Has PM Modi Turned Indian Economy Around?

Things are not looking so rosy at home for Indian Prime Minister Narendra Modi as he continues his world tour with the latest stop in Beijing, China.

Is Modi government's honeymoon already over on its first anniversary at the helm? Has the Indian economy really turned around? Is it really growing faster than China? Are Indian businesses doing better under the new government? Are investors more excited about India's prospects? Has Indian currency recovered to levels before its collapse in 2013? Is India any cleaner than it was last year? To answer these questions, let's look at some data:

1. Revision of GDP methodology by India's Central Statistical Office (CSO) to show it is growing faster than China has drawn serious skepticism, even derision by serious economists around the world. While India's boosters in the West are not only buying but applauding the new figures, Indian policy professionals at the nation's Central Bank and the Finance ministry are having a very hard time believing the new and improved GDP brought to the world by Indian government. Dissenters include Morgan Stanley's Ruchir Sharma, an Indian-American, who has called the new numbers a "bad joke" aimed at a "wholesale rewriting of history".

2. India's exports are continuing to drop. The trade data shows a sharper slowdown (21%) in exports than in imports (13%,  due to lower oil prices) for March, 2015.  Exports are down another 13.96% in April 2015. There is an overall decline in both for the year too, according to Seeking Alpha.

3. Large scale manufacturing in India continues to disappoint. Growth slowed in April 2015, according to HSBC India Manufacturing Purchasing Managers Index (PMI) data. At 51.3 in April, down from 52.1 in March, the headline PMI points to slowing demand.

4. Mumbai stocks are among the worst performing in emerging markets. FII (foreign institutional investments) net outflows gave been of the order of Indian Rs 125 billion (about US$ 2 billion) over the past month. The stock market index has seen the biggest correction of 10 per cent in a short time, according to India's First Post.

5. In spite of Prime Minister Modi's high-profile campaign to improve hygiene,  India has been ranked near the bottom on access to clean water and sanitation. India has ranked 92 on Water, Sanitation and Hygiene  (WASH) Index developed by The Water Institute at the University of North Carolina at Chapel Hill's Gillings School of Global Public Health in the US, far below Pakistan which ranked near the top in 5th position.

India's Economic Times has recently reported results of a survey of top CEOs.  Majority of them say that demand is depressed. "The bonhomie and cheer that greeted the arrival of the Modi government is replaced by a sombre mood and a grim acknowledgement of the realities of doing business in India," reports ET, as it captures the sentiment of the CEOs. The largest engineering conglomerate L and T has said some of its plants are idle as demand for capital goods is very weak. The Aditya Birla Group had deferred its revenue target of $65 billion by 3 years, to 2018.

A recent piece titled "Why India is Not A Buy in Current Environment" published by Seeking Alpha summarizes the current Indian situation as follows:

"While there are some who consider India to be the best emerging market and recommend it as such, my own assessment is different. Whether it's relatively high valuations, weak fundamentals with persistent deficits, government bonds under pressure, weakening currency, rebounding oil prices, declining confidence in the government and so on, India is facing a ton of headwinds going forward. Far too many to be a number one pick among emerging markets."

Modi government has to turn some of its election promises into action. Mr. Modi cannot rely on the benefit of the doubt because his honeymoon period is now over. He will be judged on what he is able to accomplish.

Related Links:

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India's Soaring Twin Deficits

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How Strategic Are China-Pakistan Ties?

India Pakistan Economic Comparison in 2014

Pakistan's KSE-100 Outperforms India's Sensex

India's IT Exports Highly Exaggerated


Riaz Haq said…
After a long run as the emerging market equity sweetheart, investors may be falling out of love with India stocks.

"Prime Minister Modi's victory last May set the stage for a significant amount of reform optimism and encouraged portfolio inflows," HSBC said in a recent note. Now "India is the most over-owned equity market in Asia by mutual funds," it said, citing EPFR data. It cut its rating on the market to underweight from overweight.

"As other markets become more interesting, India could be used as a funding market," HSBC said.

Funds had flowed into the market in a wave of optimism after Prime Minister Narendra Modi and his ruling Bharatiya Janata Party (BJP) swept into power promising much-needed reforms. Some of those reforms have hit speed bumps recently, with parliamentary bills aimed at making for businesses to buy land and to reform taxes getting deferred earlier this month.

That may cool some of the optimism of foreign investors whose portfolio flows sent the Sensex surging nearly 29 percent last year, with index shedding around 0.6 percent year-to-date.

The vagaries of portfolio flows aren't the only reason HSBC is looking askance at the market, with the bank also citing concerns about earnings.

"India is one of the markets across the region to have witnessed the highest number of earnings downgrades," HSBC said, noting consensus estimates for this year have fallen by more than 5 percent over the past three months.

"Weaker earnings growth expectations will, by definition, alter earnings based valuations for the market. India's price-to-earnings (P/E) valuations therefore remain elevated. India is currently the second-most expensive market in Asia in terms of 12-month forward P/E," it said.

Bemoaning that it didn't go underweight sooner, Credit Suisse said it appeared to be "paying the price for not heeding our valuation model."

India equities are among Asia's most expensive, the bank said in a note earlier this month.

"We had overridden our valuation model as we believed India combined rising ROE (return on equity) with falling COE (cost of equity). But the ROE recovery appears to have been delayed," Credit Suisse said.

"With investors asking whether it is time to buy India, we suggest not yet," it said, adding that the market's valuations remain among the region's most expensive and year-to-date foreigners remain net buyers.

"Given the downside risks to growth, heightened uncertainty around inflation outlook and slower than expected progress on reforms, we see risk of a more prolonged corrective phase," Goldman Sachs said in a note Friday. But it added, "We see our longer-term positive view on Indian equities firmly intact and remain overweight India in a regional context."

The country's economy is still broadly expected to improve, with the Asian Development Bank (ADB) in March forecasting growth of 7.8 percent in fiscal 2015-16, up from 7.4 percent in the previous fiscal year, and then rise to 8.2 percent in fiscal 2016-17 as planned reforms start to improve confidence and external demand appears likely to pick up.

Riaz Haq said…
Almost exactly a year later, some Indian market-watchers are getting impatient for better days. (Tweet This)
"Modi has been high on rhetoric and short on delivery in his first year, and his many constituencies feel they have been fed empty promises," said Manu Bhagavan, a professor of history at Hunter College in New York.

Economists and investors trumpeted Modi as a sort of Ronald Reagan of India, a man who could get down to business and prescribe the right medicine for the country's heavily regulated economy.
Global leaders have been getting in line to meet and greet Modi, who most recently visited China, where he was seen taking a selfie with Premier Li Keqiang.

"As branding exercises go, it's been a performance worthy of Madison Avenue," said Bhagavan.

Riaz Haq said…
India GDP growth is one-third statistical illusion

India’s GDP growth is now one-third a statistical mirage. Unless something has changed dramatically in recent years in how companies and consumers behave, the economy is more likely to be expanding at 5 percent, not the 7.5 percent claimed by the authorities.
The illusion comes from a recent supposed improvement in the way India calculates its Gross Domestic Product. In theory, Indian GDP is now closer to international standards. In practice it has become utterly unreliable. Depending on it could easily lead India’s monetary policy astray.
This week, investors dumped Indian assets after the Reserve Bank of India cut its benchmark interest rate by a quarter percentage point. Central bank governor Raghuram Rajan felt compelled to explain why he had reduced borrowing costs five days after the country’s statistics office claimed stellar expansion in GDP. But investors were upset that Rajan was not doing more to revive a slowing economy.
But just how sluggish is the economy really? Breakingviews tried to answer that question by looking at three indicators: corporate earnings, auto sales and imports of computer software. The logic is straightforward: retained earnings finance new investment projects; auto sales are a proxy for consumer demand; while software imports reflect productivity gains. Mixing the three in a simple index suggests that growth in the most recent quarter was closer to 5 percent.
Combining indicators of demand and supply will annoy the purists. However, the rough-and-ready gauge reliably predicted GDP growth in the coming quarter between 2005 and 2011.
Back then India’s methodology for adding up output was more robust. The new GDP data is another matter. Take the third quarter of 2013, when the country came perilously close to a currency crisis. The Breakingviews index shows GDP growth stalling. But according to the new official data, the economy grew at its fastest rate in nine quarters.
The faulty monitor continues to give misleading all-clear verdicts on the economy. It’s now more than a persistent irritant. There’s a serious risk that policymakers could underestimate the output shortfall, thereby aggravating the deficit. GDP is everywhere a statistical artifact; but in India, the illusion of growth is threatening to make the reality worse than it is already.

Riaz Haq said…
Mani Shankar Aiyar: What #India's #Modi Has Not Recognised About #Pakistan: ITS RESILIENCE AND NATIONALISM http://www.ndtv.com/opinion/pakistans-resilience-beats-modis-56-inch-chest-771700 … via @ndtv

"unlike numerous other emerging nations, particularly in Africa, the Idea of Pakistan has repeatedly trumped fissiparous tendencies, especially since Pakistan assumed its present form in 1971. And its institutions have withstood repeated buffeting that almost anywhere elsewhere would have resulted in the State crumbling. Despite numerous dire forecasts of imminently proving to be a "failed state", Pakistan has survived, bouncing back every now and then as a recognizable democracy with a popularly elected civilian government, the military in the wings but politics very much centre-stage, linguistic and regional groups pulling and pushing, sectarian factions murdering each other, but the Government of Pakistan remaining in charge, and the military stepping in to rescue the nation from chaos every time Pakistan appeared on the knife's edge. The disintegration of Pakistan has been predicted often enough, most passionately now that internally-generated terrorism and externally sponsored religious extremism are consistently taking on the state to the point that the army is so engaged in full-time and full-scale operations in the north-west of the country bordering Afghanistan that some 40,000 lives have been lost in the battle against fanaticism and insurgency.

"And yet," as was said on a more famous occasion, "it works!" Pakistan and her people keep coming back, resolutely defeating sustained political, armed and terrorist attempts to break down the country and undermine its ideological foundations. That is what Jaffrelot calls its "resilience". That resilience is not recognized in Modi's India. That is what leads the Rathores and the Parrikars to make statements that find a certain resonance in anti-Pakistan circles in India but dangerously leverage the impact on Pakistani public opinion of anti-India circles in Pakistan. The Parrikars and the Saeeds feed on each other. It is essential that both be overcome.

But even as there are saner voices in India than Rathore's, so also are there saner - much saner - voices in Pakistan than Hafiz Saeed's. Many Indians would prefer a Pakistan overflowing with Saeeds to keep their bile flowing. So would many Pakistanis prefer an India with the Rathores overflowing to keep the bile flowing. At eight times Pakistan's size, we can flex our muscles like the bully on the school play field. But Pakistan's resilience ensures that all that emerges from Parrikar and Rathore are empty words. India is no more able than Pakistan is to destroy the other country"

Riaz Haq said…
#Modi's #India’s exports contract for a sixth month, down 20.2% in May - Livemint #MakeInIndia

http://www.livemint.com/Politics/DQcWH6FIUXGnhDpFfLbmFP/Indias-exports-contract-202-in-May-their-sixth-monthly-f.html …

The Indian commerce ministry announced on Tuesday that India’s exports fell 20.2 percent compared with the same month last year (LiveMint, Reuters). This announcement makes May the sixth consecutive month in which exports have fallen and this is the the longest such streak since 2009. The ministry also announced that imports fell by 16.5 percent, bringing the overall trade deficit to a 3 month low. According to the data gathered by Bloomberg, in May, oil imports fell 41 percent to $8.53 billion, non-oil imports fell 2.2 percent to $24.21 billion however gold imports grew 10.5 percent to $2.42 billion. A weakening rupee and an acceleration in inflation indicates maneuverability is decreasing for Reserve Bank of India (RBI) governor Raghuram Rajan to lower interest rates any further. RBI has already cut the interest rates in the country three times this year.

The Indian rupee touched the day’s low soon after the data. The currency has weakened 2.1% over the past three months, the fourth-worst performance among 24 emerging market currencies tracked by Bloomberg. Bloomberg

Riaz Haq said…
According to a report by the Institute for Economics and Peace, "the economic impact of containing and dealing with the consequences of India's levels of violence was estimated to cost the national economy $341.7 billion in 2014. This is equivalent to 4.7 per cent of India's GDP” (Hindu, HT, ET). Moreover, according to the 2015 Global Peace Index (GPI) published on Wednesday, India ranked at 143 out of 162 countries. Within the region India ranked 5th out of the 7 South Asian countries ahead of Pakistan and Afghanistan. The GPI report cited escalating civil strife and the consequent refugee crisis have been among the major factors behind the rising cost of global violence containment. Iceland emerged as the world’s most peaceful nation, while Syria got the bottom spot.

Riaz Haq said…
UNICEF: In spite of #Modi's "Clean India" campaign, #India Lags Behind #Pakistan, #Nepal on Sanitation http://on.wsj.com/1INbqKI via @WSJIndia

Indian Prime Minister Narendra Modi has made sanitation a priority for his country, saying he would rather build toilets than temples and setting a goal for every home in the country to have a place to go to the bathroom by 2019.

But new data show India is lagging behind its neighbors in providing access to adequate sanitation.

“Progress on Sanitation and Drinking Water,” a report published by the United Nations Children’s Fund and the World Health Organization this week, says that advancements in meeting Millennium Development Goals, or MDGs, by 2015 in relation to sanitation have faltered worldwide. The report says 2.4 billion people still don’t have access to improved sanitation.

Mr. Modi launched his Clean India, or Swachh Bharat, campaign last year for good reason. Research shows that the practice of open defecation is linked to a higher risk of stunting in children and the spread of disease. A World Health Organization report said in 2014 that 597 million people in India still relieved themselves outdoors. And the new WHO/Unicef report says that the Southern Asia region has the highest number of people who defecate in the open.

The new data show that despite recent efforts, over the past 25 years, India has been losing the regional race to improve sanitation.

Its neighbors, Nepal, Bangladesh and Pakistan led the way with the greatest percentage-point change in the proportion of the population with access to improved sanitation facilities between 1990 and 2015.

