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Have Rajan and Modi Beaten Inflation in India? - India Real Time - WSJ

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  • September 11, 2014, 9:45 AM IST
Have Rajan and Modi Beaten Inflation in India?
ByAnant Vijay Kala
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Prime Minister Narendra Modi and Reserve Bank of India Governor Raghuram Rajan seem to be making all the right moves for the economy as inflation rates may have eased to five-year lows last month, economists say.

A survey of 13 economists by The Wall Street Journal predicted that food and fuel inflation rates continued to slow in August, despite months of hand wringing about how weak monsoon rains could lead to higher food prices and trouble in the Middle East could push up fuel prices.

The median estimate of the economists was that wholesale price inflation slipped to 4.40% in August from 5.19% in July. If their prediction is correct, it would be the lowest wholesale inflation rate India has seen since 2009.

The economists estimated that the country’s consumer inflation would ease to 7.80% in August from 7.96% in July. The government is scheduled to release the official consumer inflation figures on Friday and the wholesale inflation numbers on Monday.

A late but significant pick-up in seasonal rainfall has brightened hopes that price pressures will continue to ease, keeping inflation in line with the central bank’s targets. The RBI wants to see consumer inflation no higher than 8% by January.

“A revival of monsoon rainfall as well as a favorable base effect are expected to moderate retail inflation between September and November,” said Aditi Nayar, senior economist at rating firm ICRA, a unit of Moody’s.

India’s June-through-September rainy season started late and initially was far below the 50-year average. Economists and weather watchers were worried that agricultural output would be hurt as most farmers in the country depend on the monsoon for irrigation.

“The concerns due to a bad monsoon are usually overblown,” said Dhananjay Sinha, head of institutional research with Emkay Global Financial Services.

Heavy rains in the last month have erased most of the water deficit for the year. New Delhi has also helped by releasing government food stocks to keep prices low.

Stability in global oil prices and the strength of the rupee have also helped keep prices from rising faster, said Radhika Rao, an economist at DBS Bank.

To be sure, the harvest from the crops which have been watered by the monsoon could still be bad and the oil prices could still surge, triggering fuel price inflation again. Still economists are cautiously optimistic that inflation seems to be under control and getting better.

“Gradual disinflation is underway,” said Ms. Rao.

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He is continuing the previous governer's policy of not giving in to political pressure to reduce interest rates. Inflation is priority to him than growth. He is great


See what I told you ! He is working on inflation now. Once that settles next will be interest rates. Once interest rates are reduced , we are on a highway to double digit growth. Great news indeed.
 
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Rating agencies likely to upgrade outlook for India: BofA-ML | Business Line


Global brokerage Bank of America Merrill Lynch today said the “worst is over” for India and rating agencies are likely to upgrade their outlook for the country sooner rather than later.

“With Moody’s downgrading their Brazil outlook last night, key emerging market peers are seeing downgrades,” BofA-ML said in a research note, but added that “we expect rating agencies to upgrade their outlook for India“.

The global financial services major further noted that “we thought the S&P downgrade of the BBB— outlook to negative from stable in April 2012 unwarranted.”

BBB— is the lowest investment grade and a downgrade would mean pushing the country’s sovereign rating to junk status, making overseas borrowings by corporates costlier.

The report noted that there are three “compelling” reasons for an upgrade in outlook — growth is bottoming; inflationary pressures are softening and risks from twin deficits have proven to be overdone.

In addition, it said, RBI Governor Raghuram Rajan is recouping forex reserves to stabilise rupee in Rs.58-62/USD.

The report also said that India’s “potential” growth rate is about 7.5 per cent and it is likely to emerge as the second-largest emerging market after China by 2019.

“We grow more confident of our call that the slowdown in growth has been largely driven by the global downcycle rather than domestic structural issues,” it said, adding that growth should rebound to 7.5 per cent by 2018, especially if the Modi government steps up infrastructure investment“.

BofA ML outlined four cyclical factors like — US recovery, stabilisation of Brent crude to around USD 100/bbl, the rupee at around Rs. 60/USD and revival in government’s reform activity — that would drive growth back to 7.5 per cent by FY’18.

On inflation, it said that is largely “imported” rather than homegrown. “We expect CPI inflation to come off to 6 per cent in 2016 in line with the RBI’s forecast.”

