Kyusuibu Honbu
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If a time comes,i'd rather live in a developing India rather than a developed independent TN.
Indias inflation deters foreign investors
- Thread starter Molawchai
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If a time comes,i'd rather live in a developing India rather than a developed independent TN.
CardSharp
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Didn't say it did, but mere suggesting that there is a lot of 'me and mine' regionalism when it comes to federal politics.
Water Car Engineer
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Exactly, we are all in it together.
edit
You guys are in it together, im not in India lol..
JayAtl
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you mean like 'me go to another democratic country and get mine while I complain about me and mine attitude in another?' fact is me and mine regionalism happens in every country. even in your birth country amongst its 56 ethic sects
CardSharp
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I hope your countrymen are proud of you.
JayAtl
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Well since you asked ---both my current and birth countries are for sure
. I know your birth country is proud of you...now if you walk into a bar and tell 10 people in canada about our anti democracy, anti west pro communist thinking... how many will be proud of you?
Brotherhood
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PeerPower : The origin of India's inflation problem February 10, 2011
An aggressive rise in government spending, which boosted consumption at a time when the credit crisis had pulled investments to GDP down, has been at the heart of the recent spiral in inflation.
Since the credit crisis unfolded, Indias policymakers have been aggressive in quickly returning growth to pre-crisis levels. We believe the ideal outcome for India would have been to manage GDP growth closer to its potential of 7.5-8% for the first 12 months immediately following the credit crisis and then gradually to push growth higher as investment growth accelerated, lifting potential growth.
However, as we have highlighted in this column earlier, this aggressive approach from policymakers to push growth with the support of fiscal and monetary policy has been accompanied by macro stability risks in form of: (a) rise in inflation; (b) high current account deficit; and (c) tight interbank liquidity and disruptive rise in short-term rates. We do believe that the loose fiscal policy is more to blame than monetary policy for these macro imbalances
As the policymakers continue to walk on a tight rope in a bid to push growth, avoiding any major instability risks would have required a supportive external environment. Unfortunately, the sharp rise in global commodity prices and food supply shocks have made the task of managing the macro imbalances even more difficult.
CRB metals and CRB food prices have increased by 49%, and 36% respectively since June 2010. Strong demand and rise in food and other commodity prices have ensured that headline inflation (WPI) has remained above the RBIs comfort zone of 5-5.5% for the past 13 months. Headline inflation averaged 9.2% during this period.
While loose fiscal policy, coupled with supply shocks, has been the key driver, a delay in monetary tightening only added to complexity of inflation management. We often hear the argument from investors that considering that WPI inflation is highly influenced by global commodity prices and food, why should the RBI respond to this supply-side inflation.
We believe that in an environment where domestic demand growth is strong, the chances of supplyside pressures translating into rise in inflation expectations are high.
Once inflation rises, the RBI needs to hike policy rates to ensure that banks hike deposit rates in time.
While policymakers have delayed policy rate hikes (resulting in banks delaying deposit and lending rate hikes) to avoid an adverse impact on growth, the rise in inflation expectations meant that households have shied away from bank deposit, eventually invoking a disruptive rise in cost of capital. For instance, bank deposit rates have risen by 150-200 basis points over the past two months compared with the 150 basis points rise cumulatively in the preceding 12 months.
In other words, policy rates needed to rise in response to the rise in inflation (even if it was driven by supply-side) to contain the rise in inflation expectations and ensure that domestic saving rate is maintained to fund domestic investment. In any case, we believe that, though late, the bulk of monetary policy tightening has now taken place with short-term market rates already at peak levels. We expect lending rates to follow the deposit rate hikes with the usual time lag.
Why fiscal policy reversal is more critical? An aggressive rise in government spending which boosted consumption at a time when credit crisis had pulled investments to GDP down has been at the heart of Indias recent inflation problem. As the global credit crisis impaired capital markets, investment declined from 38.1% of GDP in FY2008 to 34.5% of GDP in FY2009.
More importantly, the most productive investment component private corporate capex declined to 11.5% of GDP in FY2009 from a peak of 17.3% of GDP in FY2008. In the face of this decline in investment to GDP (read: production capacity), the central government pursued a massive 4% of GDP increase in total expenditure (read: consumption).
The Centres fiscal deficit has risen from 2.5% of GDP in FY2008 to 6.3% of GDP in FY2010. While the headline deficit has fallen in FY2011, thanks to one-off revenues, we estimate that central government expenditure relative to GDP in FY2011 will remain close to peak levels of 15.5% of GDP.
We believe that government expenditure in India tends to be less efficient and is biased towards boosting consumption by way of transfer to households. In F2011, we estimate that about 86% of total government expenditure is revenue expenditure. While investment to GDP has risen from the trough levels, it is still far from pre-crisis peak levels. Hence, the continuation of such high levels of government expenditure in nature of consumption in FY2012 will only add to inflationary pressures.