Pakistan’s percentage point change was 40–64% of people have use an improved sanitation facility. In Nepal, a country in which just 4% of people had access to improved sanitation facilities in 1990, access rose by 42 percentage points to 46%. Bangladesh improved its score by 27 percentage points — 61% now have access to improved sanitation facilities.

India meanwhile, had a lower 23 percentage point increase in the same period – bringing the number of people with access to improved sanitation facilities to 40%.

And Sri Lanka is way ahead, with 95% of people having access to improved sanitation.

The report defines an improved sanitation facility as one that hygienically separates excreta from human contact and the target was for 50% or more of those with inadequate water or sanitation in 1990 to have adequate sanitary services in 2015.

Likewise, rates of open defecation have reduced, but India still has the highest percentage of the population defecating in the open–with 44% of people going outside in 2015—down from 75% in 1990, compared with a 13% figure for Pakistan in 2015, 32% for Nepal and only 1% for Bangladesh.

But, the report says: “The 31 per cent reduction in open defecation in India alone represents 394 million people, and significantly influences regional and global estimates.”
Riaz Haq said…
#Modi’s #India: Caste, Inequality and the Rise of #Hindu Nationalism http://www.newsweek.com/modis-india-caste-inequality-and-rise-hindu-nationalism-356734 …

When Aakash was a young boy, his family lost their small plot of land in the Indian state of Maharashtra to make way for a government dam-building project.

The Indian government is legally required to compensate people it has displaced from their homes, but Aakash’s father, a virtually illiterate low-caste farm laborer, was compelled to sign theirs away without fully understanding what he was doing.

The family eventually settled on the outskirts of a village, where Aakash’s father was never able to earn enough money to support the family, let alone pay his son’s school fees of 100 rupees—less than two dollars a year.

His mother never went to school. His father left after the fourth grade. Aakash (whose name has been changed out of respect for his privacy) got lucky. The Rashtriya Swayamsevak Sangh (RSS), the nation’s predominant Hindu nationalist organization, took him under its wing and paid his annual school tuition.

He, in turn, spent his summers and weekends in RSS camps and training sessions, learning the tenets of the Hindu Right, which include Hindu supremacy and advocacy of a strong caste system. The other young recruits came from similarly poor backgrounds, attracted by a stable source of food and financial support.

Aakash’s origins resemble those of India’s prime minister, Narendra Modi. The son of a tea seller, Modi was born into a low caste, joined the RSS as a teenager, and gained a new sense of purpose. But whereas Aakash grew increasingly uncomfortable with the organization’s ideological extremism and eventually left, the young Modi flourished in the RSS, which provided an outlet for his political ambition.

It is not clear, however, that the Hindu Right’s comprehensive project can hold together. Will Modi’s focus on economic growth mean that India’s social problems—caste, poverty, illiteracy, religious violence, sexual violence—again be neglected? Might economic prosperity provide an opening for more robust campaigns for social reform, or will Modi’s Hindu nationalism resurface at the expense of the lower castes?

Darker-skinned Indians, more likely to come from lower castes, see in advertisements for skin-whitening products another reminder that fairer skin is a mark of beauty. So ubiquitous is caste-based discrimination that even the personal ads in the Times of India are organized in descending order by caste, with a small “Caste No Bar” subsection at the end.

This troubling divide has its roots both in the development of the modern Indian state and in the nature of Hinduism and Hindu society. Before political independence and self-determination were on anyone’s agenda, Indian thinkers and public figures were already considering what social democratization would look like in a nation so fundamentally shaped by social hierarchy. And the 19th and 20th centuries saw numerous attempts to bring Indian tradition, especially Hinduism, in line with a vision of a modern liberal—and sometimes explicitly egalitarian—society.

Prime Minister Modi is the living embodiment of this troubling marriage of Hindu nationalism and capitalism, of traditional social hierarchy and modern materialism. While he has maintained the support of his elite urban business constituents, he has proven himself to be as much a disciple of the Hindu Right as he was in his youth.

Even as the RSS offers hope and basic services to thousands of poor, lower-caste youth like Aakash, we cannot take the organization’s apparent social egalitarianism at face value. At its core remains the inequality that has long marked Indian life.
Riaz Haq said…
Is #Indian #GDP data believable? 5 Indicators That Contradict #India’s Official GDP Figures http://on.wsj.com/1JJ78Zs via @WSJIndia

India registered 7% growth between April and June on Monday, making it one of the world’s fastest-growing economies, according to official data.

But other key indicators of economic vitality aren’t as positive.

Vehicle sales last quarter didn’t show the kind of growth you would expect from an economy expanding at a rate of more than 7% per year. Car, truck and two-wheeler sales are good indicators of consumers, corporate and farmer sentiment respectively. Overall vehicles sales barely budged last quarter, rising just 1% to 4.89 million vehicles. Passenger vehicle sales were up 6.17%, commercial vehicle sales were up 3.55% and two-wheeler sales were up just 0.64%.

Indian officials had hoped for a pick-up in overseas demand for Indian-made products as Western economies gathered momentum. But the country’s exports have fallen for eight months in a row through July, underscoring continued stress in global economies.

In the year ended March 31, India’s exports totaled $310.5 billion, falling about 9% short of the $340 billion target. In the first four months of the current fiscal year things haven’t improved: goods exports have recorded a 15% decline–compared with the same period last year–to $89.83 billion. China’s move to devalue its currency has given its producers a competitive edge, damping export prospects of other economies, including India. In addition, the sharp drop in global crude oil prices, while good for India’s import bill, has come as a major downer for Indian petroleum product exports, which make up a big chunk of the South Asian economy’s total shipments.

The Indian currency hit a near two-year low against the dollar last week in the midst of the global selloff and was among the worst performing currencies in Asia. Fear among investors that the slowdown in China could cause a global slump was the main drag on the Indian currency. Analysts say the depreciation in the rupee is necessary to keep India’s exports competitive. They expect some more weakness later this year, depending on the U.S. Federal Reserve’s decision on lending rates. Foreign investors became big sellers in the Indian debt market in August, putting pressure on the rupee as they took dollars out of the local market.

The benchmark Sensex index was one of the top-performing indexes last year, but so far this year it has failed to shine. Since mid-2014, investors bought stocks on hopes that the economy would rise faster and boost profits. But that outcome has been elusive and analysts have started cutting their Sensex targets. Ambit Capital now sees the Sensex falling to 28,000 points, down from its earlier target of 32,000. If the Chinese devalue the yuan again, the Indian stock market could fall further.

Profits at big companies have barely budged since Prime Minister Narendra Modi came to power in India last year. The chart above shows the percentage growth of profits of companies in the benchmark Sensex index compared to a year earlier.

According to a Bank of America Merrill Lynch report, the profits of Sensex companies rose by only 1% during the April through June quarter, compared with 24% growth in the same period a year earlier.

Utilities and cement companies have dragged the average earnings growth as big private sector and government projects remained stuck waiting for government approvals. Metal and refining companies suffered due to the decline in oil and commodity prices.

Riaz Haq said…
Meanwhile, the Indian rupee has lost 5.8% this year against the U.S. dollar, while the Brazilian real is down 31% and the Russian ruble is down 13%. The Chinese yuan is down 2.6%, but the currency has been propped up by Beijing despite an Aug. 11 devaluation, the most significant downward adjustment since 1994.

Stocks also paint a less painful picture for India.

India’s S&P BSE Sensex has fallen around 8% since the beginning of June. China’s stock market started tumbling in mid-June as local investors worried about the country’s high level of debt and its growth prospects. China’s Shanghai Composite Index has lost nearly 30% from the start of June through Wednesday, while Hong Kong’s Hang Seng Index, where foreigners can invest freely, has lost 19% over that period and Brazil is down about 10%.

To be sure, investors have been disappointed by India’s economy and the pace of reforms since the government of Narendra Modi came to power in May 2014. In anticipation of stronger growth and policy overhauls, the Sensex had gained nearly 30% in 2014, making it one of the best-performing major markets in the world.

Though India’s gross domestic product grew at a 7% rate for the April-to-June quarter, versus 5.7% growth in the same period in 2014, analysts attribute that partly to a change in the way the growth data are calculated. Company profits have barely grown, and now analysts say it could be another year or more before earnings pick up substantially.

The outflow of funds from India last month, surpassing even those from Brazil, a country facing more fiscal and economic challenges, partly reflects that disappointment.

Brazil had outflows of $940 million from its stock market, according to the Institute of International Finance. South Africa, another big emerging market, posted a net inflow of $190 million in August. Those data aren’t available for China and Russia, the IIF says.

To some degree, however, India was hurt by its own popularity. When global investors want to reduce their risky investments, they tend to sell stocks that are most liquid and have performed well.

Riaz Haq said…
Is the Honeymoon Over for #NarendraModi? #India #BJP http://foreignpolicy.com/2015/09/23/is-the-honeymoon-over-for-narendra-modi/ …

Modi’s trip to the United States marks the 29th foreign trip he has made during his 16 months as prime minister. After attracting criticism for appearing nervous in a speech he delivered in Brazil early in his term, he has seemingly done nothing but dazzle abroad. He has inked big deals—from a uranium deal with Australia to a mammoth $75 billion infrastructure investment accord with the United Arab Emirates. He has hobnobbed with celebrities, rubbed shoulders with top executives, and regaled adoring members of the Indian diaspora from New York to Sydney and Toronto to Berlin.

If only things were going so well back home.

In recent weeks, Modi has suffered blow after blow to his domestic policy agenda—and particularly to his economic reform plan, which millions of Indian voters gave him a large mandate to craft and implement.

On September 9, the government decided to abandon, for now, its quest to institute a uniform goods and services tax, a single nationwide duty that would replace the various taxes levied by India’s states and bring some much-needed order to India’s tax system. A GST, according to economists, could increase GDP by 2 percent. The government shelved the plan when it concluded that it wouldn’t be approved in Parliament.

This was a particularly bitter defeat for New Delhi, given that it had already abandoned another big-bang tax reform attempt earlier this year: the phase-out of retrospective taxation. Such a move would have been “too much, too soon,” according to Finance Minister Arun Jaitley.

Modi has also suffered setbacks on proposed land and labor reforms. This summer, his government suspended efforts to get legislation passed that would facilitate the acquisition of farmland for industrial and infrastructure purposes. Additionally, New Delhi’s plans to pass new labor laws that give employers more flexibility to hire and fire workers have been vociferously opposed by major unions and millions of low-wage workers. They staged a nationwide strike in early September.

This isn’t to say that Modi’s reform efforts have been a total failure. He has kickstarted several dozen stalled projects to boost infrastructure—one of India’s most glaring needs. He has also removed controls on diesel costs, a small step toward easing the government’s heavy regulation of the energy sector, which generates inefficiencies and discourages foreign investors. Furthermore, several Indian state governments have in fact implemented some of the reform projects proposed by Modi.

Still, these encouraging signs for New Delhi have not assuaged the concerns of many Indian and foreign investors, who admit they are getting restless after hearing many promises but seeing few results. Earlier this month, prominent commodities trader Jim Rogers announced that he had sold off all his Indian shares and was moving into different markets.

There are various reasons for Modi’s struggles at home. His reform plan is meant to replicate what he did in Gujarat, where he was chief minister for 12 years, yet Gujarat boasts an entrepreneurial and market-friendly environment that is sorely lacking in many of India’s other states (the India Entrepreneurship Report 2014, released earlier this year by Amway India, ranks Gujarat as India’s top state on indices such as infrastructure support, entrepreneurial confidence, and growth-oriented economy). Additionally, India’s upper house of Parliament and several major states are not controlled by Modi’s Bharatiya Janata Party (BJP). Not surprisingly, most of the Indian states that have not implemented reforms urged by Modi are run by the opposition Congress party—including Assam, Himachal Pradesh, Kerala, and Uttarakhand.
Riaz Haq said…
Commodities collapse cuts imports but also hurts #India's exports: Petroleum, gold jewelry, Iron ore, cotton, food http://cnb.cx/1h1hDvs

Slumping global commodity prices are typically seen as a boon for India, a country that relies heavily on oil imports to service its energy needs, but a closer look indicates it's not all good news.

That's because least 35 percent of India's exports come from commodities-linked products including refined petroleum, gold jewelry, gems, iron and steel. While typically lower input costs should burnish profits for these companies, prices of the final goods Indian manufacturers crank out have also slumped.

"India's miners are seeing sharp contraction in their earnings, agriculture commodity producers are seeing their earnings affected due to the weak price of agriculture products, and the gems/jewelry sector is undergoing a major downturn," said Taimur Baig, chief economist at Deutsche Bank.

The export value of refined fuels – which make up nearly one-fifth of total exports - is down 51 percent on-year this fiscal year, for example, amid falling prices and weak demand. Similarly, gold jewelry exports are down 20 percent on year, while iron and steel exports are down 30 percent, according to the bank.

Of India's top five export destinations – the U.S., United Arab Emirates, Hong Kong, China and Saudi Arabia - exports to China have slowed the most, followed by Saudi Arabia.

While India is not nearly as export-oriented economy compared with many of its Asian neighbors, exports account for a sizable portion of its gross domestic product (GDP) - approximately 15 percent.

Thus, "benefits from lower prices and import costs are being offset by weakness in the domestic commodity sector," Baig said.
"It is clear that India's growth recovery is unlikely to be supported by a vigorous rebound in the external sector anytime soon. Therefore, it is evident that domestic demand would have to play a bigger role in supporting India's growth recovery in this cycle, mainly though a meaningful turnaround in capex and investment," he added.

Banking sector risks

Not only is the commodities slowdown weighing on India's exports, which tanked a whopping 20.7 percent on year in August, it also poses a threat to the country's banking sector.

"India's banks have sizable legacy exposure to stressed sectors such as steel, mining, and infrastructure; their recent loan growth has also been largely toward these sectors," said Baig.

"The commodity headwind is pushing up likelihood of further NPLs [non-performing loans], casting a shadow on the banking system," he said.

Read More Why it could get even worse for materials stocks

India's state-owned lenders are already struggling with deteriorating asset equality as a result of the economy's slowdown in recent years and stalling of large infrastructure projects.

