a
decline of 5.5 per cent in August last year grew by 14.3 per cent this
year.
Consumer durables also posted a 22.3 per cent growth rate against 3.9
per cent on a year on year basis. Only consumer non-durables
registered a marginal decline in growth rate to 3.7 per cent during
the month against 7.3 per cent last year. The growth in consumer non-
durables is also lower than the 5.7 per cent growth in July.
chhotemianinshallah
IIP numbers, FM speak propel markets
BS Reporter / Mumbai October 12, 2009, 15:52 IST
The Sensex opened 44 points higher at 16,687, led by positive global
cues. And from thereon, it was a one-way street
The benchmark indices traded in a narrow band throughout the morning,
giving no indication of what was to follow.
Meanwhile, the IIP (Index of Industrial Production) for the month of
August 2009 rose 10.4% as against 6.89% in the previous month.
The factory output registered a strong growth on a year-on-year basis
and the manufacturing output stood at 10.2% as against 1.7% a year
earlier. And Finance Minister Pranab Mukherjee added to the optimism
by indicating that recovery was in process and higher growth was on
the cards.
And as if on cue, the markets spurted in the afternoon. The Nifty
crossed the 5,000 mark again and the Sensex surpassed the
psychological 17k mark, spurred by gains in consumer durables, IT and
banking.
The Sensex finally ended at 17,036, up 384 points and the Nifty closed
at 5048, up 108 points. State Bank (higher by 5.16% at Rs 2,172),
Reliance Infrastructure (stronger by 5% at Rs 1,357 and Wipro (higher
by 4.7% at Rs 575) were in the limelight on the Sensex. ITC, TCS and
Reliance were the other notable gainers, adding between 3% and 4%
each. Hero Honda, Reliance Communications and BHEL registered
marginal losses of up to 1% each.
On a day like this, the market breadth was predictably strong. Out of
2,827 stocks traded on the BSE, there were 1,629 advancing stocks as
against 1,105 declines.
Reliance topped the value chart on the BSE, with a turnover of Rs
343.79 crore followed by SBI (Rs 233.59 crore), Reliance Capital (Rs
174 crore), Reliance Communications (Rs 119.30 crore) and ICICI Bank
(Rs 118 crore).
Reliance Natural Resources led the volume chart with trades of around
55.53 million shares followed by Ispat Industries (11.60 million),
Austral Coke (9.83 million), Unitech (7.57 million) and Dish TV (6.44
million).
chhotemianinshallah
Gaining strength
Industry has gathered momentum faster than forecast
Business Standard / New Delhi October 13, 2009, 0:04 IST
The numbers for the Index of Industrial Production (IIP) for August
2009, released yesterday, reinforce the perception that the recovery
is gaining strength. The June numbers provided the first sign of a
better-than-tepid recovery, with the index showing 8.2 per cent growth
(up from 2.1 per cent in May). In July, both the overall index and the
manufacturing sector, which comprises about 80 per cent of the index,
grew by a reasonably healthy 6.8 per cent (now revised to 7.2 per
cent) over July 2008. The August numbers are significantly more
buoyant, with the overall index growing by 10.4 per cent over August
2008 and the manufacturing sector coming in a shade lower at 10.2 per
cent. This takes growth in the index for the June-August 2009 period
to 8.6 per cent, which should set at rest any doubts that remain about
the strength of the recovery. In the same three months of 2008, growth
had averaged no more than 4.5 per cent. Then, the business cycle was
turning down; now it is clearly turning up. The coming months could
well see accelerated growth, helped by the low base of the
corresponding months in 2008.
It is reassuring that the recovery is broad-based. Fourteen of the 17
segments of the manufacturing sector saw growth during August 2009,
with seven of these 14 registering double-digit growth. The largest
segment, Chemicals, accounting for almost 14 per cent of the index,
grew by 14.7 per cent. Two important segments, Transportation
Equipment and Machinery & Equipment, grew by 13.8 per cent and 14.2
per cent, respectively. The former’s numbers are borne out by data
from the automobile industry, which indicate that long waiting lists
are forming for some popular models. Most striking is the very
significant turnaround in Textile Products, which includes garments.
Badly hit by the fall in exports over the past several months, this
segment clocked a 16.4 per cent growth rate over August 2008. Exports
may have recovered slightly, but the bulk of this turnaround is
attributable to a recovery in domestic demand. From the use-based
perspective, Consumer Durables continued their remarkable run of the
past few months, showing 22.3 per cent growth during August. This has
generally been attributed to the increased spending power provided by
the Pay Commission. Since the pay hikes are still being rolled out
across state government and other public sector employees, the
contribution of this segment to overall growth is likely to persist
for some time.
