Indian economy slides into danger zone; Investments plunge to 5 year low

[seethru]

Investment proposals plunged to a five-year low in 2011 as companies such as GMR and Reliance Power halted projects due to administrative hassles, threatening to amplify the economic slowdown in 2012 and delay recovery even with rate cuts from the central bank.

A prolonged phase of weak investments could increase loan defaults by companies or call for restructuring of debt, denting banks' profitability.

New investment proposals in 2011 fell 45% to 10.46 lakh crore, from 18.88 lakh crore a year earlier, data from the Centre for Monitoring Indian Economy (CMIE) shows.

"If investment-led growth does not happen, we will manage to have a GDP of around 6.5% over the next 3-5 years," said A Subba Rao, chief financial officer, GMR Group, which runs airports and utilities. "Investment is weak and if the government does not act fast, it may come to a grinding halt. The government needs to work overnight and carry forward reforms and approve policies over the next 2-3 months for things to improve."

Companies have frozen investments as government flip-flop on policies are blurring returns, especially in the power sector that guzzles capital and needs scores of departmental approvals for smooth execution. State investments are also slowing as welfare programmes take precedence over asset creation.

With many projects stalled, banks are also reluctant to lend for fear of bad loans. The 13 rate increases by the RBI have made funds expensive.


While private sector investment proposals declined nearly 48% year on year, the government, which is struggling to achieve the fiscal deficit target, was not behind as investments declined 40%.

Gujarat, the most favoured by corporate India, bucked the trend, pulling 18% of the newly announced projects and registering a 14% increase year on year, including a mega expansion by Maruti Suzuki that faced labour problems in Haryana, which saw a near-90% fall from a year earlier, the CMIE data shows.

"Capex has come down because of higher interest rates and low liquidity," Rashesh Shah, chairman, Edelweiss Financial Services. "But, this is just a short-term trend. Capex numbers will bounce back from a low base when rates start going down."


Thoughts anyone? NO TROLLING PLEASE

 

[Generally Khan]

This was bound to happen, there is so much uncertainty in the markets with euro crisis and a global recession that investors are wary of everything. I don't think 2012 would fare any better.

 

[fly2012]

India will be fine. Forecast of both China and India's collapsing in a single day, really makes my head spin.

My problem with these economists is that they tend to over simplify countries like India or China, and believe that their economies can be expressed with an equation using only two variables.

 

[ares]

2011 has been a slow yr ..but now things are bouncing back.


India’s foreign direct investment rises 56% to $2.53b in Nov.


NEW DELHI Foreign direct investment (FDI) into India went up by 56 per cent to $2.53 billion in November 2011, signalling improvement in investor sentiment.

The cumulative flows of $22.83 billion for the April-November period have crossed $19.43 billion which came in the full fiscal of 2010-11, according to officials. Analysts feel that if the trend continues, the FDI in the current financial year would cross $30 billion, a development which will have a positive effect on rupee in the foreign exchange market.

In the face of selling pressures in the stock market from the foreign institutional investors and rising trade deficit, the rupee has declined by about 15 per cent since August.

While the FII inflows are considered “hot money”, the FDI is quite stable.

The improvement in FDI inflows in November comes after two months of declining trend.

The country had received $1.62 billion overseas investment in November 2010. In September and October, the inflows were down by 16.5 per cent and 50 per cent year-on-year respectively.

During the April-November period, the FDI was up by 62.81 per cent from $14.02 billion a year ago.

“At this rate we would be able to cross $30 billion figure by end of the current fiscal,” the official added.

In 2010-11, FDI into equity had dipped 25 per cent to $19.43 billion, from $25.6 billion in 2009-10. Mauritius, Singapore, the US, the UK, the Netherlands, Japan, Germany and the UAE are major sources of FDI for India.

Agencies


PSUs told to invest for stimulus

New Delhi, Jan 11, (PTI):

PMO directs cos to invest as much as Rs 1.76 lakh cr
Against the backdrop of economic slowdown, the Prime Minister’s office has directed cash-rich public sector undertakings to go for investments to the tune of over Rs 1.76 lakh crore, including Rs 1.41 lakh crore domestically to act as a stimulus in the next fiscal.

At a meeting chaired by the Prime Minister’s Principal Secretary Pulok Chatterjee, 17 companies with cash and bank balance in excess of Rs 1,000 crore were identified to undertake these investments primarily in the infrastructure sector whose status will be monitored periodically.

As per the decision, the PSUs will invest Rs 1,41,389 crore domestically in the year 2012-13 and Rs 35,009 crore overseas, sources said here today.

The Principal Secretary observed that the PSU investment can provide stimulus to the economy and asked the companies to draw up credible investment programmes and implement those with “vigour so as to achieve maximum benefit for the companies themselves as well as the national economy.”

Among the companies, ONGC is projected to invest the maximum amount of Rs 53,526 crore -- Rs 33,065 crore in domestic market and Rs 20,461 crore overseas.
It is followed by NTPC with Rs 20,995 crore domestically and Power Grid Corporation India Limited with Rs 20,000 crore.

Other companies identified for investments included Oil India Limited, Coal India Limited, BHEL, GAIL, Indian Oil Corporation, Engineers India Limited and SAIL, they said.

It was decided at the meeting that the CMDs of the companies would ensure that the projected investment plans are realised to the fullest extent, the sources said.
The administrative secretary would review the status on a monthly basis to ensure that “any bottlenecks” external to the company are resolved expeditiously.