Monetary policy challenge

The correction in commodity prices is also overstating disinflation in India, says Baig, posing a challenge for monetary policy.

"Pressure on the RBI [Reserve Bank of India] has risen considerably to ease policy interest rates. Non-commodity prices, however, are hardly in benign territory," Baig said.

"Education costs were up 6 percent on year through August and the same was with clothing. Thus the issue of how much room is available for the central bank to cut rates with a view to its medium term inflation objective of around 4 percent is being complicated by commodity price driven disinflation," he said.

The RBI is due to hold its next policy meeting on September 29, when it is expected to cut interest rates by 25 basis points to a four-year low of 7 percent. It has reduced its key policy rate a total of 75 basis points this year, standing pat at its last policy review in August.
Riaz Haq said…
#India's August exports shrink for ninth straight month, fall 20.7%. #Modi #BJP http://toi.in/SejmIb

NEW DELHI: Contracting for the ninth month in a row, India's exports plunged by 20.66 per cent in August to US $21.26 billion, widening the trade deficit.

READ ALSO: Devaluation of yuan will affect India's textile exports

The significant slump in country's exports is attributed to global slowdown and declining commodity prices worldwide.

In August 2014, the merchandise exports had amounted to US $26.8 billion. The last time exports registered a positive growth was in November 2014, when shipments had expanded at a rate of 7.27 per cent.

Imports too declined by 9.95 per cent to US $33.74 billion in August this year due to high gold imports, leaving the trade deficit at US $12.47 billion, according to the data released by the Commerce Ministry.

However, the trade deficit has narrowed in August as compared with July this year, when the figure stood at US $12.81 billion.

In August last year, the deficit was US $10.66 billion.

Gold imports rose by 140 per cent to US $4.95 billion in the month under review from US $2.06 billion in August last year.

The main exporting sectors which reported decline in exports include petroleum products (fall of 47.88 per cent), engineering (29 per cent), leather and leather goods (12.78 per cent), marine products (20.83 per cent) and carpet (22 per cent).

Exporters expressed concerns over the continuous decline.
Riaz Haq said…
India leaving China behind? Not so fast

The ‘bright spot’ of emerging markets promises much but has yet to deliver

The truth may finally be wearing off the old saying that India only ever compares itself with itself. As the Indian economy has proved to be one of the least dim spots in a gloomy emerging market landscape, boasts are multiplying that it is overtaking China as the engine of world expansion. Jayant Sinha, India’s junior finance minister, recently laid down the bold prediction that “in coming days, India will leave China behind as far as growth and development matter”.
Not, as it were, so fast. While India’s short-term macroeconomic performance has put it at a better place in the cycle than most big emerging markets, the longer-term structural problems that have kept it in a lower growth class than China unfortunately persist, as do the political elephant traps awaiting intrepid reformers.

On the face of it, the Indian economy is performing well, and the popularity of Narendra Modi, the prime minister elected on the promise of liberalising reform last year, is holding up. Christine Lagarde, IMF managing director, has referred to India as a “bright spot” in the slowing global economy. Growth equalled China’s last year at 7.3 per cent, and the IMF predicts India will be the fastest-growing large economy in the world this year.
The reality is less encouraging. For one, the statistics may quite simply be wrong. A new data series for GDP introduced in February did much of the work in raising India’s growth rate near China’s, and the numbers, with a short history and without detailed data to underpin them, sit at odds with other indicators such as industrial production and imports.
Second, the current conjuncture has been delivered by a number of one-off factors. The falling global oil price since late 2014 has benefited India both in holding down inflation and in helping Mr Modi reform public finances by cutting expensive government fuel subsidies without raising the price to consumers.
Third, substantial impediments remain to the challenge of increasing investment, particularly in infrastructure, to unlock India’s potential for competing with east Asian countries for the manufacturing industry currently being priced out of China by rising wages and costs. Growth in manufacturing came to a halt between 2012 and 2014 after several years of expansion, casting severe doubts on its underlying momentum.

Mr Modi’s government insists it will push on with reform but, given the snarl-ups in parliament over the summer, his political space is shrinking. An important test of his government’s political momentum comes next month in the state elections in Bihar. The eastern state has long been one of India’s poorest and, while it has been growing rapidly, it has struggled to expand its manufacturing sector. If Mr Modi’s message of clearing away the impediments to investment does not resonate, it does not bode well for his chances of maintaining momentum into next year.
For the moment, it seems that India will be happy being regarded as a standout in the otherwise disappointing emerging market class. If its cyclical advantage fades and it returns to its familiar sub-China levels of growth, its politicians are unlikely to be so vainglorious.

Riaz Haq said…
#India is becoming mirror image of #Pakistan, says Irfan Habib. Histotians protest #Modi rule http://toi.in/gdNgna via #@timesofindia

A day after more than 50 historians from across India, including eminent names like Romila Thapar, BD Chattopadhyaya, Upinder Singh, MGS Narayanan and DN Jha, issued a statement expressing concern about the "highly vitiated atmosphere prevailing in the country, characterized by various forms of intolerance", eminent historian Irfan Habib, who was one of the signatories to the statement, told Uday Singh Rana he was concerned that religious and caste minorities are being persecuted and India is turning into a mirror image of Pakistan under RSS rule.

Here are the edited excerpts of the interview:

The historians in their joint statement had said this government wants a "legislated history". What motive does the government has to distort history?

This is a government that is controlled by the Rashtriya Swayamsevak Sangh (RSS). It is no secret that MS Golwalkar, the ideological fountainhead of the RSS, was an admirer of Adolf Hitler and the Nazi Party. This government is now trying to realize Golwalkar's dream. Just like in Nazi Germany, they are using propaganda to spread paranoia. I fear that history is repeating itself. They have created a very strong Hindu-communal ideal. The RSS is just communal, not patriotic. The country needed their patriotism before 1947, during the national movement. They were absent then.

What are the means they are adopting to distort history? Are they too subtle for the common people to understand?

No. I think it is fairly obvious to everyone now. I think it is very disturbing when the prime minister of the country says something as unscientific as asserting that Lord Ganesha got plastic surgery done. For all his faults, Atal Bihari Vajpayee never said anything this ridiculous. Narendra Modi is much worse. They have been demanding to get the name of Aurangzeb Road changed for a long time and they finally managed to get it done. Curiously, they have never targeted other kings such as Man Singh, who should be regard as a traitor by them since he fought against Maharana Pratap. The reason they try to demonize Aurangzeb is that he was a Muslim king. They want to prove that historically, Muslims are foreigners.

But intellectuals and creative personalities have been accused of selective outrage. It is not that communal violence and tension did not exist before Narendra Modi became the prime minister.

It is true that violence and tension existed previously. However, we have to keep in mind the fact that the RSS in some way or the other has been connected to these riots in every major report of such instances. The intelligentsia is now perturbed because those people are in power. We never had this kind of support for these elements from the establishment. The Union culture minister goes to a village where a man was killed over rumours and claims that some people are innocent. Is it anybody's place, especially a minister's, to say something like this? Even though they are not in power in Uttar Pradesh, they have a direct role in inciting instances here. Religious and caste minorities are being persecuted. Under RSS rule, India is turning into a mirror image of Pakistan.

Finance minister Arun Jaitely recently held that the intelligentsia's protest was a 'manufactured rebellion'. What do you think?

I have followed Arun Jaitely's statements since he was a BJP spokesperson during the 2002 Gujarat riots. Even then, his statements were irresponsible.

But do you support writers and filmmakers who have returned their Sahitya Akademi and National Awards?

I think the decision to return or not return a state honour has to be a personal one. But I think everybody has the right to choose the means by which they protest. There is nothing unjustified about this means of protest.
Riaz Haq said…
#India's #poverty is understated and its #GDP is exaggerated, says #Nobel Prize winner Angus Deaton. #BJP #Modi http://www.ibtimes.co.in/indias-poverty-understated-says-nobel-prize-winner-angus-deaton-652120 …

Deaton, however, believes that the poverty rates could be even higher. There is surely some omission in the surveys, which would mean that poverty is understated", Deaton told Hindustan Times in an interview.
He also said that the economic growth in India is not as high as the government presents it to be. India is said to be world's fastest-growing economy at 7 per cent growth rate.
"Everyone's data can be improved. I think it is widely recognized that the national accounts in India are relatively weak. So what I am most worried about is that growth is not as high as the accounts show. Revisions that increase growth are more readily accepted than revisions that reduce growth. So I am more worried about growth being overstated than poverty being understated," he added.
According to Deaton, the Indian government needs to invest more in nutrition, health and education of the young generation of the nation if it wants to overcome the growing poverty rate.
"Yes, though there are organizational and capacity problems that need to be overcome. In places where services don't work, for example, because of absenteeism, putting in more money is unlikely to help. But if other states can emulate the better services in the south, with more people demanding health and education, then we can make progress, and to do that, we will eventually need more money," he said.
Deaton, the Princeton University Professor, has done a thorough analysis of consumption and poverty in India. He contributed majorly to estimating India's poverty rate in 1990s with his work on India's malnutrition.
Riaz Haq said…
High joblessness in #Modi's #India forces 75,000 high-school & college grads to beg on the streets http://toi.in/ABTHqa via @timesofindia

"I may be poor but I am an honest man. I beg as it fetches me more money, Rs 200 a day. My last job of a ward boy in a hospital got me only Rs 100 a day," said Dinesh Khodhabhai (45), a class 12 pass who can speak half-way decent English.
Dinesh is part of a motley group of 30 beggars who seek alms around Bhadra Kali temple in Ahmedabad. Before their work begins, they sip hot tea offered gratis by a city philanthropist.
Sudhir Babulal (51) is a third-year BCom fail beggar who earns Rs 150 per day. Sudhir had come to Ahmedabad from Vijapur town with dreams of a good life but masonry jobs were erratic, fetching him Rs 3,000 for a 10-hour shift and nothing for weeks on end. "After my wife left me, where was the need to keep a house? I sleep on the riverfront and beg," said Sudhir.
Dashrath Parmar (52), who has an MCom degree from Gujarat University, is another pan-handler. This father of three, who aspired for government service but lost even the private job he had, today lives off free meals offered by charity organizations. His mother is hospitalized.
Ashok Jaisur, who cleared high school from Mumbai, begs in Lal Darwaza area. He left his job as a security guard after he lost sight due to cataract and now begs.

"I have only one wish: to make my son Raj an animator," says Ashok who feeds his nine girls and wife from income earned off the streets.
"It's difficult to rehabilitate beggars as they get lured back due to easy money," says Biren Joshi of Manav Sadhana, an NGO working with beggars.
"People with degrees turning to begging reflects the grim employment scenario. People turn to soliciting alms when they do not get decent jobs and have no social support to fall back on," says sociologist Gaurang Jani.
Riaz Haq said…
Reserve Bank of #India Governor Raghuram Rajan sceptical about GDP calculation. #Modi #BJP https://shar.es/1hE5dZ via @sharethis

Reserve Bank Governor Raghuram Rajan on Thursday raised a question mark over the way gross domestic product (GDP) is calculated in the country stating that “we get growth because people (are) moving into different areas”.
Value addition to the GDP is important when people move into newer areas of work rather than just a rise in the growth numbers, Rajan said while asserting the need to be careful in counting GDP numbers. Industry experts and economists had in the past expressed skepticism over the calculation of GDP numbers according to the new methodology.
“So, in that sense we have to be a little careful about how we count GDP because some time we get growth because people (are) moving into different areas. It is important that when they move into different areas they are actually doing something which is more value added,” Rajan said.
Speaking at the 13th convocation ceremony of the Indira Gandhi Institute of Development Research in Mumbai, the RBI Governor gave an example of two neighbouring mothers who babysit each other’s child and get paid an equal salary. He said both the mothers getting paid a salary will be an addition to the GDP but may not be an exact reflection of an economic growth.
“If mother A went to look after the children of mother B and mother B went to look after the children of mother A, and they each paid each other an equal amount, GDP would go up by the sum of the two salaries. But would the economy be better off? Presumably, kids want their own mother rather than the neighbouring mother. And the economy would be worse off,” Rajan observed.
According to the government’s mid-year economic review, the economy is now expected to grow at 7-7.5 per cent in the fiscal year ending March 2016, down from an estimate of 8.1-8.5 per cent announced in the Budget in February. In January 2015, the government led by Prime Minister Narendra Modi changed the base year for computing national accounts which pushed up the economic growth rate for 2013-14 to 6.9 per cent, while earlier estimate on the basis of old series was 4.7 per cent. These changes follow a revision in the base for calculating national accounts to 2011-12 from 2004-05.
Pranab Bardhan, a professor at the University of California, Berkeley, who was the guest of honour at the event raised the point on the possibility of restructuring the current system of capital subsidies to wage subsidies through which the business sector could be actively involved in worker training programmes as well as identifying good workers. Supporting the issue, Rajan stated there is a need for incentivising employment rather than providing subisidies on capital. “Apart from direct tax benefits for investment, we also give subvention on loans in many situations which subsidises capital. We may not do similar things for labour. Clearly, trying to incentivise the employment which will add skills to labour is extremely important,” Rajan added.
- See more at: http://indianexpress.com/article/india/india-news-india/raghuram-rajan-sceptical-about-gdp-calculation/#sthash.3qa2gvO4.dpuf
Riaz Haq said…
It is time we ( #India )stop thumping our chests for being "fastest-growing economy" #Modi #BJP via @firstpost http://www.firstpost.com/business/isnt-it-time-we-stopped-thumping-our-chests-for-being-fastest-growing-economy-we-are-not-2603172.html …