From a policy perspective, the August numbers are both a relief and a
challenge. For the finance ministry, buoyancy in production should
increase excise tax revenues and the higher profitability that these
numbers suggest will contribute to increases in direct tax
collections. On the other hand, the Reserve Bank of India could well
be on the threshold of raising interest rates and reining in
liquidity. There are few expectations that this will be done during
the next quarterly announcement, scheduled for end-October, but
numbers like this may strengthen the case that sooner is better than
later.
Sid Harth
Falling exports hampers India's growth directly: CARE ratings
13 Oct 2009, 1844 hrs IST, PTI
MUMBAI: There is a dire need to revive the country's export sector as
falling exports not only hamper India's growth directly, but also
affect a large population dependent on labour-intensive export units,
Credit Analysis & Research Ltd (CARE) said in its Eco Alert report
here.
Exports have shown a declining trend since October 2008, accompanied
by downturn in import mainly due to lower oil import bill. Trade
balance deficit, as a result narrowed to $25.98-billion during Q1 FY
10 compared to $314- billion during Q1 FY 09. Despite of net
invisibles surplus of $20.2-billion, India's current account deficit
stood at $5.8-billion for Q1 FY 10, the report said.
India's export continued to taper for the eleventh consecutive month.
However, there has been some arrest in the contraction. The year-on-
year contraction in the export for August 2009 was reported at 19.4
per cent, ($14.28- billion), lower than 28.4 per cent in July. The
contraction is mainly attributed to continued sluggishness in global
demand accompanied by lower commodity prices compared to the same time
last year when the prices were at their peak.
Apart from placing pressure on the country's Balance of Payment (BoP)
position, the shrinking exports have also substantially reduced the
employment opportunities in labour-intensive segments like textiles,
gems and jewellery, marine products and handicrafts.
India's imports too dropped by 32.4 per cent valued at $22.66-billion,
mainly led by lower oil-import bill and moderated domestic demand
scenario as a consequence of the global recession. The oil import bill
contracted substantially by 45.5 per cent to $6.28-billion as against
$11.52- billion in the previous year. Given that the commodity prices,
especially crude oil prices, had reached their peak during this time
last year, a high base year may be attributed to this tremendous
contraction in the import bill.
Contraction in the non-oil import bill to the extent of 25.5 per cent
has been witnessed mainly due to a lower demand in consumer goods as
well as intermediary goods.
Overall, it seems that foreign investors have begun to show confidence
in the Indian capital market (as evidenced from the revival in capital
inflow). Revival in capital inflow to India, mainly foreign
investments of which portfolio investments witnessed a turnaround
after reporting a net outflow in the last quarter registered a net
inflow worth $8.3-billion, the report said.
Additionally, NRI deposits which have remained quite strong during the
period of crisis reported a net inflow of around $2-billion. Thus, a
turnaround in the capital account position of India for Q1 FY 10 was
witnessed, which reported a marginal surplus of $6.7-billion as
against a deficit in the past two quarters.
Sid Harth
FY10 GDP growth to be around 7 pc: Adviser
13 Oct 2009, 1716 hrs IST, REUTERS
NEW DELHI: Country's economy can expand 7 per cent in 2009/10, and the
Reserve Bank of India (RBI) must weigh the trade-off between growth
and inflation when it reviews its policy stance later this month, a
top government adviser said on Tuesday.
The forecast is higher than the 6 per cent estimated by the RBI and
private analysts, and the 6.3 per cent predicted by the government's
Planning Commission.
Arvind Virmani, the chief economic adviser at the Finance Ministry,
said in an interview that global uncertainties have been receeding and
domestic industrial output has revived, helping boost growth.
Faster expansion of factory output would help the broader economy grow
in excess of 7 per cent in both the December and March quarters, he
said.
"This year, I expect 7 per cent. Next year, with some basic reforms,
it should go to 8 per cent plus," he said, referring to fiscal reforms
such as cutting the deficit.
Improving industrial growth coupled with inflationary pressures have
boosted the case for higher interest rates, although analysts expect
the Reserve Bank of India not to tighten its stance at its next policy
review on October 27.
Virmani said monetary policy has to balance growth and inflation.
