Can Indian Economy Avert Crash Landing in 2011?

[Jade]

Using the facts/factors that Mr. Haq has provided, predicting that Indian economy is going to hard land is gross simplification. At best I would describe them as irritants and residuals of structural change that are taking place because of global economy coming out of credit crisis

Keynesian factors such as consumer consumptions, savings and investments, public investments in key sectors, capital mobility, exchange rate policies, trade and political stability are better predictors of prospects of an economy. On all parameters, India, I would argue, is performing excellently.

There is no doubt in my mind that with the current job boom and increasing consumer confidence, Indian economy is going to grow fast.

 

[Jade]

I am no expert on Indian economy but my friend at ernst & young says India economy is heavily heading towards short term speculative FDI which would burst like a bubble anytime. India should instead work towards long term sustainable investment. The rapid inflation speaks volumes about something headed in wrong direction.

It seems neither your friends at E&Y are experts on Indian economy. First, inflation is a result of growing employment and growing wages and not a result of speculative movement of foreign currency. Second, an economy as large as India is not dependent on short term foreign money. Third, Indian economy has enough foreign currency reserves to fulfill sudden withdrawal of speculative investment

 

[RiazHaq]

Maplecroft | Home | About Maplecroft | Media Room | News

Mr. Haq, this is from the Maplecroft website. Please stop manpulating data and facts as they seem convenient to you, if you are intellectually incapable of having any thoughts of your own you could at least copy and paste true data.

Indian ranking I shared was for 2009, but even in 2010, the risk in India is rated "EXTREME" and colored red. Look at Maplecroft's color coded risk map to understand it.

Maplecroft | Home | About Maplecroft | Media Room | News

Here is what it said last year about India:

Of the South Asian nations, India (27) has seen the biggest fall in the rankings, down nine places from last year. The country is rated as high risk in the DPRI, but extreme risk in the categories of conflict and political violence, terrorism, and business integrity and corruption.
"In part, India's new ranking in the DPRI reflects the persistent risk of terrorism and conflict across the country, including potential violence from separatist movements. India recently formed the separate state of Telangana, to forestall violence in Andhra Pradesh, a move that may provide fresh impetus to separatist groups in Assam and elsewhere. The conflict in Kashmir is still ongoing and India remains vulnerable to al-Qaeda style Islamist terrorism and Maoist terrorism. These factors can present significant security challenges for organisations with operations, supply chains and distribution networks in the country, unless they are managed correctly."

Maplecroft | Home | About Maplecroft | Media Room | News

 

[RiazHaq]

It seems neither your friends at E&Y are experts on Indian economy. First, inflation is a result of growing employment and growing wages and not a result of speculative movement of foreign currency. Second, an economy as large as India is not dependent on short term foreign money. Third, Indian economy has enough foreign currency reserves to fulfill sudden withdrawal of speculative investment

It's interesting that you believe you know more than anyone else, including Goldman Sachs that started the BRIC hype and is now raising concerns specifically about India's rising inflation and growing dependence on short-term capital inflows to finance its rising current
account deficit.

"While we remain constructive on India's medium-term growth outlook, the deterioration in external balances represents the biggest risk, in our view, to the Indian growth story, and one that investors should follow very closely," Goldman Sachs wrote in a note on Tuesday.

Goldman estimates the current account deficit to widen to 4 per cent of GDP in the current fiscal year, from 2.9 per cent in the previous year, and further to 4.3 per cent in 2011/12, its highest-ever level.

"Nearly 80 per cent of the capital inflows are non- FDI related. Given the excess spare capacity globally, FDI may remain weak going forward," the note said.

Rising imports due to strong domestic demand and concerns that exports growth may be slow could add to the widening current account gap problem, it said.

India's current account deficit widened sharply to $13.7 billion in the June-quarter, which was around 3.7 per cent of GDP. The deficit was $4.5 billion in the same period year ago.

India's current account deficit may widen to a record: Goldman - The Economic Times

 

[Jade]

It's interesting that you believe you know more than anyone else, including Goldman Sachs that started the BRIC hype and is now raising concerns specifically about India's rising inflation and growing dependence on short-term capital inflows to finance its rising current
account deficit.

"While we remain constructive on India's medium-term growth outlook, the deterioration in external balances represents the biggest risk, in our view, to the Indian growth story, and one that investors should follow very closely," Goldman Sachs wrote in a note on Tuesday.