On RBI rates, the report said: “We believe that the RBI can cut rates even if the Fed hikes from September 2015, with Governor Rajan recouping FX reserves. We see it cutting policy rates by 75—100 bps starting in February, even if Fed Chair Janet Yellen hikes from September 2015.”
 
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Pune becomes new hub for global banks’ back offices - The Economic Times

A month ago, 30-year old Kaushik Bose (name changed), a consultant with EY in Mumbai, quit his job to relocate to Pune where he joined the back office of a global investment bank. Bose was prompted to make the shift to Pune from the city where he has lived, studied and worked for the past 10 years. The draws: a better quality of life, including cheaper rentals, a home close to the workplace, scope for more family time and net savings from the better cost of living.

An estimated 5,000 people across levels will be hired at the global in-house centres (GICs) of Citibank, Deutsche Bank, Barclays, Credit Suisse, BNY Mellon among others in the period, according to executive search firm estimates. Pune has many factors working in its favour. Topping this list is its proximity to the commercial capital Mumbai - it is barely a threehour ride from the megapolis.
 
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India's economy looks much like China's in 2001 - MarketWatch

India's economy looks much like China's in 2001
By Raymond Zhong
Published: Sept 14, 2014 7:33 p.m. ET


NEW DELHI--India today doesn't look quite like the economic dynamo that, just a few years ago, some predicted would soon overtake China as emerging-markets champion.

But the race looks a lot closer if you account for one key fact: China got a 13-year head start on India in opening its economy and giving companies greater freedom to invest and produce. In exports, capital spending and foreign investment, India today is remarkably similar to China in 2001.

That should both console and concern India as it gets back on its feet after three years of weak growth and high inflation. Console, since it suggests the country's economy could remain on a China-like trajectory for years to come. But concern, because India's delay could mean that the country has missed out on some big advantages that catalyzed China's boom.

The latter point is especially worth considering given how assiduously India's recently elected prime minister, Narendra Modi, is working to follow the blueprint for China's export- and investment-driven success.

When Chinese President Xi Jinping visits the Indian capital this week he will encounter a recipe for economic revival that ought to look very familiar. Delhi is aiming to boost exports and raise India's share in world trade by 50% over the next five years. "Sell anywhere," Mr. Modi said in an Independence Day exhortation to global business last month. "But manufacture here."

The prime minister is promising Indians bullet trains and "smart cities." He is rolling out more "special economic zones" in which companies get tax benefits and zip through India's bureaucratic thickets.

He also appears to be taking cues from a certain northern neighbor about how industry can benefit from strong state direction and support. Trade Minister Nirmala Sitharaman said last week that the government will "ensure that we do enough hand-holding with our manufacturers so that 'Made in India' becomes a brand which all of us can be proud of."

But can the same lightning really be bottled twice? Here's where the matter of head starts and late arrivals becomes important.

The seeds of China's growth spurt were planted in 1978, when Deng Xiaoping decollectivized agriculture and started welcoming foreign investment. For India, economic takeoff can be traced back to 1991, when a foreign-exchange crisis forced Delhi to scrap controls on firms' production and imports in exchange for an international bailout.

If you start the clocks at those respective openings, then the two countries' paths look strikingly similar. In the years after liberalization, exports; foreign investment; and spending on equipment, infrastructure and other ingredients for future growth, all grew at similar rates in the two nations. India's per capita output last year, adjusted for inflation, was slightly above China's in 2000.

There are differences, too. China's economy, even in 2001, was much more manufacturing-oriented than India's is today. India's growth has been fueled more by services like software and business outsourcing.

As for whether any of this foretells more years of China-like development for India, the evidence is mixed.

Low-cost manufacturing is less of a sure bet today. "The growth in global demand is now being driven less by rich, advanced economies than it is by other middle-income economies, which themselves are still relying on exports to maintain growth," said Eswar Prasad, an economist at Cornell University.

India, in other words, is arriving late to what has become a very crowded party. Bangladesh makes garments; the Philippines, electronics; Thailand and Vietnam, machines and computer chips.

Saon Ray, an economist at the Indian Council for Research on International Economic Relations, says India still has opportunities in the "very high-tech but very niche segments" in which it already has a foothold, such as pharmaceutical development and semiconductor design. (India doesn't actually manufacture chips, however.)

