It has been almost 4 months I have updated this blog, for personal reasons. Anyway, much water has flown in the gap, several developments took place domestically as well as globally. While crude corrected after reaching 148$ to as low as 92$ recently, due to demand destruction, and signs of global slowdown impacting the bull run in commodities too, pushed it down. Crude currently trading around 105$ is still inflationary for most of the economies, our inflation has touched 12.63% already and cooled a bit to 12.10% levels due to several measures taken by RBI and Government yielding some results though moderately.
The Subprime crisis has spread to Credit sector in UK and US and major investment banks like Lehman Brothers, Goldman Sachs, Morgan Stanley are in trouble, has shattered american investor sentiment, and equities too. The trouble spreading to AIG, the largest insurer from USA sent shock waves amongst financial sector world over, and Fed's rescue package brought some calmness in equities. US Government now realises that the crisis is serious and deep, and working on 750$ billion package the buy back the illiquid troubled assets of financial sector, to clean up the system, is yet to be in place. Is it right to take such measure is being widely debated amongst ecnomists and analysts. Whether this move by Government will save the financial crisis and system from crumbling and revive US economy is again a Trillion dollar question?
These developments abroad do also have their rub off effect on our economy, though we are not totally dependent directly on US economy like Hongkong, Japan etc., as a part of global economy, and US dollar being the international medium of exchange, will affect our economy considerably. US Presidential elections scheduled for in November this year, the policy that might be pursued by the new President will certainly have impact on Indian Economy too. The Indo-US Nuke deal is passed by US foreign relations committe by 19-2 vote, and our PM Dr. Manmohan Singh is in US to sign 123 agreement, when their senate approves during this session.
The inflation data to be released today at 5.30 p.m. might show an uptick to 12.24% the other aspects of our economy shall be discussed from tomorrow regularly
Wednesday, September 24, 2008
Thursday, May 29, 2008
Crude Realities - Oil Shock threatening global slowdown!
Crude has touched US$135.09 on 22.05.2008, and hovered around 133 level for 2 days, and the Goldman Sachs report suggesting that the same can reach 150$ levels shortly, and even 200$ in an year sent jitters among global markets, economies. Governments and regulators started assessing the possible impact on inflation, which is already at highest levels in the past 4 years. The issues responsible for this doubling in just one year time are many:
1. Weakening of US $ due to economic slow down being experienced in US economy, ever since 'sub prime crisis' surfaced in October 2007, which has shaken up large players in their financial system.
2. While global GDP is growing at 3 to 4% a year, the demand for the commodity too grows at similar pace, if not more, where as overall increase in production world wide is just 1% as no new oil fields are added in recent past. This natually, widens demand supply gap which pushes price.
3. India and China which are growing above 7% p.a. do subsidise the use of petroleum products, where the demand is growing, and are large importers, as domestic production is way below the consumption.
4.These two economies facing higher inflation are not passing the actual price to the end users, which continues to encourage the people to consume more, and thus, more demand.
5.India specific issue is, most of the oil marketing companies are under public sector, where the prices are administered since 2004, though an attempt was made during 1999 to 2004, to move towards, market determined prices, by NDA government. Private players like Reliance Industries, Essar etc., who made investment in retailing owing to government policy on liberalisation in NDA rule, are not treated on par with PSU companies for receiving compensation, to sell at subsidised prices.
6. Current prices of Petrol, Diesel, Kirosene and LPG are fixed when indian crude basket was around US$67, where as same has moved beyond 117 already. Government came with Oil bonds to PSUs to compensate partially, where as private players were left out. This forced Reliance Industries to close all retail outlets(owned) numbering about 1400 recently, which shifts the demand to PSUs again.
7.IOC india's largest player has posted Q4 losss of Rs.400 crores and says cannot import crude at current prices, due to cash crunch beyond 15th September 2008, and suggested number of measures to Oil ministry to help to tide over the situation, one being 'rationing', which due to political sensitivity for current UPA government already under trouble/pressure due to raising inflation, in an election year, is not accepted by it.
Then what is the solution? It is a complex problem, which needs to be addressed from various angles, taking firm and if necessary hard decisions.
What is being done by the Government will be known by this weak end as Cabinet meets on this issue shortly, and how it will impact shall be discussed in the next posting, along with what need to be done too.