Goldman estimates the current account deficit to widen to 4 per cent of GDP in the current fiscal year, from 2.9 per cent in the previous year, and further to 4.3 per cent in 2011/12, its highest-ever level.

"Nearly 80 per cent of the capital inflows are non- FDI related. Given the excess spare capacity globally, FDI may remain weak going forward," the note said.

Rising imports due to strong domestic demand and concerns that exports growth may be slow could add to the widening current account gap problem, it said.

India's current account deficit widened sharply to $13.7 billion in the June-quarter, which was around 3.7 per cent of GDP. The deficit was $4.5 billion in the same period year ago.

India's current account deficit may widen to a record: Goldman - The Economic Times

No Sir, I didn’t claim I know more than Goldman Sachs. My opinion is Keynesian factors are imminently more useful in predicting the prospects of an economy than the factors you have listed.

Current account deficit is an issue, but not a serious one. US is country where the current account deficit is one of the highest…does it mean that US economy is for hard crash? There is one positive aspects of Current account deficit in a growing economy: growing Internal demand and consumer confidence

And the growing Internal demand would fuel increased Industrial production and in turn exports, hence current account balance would be restored

 

[Veeru]

Pakistan's economy had a hard landing in 2008. It was triggered by a balance of payments crisis brought about through precipitous decline in foreign capital inflows combined with policy inaction in response to major external shocks in terms of food and fuel prices during political transition. Is the Indian economy similarly vulnerable in 2011? Is it headed for significant slowdown in the next twelve months? And if it is, can the Indian leadership manage a soft landing through major policy actions now?

To answer these questions, let us examine the following facts:

1. India's current account deficit widened sharply to $13.7 billion in the June-quarter, which was around 3.7 per cent of GDP. The deficit was $4.5 billion in the same period year ago.

Pakistan have 7% current account deficit if you can survive then we have half of that. Also we are working on it to come down but we are not worried as we are looking at fueling GDP that will eradicate poverty and bring billions ad we will take care of all the deficits.

2. India's current account deficit is being increasingly funded by short-term capital inflows (FII) rather than more durable foreign direct investment (FDI), posing a risk to external balance and funding of gap, according to a recent warning by Goldman Sachs. "Nearly 80 per cent of the capital inflows are non- FDI related. Given the excess spare capacity globally, FDI may remain weak going forward," the Goldman note said.

As we are growing rapidly in the toughest times of recession and also developing our infrastructure that resulting in our upgradation in global rankings, so more and more FDI will follow.

India’s savings rate has increased to 33-36 % of GDP from 21-23 % in the early 1990s.

3. Inflation in India is running at a double digit pace as is credit expansion. India's primary articles price index was up 15.35 percent in the latest week compared with an annual rise of 13.25 percent a week earlier, data on Thursday showed. Year-over-year credit growth was 23 per cent till December 3, while deposit growth was only 15 per cent, as compared to RBI's projection of 20 per cent and 18 per cent, respectively, for 2010-11.

do some home work Inflation in India is not in double digits.

Here is the latest data of Nov. 2010, data of December will come in Jan 2011.


India Nov inflation eases to 7.48 percent

India Nov inflation eases to 7.48 percent | 14 December 2010 | www.commodityonline.com

Also inflation is mainly food inflation that doesn't mean everything is touching roof or unmanageable.

4. India's Food and fuel prices are continuing to rise by double digits. The food price index rose more than 12 percent, with the price of onions -- the country's most widely-eaten vegetable -- of especial concern, while the fuel price index climbed 10.74 percent. This compared with 9.46 percent and 10.67 percent respectively in the previous week.

5. The oil prices are likely to spike as the American and European economies recover in 2011, prompting Indian commerce secretary Rahul Kullar to acknowledge that “I am not sanguine. One blip on crude prices and my import bill suddenly zooms. On pro-rata basis we are looking at $ 120 billion with a caveat that if oil prices go up, it could be $ 130-135 billion”. Crude oil prices are currently running at $ 87-88 per barrel.

You have made two points for food and oil.

Do you really thing Indian economy will crash because of Onions if yes then i really pity you.