You can trust Raghuram Rajan, the Reserve Bank Governor, to prick any balloon of excess optimism when required. Even as the idea of India being the fastest-growing major economy in the world gets bandied about carelessly, especially by politicians who would like to claim credit for it, Rajan had this to say yesterday (28 January): "There are problems with the way we count GDP, which is why we need to be careful sometimes just talking about growth."
Nor does talk of India overtaking China on growth make much sense. At five times India's GDP, our 7 percent economic growth equals under 1.5 percent China's growth in terms of its impact on global growth. China may be reeling under excessive debt and is painfully readjusting its economic engine towards domestic consumption, but India's problems are hardly any less stark. We have a corporate sector staggering under loads of debt, and banks that would be heading towards bankruptcy if they were not government-owned.
The problem with us is that we tend to celebrate success a bit too soon; even if politicians feel the need to claim success even if it was largely due to luck, there is no need for the media to keep claiming that we are the fastest growing economy. India reforms only when it is on the brink of economic disaster - as was the case in 1991 - and trying to pretend that all is hunky-dory is the last thing we need. We continue to be in deep trouble, and even though there is slow improvement in the growth cycle, we are far from being home and dry. And the seven percent growth we have taken for granted for now can be yanked from under us if there is a meltdown in China or another 2008.
India's misfortune is that we shifted to a new way of measuring GDP - gross value added - just when the government changed. So we have new data from the ministry of corporate affairs' five lakh company database whose validity we have no clue about adding to the confusion, as Rajan pointed out. This has given the NDA government unnecessary bragging rights.
Caculated on the more accepted old GDP methodology, we are probably more at six percent growth than seven percent.
The latest bank results - from ICICI Bank and Axis Bank - show that the rotten loan portfolio has now begun to infect even private sector banks. ICICI Bank reported a near one percent rise in gross non-performing assets in the December quarter, which sends a worrying signal. The bad loans scenario is clearly a bigger problem than we thought earlier.
This means the Modi government has much more work to do before it can claim some degree of success in turning around the economy. The UPA has handed it a poisoned chalice which it has been drinking heartily from, assuming it was amrut. Not quite.
Consider the mess it has inherited in so many sectors, and why cheap oil alone will not help.
First, cheap commodity prices help the government bring down inflation and the subsidy bill, but it also depresses the profits of oil and coal companies, and has roiled the steel sector.
Second, the mess in corporate and bank balance-sheets ensures that there is no stock market nirvana. Loads of public sector equity can't be sold as petroleum and banking stocks are a huge part of the indices and prices are deadbeat.
Third, big bills are coming up on one-rank-one-pension and the Seventh Pay Commission. The only way to pay these bills is to let the fiscal deficit go where it will in 2016-17 and rein it in from the year after.
One hopes the finance minister bited the bullet fully in his next budget.
Fourth, the UPA left the infrastructure and real estate sectors - two of the biggest potential job creators - grinding to a halt. Reviving both will be a herculean task.
Riaz Haq said…
#India revises recent past GDP growth estimates downwards. Not growing faster than #China

http://www.nasdaq.com/article/india-cuts-recent-economic-growth-estimates-20160129-00351 …

India's government said Friday that economic expansion in the past few years was slightly slower than previously estimated, in the first revision to controversial new statistics that show India zooming ahead of China in 2015 to become the world's fastest-growing major economy.

Year-over-year growth in India's output was 7.2% for the 12 months that ended March 31, 2015, the Statistics Ministry said, down from the previous calculation of 7.3%. For the year prior, the growth estimate was cut to 6.6% from 6.9%. Expansion in the year before that was bumped up to 5.6% from an initial reading of 5.1%.

The scheduled updates were the first tweaks to India's data on annual gross domestic product since the country's statisticians a year ago revamped their methods and data sources for estimating GDP, a broad measure of an economy's total output.

Friday's modest revisions, based on additional data that have come in since last year, are likely to reassure analysts and India watchers that the new figures are trustworthy.

They also lend credence to the perhaps more-startling conclusion yielded by the revised calculations: that at 7% or more in the first three quarters of 2015, India's growth is besting China's as the latter country's construction and investment boom cools.

Questions about India's new statistics are likely to persist, however.

"Understanding the real economy and the pace and strength of economic recovery is unusually difficult this year," the Finance Ministry wrote in a December paper.

Last year's GDP revision was long in the works, part of a regular process of updating the reference year for marking economic trends. Indian statisticians tapped fresh data on mom-and-pop stores, mutual funds and livestock. They also adopted techniques that bring the GDP computation more in line with United Nations guidelines.

Few economists believe India's statistics suffer from political meddling, as is widely thought to be the case in China. But even Indian officials have been flummoxed by the disparity between the fast clip of GDP growth and other signs that the economy has for years been plodding ahead at best.

In 2012, the government's budget deficit swelled, sapping private investment. Inflation shot up. Corruption scandals hurt the credibility of the administration of the day, led by the Congress party.

India was also battered by global forces. In 2013, after the U.S.Federal Reserve hinted that it might soon taper its bond-buying program, capital that had been funding higher-yielding investments in emerging markets suddenly took flight. The rupee plunged, impelling the central bank to keep interest rates high.

By the old GDP numbers, 2013 and 2014 were the first two fiscal years to see consecutive growth of below 5% since the 1980s.

Now, by Friday's updated data, growth in those years was 5.6% and 6.6%, respectively. If output was expanding so quickly even in that period of tumult, some economists hypothesize, then at full steam India's annual growth could be in the double digits.

That will be hard to confirm without more years of revised GDP estimates. The statistics office says it is still working to produce refreshed figures from as far back as 2005. Output data for the final quarter of 2015, and the first advance estimate of growth in the 12 months that end on March 31, are due to be released on Feb. 8.

"More than the revision, what we're keen on is what's happening with the past series," said Anurag Jha, a Citigroup Inc. economist in Mumbai. Right now, he said, "we are working with all these uncertainties."
Riaz Haq said…
Rs 1.14 lakh crore of bad debts in #India: The great government bank write-off by #Modi #BJP https://shar.es/14sA3U via @sharethis

Twenty-nine state-owned banks wrote off a total of Rs 1.14 lakh crore of bad debts between financial years 2013 and 2015, much more than they had done in the preceding nine years.
In response to an RTI application filed by The Indian Express, the RBI disclosed that while bad debts stood at Rs 15,551 crore for the financial year ending March 2012, they had shot up by over three times to Rs 52,542 crore by the end of March 2015.
Asked about the details of the biggest defaulters, whether individuals or business entities, whose bad debts to the tune of Rs 100 crore or more had been written off, the RBI said: “The required information is not available with us.” Banks are required to report the bad debts on a consolidated basis, it said.

Even as the government has been trying to shore up public sector banks through equity capital and other measures, bad loans written off by them between 2004 and 2015 amount to more than Rs 2.11 lakh crore. More than half such loans (Rs 1,14,182 crore) have been waived off between 2013 and 2015. Only two banks, State Bank of Saurashtra and State Bank of Indore, have shown zero bad debts in the past five years. In other words, while bad loans of public-sector banks grew at a rate of 4 per cent between 2004 and 2012, in financial years 2013 to 2015, they rose at almost 60 per cent. The bad debts written off in financial year ending March 2015 make up 85 per cent of such loans since 2013. -

The RTI reply also disclosed that bad debts have declined only four times since 2004. The last time was in 2011. An analysis of the information available with the RBI till 2012-13 also shows that between 2009 and 2013, both the advances by public sector banks to individuals and business entities as well as their amount of bad debts written off doubled. From 0.33 per cent of total advances in 2009, bad debts rose to 0.61 per cent in 2013. Bank-wise break-up shows State Bank of India, India’s largest bank, is way ahead of others in declaring loans as unrecoverable, with its bad debts shooting up almost four times since 2013 — from Rs 5,594 crore in 2013 to Rs 21,313 crore in 2015. In fact, SBI’s bad debts made up 40 per cent of the total amount written off by all other banks in 2015 and were more than what 20 other banks wrote off. In 2014 too, the bank’s bad debts alone comprised 38 per cent of the total of all banks. The figure of bad loans for 2014 and ‘15 combined, Rs 34,490 crore, was Rs 10,000 crore more than that for between 2004 and 2013, Rs 23,992 crore. The country’s second-largest public sector bank, Punjab National Bank, has also witnessed a consistent rise in bad debts since 2013. These grew by 95 per cent between 2013 and 2014 but climbed by 238 per cent between 2014 and 2015 — from Rs 1,947 crore in 2014 to Rs 6,587 crore in 2015. Reserve Bank Governor Raghuram Rajan has repeatedly expressed concern over the health of public-sector banks, and pushed for steps to ensure that banks classify certain stressed assets as non-performing assets (NPAs) and make adequate provisions to “strengthen their balance sheets”, besides working out schemes of merger. With public sector banks sitting on over Rs 7 lakh crore stressed assets, including NPAs and restructured loans, Rajan recently said the estimates of NPAs being 17-18 per cent are bit on the high side and that entities should be careful not to treat NPAs as total write-offs but see if they can change promoters and repay as the economy recovers. He also said that some banks would have to merge to optimise their use of resources. Gross NPAs of public-sector banks rose to 6.03 per cent as of June 2015, from 5.20 per cent in March 2015. RBI has asked banks to review certain loan accounts and their classification over the two quarters ending December 31, 2015, and March 31, 2016.
Riaz Haq said…
Huge fire engulfs #Mumbai 'Make in #India' stage as politicians, #Bollywood elite flee the show. #MakeInIndia @CNN http://cnn.it/20V122n
It was a night meant to showcase the best of Indian culture, innovation and talent but a huge blaze that broke out abruptly canceled a Mumbai "Make in India" cultural event.

The fire started during a traditional performance, sending the 25,000 people in attendance at Girgaum Chowpatty beach fleeing, including high profile politicians and Indian cinema stars Amitabh Bachchan and Aamir Khan, according to local media.

The week-long event is the result of a push started by Indian Prime Minister Narendra Modi in September 2014 and part of a wider set of nation-building initiatives and a drive to attract foreign investors.

Video footage shows initially unaware performers dancing on stage even as the fire starts to spread beneath them. Members of the crowd who are evacuating the building wave to them to alert them to the danger.

Fourteen fire engines and 10 water tankers rushed to the venue, according to Devendra Fadnavis, Chief Minister of the Maharahstra state, who was at the event. Despite the dramatic scene, there were no reports of fatalities or injuries.
Riaz Haq said…
#Modi's $222 Billion Make-in-#India Haul Masks Hurdles To Come. #MakeInIndia Inauspicious start with fire http://www.ndtv.com/india-news/pm-modis-222-billion-make-in-india-haul-is-complicated-foreign-media-1278842 … via @ndtv

Prime Minister Narendra Modi's glitzy campaign this week to showcase India as the world's next manufacturing hub met with a few unpleasant realities of life in Mumbai: a fire engulfed one of the event stages and a strike by rickshaw drivers paralyzed traffic in the financial hub.

More worrying is the conflicting data and vague timelines that raise questions about Modi's "Make in India" drive, which on Saturday he called "the biggest brand created in India."

The tally for investment pledges soared on the final day to 15.2 trillion rupees ($222 billion) - more than triple what India has attracted through foreign direct investment since Modi came to office in May 2014.

Whether any of that will materialize remains to be seen. Right now the campaign launched in 2014 is best known for its logo - a lion made of cogs - that has shown up on billboards from Hannover to San Francisco.

"It hasn't really taken off," Radhicka Kapoor, a fellow at the Indian Council for Research on International Economic Relations, said of the campaign. "It'll take a lot more than a flashy new website, a new lion symbol, and catchy phrases to make India a manufacturing powerhouse and create productive jobs for its rapidly rising workforce."

Modi is pushing to lure manufacturers that can create millions of jobs, allowing India to take advantage of a demographic dividend as its population surpasses China in the next decade. While India's 1.3 billion people and high growth rate make it a stand-out among emerging markets, other indicators are grim: Investment remains weak, exports have fallen for 14 straight months, borrowing costs are relatively high and trade deals have stalled.

Modi's efforts to make it easier to operate in Asia's third-biggest economy have yet to show up in key external indicators. In the World Bank's Doing Business index, for instance, India still ranks 130 of 189 economies - well short of Modi's goal to crack the top 50 in two years.

One of the problems of Make in India, Kapoor said, is that it fails to address the outsized influence of states - many governed by Modi's opponents - on regulatory environments. Unions have opposed changes to some of the world's most rigid labor laws, and a fractious parliament has blocked a goods-and-services tax that would create a single market in India for the first time.

"India is a difficult place to govern, and one needs to have patience," said Nilmadhab Mohanty, a former civil servant and honorary senior fellow at the Institute for Studies in Industrial Development in Delhi. "But we don't have much time - other countries are competing for this and investors will go elsewhere."

"Under the pressure of this campaign, the government machinery will be required to make a number of corrections on the policy front," Modi said in the speech on Saturday, speaking to an audience that included his Swedish and Finnish counterparts. "We are committed to make India an easy place to do business."


Added to promises Modi has drummed up from foreign leaders, total investment pledges come to at least $421 billion since he took power - more than what has come in during the past 14 years for which data is available.

There's reason to be skeptical that India will see the money. About 8 percent of nearly 40 trillion rupees proposed at investment summits during Modi's 11-year tenure as Gujarat chief minister was actually implemented, according to data from the state's Directorate of Economics and Statistics.

Modi, for one, knows the pressure is on to deliver.

"There is no time for incremental changes," he said last week. "We want a quantum jump."
Riaz Haq said…
$59 billion in unpaid bank #debt by rich borrowers in #India sparks outcry. Non Performing #Loans jump 450% #Mallya http://fw.to/YY4lCZG

Bad Loans Of State Banks = Defence + Education + Roads + Health Spends. #Mallya just 1 of few thousand defaulters. http://www.indiaspend.com/cover-story/bad-loans-of-state-banks-defence-education-roads-health-spends-64398 …

If the unpaid loans made by India’s public-sector banks were recovered, they would be enough to pay for India’s 2015 spending on defence, education, highways, and health, according to an IndiaSpend analysis.

These bad loans, or gross non-performing assets (NPAs) as they are called in banking parlance, of public-sector banks crossed Rs 4.04 lakh crore ($59 billion), a rise of 450% since March 2011.

Private-sector banks also have an NPA problem, but their bad loans are less than half the level of public-sector banks, which account for 73% of all lending.

The crisis in Indian banking, which IndiaSpend has repeatedly flagged (here, here and here), has now reached a point where the NPAs of many public-sector banks are higher than their net worth.