Member Secretary of the National Manufacturing Competitiveness Council (NMCC), set up by the government to help boost growth of manufacturing sector, would review the status with the concerned administrative secretaries and CMD on a quarterly basis and apprise the PMO for follow up.

Discussing the investment plan of Coal India, the meeting noted that the company has cash and bank balance in excess of Rs 40,000 crore but has been able to project an investment plan of only Rs 4,275 crore for 2012-13 with the possibility of another Rs 6,000 crore on acquisition of overseas assets.

The secretary of coal ministry and CMD of Coal India were asked to review the position and attempt to advance some investments that have been planned in future years, the sources said.

 

[anonymus]

Interest rate of 8.5% when world over central banks are lending at 0%.

Amazing is not the fact that economy is in danger zone,but the fact that it is not in recession.

Central bank tried to tackle supply based inflation by monetary tightening.What a Dumbass idea.An evil which should have been tackled by fiscal measures is tackled by monetary because the lazy,populist and corrupt government would not act.Only way for it to garner votes is by bribing people with populist scheme.

Welcome to the ironic hypocrisy of socialism."We will fuk you totally then we will fuk your children and their grandchildren because if you get fucked once probably it was because you were not socialist enough,we should do it better next time".Well that next time never comes.All ism's derived from the ideology of marx have proved to be complete failures.But their knuckle head supporters always believe that there would be better time next time.

If there was any time since 1992 that India should have avoided socialism like plague it is now but depressingly it's policy making has been hijacked by economically illiterate NAC.

 

[Generally Khan]

2011 has been a slow yr ..but now things are bouncing back.

Most investment deals are closed by year-end or announced at the beginning of the year, even the government prefers it that way for investor and market morale. So those are not very reliable indicators.

 

[seethru]

Interest rate of 8.5% when world over central banks are lending at 0%.

Amazing is not the fact that economy is in danger zone,but the fact that it is not in recession.

Central bank tried to tackle supply based inflation by monetary tightening.What a Dumbass idea.An evil which should have been tackled by fiscal measures is tackled by monetary because the lazy,populist and corrupt government would not act.Only way for it to garner votes is by bribing people with populist scheme.

Welcome to the ironic hypocrisy of socialism."We will fuk you totally then we will fuk your children and their grandchildren because if you get fucked once probably it was because you were not socialist enough,we should do it better next time".Well that next time never comes.All ism's derived from the ideology of marx have proved to be complete failures.But their knuckle head supporters always believe that there would be better time next time.

If there was any time since 1992 that India should have avoided socialism like plague it is now but depressingly it's policy making has been hijacked by economically illiterate NAC.

I am sure they are doing it on a purpose and have an idea on mind. we simply cannot assume that these people are disconnect from the facts or on goings in the rest of the world.

---------- Post added at 11:43 AM ---------- Previous post was at 11:42 AM ----------

Most investment deals are closed by year-end or announced at the beginning of the year, even the government prefers it that way for investor and market morale. So those are not very reliable indicators.

True.

 

[kawaraj]

Central bank tried to tackle supply based inflation by monetary tightening.What a Dumbass idea.An evil which should have been tackled by fiscal measures is tackled by monetary because the lazy,populist and corrupt government would not act.Only way for it to garner votes is by bribing people with populist scheme.

you have a point there.

 

[tjpf]

The Hindu : Business / Industry : Industrial growth bounces back to 5.9%

signs of recovery

 

[anonymus]

I am sure they are doing it on a purpose and have an idea on mind. we simply cannot assume that these people are disconnect from the facts or on goings in the rest of the world

Yes they are doing it on purpose.Their purpose is to reduce inflation.The irony is that the inflation is supply based.People don't stop consuming food because interest rate at banks increase.The solution for this type of inflation would be strenghtening of backward linkages and increase of farm productivity.Every economist in country is saying so.read any newspaper,a month's old newspaper,six month's old newspaper (not hindu,it is a rabidly communist newspaper according to whom only good economics is when you are pillaging the rich and middle class) or second chapter of government's own economic survey.The government is not doing it because after spending money on it's socialist white elephants,it is left with no money to spare for investing in rural infrastructure.

So faced with challenge to curb inflation and faced with policy paralysis, government does what it do best.It increases rate to curb demand in a belief that economy will slow down to the extent that there will be no demand left.No demand so problem of supply constrains solved naturally.

And get out of this belief that government always act rationally.Government's have long history of acting irrationally.They act stupidly based on their ideology and risk aversion.

 

[seethru]

^^^^^I understand. but there's no pressure from the middle class. I mean, there's no incentive for the ruling people in doing things the way they are to be done. Government's definition of middle class is people who demand for subsidy schemes, waivers for loans and Govt employees, who form the loudest minority. these people aren't educated enough on economy on large scale and look for short term relief polices, just like the political parties in opposition which seem to extract political mileage from petty issues. (I assuming this on a general level)The people like you who seem to have understanding of economy do not do enough to educate and organize watch dogs which both criticize and be heard by the government. we simply are in dire need of a well educated middle class.

 

[beijing consensus]

i would love to troll and p*ss off the indians......but i wont THIS time.

seriously, these western 'experts' have been predicting the economic collapse of china and india for years.
both economies are growing and will have ups and downs, but neither will collapse as these westerners dream of.

its funny how these westerners are 'experts' on the chinese and indian economies yet these same 'experts' cant even predict their own economies. maybe these clowns should concentrate on their own economic problems before lecturing others on economics.