While China's situation is better because it enjoys significant current account surpluses, it is also seeing its economy overheat along with India's economy. Mike Shedlock, an American investment advisor, believes that "India and China are going to overheat and crash, or their economic growth is going to slow dramatically, quite possibly both".

No need to bring china into it, its like comparing apple with oranges.

Also the real and true data for china is not available to outside world.

Indian President Pratibha Patil said last week that she is confident the economy will grow at about 9 percent in the current fiscal year ending March 2011 and would be on a sustained growth path of about 9 to 10 percent in FY12, according to Reuters. It is quite surprising that the Indian government continues to talk about increasing levels of economic growth in 2010-2011 and beyond amidst growing inflation and rising imbalances in the Indian economy. What they should be thinking about now is how to manage a soft landing by reducing liquidity and cutting India's twin deficits, rather than stepping on the accelerator and risk a big economic crash with long term negative consequences.

Already explained. Just wait and watch we will grow 10% from next year.

The next trillion dollars of GDP will come in just 5-7 years

The next trillion dollars of GDP will come in just 5-7 years - Money - DNA

The next trillion dollars of GDP will come in just 5-7 years - Money - DNA

It all ads up: Industry grows 22% in 2010 - The Times of India

India economy to grow 9.1% this fiscal :OECD - The Economic Times

Indian Economy In 2010: Indian Economy To Grow 10 per cent By The Year 2012 With High Interest Rates. VMW Blog!

Indian economy to grow 9.5% in 2010: IMF

Indian Economy to Grow by $2.7 Billion for Each Percentage Rise in Mobile Broadband Penetration

The Hindu : Business / Economy : CMIE sees real GDP growth at 9.2 p.c. this fiscal

[/QUOTE]

 

[Veeru]

The next trillion dollars of GDP will come in just 5-7 years

The Indian economy is no longer at the crossroads; rather, it is on the right path to sustainable growth. Gross domestic product (GDP) growth of 8.9% in Q2FY11 is a resounding validation of the India growth story —- it has effectively endured a global crisis and the worst drought in 30 years.

India continues to be one of the fastest growing economies in the world. Its GDP is likely to grow at ~9% in FY11 and well into FY12. Growth should rise to double digits, on track with the higher growth trajectory of the last decade. However, the journey is unlikely to be smooth.

The fallout of the lack of radical reforms has shown up in high consumer inflation, which, though trending down, continues to persist.

Interest rates are headed up. The speed with which India’s reforms process is progressing is less than desirable. Macroeconomic and business headwinds apart, markets have reason to be concerned about the serious and relentless issues of corporate and political governance, which India is currently embroiled in. While it will continue to encounter speed-breakers and roadblocks, India is well on its way to the next trillion dollars of GDP.

We published our first note on the concept of NTD (next trillion dollars of India’s GDP) in 2007. The core NTD thesis is this: It took India about 60 years post Independence to clock the first trillion dollars of GDP. With nominal GDP growth of 14-15%, at constant exchange rates, India’s next trillion dollars (NTD) will come in just 5-7 years. We juxtapose the NTD idea with the GDP growth experience of China to arrive at India’s GDP of almost $5 trillion by 2020.

As we have pointed out time and again, the addition of the next trillion dollars to India’s GDP has exponential growth implications for several businesses. Evidence of this is already springing up. Consider this: the number of passenger cars sold in October 2010 was 182,992, the highest ever in a calendar month in India’s history.

The Society of Indian Automobile Manufacturers forecasts that passenger car sales for the year ending March 2011 will grow by at least 25%. The Indian passenger car market is likely to treble over the next decade to six million cars a year. It is no surprise, therefore, that India has turned into a major battleground for global vehicle manufacturers such as Ford, Renault-Nissan, General Motors and Volkswagen.

India enjoys a special demographic advantage. With over 200 million households, India is not only a huge consumer market but also an attractive investment destination. Its consumer market is projected to become the fifth-largest by 2025, worth more than $1,500 billion. India’s total commerce, which was estimated at $2.3 trillion in 2007, is expected to treble by 2025, making it larger than the current size of the UK market in terms of purchasing power parity. India might well be at the helm of a radical realignment of the global economy.

The next trillion dollars of GDP will come in just 5-7 years - Money - DNA

 

[RiazHaq]

Unlike China, India is not a net creditor...India is a debtor nation.