This affects their ability to make fresh loans to business, and these bad loans are ultimately paid for by India’s taxpayers, the final guarantors of government-owned public-sector banks, as editor and columnist T N Ninan recently wrote in Business Standard.

“So what is to be done?” he wrote of the banking crisis. “The easy option is to take more of your tax money and give it to the same banks, on a platter. The government has talked of giving them another Rs 2.4 lakh crore—which works out to Rs 10,000 from every family, rich and poor.”

“Indeed, 19 of 24 listed government banks’ stocks now quote at less than half of book value, some at a discount of 75 per cent. Clearly, investors still think these banks’ books are akin to fiction.”
Riaz Haq said…
Two years on, Narendra #Modi "hasn't achieved anything yet" as he struggles to realize #India’s dreams. #BJP


Narendra Modi's sweeping victory in the May 2014 Indian general election prompted jubilation among his Hindu supporters in Varanasi, the northern city on the Ganges he had chosen as his parliamentary seat.

The energetic leader of the nationalist Bharatiya Janata party seemed to usher in a radical change from the sclerotic Congress government he had deposed, promising jobs for the young, toilets for the poor and economic reforms for investors and entrepreneurs.

Two years on, and even Mr Modi's supporters in Uttar Pradesh, the country's most populous state, are beginning to wonder if the prime minister will be able to achieve half of what he has pledged — whether the target is a clean-up of the polluted Gangesor the revival of Indian manufacturing.

"Modi's a realist," says one retired banker in Varanasi, "but he hasn't achieved anything yet. People say he needs more time."

Higher up the Ganges in Kanpur, the industrial city once known as the Manchester of India, business leaders say the erratic supply of electricity has improved slightly. But there are few new jobs for the 1m or so young Indians who enter the workforce each month: lack of power, the difficulty of acquiring land, restrictive labour laws and constant interference by bureaucratic and corrupt government inspectors have made sure of that.

P. Chidambaram, a Congress leader and former finance minister, says the government is "on a dangerous path" of promoting polarisation, while the BJP's Arun Shourie, a disenchanted former confidant of Mr Modi, laments the "intimidation and silencing" of the government's critics.

Yet the principal complaint about Mr Modi is not that he is a domineering Hindu puritan but that he has failed to do much for economic development.

"His concept of development is a few large, shining and conspicuous projects," says Mr Shourie, referring to such Modi-led campaigns as "Make in India" and "Digital India". Or, as Mr Chidambaram puts it: "Where are the jobs?"

Business leaders say it is unfair to suggest that nothing has been achieved, although few of them would agree with Jayant Sinha, minister of state for finance and a former McKinsey partner, when he says "we are fundamentally changing the nature of Indian capitalism" to help entrepreneurs.


Mr Modi also faces intense resistance to change from Indian bureaucrats and is undermined by ineffective cabinet ministers he seems unwilling to sack. He sometimes finds his initiatives blocked by state governments — such as that of Uttar Pradesh — controlled by parties other than the BJP. Banks are constrained from new lending by a mountain of bad loans for infrastructure and industry dating back to previous administrations.

Priyankar Upadhyaya, a political scientist at Banaras Hindu University in Varanasi, says Mr Modi "desperately" wants economic development and finds himself stuck in a "trap of expectations" set by hopeful voters.
Riaz Haq said…
The Little Big Number: How GDP Came to Rule the World and What to Do about It Hardcover – May 26, 2015
by Dirk Philipsen (Author)

In one lifetime, GDP, or Gross Domestic Product, has ballooned from a narrow economic tool into a global article of faith. It is our universal yardstick of progress. As The Little Big Number demonstrates, this spells trouble. While economies and cultures measure their performance by it, GDP ignores central facts such as quality, costs, or purpose. It only measures output: more cars, more accidents; more lawyers, more trials; more extraction, more pollution--all count as success. Sustainability and quality of life are overlooked. Losses don't count. GDP promotes a form of stupid growth and ignores real development.

How and why did we get to this point? Dirk Philipsen uncovers a submerged history dating back to the 1600s, climaxing with the Great Depression and World War II, when the first version of GDP arrived at the forefront of politics. Transcending ideologies and national differences, GDP was subsequently transformed from a narrow metric to the purpose of economic activity. Today, increasing GDP is the highest goal of politics. In accessible and compelling prose, Philipsen shows how it affects all of us.

But the world can no longer afford GDP rule. A finite planet cannot sustain blind and indefinite expansion. If we consider future generations equal to our own, replacing the GDP regime is the ethical imperative of our times. More is not better. As Philipsen demonstrates, the history of GDP reveals unique opportunities to fashion smarter goals and measures. The Little Big Number explores a possible roadmap for a future that advances quality of life rather than indiscriminate growth.


The book advocates ditching GDP
completely, and having a national dialogue
about economic goals based on
the principles of sustainability, equity,
democratic accountability, and economic
viability. It isn’t clear how this
prescription fits with the several “dashboard”
initiatives under way now, which
are described here. Named in a nod to
the kind of indicator dashboards many
companies use, these include a number
of indicators meant to capture a broader
sense of social well-being, such as worklife
balance, environmental quality, and
civic engagement. They were recommended
by the influential Stiglitz-SenFitoussi
Commission in its 2009 report.
The dashboard approach is
attractive, as is public consultation.
However, it isn’t yet clear which dashboard
is best or what should go in it.
So the real need now in order to
create a “Beyond GDP” set of social
accounts is for the hard grind of the
kind that the forerunners and creators
of modern national accounts, Simon
Kuznets, Richard Stone, and James
Meade and their many colleagues, sustained
through the 1930s and 1940s in
creating GDP in the first place.
Some nominal aggregate measure
of activity is necessary for fiscal
and monetary policy. The national
accounts statistics as a whole also
contain a lot of the material that could
furnish a meaningful dashboard,
so again it would be a waste of an
intellectual asset to ditch all of that.
However, the answer to the underlying
question, are we going to move
“beyond GDP”? is a resounding “yes.”
Diane Coyle

Riaz Haq said…
True, India's economic growth in the last 25 years has been slower than China's. India's growth rose to almost 11 percent of U.S. gross domestic product in 2014 from about 4 percent in 1990, while China’s vaulted to 60 percent from 9 percent in the same period. But unlike China, India never became an export-driven manufacturing juggernaut and so its growth has been steadier. Last year it was 7.5 percent.

India's Aspirations

India also didn't benefit as much as China when manufacturing shifted from the West to developing countries, and thus the decline in offshoring is hurting India less than China.

India certainly has its problems -- notoriously slow bureaucracies, a lack of good infrastructure, and too much regulation and corruption to name a few -- that need to be addressed before economic growth can explode. Modi has sought reforms for many of these issues, though with limited success so far.

Reliable data measuring India's economy are fuzzy, to say the least. Most businesses are tiny and unregulated; many people are employed off the books. India also uses wholesale, not final, prices to deflate nominal GDP. Due to lower oil prices, the wholesale price index has been falling for 17 straight months while retail prices are still rising at a 5 percent annual rate. So the reported real GDP numbers are overstated.

Still, India has major advantages over China. China's one-child policy, while now relaxed, will result in fewer entrants into the labor force for decades. That could choke growth: Younger people tend to be more geographically mobile and flexible in terms of occupation and ability to learn new skills.

By contrast, India has had few constraints on population growth. The dependency ratio -- the number of children and seniors relative to the working-age population -- will continue to fall in India as it rises in China. As of 2015, India had 1.25 billion people versus China’s 1.37 billion. It won't be long before India's population is bigger.

Say what you want about colonialism, but British control of India for centuries left a vigorous democracy and a parliamentary form of government, which is useful for running a large, diverse country.

The British also left India with a railway system that facilitates the movement of people and goods over a vast geography. By contrast, China is reluctant to grant resident status to farmers who move to urban areas in search of work.

And of course the British gave India the English language -- useful in a world that conducts most business in English and as a unifying force in a country with hundreds of languages and dialects. India also inherited a free press and a legal system from the U.K. As a result, India's rule of law is vastly better than the Communist party-dominated courts of China, complete with show trials and forgone convictions.

Riaz Haq said…
#Indian CSO estimates overstate #GDP, Use Wholesale price deflator, not retail price deflator #Modi #GDP #India #GDP


Gap in methodology arose from the use of smaller-than-appropriate weights for CPI

The Central Statistics Office’s GDP figures released on Tuesday overstates the extent of growth, according to analysts. A number of statistical deficiencies plague the data, they said. The main issue is that not all of the growth that the figures show is on account of real growth. Much of it is purely on account of the increase in prices, which ought to have been deflated out adequately. According to HSBC Global Research the gap in the methodology arose from the use of smaller-than-appropriate weights for consumer price inflation in the GDP deflators. It found that correcting the consumer- and wholesale-prices mix in the deflators, giving them equal weights, suggests India’s Gross Value Added (GVA) grew 6.2 per cent in the January-March quarter, slower than the official estimate of 7.4 per cent.

“Price changes that boost nominal earnings are being ascribed to real growth,” JP Morgan Research wrote in a note to clients. “Much of the value-added is because of input prices falling more than output prices (i.e., nominal margins being boosted), which needs to be deflated out.” The faulty approach can be seen in the manner manufacturing value-added was deflated.

Input prices
Input prices are falling more than output prices, boosting the nominal margins, and inflating much of the value-added in the manufacturing sector. In the absence of adequate deflation, manufacturing growth was exaggerated, wrote HSBC Global Research.

CSO data put real manufacturing growth at 9.3 per cent in the January-March period. This was at odds with the IIP data for the same quarter, which showed a mere increase of 0.2 per cent, JP Morgan wrote. Similarly, inadequate deflation also affected the way tax changes were incorporated into the GDP data. It led to overestimation of taxes, which drove the GDP well above the GVA. GDP is calculated as a sum of GVA and indirect taxes from which the value of product subsidies is deducted. The difference in the GDP and GVA growth estimates is striking; it widened to 0.4 per cent from 0.1 per cent in the previous financial year. Separately, data show that contraction in exports is slowing, according to HSBC.
Riaz Haq said…
#India's #RBI chief Raghuram Rajan to leave, punished for questioning #Modi's fudged GDP figures http://scroll.in/article/810200/raghuram-rajans-letter-makes-it-clear-leaving-the-rbi-wasnt-his-decision … via @scroll_in

Raghuram Rajan will not be the governor of the Reserve Bank of India after September. That's not idle speculation inspired by Bharatiya Janata Party leader Subramanian Swamy's campaign calling for him to leave. It has been announced by Rajan himself in a letter to his colleagues at the central bank which the RBI published on Saturday. The internationally renowned economist wrote that he will be returning to academia after the end of his tenure as governor on September 4.

This ends months of speculation over whether Rajan, a United Progressive Alliance appointee, would see his tenure extended after his three-year term ends. Swamy was at the head of a public, often nasty campaign calling for Rajan to be sacked because he is not "mentally fully Indian." Swamy claimed that there were many others in the BJP who agreed with him.

The campaign prompted plenty of pushback from others, particularly economists who have lauded Rajan for his efforts in helping stabilise the Indian economy over the past few years. Many also suggested that not extending Rajan's tenure would have a detrimental effect on India's image with the business community abroad. The Economic Times' Swaminathan Aiyar even said that Rajan leaving would see billions of dollars in investment also follow him out of the country.

There were murmurs also that many in the establishment did not want Rajan to continue, in part because of his insistence on hawkish monetary policy that focused more on controlling inflation than cutting interest rates to make credit cheaper for industry.

The other reason why the government wanted him to go: Rajan's celebrity status, at home and abroad, meant he was one of the few people who could publicly criticise the government's policy. Most prominently, just as the government was touting India's status as the fastest growing major economy in the world, Rajan brought up the old phrase, "in the land of the blind, the one-eyed man is king."

Swamy's campaign might have embarrassed the government, prompting the Prime Minister to say that the media shouldn't discuss these things and Finance Minister Arun Jaitley to criticise the personal attacks. But it hasn't stopped the government from asking him to leave.

Rajan says as much in his letter to his colleagues at the central bank.

As he wrote, Rajan was "open" to seeing the developments through, but the government was not on the same page. Discussions between the finance ministry and Rajan before the last monetary policy statement, where the central banker chose not to cut rates, did not go well.

As a result, come September, Rajan will be back at the University of Chicago and India will have a new RBI governor. Significantly, however, Rajan's final monetary policy statement is also likely to be the last one put out solely by an RBI governor: His tenure saw the signing of monetary policy agreements between the central bank and the government agreeing to inflation targeting as the primary aim of the RBI, as well as the setting up of a monetary policy committee – including government appointees with no RBI veto – that will set the interest rate.

Whatever the view of his tenure as central banker, and there will be many over the coming days including the Sensex's verdict on Monday morning (which is probably why the decision was announced on the weekend), he will have left the RBI in a very different place than where the institution was before him.
Riaz Haq said…

"#India's Growing At 5-6%, Less Than #Modi Government Claims" "#Pakistan's prospects bright" Morgan Stanley's Sharma

http://www.huffingtonpost.in/prabha-chandran/exclusive-india-will-rise_b_10750458.html … via @HuffPostIndia

Sharma says: "I think India is growing at a pace between 5 and 6%, or about two points lower than the government claims. That is a huge difference -- but these days a pace better than 5% is actually quite good, even for a relatively lower income country. At a time when slower population growth, high debts, falling growth in global trade and capital flows, and other forces are slowing the global economy, every class of nations needs to lower its expectations. It may be a long time before we see another emerging nation post growth in excess of 7-8% in this new era. The risk for India is that the state will try to push growth faster than is possible or practical, in this slow growth era"

"Sri Lanka, Pakistan and Bangladesh all have bright prospects going forward, with credit growth under control, strong working-age population growth, inflation in check..."
Riaz Haq said…
What #India Has Done To Its Money Is Sickening And #Immoral. #Modi #Demonetization via @forbes


Not since India's short-lived forced-sterilization program in the 1970s--this bout of Nazi-like eugenics was instituted to deal with the country's "overpopulation"--has the government engaged in something so immoral. It claims the move will fight corruption and tax evasion by allegedly flushing out illegal cash, crippling criminal enterprises and terrorists and force-marching India into a digitized credit system.