1. Weakening of US $ due to economic slow down being experienced in US economy, ever since 'sub prime crisis' surfaced in October 2007, which has shaken up large players in their financial system.
2. While global GDP is growing at 3 to 4% a year, the demand for the commodity too grows at similar pace, if not more, where as overall increase in production world wide is just 1% as no new oil fields are added in recent past. This natually, widens demand supply gap which pushes price.
3. India and China which are growing above 7% p.a. do subsidise the use of petroleum products, where the demand is growing, and are large importers, as domestic production is way below the consumption.
4.These two economies facing higher inflation are not passing the actual price to the end users, which continues to encourage the people to consume more, and thus, more demand.
5.India specific issue is, most of the oil marketing companies are under public sector, where the prices are administered since 2004, though an attempt was made during 1999 to 2004, to move towards, market determined prices, by NDA government. Private players like Reliance Industries, Essar etc., who made investment in retailing owing to government policy on liberalisation in NDA rule, are not treated on par with PSU companies for receiving compensation, to sell at subsidised prices.
6. Current prices of Petrol, Diesel, Kirosene and LPG are fixed when indian crude basket was around US$67, where as same has moved beyond 117 already. Government came with Oil bonds to PSUs to compensate partially, where as private players were left out. This forced Reliance Industries to close all retail outlets(owned) numbering about 1400 recently, which shifts the demand to PSUs again.
7.IOC india's largest player has posted Q4 losss of Rs.400 crores and says cannot import crude at current prices, due to cash crunch beyond 15th September 2008, and suggested number of measures to Oil ministry to help to tide over the situation, one being 'rationing', which due to political sensitivity for current UPA government already under trouble/pressure due to raising inflation, in an election year, is not accepted by it.
Then what is the solution? It is a complex problem, which needs to be addressed from various angles, taking firm and if necessary hard decisions.
What is being done by the Government will be known by this weak end as Cabinet meets on this issue shortly, and how it will impact shall be discussed in the next posting, along with what need to be done too.
Monday, May 26, 2008
Real inflation has crossed 8.02% already on 15.03.2008 itself!
The provisional data on inflation released at 12 noon on 23.05.2008, though was reported to be 7.82% a tad below over previous week, the revised figures as on 15.03.2008 were reported to be 8.02%, whopping upward thrust by 134 basis points. If we consider the same adjustment to the current provisional figure, the inflation is already 9.16%. The irony is the pass on effect of hike in crude price is yet to be done. The Debt relief scheme announced in the current year budget estimates at Rs.60,000 crores was left uncovered, hoping that the buoyancy in the tax collection and fiscal tightening would take care of it. The same is recently enhanced to Rs.71,000 crores, extending the benefit to large farmers too, upto Rs.20,000/-(maximum) and Pay Commission revision arrears and salary hike to Central Government Employees are other heads add to the expenditure side.
There is heavy pressure from OMCs and Petroleum Ministry on the Government to raise the prices of Petrol/Diesel, which are put on hold by Government, since the inflation is already high, any raise in diesel will fuel it further, and also will have cascading effect on the cost of production, certainly affects growth too. Private retailer Reliance Industries has already shut down all its own retail outlets numbering 1400 adding the burden to PSUs, which are already bleeding due to huge subsidy (difference in pricing compared to market price). Petroleum ministry has suggested number of measures, one of the measures to 'free the pricing of petrol' to market dynamics, which will immediately push the petrol prices by Rs.17/-(being estimated), is not good news to vehicle owners. Crude recently touched all time high of US$135.09 and currently trading around 133, Goldman sachs predicts that it would slowly crawl to 150 and then 200 in an year. If it happens, then there will be high inflation and lower growth in the global economy itself.
There is heavy pressure from OMCs and Petroleum Ministry on the Government to raise the prices of Petrol/Diesel, which are put on hold by Government, since the inflation is already high, any raise in diesel will fuel it further, and also will have cascading effect on the cost of production, certainly affects growth too. Private retailer Reliance Industries has already shut down all its own retail outlets numbering 1400 adding the burden to PSUs, which are already bleeding due to huge subsidy (difference in pricing compared to market price). Petroleum ministry has suggested number of measures, one of the measures to 'free the pricing of petrol' to market dynamics, which will immediately push the petrol prices by Rs.17/-(being estimated), is not good news to vehicle owners. Crude recently touched all time high of US$135.09 and currently trading around 133, Goldman sachs predicts that it would slowly crawl to 150 and then 200 in an year. If it happens, then there will be high inflation and lower growth in the global economy itself.