The government needs to follow its pre-guided deficit reduction plan. In its medium fiscal plan published in 2010, the finance ministry indicated that central government will aim to cut its deficit to 4.8% of GDP in FY2012 from an estimated 5% (Morgan Stanley estimate) of GDP [excluding one-off 3G and broadband wireless access (BWA) revenues the deficit will be 6.4%] in F2011. We believe achieving this reduction in deficit will be difficult without a meaningful cut in government expenditure growth in FY2012. Even at 4.8% of GDP, the governments overall borrowing programme will remain at broadly similar levels to FY2011.
Note the deficit numbers above do not include the potential rise in off-Budget subsidies in oil and fertiliser. In FY2011, the government had the support of $35.5 billion, including $23 billion from 3G and BWA licence fees and $12.5 billion of open market operations (OMO) involving buy back of government securities by the RBI. However, in the absence of this one-off support, the bond market may suffer badly if the government does not follow its pre-guided path on deficit reduction in FY2012, resulting in crowding out of private sector investments.
Some argue that the growth in government expenditure will remain high as there are five state elections this year. There is a possibility that the government will target high expenditure growth with one-off revenue ideas. However, boosting expenditure growth via one-off revenue growth will push consumption growth when capacity utilisation is already tight, keeping inflation pressures alive.
In this context, we believe the Budget announcement on February 28 will assume significance. We believe the government needs to target single-digit expenditure growth of 6-7% in FY2012, which would be the lowest in seven years.
A pretty well written, informative article, worth a read.
An aggressive rise in government spending, which boosted consumption at a time when the credit crisis had pulled investments to GDP down, has been at the heart of the recent spiral in inflation.
Since the credit crisis unfolded, Indias policymakers have been aggressive in quickly returning growth to pre-crisis levels. We believe the ideal outcome for India would have been to manage GDP growth closer to its potential of 7.5-8% for the first 12 months immediately following the credit crisis and then gradually to push growth higher as investment growth accelerated, lifting potential growth.
However, as we have highlighted in this column earlier, this aggressive approach from policymakers to push growth with the support of fiscal and monetary policy has been accompanied by macro stability risks in form of: (a) rise in inflation; (b) high current account deficit; and (c) tight interbank liquidity and disruptive rise in short-term rates. We do believe that the loose fiscal policy is more to blame than monetary policy for these macro imbalances
As the policymakers continue to walk on a tight rope in a bid to push growth, avoiding any major instability risks would have required a supportive external environment. Unfortunately, the sharp rise in global commodity prices and food supply shocks have made the task of managing the macro imbalances even more difficult.
CRB metals and CRB food prices have increased by 49%, and 36% respectively since June 2010. Strong demand and rise in food and other commodity prices have ensured that headline inflation (WPI) has remained above the RBIs comfort zone of 5-5.5% for the past 13 months. Headline inflation averaged 9.2% during this period.
While loose fiscal policy, coupled with supply shocks, has been the key driver, a delay in monetary tightening only added to complexity of inflation management. We often hear the argument from investors that considering that WPI inflation is highly influenced by global commodity prices and food, why should the RBI respond to this supply-side inflation.
We believe that in an environment where domestic demand growth is strong, the chances of supplyside pressures translating into rise in inflation expectations are high.
Once inflation rises, the RBI needs to hike policy rates to ensure that banks hike deposit rates in time.
While policymakers have delayed policy rate hikes (resulting in banks delaying deposit and lending rate hikes) to avoid an adverse impact on growth, the rise in inflation expectations meant that households have shied away from bank deposit, eventually invoking a disruptive rise in cost of capital. For instance, bank deposit rates have risen by 150-200 basis points over the past two months compared with the 150 basis points rise cumulatively in the preceding 12 months.
In other words, policy rates needed to rise in response to the rise in inflation (even if it was driven by supply-side) to contain the rise in inflation expectations and ensure that domestic saving rate is maintained to fund domestic investment. In any case, we believe that, though late, the bulk of monetary policy tightening has now taken place with short-term market rates already at peak levels. We expect lending rates to follow the deposit rate hikes with the usual time lag.
Why fiscal policy reversal is more critical? An aggressive rise in government spending which boosted consumption at a time when credit crisis had pulled investments to GDP down has been at the heart of Indias recent inflation problem. As the global credit crisis impaired capital markets, investment declined from 38.1% of GDP in FY2008 to 34.5% of GDP in FY2009.
More importantly, the most productive investment component private corporate capex declined to 11.5% of GDP in FY2009 from a peak of 17.3% of GDP in FY2008. In the face of this decline in investment to GDP (read: production capacity), the central government pursued a massive 4% of GDP increase in total expenditure (read: consumption).
The Centres fiscal deficit has risen from 2.5% of GDP in FY2008 to 6.3% of GDP in FY2010. While the headline deficit has fallen in FY2011, thanks to one-off revenues, we estimate that central government expenditure relative to GDP in FY2011 will remain close to peak levels of 15.5% of GDP.