Here's how Economic Times put it recently:

"A country’s current account consists of merchandise trade (exports and imports of goods) and the invisible trade — income and expenditure from export and import of services, profits earned on investments and remittances by workers. A deficit would occur when total imports are greater than exports. A deficit implies that the country is a net debtor to the world. "

It seems to me that the RBI has forgotten the 1966 and 1991 BoP crises that hit India very badly.

It's the regulators' job to anticipate and act to minimize the effects of external and internal shocks.

When inflation is already running in double digits as it is now, the regulators need to turn screws tight to reduce credit expansion, and that's not happening in India. In fact credit is expanding, not shrinking in India.

When oil prices are rising, the regulators need to reduce non-energy related deficit, but that's not hapening either.

When short-term capital inflows are rising and being used to finance deficits, the regulators need to impose controls to prevent havoc that hot money can wreak.

Haq's Musings: Indian Economy: Hard or Soft Landing in 2011?

 

[LaBong]

Indian ranking I shared was for 2009, but even in 2010, the risk in India is rated "EXTREME" and colored red. Look at Maplecroft's color coded risk map to understand it.

Maplecroft | Home | About Maplecroft | Media Room | News

Here is what it said last year about India:

Of the South Asian nations, India (27) has seen the biggest fall in the rankings, down nine places from last year. The country is rated as high risk in the DPRI, but extreme risk in the categories of conflict and political violence, terrorism, and business integrity and corruption.
"In part, India's new ranking in the DPRI reflects the persistent risk of terrorism and conflict across the country, including potential violence from separatist movements. India recently formed the separate state of Telangana, to forestall violence in Andhra Pradesh, a move that may provide fresh impetus to separatist groups in Assam and elsewhere. The conflict in Kashmir is still ongoing and India remains vulnerable to al-Qaeda style Islamist terrorism and Maoist terrorism. These factors can present significant security challenges for organisations with operations, supply chains and distribution networks in the country, unless they are managed correctly."

Maplecroft | Home | About Maplecroft | Media Room | News

So last year, that is in 2009, India was in 27+9 = 36th place, not 6th as you claimed in your post.

 

[Vasily Zaytsev]

Unlike China, India is not a net creditor...India is a debtor nation.

Here's how Economic Times put it recently:

"A country’s current account consists of merchandise trade (exports and imports of goods) and the invisible trade — income and expenditure from export and import of services, profits earned on investments and remittances by workers. A deficit would occur when total imports are greater than exports. A deficit implies that the country is a net debtor to the world. "

It seems to me that the RBI has forgotten the 1966 and 1991 BoP crises that hit India very badly.

It's the regulators' job to anticipate and act to minimize the effects of external and internal shocks.

When inflation is already running in double digits as it is now, the regulators need to turn screws tight to reduce credit expansion, and that's not happening in India. In fact credit is expanding, not shrinking in India.

When oil prices are rising, the regulators need to reduce non-energy related deficit, but that's not hapening either.

When short-term capital inflows are rising and being used to finance deficits, the regulators need to impose controls to prevent havoc that hot money can wreak.

Haq's Musings: Indian Economy: Hard or Soft Landing in 2011?

What are smoking?

It doesn't matter whether you are net debtor or creditor as long as you are growing and you don't default.

You know nothing.

Stop bluffing... which double digit inflation are you talking about?

And RBI knows better than your tiny brain can comprehend..

BOP.........my foot................ with nearly 290 billion forex what BOP are a talking about?

There is nothing like enrgy related deficit and non enrgy related deficit... there is only deficit. And you manage it cumulatively...

You know nothing. You are a big liar....

You talk about inflation (which is not double digit as your lie has been nailed) but systematically forget the growth rate....

What an idot talks about inflation withou taking into account the growth in the economy.


And what donkey told you that you manage your deficit with short term capital inflows....


Stop acting like a know alot about economy and that too Indian...

Go use your "economics Brain" for your country which it needs more than anything else... don't worry about India...

 

[Jade]

Unlike China, India is not a net creditor...India is a debtor nation.

Here's how Economic Times put it recently:

"A country’s current account consists of merchandise trade (exports and imports of goods) and the invisible trade — income and expenditure from export and import of services, profits earned on investments and remittances by workers. A deficit would occur when total imports are greater than exports. A deficit implies that the country is a net debtor to the world. "

It seems to me that the RBI has forgotten the 1966 and 1991 BoP crises that hit India very badly.