India is the most extreme and destructive example of the anticash fad currently sweeping governments and the economics profession. Countries are moving to ban high-denomination bills, citing the rationales trotted out by New Delhi. But there's no misunderstanding what this is truly about: attacking your privacy and inflicting more government control over your life.

India's awful act underscores another piece of immorality. Money represents what people produce in the real world. It is a claim on products and services, just as a coat-check ticket is a claim for a coat left at the coat check in a restaurant or a ticket is for a seat at an event. Governments don't create resources, people do. What India has done is commit a massive theft of people's property without even the pretense of due process--a shocking move for a democratically elected government. (One expects such things in places like Venezuela.) Not surprisingly, the government is downplaying the fact that this move will give India a onetime windfall of perhaps tens of billions of dollars.

By stealing property, further impoverishing the least fortunate among its population and undermining social trust, thereby poisoning politics and hurting future investment, India has immorally and unnecessarily harmed its people, while setting a dreadful example for the rest of the world.

What India must do to fulfill its desire to become a global powerhouse is clear: slash income and business tax rates and simplify the whole tax structure; make the rupee as powerful as the Swiss franc; hack away at regulations, so that setting up a business can be done with no cost and in only a few minutes; and take a supersize buzz saw to all the rules that make each infrastructure project a 100-year undertaking.
Riaz Haq said…
#India’s bizarre war on cash. #Modi #Demonitization http://www.wsj.com/articles/indias-bizarre-war-on-cash-1482452964 … via @WSJ

Indian Finance Minister Arun Jaitley says “India has to move towards the cashless society.” Cashless society? India? Last month’s demonetization continues to wreak economic havoc, and now defenders say it will pay off long-term by promoting digital-payment systems that increase efficiency and transparency. But why should Indians believe that officials exercising arbitrary power over their cash will keep their hands off a system that monitors every transaction?

In a cashless society the state has far greater means to harm the public, both through inept policies and abuses of power. Recent weeks have been bad enough, starting with the shock announcement that 85% of Indian currency in circulation was no longer legal tender and would have to be exchanged at banks for new bills not yet printed. As citizens idle in long bank lines and businesses fold without liquidity, officials are issuing contradictory directives about the new cash regime. Now these same officials want a digital record of every exchange.

India already has a too-powerful bureaucracy that imposes punishing licensing, labor, tax and other regulations, stifling entrepreneurship and innovation. This is a major reason an estimated 95% of all transactions use cash and some 45% of the economy is “informal” or off the books. When it’s prohibitively expensive to comply with every regulation, businesses that are otherwise legitimate stay underground. Without sweeping deregulation, going digital and cashless would strengthen bureaucrats to be even more intrusive and burdensome.

There’s also the loss of financial privacy. As journalist Amit Varma writes in the Times of India, “If you buy AIDS medication or a porn magazine or book a hotel room for a romantic alliance, this information can be accessed by the government—or any hacker with the requisite skills—and used against you.” It would also hurt people in regular interactions. “Cash is empowerment: Ask the young wife who saves spare cash from her alcoholic husband,” Mr. Varma notes, “or the old mother who stuffs spare notes under her mattress for years because it gives her a sense of autonomy.”

In Germany, where memories of communism and Nazism help citizens prize anonymity, some 80% of transactions are in cash. The U.S. figure is 32%. In Japan and Switzerland savers hoard cash to avoid punitive negative interest rates on deposits. This is an entirely reasonable response to runaway monetary policy, but it annoys Keynesians like Harvard’s Kenneth Rogoff and Citigroup’s Willem Buiter, who want cash limited so central banks can squeeze savers with impunity.

Sweden may be the best model for cashlessness, as only 2% of transactions use cash. But Sweden has low corruption in government, reliable legal protections, high social trust and advanced financial and technological infrastructure. India has none of that, but it does have government officials with radical plans to reshape a society in which half of the population (some 600 million) doesn’t even have a bank account.

Indians would benefit from access to digital finance, which can cut transaction costs, make credit more affordable and channel state aid directly to citizens, bypassing sticky-fingered bureaucrats. The government can help by liberalizing financial regulation and improving telecommunications infrastructure. But it should also respect citizens who want to keep at least some cash. Imposing a “cashless society” is antithetical to economic liberty.
Riaz Haq said…
How #India lobbied #Moody's aggressively for ratings upgrade but failed. #Modi #BJP http://toi.in/Sth5fY82 via @TOIBusiness

India criticised Moody's ratings methods and pushed aggressively for an upgrade, documents reviewed by Reuters show, but the US-based agency declined to budge citing concerns over the country's debt levels and fragile banks.
Winning a better credit rating on India's sovereign debt would have been a much-needed endorsement of Prime Minister Narendra Modi's economic stewardship, helping to attract foreign investment and accelerate growth.
Since storming to power in 2014, Modi has unveiled measures to boost investment, cool inflation and narrow the fiscal and current account deficits, but his policies have not been rewarded with a ratings upgrade from any of the "big three" global ratings agencies, who say more is needed.
Previously unpublished correspondence between India's finance ministry and Moody's shows New Delhi failed to assuage the ratings agency's concerns about the cost of its debt burden and a banking sector weighed down by $136 billion in bad loans.
In letters and emails written in October, the finance ministry questioned Moody's methodology, saying it was not accounting for a steady decline in the India's debt burden in recent years. It said the agency ignored countries' levels of development when assessing their fiscal strength.

Rejecting those arguments, Moody's said India's debt situation was not as rosy as the government maintained and its banks were a cause for concern, the correspondence seen by Reuters showed.
Moody's and one of its lead sovereign analysts, Marie Diron, declined to comment on the correspondence, saying ratings deliberations were confidential. India's finance ministry did not respond to requests for comment.
Arvind Mayaram, a former chief finance ministry official, called the government's approach "completely unusual".
"There was no way pressure could be put on rating agencies," Mayaram told Reuters. "It's not done."
Debt burden, bad loans
India has been the world's fastest growing major economy over the past two years, but that rapid expansion has done little to broaden the government's revenue base.
At nearly 21 percent of gross domestic product (GDP), India's revenues are lower than the 27.1 percent median for Baa-rated countries. India is rated at Baa3 by Moody's, the agency's lowest notch for debt considered investment grade.
A higher rating would signify to bond investors that India was more creditworthy and help to lower its borrowing costs.

While India's debt-to-GDP ratio has dropped to 66.7 percent from 79.5 percent in 2004-05, interest payments absorb more than a fifth of government revenues.
Moody's representatives, including Diron, visited North Block, the colonial sandstone building in the Indian capital that houses the finance ministry, on September 21 for a discussion on a ratings review.
The atmosphere at the meeting with economic affairs secretary Shaktikanta Das, one of the ministry's most senior officials, and his team was tense, according to an Indian official present, after Diron had told local media the previous day that a ratings upgrade for India was some years away.
On September 30, Moody's explained its methodology to Indian officials in a teleconference.
Riaz Haq said…
How #India lobbied #Moody's aggressively for ratings upgrade but failed. #Modi #BJP http://toi.in/Sth5fY82 via @TOIBusiness

Four days later, the finance ministry sent an email to Diron questioning Moody's metrics on fiscal strength. The government cited the examples of Japan and Portugal, which enjoy better ratings despite debts around twice the size of their economies.
"Given that countries are on different stages of economic and social development, should countries be benchmarked against a median or mean number (as is done by Moody's)" the email asked.
In India's case, "while the debt burden lowered significantly post 2004, this did not get reflected in the ratings", the ministry argued.
New Delhi urged Diron to look at improvements in the factors - better forex reserves and economic growth - that Moody's had considered when handing India its last ratings upgrade in 2004.
In a reply the next day, Diron said that, not only was India's debt burden high relative to other countries with the same credit rating, but its debt affordability was also low.
She added that a resolution to the banking sector's bad loan problems was "unlikely" in the near-term.
In a last-ditch effort on Oct. 27, Economic Affairs Secretary Das sent a six-page letter to Singapore-based Diron, addressed to Moody's New York headquarters.
Reiterating points on India's fiscal strength, Das asked Moody's for a "better appreciation of the factual position".
Das dismissed Moody's concerns on India's public finances as "unwarranted" and told the agency that there was "scope for further lowering" the political risk perception to "very low".

"In the light of stable external debt parameters and the slew of reforms introduced in the realm of foreign direct investment, you may like to reconsider your assessment on 'external vulnerability risk'," he wrote.
Moody's on November 16 affirmed its Baa3 issuer rating for India, while maintaining a positive outlook, saying the government's efforts had not yet achieved conditions that would support an upgrade.
Riaz Haq said…
Off balance: #India’s twin balance-sheet problem. Credit slump amid rising non-performing loans. http://www.economist.com/news/finance-and-economics/21717988-fast-growing-economy-india-stuck-alarming-credit-slump-indias-twin … via @TheEconomist

IF INDIA is indeed the world’s fastest-growing big economy, as its government once again claimed this week, no one told its bankers and business leaders. In a nation of 1.3bn steadily growing at around 7% a year, the mood in corner offices ought to be jubilant. Instead, firms are busy cutting back investment as if mired in recession. Bank lending to industry, growth in which once reached 30% a year, is shrinking for the first time in over two decades (see chart). If this is world-beating growth, what might a slowdown look like?

India’s macroeconomy chugs along (though the quality of government statistics remains questionable), but its corporate sector is ailing. The sudden and chaotic “demonetisation” of 86% of bank notes in November hardly helped. But the origins of India’s troubles go much deeper. After India dodged the worst of the financial crisis a decade ago, a flurry of investment was made on over-optimistic assumptions. Banks have been in denial about the ability of some of their near-bankrupt borrowers to repay them. The result is that the balance-sheets of both banks and much of the corporate sector are in parlous states.

After years of burying their heads in the sand, India’s authorities now worry that its “twin balance-sheet” problem will soon imperil the wider economy. Both the Reserve Bank of India (RBI) and the government have nagged banks to deal with their festering bad loans. Around $191bn-worth, or 16.6% of the entire banking system, is now “non-performing”, according to economists at Yes Bank. That number is still swelling.

Given the linkages between them, companies and banks often run into trouble concurrently. But countries where banks’ balance-sheets resemble Swiss cheese usually have no choice but to deal with the issue promptly, lest a panicked public start queuing up at ATMs. India is different. State-owned lenders make up around 70% of the system, and nobody thinks the government will let them go bust. As a result, what for most economies would be an acute crisis is in India a chronic malaise.

That doesn’t make it any less painful. Investment is a key component of GDP, and it is now shrinking, thanks to parsimonious firms. India runs a trade deficit and the government is seeking to cut its budget shortfall, which leaves consumption as the sole engine of economic growth. Indeed, until demonetisation, consumer credit was booming, up by about 20% year on year. Some may wonder whether those are tomorrow’s bad loans, or when consumers will run out of stuff to buy.

Meanwhile, banks’ profits are sagging, even without the impact of fully accounting for dud loans. State-owned lenders collectively are making negative returns. Thirteen of them are described in a recent finance-ministry report as “severely stressed”. Demonetisation did indeed bring in lots of fresh deposits, but the bankers were then browbeaten into slashing the rates at which they lend, further denting their margins.

The dearth of investment is in part due to a lack of animal spirits. Sales outside the oil and metals sector are up by a mere 5% year on year, compared with nearer 25% at the start of the decade. Capacity utilisation, at 72.4%, is low by historical standards: even if money were available, it is not clear many would want to borrow.

Bankers, companies and policymakers once hoped the twin balance-sheet problem would eventually solve itself. Everyone’s incentive has been to look away and hope economic growth cures all ills. It has not: profits are in fact shrinking at the large borrowers, many of them in the infrastructure, mining, power and telecoms sectors. But banks have cut credit across the board, including to small businesses.

Riaz Haq said…
From being world leader in surveys, #India is now facing a serious #data problem: NSS #GDP estimate half of CSO's


The National Sample Survey (NSS), when launched by the NSSO in 1949, was the most ambitious household survey in the world, covering over 1,800 villages and over 100,000 households across India. The methods used by the NSS became the standard for household surveys the world over.

For example, the use of inter-penetrating samples — essentially, two independent samples drawn from the same population — to test the reliability of the survey results, was developed by Mahalanobis in a 1936 paper and remains a standard tool for survey design. The Living Standard Measurement Surveys the World Bank still carries out in many countries are a direct descendent of the NSS.

We quibble about whether growth was 7.1% or 7.4%, ignoring the fact that our two main sources of official consumption data, the NSS and the GDP data produced by the Central Statistical Organisation (CSO), now tell entirely different stories.
If you believe the NSS, GDP could be just about half of what it is according to the CSO. There are occasional academic debates about which one is correct, which no one in power pays any attention to. And yet, it is almost surely true that both estimates (and their growth rates) are off by a huge margin. More worrying, this divergence has been known for nearly 50 years (though it has grown a lot).

And though we are occasionally told that the NSS is understaffed, or that no one knows where the CSO got a particular number, there is absolutely no political interest in improving things. From being the world leader in surveys, we are now one of the countries with a serious data problem while people talk about the really good data you can get in Indonesia or Brazil or even Pakistan.
Riaz Haq said…
Is #India Lying About Its World Beating #Economy? #Modi #BJP http://www.barrons.com/articles/is-india-lying-about-its-world-beating-economy-1488769695 … via @barronsonline

India just announced its October-December GDP figures, supposedly showing it is still the fastest-growing major economy. You should not believe it. Every quarter there are questions about India’s GDP, with this one no exception. But there is a bigger problem: India refuses to publish the full GDP series, so that the world may not be able to trust the Indian government’s claims at all.

Economic growth should be measured by personal or household income. Instead it is measured by GDP, an accounting tool far more relevant for top-down planners than ordinary people. This is hardly India’s fault, but India has done a small bit to make the problem worse.

In January 2015 India revised recent GDP growth figures higher, among other things raising the fiscal year 2013-4 gain from 5% all the way to 6.9%. It is at this point the fastest-growing economy boasts began. Questions about the revision were raised immediately, including by current Indian government officials, because purportedly faster GDP did not fit with many other indicators. (It still does not.)