We believe that government expenditure in India tends to be less efficient and is biased towards boosting consumption by way of transfer to households. In F2011, we estimate that about 86% of total government expenditure is revenue expenditure. While investment to GDP has risen from the trough levels, it is still far from pre-crisis peak levels. Hence, the continuation of such high levels of government expenditure in nature of consumption in FY2012 will only add to inflationary pressures.
The government needs to follow its pre-guided deficit reduction plan. In its medium fiscal plan published in 2010, the finance ministry indicated that central government will aim to cut its deficit to 4.8% of GDP in FY2012 from an estimated 5% (Morgan Stanley estimate) of GDP [excluding one-off 3G and broadband wireless access (BWA) revenues the deficit will be 6.4%] in F2011. We believe achieving this reduction in deficit will be difficult without a meaningful cut in government expenditure growth in FY2012. Even at 4.8% of GDP, the governments overall borrowing programme will remain at broadly similar levels to FY2011.
Note the deficit numbers above do not include the potential rise in off-Budget subsidies in oil and fertiliser. In FY2011, the government had the support of $35.5 billion, including $23 billion from 3G and BWA licence fees and $12.5 billion of open market operations (OMO) involving buy back of government securities by the RBI. However, in the absence of this one-off support, the bond market may suffer badly if the government does not follow its pre-guided path on deficit reduction in FY2012, resulting in crowding out of private sector investments.
Some argue that the growth in government expenditure will remain high as there are five state elections this year. There is a possibility that the government will target high expenditure growth with one-off revenue ideas. However, boosting expenditure growth via one-off revenue growth will push consumption growth when capacity utilisation is already tight, keeping inflation pressures alive.
In this context, we believe the Budget announcement on February 28 will assume significance. We believe the government needs to target single-digit expenditure growth of 6-7% in FY2012, which would be the lowest in seven years.
A pretty well written, informative article, worth a read.
CardSharp
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Well since you asked ---both my current and birth countries are for sure
Right, weren't you the one that threatened to report me to the Canadian government for "sedition"? You'll let me know how that turns out yes?
RollingStones
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The Finance Blog: Commodities and their weightages in WPI calculation of India, Part I
According to the above blog, 79% of WPI weight is toward non-food items. So, the increase in WPI is mainly due to non-food items, especially manufactured products which account for 65% of the WPI. Since manufactured products are bought by consumers based on availability of debt, it is pretty clear that liberal availability of debt is pushing up the WPI. This whole discussion here that food prices are inflating turns out to be baseless. Tighten the lending standards and the inflation will fall automatically.
According to the above blog, 79% of WPI weight is toward non-food items. So, the increase in WPI is mainly due to non-food items, especially manufactured products which account for 65% of the WPI. Since manufactured products are bought by consumers based on availability of debt, it is pretty clear that liberal availability of debt is pushing up the WPI. This whole discussion here that food prices are inflating turns out to be baseless. Tighten the lending standards and the inflation will fall automatically.
ajtr
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Whats up with indians on this board---they threaten to report everyone of sedition,with whom their thought process dont match...Its really intriguing.
CardSharp
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Meh, ultimately his behaviour reflects on others Indians not me. Kind of funny how he follows me from thread to thread though, I'm must especially antithetical to his beliefs.
Very interesting. I just finished reading a news article where they mention India's government laying sedition charges on an Indian Human Rights activist. Is this a peculiar Indian cultural trait or mainly confined to the Anglo-educated upper class elites of India, which is the impression I'm getting?
JayAtl
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aure contrie my man- i never did say anything as such. I simply pondered what if Canada perhaps treated it's perceived seditious talkers like china does. It was a question/discussion re: how democratic societies treat its citizenry or at least that was my point .
Lets be honest here for a second. you advocate communist principles, censorship while enjoying the fruits of the opposite- that allows you scream from the top of your voice your anti democratic views- and railing against the west . that is got to be the height of hypocrisy.
It had no " I will report you" childishness . please don't attribute false statements to me... less false propaganda please?
CardSharp
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Or just monumental failure in self-actualization. You can't blame everything on the British
JayAtl
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to start off w/ -thank god it's not trait to pick people up in the middle of night, like in say CHINA! and throw them in jail for no reason at all other than oh they dissented.
I can explain the article, since I'm sure you are not familar how a democracy works being an island chap and all and all you have is blind leading the blind here. In a democracy you have a set up where you may have multiple parties who are a part of the elected govt. In that fantastci democracy you may some politicans that holler hoot some extremely conservative points of views and some with extreme liberal points of view.
when you read quote "threats by goverment" - Unlike countries like CHINA- where the govt picks up people and they disappear for life (wink) because they disagreed politically- such langauge printed in an article is to be taken with a grain of salt. Till you know for sure that both houses and majority are going to pass such laws and bills. . I hope this anglo educated guy has given the island guy -an eye opening lesson in reading between the lines. have a nice day!
side note: so cool reading up on marshall islands - never knew it existed...'In 1986 independence was attained under a Compact of Free Association with the United States.'
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