It's the regulators' job to anticipate and act to minimize the effects of external and internal shocks.

When inflation is already running in double digits as it is now, the regulators need to turn screws tight to reduce credit expansion, and that's not happening in India. In fact credit is expanding, not shrinking in India.

When oil prices are rising, the regulators need to reduce non-energy related deficit, but that's not hapening either.

When short-term capital inflows are rising and being used to finance deficits, the regulators need to impose controls to prevent havoc that hot money can wreak.

Haq's Musings: Indian Economy: Hard or Soft Landing in 2011?

It is no use concentrating on variable such as current account deficit or inflation and predicting Indian economy downfall. As I already mentioned, the variable which you mentioned are self correcting and depends on to large extent on business cycles.

For each negative article you can post on Indian economy, I can posts 100 articles that say positive about Indian economy...so it is no use.

The reality is Indian economy is growing fast and one of the most exciting economy to invest in

 

[MrProudIndian]

@ fellow indian members:

Never mind who has posted the thread, the Indian economy IS weakening. I have verified all the facts in this post and they are true.

The current account deficit HAS trebled over the past year, mainly due to our increasing trade imbalances. Having a CAD of more than 3% is an alarming situation. The Indian economy has also liberalized so that we are allowing greater FII inflows.

We need to correct these problems otherwise the next global economic slowdown will have a much greater impact on India than the previous one. Indian manufacturing industry needs to be given a boost and domestic companies need to be given a helping hand in dealing with international competition.

Though the situation is not as alarming as the OP has suggested, yet, what has been pointed out is a major cause for concern has has to be dealt with sooner rather than later.

The facts(some of them) are right.
But the main thing is that the Pakistani person didn't reflect the boosters of the Indian economy,it didn't reflect the positive side of the Indian economy,it didn't reflect a proper future.
As it was expected from a Pakistani.
He is surely less creditable than IMF,World Bank,Goldman sachs,Edelweiss etc,who have all reported mostly positive and a bright future for India.
I smell jealousy!!

 

[Vasily Zaytsev]

It is no use concentrating on variable such as current account deficit or inflation and predicting Indian economy downfall. As I already mentioned, the variable which you mentioned are self correcting and depends on to large extent on business cycles.

For each negative article you can post on Indian economy, I can posts 100 articles that say positive about Indian economy...so it is no use.

The reality is Indian economy is growing fast and one of the most exciting economy to invest in

Don't try to educate this pseudo economist.

yaar uso kuch nahi atta.

He only googles news abot India and does copy paste of those portions of the news that has some negative conotations. He does not even go through the entire article.

He then arranges those parts from a number of articles from different news reports and pastes on his blog as a single piece.

The articles on his blog do not have head, tail, only random portions from different news items.

 

[RiazHaq]

So last year, that is in 2009, India was in 27+9 = 36th place, not 6th as you claimed in your post.

Nonsense!

India was in 6th place in terms of risk in 2009, according to Maplecroft.

"The index based on 2009 data ranks Afghanistan second, with Pakistan and Somalia third and fourth respectively. They are rated at extreme risk along with Lebanon 5, India 6, Algeria 7, Colombia 8 and Thailand 9, a Maplecroft statement said.

The UK-based risk advisory group's index tracks the risks of an attack, the intensity of violence as measured by casualties per incident, a country's history of extremist violence and threats made against it by groups such as al Qaeda.

"Media coverage can often skew public perceptions of terrorism risk in a country by publicising mass casualty attacks," said Maplecroft political risk analyst Eva Molyneux."

Iraq has top terror risk, India sixth - ranking | Reuters

 

[Vasily Zaytsev]

The facts(some of them) are right.
But the main thing is that the Pakistani person didn't reflect the boosters of the Indian economy,it didn't reflect the positive side of the Indian economy,it didn't reflect a proper future.
As it was expected from a Pakistani.
He is surely less creditable than IMF,World Bank,Goldman sachs,Edelweiss etc,who have all reported mostly positive and a bright future for India.
I smell jealousy!!

Just ask him .... if state of Indian economy is so alarming then how come it is growing and every tom dick and harry wants to jump on to yhis growth train?


His own house is in rubbles and he is more worried about peeling plaster off my compound wall.