Since then, however, the new series has become widely used. While the Indian government argues that it better matches global practices, it manifestly fails to do so in an indispensable respect. The back series – the necessary base for calculations of ongoing GDP growth – has not been published more than 2 years later. Technically, we do not know India’s GDP in 2010, or anytime earlier.

The back series was first to be published December 2015, then mid-2016, and now has no apparent due date and will not be complete. The “globally accepted” new approach therefore makes it impossible to assess India’s GDP trajectory, potentially important information for a country aspiring to rapid development.

The best way to proceed in this case was to start from the beginning, applying the new method to a base year as far in the past as possible and generating new data forward from there. The obvious question is how India determined growth when earlier years could not serve as a base? The answer is unfortunately political: the government’s desire to report faster growth trumped accuracy.

It all may sound familiar. India seemingly always has an eye on China. If China pulled a stunt like this, its “world-beating” claims would be roundly ridiculed. India initially had the benefit of the doubt because it is a multi-party democracy with a competitive press. Those are very good reasons, but not good enough. One benefit of an open society is transparency, and the Indian government is being opaque in self-interested fashion.

India had a poor reputation for statistics quality before the GDP revision. It just revised a GDP growth figure from 7.2% all the way down to 6.5% for Q415.There are other, crucial statistics practices, for example concerning rural electrification, that are clearly biased in the government’s favor. In this context, hiding past GDP looks like a continuation of previous behavior.

Most people from pluralist open societies want to see pluralist, open India do well. For now, however, India has the same level of economic credibility as a country like Vietnam (which publishes GDP results even before the year ends). World-beating growth? Maybe. Or maybe poorly founded quasi-propaganda.
Riaz Haq said…
#India's slowing #GDP growth blamed on 'big mistake' of #demonetization. #Modi #BJP


Prime minister Narendra Modi’s policy of stopping issue of higher value banknotes has weakened economy, say experts

India has posted its slowest growth rate in two years, ceding its status as the world’s fastest-growing major economy to China, with economists blaming the downturn partly on last year’s shock decision to recall the country’s two highest-value bank notes.
Analysts said the 6.1% GDP growth figure for the January to March quarter – compared with China’s 6.9% – reflected a general economic slowdown in the south Asian giant, compounded by the shock demonetisation of 500 and 1,000 rupee banknotes, worth approximately £6 and £12.

The move led to months of acute cash shortages across India that hit the country’s manufacturing and construction sectors particularly hard, the former recording slower growth than in the same period last year. The construction sector contracted by 3.7%.

The cash recall was intended to hasten the country’s transition towards a formal economy and close down the booming economy of untaxed cash transactions, which aid corruption, the funding of terrorist groups and keeps counterfeit notes in circulation. It was also expected to unearth stashes of untaxed wealth in a country where just 1% pay income tax.

India’s Reserve Bank is yet to say how much “black money” was deposited in banks but early indications suggest it was less than expected.

Gurchuran Das, an economic commentator, said the lagging growth was well below the rate India required to create enough jobs to match the number of new entrants to the workforce, estimated to be roughly 1 million people a month.

“It shows that demonetisation was a big mistake,” he said. “What this has done is put us back about six months. We should have been inching towards 8% annual growth, but have ended up around 7.1%.

“We’ve really got to be at 9% growth to create the jobs we need,” he said. “Already we were having problems creating those jobs, but demonetisation has exacerbated it by a couple of quarters.”

He said the economy had bounced back after cash shortages eased in January and the country was likely reach 8% growth in the next three to four years, a prediction shared by the global ratings agency Moody’s.

India's banknote ban: how Modi botched the policy yet kept his political capital
Read more
Arvind Subramanian, India’s chief economist, said the reduction in growth was “quite expected” after demonetisation, and that the replenishment of cash stocks and the monsoon period would help the economy rebound.

Growth in India has been slowing since the middle of 2016, according to HSBC, but Das said the country’s economy was generally wellmanaged. “The inflation rate is the lowest it’s been in five years, the fiscal deficit has come down, and India has in fact become the largest destination for foreign investment in the world,” the former CEO of Procter & Gamble India said.

He added that the key to creating high-productivity jobs in the formal sector was expanding India’s share of global exports, currently around 1.7%.

India is preparing to introduce a national goods and services tax in July that is expected to make the country a more attractive destination for foreign investment, cut red tape for business and increase trade between states. But Moody’s has warned the country needs to further reduce debt levels if it hopes to boost its international credit rating, currently just above junk status.

Although the implementation of demonetisation was seen as botched by some, the policy is thought to have been a political coup for the Indian prime minister, Narendra Modi. In March, he decisively won an election in India’s largest state that was seen as a referendum on the scheme.
Riaz Haq said…
#India's #GDP growth rates overstated by govt, Actual growth closer to 5%-5.5%, not 7.1%: Expert http://ecoti.in/Marrlb via @economictimesIndia's national accounts on economic growth wrong: Expert

BY PTI | UPDATED: JUN 03, 2017, 01.51 PM IST

Read more at:

"They (India's national accounts) show India's growing at seven per cent a year. But I along with many other economists, I'm afraid don't believe the national accounts. They were redone in 2011," Vijay R Joshi, Emeritus Fellow of Merton College, Oxford and Reader Emeritus in Economics, University of Oxford, told a Washington audience.

Joshi, the author of a book titled 'India's Long Road--The Search for Prosperity' alleged that India's growth rate is back at 5.5 per cent, but the na ..
Riaz Haq said…
#India’s GDP being questioned. In 2015, the #Modi government changed #GDP calculation with base year changed from 2004-05 to 2011-12, dramatically increasing #India’s GDP growth overnight to 6.9% from 5% reported earlier.


So how fast exactly did the Indian economy grow around a decade ago? India is still confused about this.

On Aug. 17, the Narendra Modi government’s ministry of statistics and programme implementation (MOSPI) released the GDP numbers for the previous years under the new series that have been in use since January 2015.

According to this, the economy grew at 10.08% in the financial year ended March 2007 under the previous Congress party-led government.

While growth did slow down in subsequent years, on average it was still higher at 8.1% than under the present Narendra Modi-led dispensation—7.3% on average for the four years since 2014 when he took power. Yet, one of the pillars of Modi’s 2014 poll campaign was a perceived slowdown of the economy under Congress rule and the promise of achhe din (good days).

In the past one-and-a-half-years alone, economic growth has come under severe pressure following the demonetisation exercise of November 2016 and the introduction of the goods and services tax in July 2017. In the financial year 2018, GDP growth slipped to 6.7% from the previous year’s 7.1%.

Not surprisingly, the new data has sparked a political debate, besides confusion.

So much so that a day later the MOSPI added a caveat to its recent report: These are not the final figures. These disclaimers were not present till Friday (Aug. 17) and have been added subsequent to the release.

The confusion
In 2015, the Modi government shifted to the new series for GDP calculation, for which the base year was changed from 2004-05 to 2011-12.

As a result, the country’s GDP growth rate rose overnight. For instance, for fiscal 2015, growth was sharply revised up to 6.9% under the new calculation from the 5% reported earlier.

However, one glaring problem with this shift was that data for previous years was no longer comparable, nor, therefore, relevant.

But that transition now appears to have deeply embarrassed the current government.

So, soon after the report was released on Aug. 17, the Modi government dismissed it, saying the numbers were not official and were only experimental. This move was perceived in some quarters as firefighting. Again, on Aug. 21, it was reported that the original report itself had been removed from the site. However, Quartz did find it on the MOSPI website, but through a whole new link.

Economists believe all this confusion could have been avoided.

“Now, the data has been placed on the ministry website which gives one the impression that the data has been accepted by the government. But later in chapter six, it mentions that the Central Statistical Office is still working on the data. And then later the disclaimer was also added,” explained Devendra Kumar Pant, chief economist at India Ratings and Research, referring to the root cause for the confusion.

It needs to be said, however, that discrepancies in data are normal when the base year is changed as they are dependent on multiple factors.
Riaz Haq said…
How GDP new series changes the picture of Indian economy
Learnings from the National Statistics Committee report on GDP calculation and its impact on how we see the Indian economy


The Report of the Committee on Real Sector Statistics, containing the much-anticipated GDP back series data, is apparently just a draft report, according to the ministry of statistics and programme implementation. But while the numbers are yet to get the official imprimatur, the report does have a number of interesting things to say about the Indian economy. That’s apart from the puerile squabbling about growth rates under different governments.

How does the picture of the Indian economy change when we adopt the latest shiny new measuring rod—the GDP series with 2011-12 as base year?

Let’s take the fiscal year 2011-12 for illustrating the changes. First, the economy gets smaller. Under the new series, gross value added (GVA) at basic prices, (at current prices) was 3.4% lower than under the old series.

But it’s the composition of the economy that’s interesting. The share of industry in the economy has gone up when we use the new measuring rod and the share of services has shrunk. Recall the complaints about India’s unnatural dependence on services—well, the new series paints a slightly better picture, but not enough to dispel the gloom.

In 2011-12, using the new series, the share of industry in the Indian economy goes up to 23% from 19% under the old dispensation.

Manufacturing goes up from a measly 14.7% of total GVA to a bit more respectable 17.4%.

Correspondingly, the share of services shrinks when we use the new series. In 2011-12, services accounted for 63% of total GVA under the old measurements and 58% under the new one. The share of trade, hotels, transport and communication shrinks from 24.7% under the old series to 17.4% under the new one. That’s a substantial reduction, the reasons for which need to be explained. But the share of “financing, insurance, real estate and business services” goes up, as does the share of construction.

Agriculture was 17.8% of the economic pie in the old series and that increases to 18.5%. The details can be seen in the chart above. Note that the data pertains to a single year—2011-12—and the changes are due entirely to our using a new measuring rod to compute GDP and GVA.

How did the share of manufacturing change between 1993-94 and 2011-12? Under the old series, it fell from 15.4% of GVA to 14.7%; under the new series, it went up from 16.8% to 17.4%. So perhaps it’s not entirely premature de-industrialization, but stagnant industrialization? Hard to tell—in 2017-18, the share of manufacturing had slipped back to 16.7%.

What changes did the new series have on the expenditure-side GDP figures? For 2011-12, the biggest change is in gross fixed capital formation—it went up from 31.8% of GDP under the old yardstick to 34.3% using the new one. The share of capital formation is higher under the new series. On the other hand, the consumption share is only slightly different. The details are given in Chart 2.
Riaz Haq said…
#Modi-nomics has yet to deliver for many in #India. #BJP has largely failed to deliver on promise to transform India for better, relying instead on buzzwords, fudging statistics and rebuking its admittedly scandal-tainted opposition. https://www.ft.com/content/a1a6e8d4-f4bb-11e8-ae55-df4bf40f9d0d via @financialtimes

India’s ruling Bharatiya Janata party is no stranger to changing history. In 2016, it omitted India’s first prime minister Jawaharlal Nehru from a state-level textbook. A few days ago, the central statistic offices revised down an estimate of annual Indian growth during the previous period when the rival Indian National Congress was in power, from 8.1 per cent to 6.3 per cent. That put it below the 7.3 per cent average for the first four years of BJP prime minister Narendra Modi’s term — and distracted from a slowdown to 7.1 per cent in the third quarter, from 8.2 per cent in the second. While the statistical office purports to be politically independent, opposition politicians alleged political interference was behind the revision. Mr Modi certainly has reason for nervousness, with key regional elections under way and a general election due by May next year. Despite the apparently healthy growth, much of the BJP’s promise for working Indians has yet to materialise. The decision to stop releasing official employment data earlier this year suggests that electoral promises to create good-quality jobs have not been met. Many Indians, including much of the large youth population, remain locked into informal and poorly paid occupations. Mr Modi has, meanwhile, pursued an economic policy of grand promises and bombast. Recent clashes with the Reserve Bank of India have centred on his attempts to boost growth. The outlook was clouded by defaults from a finance and infrastructure group in September. That led to fears for the stability of India’s shadow banking sector. The shadow bank crisis stems in part from the BJP’s grand strategy of demonetisation, removing larger-denomination notes from circulation as a way of delivering on a campaign promise to cut down on the black economy. With Indians forced to deposit old notes at banks, there was a flood of money into the financial sector. Much of this flowed to a growing collection of non-bank lenders, which became a big driver of credit growth as the big state-owned banks grappled with a rash of bad corporate loans. Many Indians supported demonetisation on the premise that it would hurt the undeserving rich. But it failed to remove more than a small portion of black money, while contributing to a sharp economic slowdown last year. In a recent speech before elections in the state of Chhattisgarh, Mr Modi likened demonetisation to a necessary but “bitter medicine”. Unfortunately, the poor have tasted that medicine disproportionately. Mr Modi’s other campaign promises, including infrastructure overhauls and improving manufacturing, have not yet been delivered. Some grandiose pet projects do not help his case. A planned bullet train in his home state of Gujarat epitomises a taste for the high-tech above the practical: it will be too expensive for most citizens. Building the world’s tallest statue, also in Gujarat, cost around $500m. Make in India, Mr Modi’s attempt to turn the country into a manufacturing powerhouse, has so far amounted to little. The BJP’s failings are by no means guaranteed to cost it next year’s election. But winning an election because of a broken opposition should not give Mr Modi’s economic policies a free pass. There have been some successes under the BJP, including revisions of bankruptcy laws. But the BJP has largely failed in its supposed goals to transform India for the better, relying instead on buzzwords, fudging statistics and rebuking its admittedly scandal-tainted opposition. It must begin to fulfil its promises or risk repeating the failures of administrations before it.
Riaz Haq said…
The Cost of a Modi Victory
A compliant central bank might bolster the Indian prime minister’s reelection chances, but at the expense of the country’s long-term prospects.

By Mihir Sharma


Many of us have long argued that, whatever its problems, India is one of the best long-term bets in the world for one simple reason: It has the sort of world-class institutions that can help build and sustain a genuine market economy. Sadly, many of those same institutions are being undermined by the country’s own leaders — most recently the Reserve Bank of India, which Prime Minister Narendra Modi appear intent on subjugating as part of his bid for reelection. Of all people, Modi should recognize that no election victory is worth giving up on India’s best chance at becoming a world-beating economy.