"Ultimately, what the RBI (Reserve Bank of India) has to decide is the
trade-off between growth and inflation."
Sid Harth
FDI inflows add cheer to diwali mood, up over 40 pc in Aug
13 Oct 2009, 1549 hrs IST, PTI
NEW DELHI: Along with a double digit growth in the industrial
production, foreign direct investment in the country rose by an
impressive 40.51 per cent in August, adding cheers to Diwali mood.
The country received foreign direct investment of $3.26 billion in
August this fiscal against $2.32 billion a year ago even as the global
economy is yet to show concrete recovery.
However, the inflows in August were less than the July level of $3.47
billion, as per the RBI data. The inflows in July had also risen by 56
per cent on annualised basis.
The country had attracted $100 billion of FDI in equity since 2000 up
to July this year.
Experts see signs of recovery as also global investors' confidence in
the Indian economy.
"Foreign investors are confident about the India growth story," Axis
Bank Economist Saugata Bhattacharya said.
HDFC Bank economist Jyotinder Kaur said that as the recovery become
apparent, FDI inflows are likely to rise in the coming months.
"The inflows would rise because foreign investors see India as a good
long-term destination," she said.
Factory output grew by 10.4 per cent in August on the back of robust
growth in mining and manufacturing sectors, the official data released
yesterday said.
FDI jumps 40.51% to $3.26 bn in August
13 Oct 2009, 1139 hrs IST, PTI
NEW DELHI: India received foreign direct investment of $3.26 billion
in August, a robust growth of 40.51 per cent over the same month last
year, in SIP route for small investors
FDI inflows, in August last year, stood at $2.32 billion, the Reserve
Bank said in its bulletin.
The country attracted $3.51 billion FDI in July this year against
$2.25 billion in the same month last fiscal.
Portfolio investment in August also increased by 56.15 per cent to
$926 million compared to $593 million, the bulletin said.
The total FDI inflows during April-August, however, contracted by
about 3.41 per cent to $14.14 billion compared to the same period in
2008-09, due to poor accruals in the opening months of the fiscal. In
the first five months of 2008-09, it was at $14.64 billion.
During the first five months of this fiscal, portfolio investment
increased to $11.23 billion from $4 billion in the same period last
year.
In 2008-09, the government had set a target of attracting $35 billion
FDI, but was able to receive only $27.30 billion due the global
financial crisis.
Sid Harth
India 2009/10 growth forecasts cut after poor monsoon: Poll
13 Oct 2009, 1245 hrs IST, REUTERS
MUMBAI: India's economy will grow slightly less than expected this
year as the weakest monsoon in nearly 40 years weighs on the
agriculture sector, but growth will pick up next year in line with a
global recovery, a Reuters poll shows.
Asia's third-largest economy is expected to grow 6.0 percent in the
fiscal year ending March 2010, the slowest in seven years and down
from a forecast of 6.3 percent in a similar Reuters poll three months
ago.
But analysts now expect growth in 2010/11 will accelerate to 7.5
percent, up from a previous forecast of 7.2 percent and boosting the
chances of interest rate hikes next year.
The government expects growth of 6.3 percent or higher this year,
accelerating to around 7 percent in 2010/11.
The economy grew 6.7 percent in 2008/09, slowing from rates of 9
percent or more in the previous three years, as the global credit
crisis and business slowdown hit harder than expected. "Agriculture
will certainly act as a dampener (this year)," said Rupa Rege Nitsure,
chief economist at Bank of Baroda.
"Though the direct impact of agriculture on the overall GDP growth is
not much, the indirect impact on rural consumption, allied activities,
services and industrial sector could be significant." June-September
monsoon rains were 23 percent below normal, the weakest since 1972,
and the prospect of smaller harvests pushed food prices up an annual
15.5 percent in late September.
Wholesale price inflation, the most watched price barometer in India,
is forecast to accelerate from an average of 2.8 percent in 2009/10 to
6.0 percent in 2010/11 as economic activity picks up domestically and
globally.
Analysts had expected lower levels of 2.0 and 5.5 percent,
respectively, in the previous poll.
The combination of strengthening growth and rising inflation has
analysts expecting that by early 2010 the central bank will start
unwinding some of the stimulus measures taken in late 2008 and early
2009, although the Reserve Bank has said it will ensure that the
recovery is secure before beginning to hike rates.
The poll forecasts interest rates will rise in the first quarter of
fiscal 2010/11, a few months sooner than expected in the previous
poll.