Saturday, May 17, 2008
Inflation shoots up to 7.83% and troubles increase further for Economy!
Inflation data released on 16.05.2008 has shown further raise, surprising every one, to 7.83%, the expectation on street and from analysts and economists was flat level at 7.59%. The effect of measures initiated by RBI and Government in the past one month are yet to show their effect so far on these provisional figures released as on week ended 03.05.2008. While one can analyse each component of the factors contributing to such steady raise, it is more disheartening to note that the actual figures for the week ended 08.03.2008, came at a nasty surprise of 7.78% (provisional figure was 5.92%) thus, difference shooting to whopping 186 basis points. This should be more worrisome for regulators, and everyone, as the same difference if adjusted to current provisional figures released recently, the inflation might be 9.69% which almost is touching double digit levels.
Under these circumstances, what is in store for our economy in the coming months to come is the question haunting everyone's mind. Crude running unabated like a Olympian and surpassing all technical levels , now stabilizing above US $ 127, already more than doubled compared to the price a year back. It directly impacts our economy, as most of our demand is being met through imports. The subsidy burden on the fiscal position of the country is quite precariously positioned, as the Indian crude basket has already touched US $ 112 and Goldman Sachs prediction that at the current raising demand and supply concerns Crude can touch US $ 150 initially and then even US $200 in a year's time, cannot be taken lightly.
While appreciating rupee, and raising stock markets in the past 4 years invited quite substantial flows into India, to some extent helped containing inflation during that time. Now, FIIs are withdrawing money from our markets since January' 2008, due to higher valuations, and rupee depreciating in the last month, due to all importers rushing for US dollar, shall add to the raise in inflation, as always weakening of currency contributes to inflation. Under these circumstances, growth would naturally suffer, and higher interest rates are already hurting the investment planning of corporates.
Are we going to have higher growth in GDP and higher inflation from now on? May be so? The actual forecasting can be done after watching the performance of economy by Sept'2008 and the corporate performance, monsoon etc., to some extent. No doubt the incomes are raising with indian public, consumption pattern also changing from 'save for the future' to "borrow and enjoy the present" gradually, should keep domestic economy performing with an average growth of 7% certainly.
Next week inflation data should throw some relief from raising trend, which might give some breather for government and regulators; otherwise, we should be prepared for some sudden, drastic, panic measures too, as tolerable level of inflation was way below 5.5% for this year as per RBI estimates.
Under these circumstances, what is in store for our economy in the coming months to come is the question haunting everyone's mind. Crude running unabated like a Olympian and surpassing all technical levels , now stabilizing above US $ 127, already more than doubled compared to the price a year back. It directly impacts our economy, as most of our demand is being met through imports. The subsidy burden on the fiscal position of the country is quite precariously positioned, as the Indian crude basket has already touched US $ 112 and Goldman Sachs prediction that at the current raising demand and supply concerns Crude can touch US $ 150 initially and then even US $200 in a year's time, cannot be taken lightly.
While appreciating rupee, and raising stock markets in the past 4 years invited quite substantial flows into India, to some extent helped containing inflation during that time. Now, FIIs are withdrawing money from our markets since January' 2008, due to higher valuations, and rupee depreciating in the last month, due to all importers rushing for US dollar, shall add to the raise in inflation, as always weakening of currency contributes to inflation. Under these circumstances, growth would naturally suffer, and higher interest rates are already hurting the investment planning of corporates.
Are we going to have higher growth in GDP and higher inflation from now on? May be so? The actual forecasting can be done after watching the performance of economy by Sept'2008 and the corporate performance, monsoon etc., to some extent. No doubt the incomes are raising with indian public, consumption pattern also changing from 'save for the future' to "borrow and enjoy the present" gradually, should keep domestic economy performing with an average growth of 7% certainly.