For Indians who share that ambition, it’s been a sobering week. Late on Monday night, news broke that central bank governor Urjit Patel had quit. The news was particularly shocking because it followed a lengthy campaign by the government to bend India’s independent central bank to its will. The Finance Ministry had demanded a series of concessions from the governor – that the RBI stop forcing state-controlled banks to crack down on some big delinquent borrowers, for example. It believed that the central bank was also being too sparing with liquidity: Recent GDP numbers suggest a slowdown in demand, partly caused by a seize-up in India’s shadow banking sector. These “non-banking financial companies,” to use the official Indian term, are crucial lenders to infrastructure and to the small- and medium-sized enterprises Modi hopes will create jobs for his voters.


It’s the sort of institutional regression that we haven’t seen for decades. No RBI governor has had to quit in the two-and-a-half decades since India began to liberalize its economy; the history of India’s central bank has been one of ever-increasing autonomy. This is particularly important given that India’s a noisy democracy, with a half-dozen elections a year and politicians who want to win each of them. The RBI’s long-term view and evidence-based policymaking provided a crucial counterweight.

That was the sort of governance that many hoped Modi himself would provide when he won a landslide in 2014. Such political capital, they argued, would allow him to keep his eye on what really mattered instead of worrying about day-to-day survival in power. And perhaps that was true at first: The Modi government itself seemed to cap the RBI’s progression to true independence early in its term when it legislated an official inflation target for the bank, freeing it further from New Delhi’s control. In partnership with someone like Rajan, Modi could have provided the kind of sober and effective economic management that would have shifted India permanently to a high-growth trajectory.

Now, Modi’s India looks like a lot more like any other emerging economy, with a tame central bank and a profligate government that wants to ignore the laws of economics. Modi won once by promising world-class governance. Why does he think voters will reelect him for anything less?
Riaz Haq said…
#India claimed gangbusters #GDP growth. A former government adviser says it was a mirage. #Modi #Hindutva #BJP @CNN https://cnn.it/2I7ZJZ0

Arvind Subramanian was the top economic adviser to the Indian government. Now he says the country's growth may have been overstated.

A change in the method used to calculate India's GDP led to "a significant overestimation of growth," Subramanian writes in a research paper published by Harvard's Center for International Development.
In the paper, Subramanian estimates that India's economy grew at an average of 4.5% a year between March 2011 and March 2017 — far weaker than the 7% average rate reported by the government over that period.
Subramanian tracked 17 different economic indicators that are "strongly correlated" with growth, including electricity consumption, industrial production and commercial vehicle sales.

He found those indicators diverged sharply from the government's growth numbers after 2011, the first year of data affected by the change in methodology.
The paper also found that India's reported GDP growth was far higher than other countries with similar economic characteristics.

"The results in the paper suggest that the heady narrative of a guns-blazing India must cede to a more realistic one of an economy growing solidly but not spectacularly," Subramanian wrote.
A former economist at the International Monetary Fund, he served as the government's chief economic adviser for most of Prime Minister Narendra Modi's first term.
Modi won a second term as India's leader in this year's national election.
Subramanian, who advised the government from October 2014 to June 2018, sought to explain his role on Tuesday.
"Throughout my tenure, my team and I grappled with conflicting economic data. We raised these doubts frequently within government," he wrote in an op-ed published by The Indian Express.
"But the time and space afforded by being outside government were necessary to undertake months of very detailed research ... to generate robust evidence," he added.
The new findings echo concerns expressed by some economists and analysts who have repeatedly said India's growth numbers are "inconsistent" with reality.
The change in GDP methodology was announced in 2015, but applied retroactively to data from as far back as 2011.

Subramanian admitted in 2015 that he was "puzzled" by the revised numbers, telling a local newspaper that the estimates may not necessarily be wrong but "bear further scrutiny."
The government has repeatedly defended the changes to GDP calculation.
"The GDP estimates ... are based on accepted procedures, methodologies and available data and objectively measure the contribution of various sectors in the economy," it said in a statement Tuesday.
As things stand, even the official numbers don't paint a very flattering picture.
India's economic growth slumped to 5.8% in the quarter ended March, according to official data. That's the slowest rate in two years, and one that cost India the title of world's fastest growing major economy.
Riaz Haq said…
Ex Chief #Economist Arvind Subramanian: #Modi's reported average #GDP #growth of 6.9% between 2011 and 2016, actual growth was more likely between 3.5% and 5.5%. Cumulatively, over 5 years, level of #India's #GDP might have been overstated by 9-21% https://growthlab.cid.harvard.edu/files/growthlab/files/2019-06-cid-wp-354.pdf

India’s GDP Mis-estimation: Likelihood,
Magnitudes, Mechanisms, and Implications
Arvind Subramanian ( former Chief Economic Adviser to the Government of India)
CID Faculty Working Paper No. 354
June 2019


The main findings of this paper are the following. First, a variety of evidence—within India and
across countries—suggests that India’s GDP growth has been over-stated by about 2 ½ percentage
points per year in the post-2011 period, with a 95 percent confidence band of 1 percentage point.
That is, instead of the reported average growth of 6.9 percent between 2011 and 2016, actual growth
was more likely to have been between 3 ½ and 5 ½ percent. Cumulatively, over five years, the level
of GDP might have been overstated by about 9-21 percent.


India changed its data sources and methodology for estimating real gross domestic product (GDP) for
the period since 2011-12. This paper shows that this change has led to a significant overestimation of
growth. Official estimates place annual average GDP growth between 2011-12 and 2016-17 at
about 7 percent. We estimate that actual growth may have been about 4½ percent with a 95 percent
confidence interval of 3 ½ -5 ½ percent. The evidence, based on disaggregated data from India and
cross-sectional/panel regressions, is robust. Lending further credence to the evidence, part of the overestimation can be related to a key methodological change, which affected the measurement of the formal
manufacturing sector. These findings alter our understanding of India’s growth performance after the
Global Financial Crisis, from spectacular to solid. Two important policy implications follow: the
entire national income accounts estimation should be revisited, harnessing new opportunities created by
the Goods and Services Tax to significantly improve it; and restoring growth should be the urgent
priority for the new government.
Riaz Haq said…
#India’s ex chief economist Arvind Subramanian to produce new paper to defend his claim India’s #GDP is overestimated. Actual growth was just 4.5% from 2011 to 2017. #Modi #BJP #economy


Former chief economic adviser Arvind Subramanian is set to produce another working paper on GDP estimation, as he looks to address criticism about his claim that India’s GDP was overestimated by 2.5 percentage points.

Subramanian’s previous paper, released last month, had pointed out that India may have only grown at an average of 4.5 per cent in the period 2011-12 and 2016-17, and not 7 per cent as suggested by official estimates.

Using various real sector indicators like exports, credit growth, freight rates and factory output, Subramanian had pointed out that these indicators declined significantly post-2011, but GDP growth rate was hardly affected.

Subramanian’s use of real indicators to measure the GDP came in for severe criticism from economists and statisticians. The Prime Minister’s Economic Advisory Council had pointed out that the methodology used by Subramanian overlooked tax data and didn’t have adequate services sector representation. The council said the correlation between the indicators and GDP growth could change over time.

Subramanian’s defence
Speaking at an event organised by the National Council of Applied Economic Research, Subramanian defended his GDP overestimation claims, saying his framework attempted “not to estimate but to validate GDP growth estimates”.

Discussing a yet to be released follow-up paper to his earlier study, Subramanian said: “India’s overall GDP deflator is substantially underestimated.”

The average differential between GDP deflator and Consumer Price Index (CPI) has increased considerably between the 2002-11 and 2012-16 periods, with CPI exceeding GDP deflator by 0.6 percentage points pre-2011 and by 2.9 percentage points post it, he noted. This underestimation, he said, could be seen as linked to the real GDP growth rate overestimation.

Both GDP deflator and CPI are measures of inflation, and GDP deflator is used as a divisor to estimate real GDP from its nominal counterpart.

Reacting to the arguments made in the past few weeks — that GDP could have grown as a result of government policies or a productivity surge — he went about demonstrating that none of these factors actually explain the high official GDP growth rates post-2011.

Acknowledging that some of the Modi government’s reforms like GST, Insolvency and Bankruptcy Code and welfare schemes like cooking gas and toilets have been truly transformative, he said that they cannot adequately explain the growth in GDP.

He also rejected the productivity surge argument. “It is unlikely that a productivity surge could have taken place under UPA-2 with its considerable policy collapse and a mini-crisis prevailing,” he said.

He identified India’s twin balance sheet problem — the NPA crisis facing its banks and the huge debt burden of its corporates — as one of the major shock events that may have impeded growth.
Riaz Haq said…
#IMF report flags several delays in #India #economic #data reporting. Are #Modi and #BJP fudging it all like #Indian #GDP ???? - The Hindu


In 2018, India failed to comply with multiple requirements prescribed in the Special Data Dissemination Standard (SDDS) mandatory for all IMF members
Even as questions have been raised about the delays in data dissemination from various government agencies — the most recent data from the National Crime Records Bureau dates back to 2016 and accident statistics have not been updated since 2015 — a recent report published by the International Monetary Fund (IMF), shows that inconsistencies have crept into into the dissemination of fiscal datasets as well.

According to the IMF’s “Annual Observance Report of the Special Data Dissemination Standard for 2018”, India failed to comply with multiple requirements prescribed in the Special Data Dissemination Standard (SDDS) — a practice mandatory for all IMF members — whereas comparable economies comprising the BRICS grouping of Brazil, China, South Africa and Russia, have maintained a near impeccable record in the same period. Also, India’s non-compliance in multiple categories in 2018 and to an extent in 2017 breaks with an otherwise near perfect dissemination record.


India’s non-compliance with IMF standards is a recent phenomenon. The “X”s for non-dissemination of data and “O”s for data categories missing from the ARC were few and far between in India’s reports in the 2006-2016 period. The graphic lists such instances since 2006.

When asked for the reason for the delays in 2018, Deputy Director in the Department of Economic Affairs Aakanksha Arora termed it as a “one off event due to technical glitches”.

“In 2018, various changes were carried out for the improvement of website of Ministry of Finance which hosts the National Summary Data Page (NSDP) web page. In this process, due to some technical glitches related to the Ministry’s website, data in the NSDP was not recorded in the SDDS of IMF in 2018 despite updating the data on regular frequency,” Ms. Arora said.

The IMF’s “Guide for Subscribers and Users: The Special Data Dissemination Standard; 2013”, a reference manual for the SDDS subscribers mentions that “monthly reports are sent to individual subscribing countries about their observance”. Thus India would have received such intimations about its deviations at the end of every month in 2018 from the IMF as at least one deviation from SDDS were observed in all the months.

The IMF document also states that “monitoring observance of the SDDS is central to maintaining the credibility of the IMF’s data standards initiatives and its usefulness to policymakers.” It further states that if the IMF staff considers a non-observance as a “serious deviation” then procedures would be initiated against the member country.

When asked to explain the significance of India’s recent non-observance, the IMF’s statistics department acknowledged that “there have been some deviations from SDDS requirements mainly on timeliness…. some data points were posted on the NSDP with delay.” However, the IMF staff did not consider these as “serious deviations”.
Riaz Haq said…
#India's #Modi calls #highway construction 'financially unviable'. Modi is asking the state road builder to stop constructing highways after its #debt ballooned almost seven-fold over the past five years. #construction #economy #infrastructure @AJENews https://www.aljazeera.com/ajimpact/india-modi-calls-highway-construction-financially-unviable-190830022107362.html

The prime minister's office wants India's national highways authority to become a road-asset-management company.

India's path to economic recovery faces another obstacle, with Prime Minister Narendra Modi asking the state road builder to stop constructing highways after its debt ballooned almost seven-fold over the past five years.

"National Highways Authority of India totally logjammed with unplanned and excessive expansion of roads," the prime minister's office wrote to NHAI in a letter dated Aug. 17. "NHAI mandated to pay several times the land cost; its construction costs also shooting up. Road infrastructure has become financially unviable."

Modi's office proposed that NHAI be transformed into a road-asset management company, according to the letter obtained by Bloomberg, and the prime minister's office asked NHAI to reply within a week.

The decision is a reversal from Modi's first term, when his administration was praised for its breakneck speed of highway construction that helped make India one of the fastest-growing economies in the world. However this came with the burden of escalating costs, leaving NHAI increasingly dependent on the government for financial support at a time when Modi is looking to contain his budget deficit.

Restricting road-building risks imperiling Modi's target to make India a $5 trillion economy as roads are necessary for socio-economic development, said Vikash Kumar Sharda, a partner at Infranomics Consulting LLP, who previously consulted for PWC India. "Road is critical infrastructure, and putting breaks on it will not only result in a slowdown of highway construction but also of other sectors that are dependent on it."

There's a strong co-relation between economic growth and investments in infrastructure, with roads accounting for about 3.1% of gross value added, Modi's economic advisers said in a report this year. Data due Friday will probably show India's gross domestic product expanded 5.7% in the quarter through June, the slowest pace in five years.

Modi's office now wants NHAI to revert to a model used by his predecessor, where NHAI would auction projects to developers. They'd construct the roads, collect toll from users and then would transfer ownership back to NHAI after an agreed period. Weak private sector participation pushed Modi to scrap this practice and he permitted NHAI to bear as much as 100% of the costs in certain road projects that led to ballooning debt.

NHAI's outstanding debt of 1.8 trillion rupees would entail annual interest servicing of about 140 billion rupees, higher than the 100 billion rupees NHAI collects as toll, according to analysts at SBICap Securities Ltd.

Land acquisition costs have also risen to more than 25 million rupees per hectare from 9 million rupees after fair-price laws were introduced in 2013, and this alone accounts for more than 30% of NHAI's expenses, according to ICRA Ratings Ltd.

The prime minister's office didn't reply to an email seeking comment and NHAI declined to comment. The letter contains only suggestions and top-rated NHAI is fully capable of raising enough debt to keep building roads, Nitin Gadkari, Modi's minister for roads, was cited by the Mint newspaper as saying on Tuesday.

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