The Indian rupee, which was quoted at 46.11 to the US dollar on
Tuesday, is set to appreciate by 5 percent between now and the end of
fiscal 2010/11, the poll shows.
Sid Harth
Myth on stock market boom: Is it different this time...?
12 Oct 2009, 0235 hrs IST, Sanjay Sinha, ET Bureau
Just twenty months since the peak of the last stock market boom, it
seems like the next one is already in the making. The market has risen
over 50% since February this year. The spectre of drought held things
up a little, with a flat market in August.
But with plenty of rain in the latter half of the month, September has
seen a resumption of the optimism that has characterised stock trading
in recent months. So, how sustainable is the developing boom? Is it
real or will it dissolve as suddenly as it precipitated, resulting in
another crisis leaving red-faced investors to rue their optimism and
their losses?
One of the most fascinating characteristics of stock market booms is
the euphoria that accompanies the phenomenon. Each time, we are told
that something fundamental has changed in the market. Indeed, there is
a myth attached to each bout of madness that accompanies a boom.
Yet, as Carmen Reinhart and former IMF chief economist Kenneth Rogoff
have argued in their aptly titled book, [Rheinhart, Carmen and Rogoff,
Kenneth, 2009, This Time is Different: Eight centuries of financial
folly, Princeton University Press] contemporary finance can rarely
deny the influence of precedent. So, for assessing the current
situation it is interesting to look at the three stock market booms in
the Indian markets since the launch of economic reforms in 1991.
First, the boom that started in late 1991. This is also commonly known
as the Harshad Mehta boom as the “big bull” took investor gullibility
to the extreme and used bank funds to shore up stocks before selling
them at high prices. As shown by the accompanying chart, price-
earnings (P/E) ratios on the Bombay Stock Exchange (BSE) increased to
over 50, the highest levels ever, as investors bought the story of
unbelievable riches forthcoming as a result of economic reforms.
The discovery of the Harshad Mehta scam had a short-lived sobering
effect on the market as reforms euphoria took hold again and P/E
ratios zoomed past 50 again in mid-1994. This was a continuation of
the 1992 boom as the sensex never fell below 2,000, roughly twice the
level it had been before the launch of reforms.
This was the real reforms euphoria boom; policy liberalisation had
changed things so much for the better that it was thought that
unbelievable riches were indeed on the way. When it became apparent
that things had overheated beyond tolerance in mid-1994, the market
subsided to more sober levels and P/E ratios declined gradually below
20.
There was certainly some difference this time; reforms did bring a
fundamental change to the strength of the economy and the sensex never
again declined significantly below 3,000. However, the political
instability of the late 1990s and the Asian financial crisis both
contributed to a flattening of investor sentiment and a long period of
lacklustre trading followed even though earnings were rising steadily.
Not surprisingly, at times during this period, P/E ratios declined to
as low as 10.
Along came the Y2K phenomenon and things became “different” again.
First, Indian software companies cashed in on the Y2K scare and made
huge profits. Second, the internet economy took off internationally
resulting in a worldwide boom. Once the experts got into the act we
were told that things really were different this time, the internet
had changed the rules of economics and internet companies would never
lose value!
So long as the customer base of such companies kept expanding, current
losses were of little significance in the matter of company
valuations. As a result, the Nasdaq (in the US) doubled its value to
over 5,000 by March 2000 and the sensex also shot past 5,000 with a
60% one year growth. P/E ratios in India rose to around 30.
Sid Harth
chhotemianinshallah
Standard gold crosses 16K mark, silver at new peak
STAFF WRITER 15:25 HRS IST
Mumbai, Oct 14 (PTI) Standard Gold prices today rose by Rs 105 per 10
grams to breach the Rs 16,000-mark in the bullion market here in early
trade on persistent festive demand amid rise in the overseas markets,
while silver continued to hit new highs.
Stockists and retailers continued to buy the precious metals amid the
ongoing festivals, boosting their demand.
Silver rallied to an all-time peak on sustained industrial demand on
the back of higher international advices.
Gold for October delivery, the front-month contract, rose to USD
1,064.20 an ounce on the Comex division of the New York Mercantile
Exchange. The contract earlier touched a high of USD 1,068.40 an
ounce. December silver futures ended at USD 17.84 an ounce from USD
17.82.
In Tokyo today, gold hovered just below the record high levels as
dollar declined to fresh 14-month lows against its major rivals.