Next week inflation data should throw some relief from raising trend, which might give some breather for government and regulators; otherwise, we should be prepared for some sudden, drastic, panic measures too, as tolerable level of inflation was way below 5.5% for this year as per RBI estimates.
Sunday, May 11, 2008
Inflation at 7.61% its ramifications on Indian Economy - Markets!
The provisional data released on 09.05.2008 that inflation expectations are at 7.61% highest in the past 42 months, has sent jitters among equity markets and fears of actual inflation being more than 8.3% as the recent revision of earlier figures are corrected by 110 basis points by the government. What will be the effect of this 8% inflation on Indian economy, you get lots of stuff from various sources. The real issue is inflation is a silent killer of all economic growth(development) and hurts the unorganised sector of working class, the common man more than anyone. Let me analyse the negative returns a safe investment like bank deposit generates:
Any bank offering say 9% interest on long term deposit, deducts the income tax on interest paid at source(TDS); thus, puts less than the assured interest in the hands of an investor. Now adjust the inflation of 8% to the net interest received will result in negative returns to the investor keeping money in a bank deposit. Banks need to raise the deposit rates to attract deposits, which adds to their cost of funds, when passed on to the users of funds from banks(Borrowers) will have to pass on to the consumers once again as their cost of production increases. The increase in prices of goods and services thus, will add to raise in inflation. This is a vicious circle, that is the reason why all governments, regulators are much concerned about raising inflation.
One interesting issue, growth of economy or expansion of economy will tend to raise inflation, thus, for the fear of facing higher inflation growth cannot be sacrified. Recently, our Finance Minister was referring to one observation: in 1990s our country had 8% inflation and 4% growth, where in the last 4 years we achieved 8% growth with 4% inflation. This is really comendable performance. Now the year 2008 is seeing 8% inflation and 8% growth(?) is the big challenge government and regualators are facing. What exactly is contributing to this raise in inflation to over 8% levels, and how much more it can go up? what are the remedies available for controlling it to tolerable levels of 5.5% as being targetted by RBI, shall be discussed in great detail from now on!
Any bank offering say 9% interest on long term deposit, deducts the income tax on interest paid at source(TDS); thus, puts less than the assured interest in the hands of an investor. Now adjust the inflation of 8% to the net interest received will result in negative returns to the investor keeping money in a bank deposit. Banks need to raise the deposit rates to attract deposits, which adds to their cost of funds, when passed on to the users of funds from banks(Borrowers) will have to pass on to the consumers once again as their cost of production increases. The increase in prices of goods and services thus, will add to raise in inflation. This is a vicious circle, that is the reason why all governments, regulators are much concerned about raising inflation.
One interesting issue, growth of economy or expansion of economy will tend to raise inflation, thus, for the fear of facing higher inflation growth cannot be sacrified. Recently, our Finance Minister was referring to one observation: in 1990s our country had 8% inflation and 4% growth, where in the last 4 years we achieved 8% growth with 4% inflation. This is really comendable performance. Now the year 2008 is seeing 8% inflation and 8% growth(?) is the big challenge government and regualators are facing. What exactly is contributing to this raise in inflation to over 8% levels, and how much more it can go up? what are the remedies available for controlling it to tolerable levels of 5.5% as being targetted by RBI, shall be discussed in great detail from now on!
Wednesday, May 7, 2008
Indian Economy Analysis - Few issues and Challenges
Introduction: Entire world knows that Indian Economy is on growth trajectory for the past 15 years, ever since Economic Reforms are initiated in 1991. This blog will present various aspects of the growth prospects, challenges being encountered and few thoughts on how to attempt them so that Indian Economy ultimately claim the number One status in the years to come.
Detailed postings will commence shortly, and viewers and readers comments, criticism too are invited whole heartedly, since the intention of the blog is to initiate a wide range of discussion, on how we all contribute to the betterment of our society, where every individual living in the country, and having relation with our country too, is rewared, finally achieving the aim of "Swarnima Bharath"(Golden Age for India)
Detailed postings will commence shortly, and viewers and readers comments, criticism too are invited whole heartedly, since the intention of the blog is to initiate a wide range of discussion, on how we all contribute to the betterment of our society, where every individual living in the country, and having relation with our country too, is rewared, finally achieving the aim of "Swarnima Bharath"(Golden Age for India)
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