"It is never too late" to become an industrial hub, Ms. Ray said. "Because the good thing about technology is that it evolves all the time."

Another issue, Mr. Prasad says, is that India today can't boost its exports by weakening its currency. Unlike China and other Asian success stories in the past, India's capital account today is mostly open, and the rupee, for better or worse, moves at the whim of global markets.

Also absent today: easy money from the U.S. Federal Reserve, which many economists say was the driving force behind the emerging-market booms of the 2000s, including China's and India's.

Morgan Stanley economist Chetan Ahya emphasizes the economic advantage of India's young population. In 2000, the median Chinese person was 30 years old. The median Indian person today is 27. Educating India's younger generation and creating enough decent jobs for them will be the key. "Where you peak out depends upon how well you have been able to use the working-age population," Mr. Ahya said.

In that department, however, China's lead over India is even greater. India in 2011 still hadn't achieved the literacy rate that China had in 1990. In terms of the number of years the average adult has spent in school, India in 2013 was comparable to China in 1985. India is similarly decades behind on indicators of health, sanitation and longevity.

Economic powerhouses aren't often built on foundations like these.

R. Jai Krishna contributed to this article.
 
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US and India need to turn on the trillion-dollar tap, says Mumbai thinktank


A billion here and a billion there and pretty soon we are talking real money, a famous US Senator (Everett Dirksen) is believed to have joked at a time (1950s) a billion was big bucks even in the United States. A trillion is the number thrown out in the 21st century. Only a few countries (15) has trillion dollar economies (India's joined the ranks in 2007), and certainly no company, not even Apple, had hit that landmark. The world's largest trade relationship, between US and Canada, rolls over $650 billion annually, followed by US-China at around $600 billion.

But in an audacious projection, a report from the thinktank Gateway House released on the eve of Prime Minister Narendra Modi's visit to US is forecasting a $1 trillion partnership between the two countries by 2030, a ten-fold increase from the $100 billion mark that has just been reached. It's double the $500 billion target set by Vice-President Joe Biden during his visit to India in July last year, and the given the business boondoggles that have blighted the ties so far, it might well be a pie in the sky.

Not so, maintains Nish Acharya, a former Obama administration official who authored the report for the Mumbai thinktank that aims to bridge the gap between business and foreign policy. Acknowledging that the short-term relations between the two countries have never been aligned, Acharya paraphrases President Kennedy to argue that the United States and India must strive to create a trillion dollar economic relationship "not because it is easy, because it is hard." It is also natural, Acharya said in an interview on Sunday, because the two countries have complementary strengths, primarily the systems thinking and deep knowledge of the US, and process innovation and human capital of India.
 
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August WPI inflation eases to near 5-year low of 3.74% - TOI Mobile | The Times of India Mobile Site

NEW DELHI: Declining prices of vegetable and other food articles pulled down wholesale inflation sharply to 3.74 per cent in August to a nearly five-year low.
The inflation measured on Wholesale Price Index (WPI) was at 5.19 per cent in July and 6.99 per cent in August 2013.
Inflation in the food segment witnessed a significant decline to 5.15 per cent in August as against 8.43 per cent in the previous month, according to official data released here on Monday.
The August WPI inflation is the lowest since October 2009 when it stood at 1.8 per cent.
Vegetable prices contracted 4.88 per cent, the third continuous month of decline.

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Maintaining a downward trend, the onion prices contracted by 44.7 per cent during the month under review.
However, potato prices were on the rise as inflation in the kitchen essential jumped to 61.61 per cent from 46.41 per cent in July.
Inflation in the fruits basket eased to 20.31 per cent in August.
While prices of protein rich items like egg, meat and fish contracted during the month, inflation in milk and pulses inched up to 12.18 per cent and 7.81 per cent, respectively, as compared to July.
The August retail inflation too eased to 7.8 per cent compared to 7.96 per cent in July.
The wholesale WPI data further revealed that the price rise in manufactured goods, like sugar and edible oils too eased to 3.45 per cent in August, while it was 3.67 per cent in July.
Inflation in the fuel and power segment which include LPG, petrol and diesel declined to 4.54 per cent as compared to price rise of 7.40 per cent seen in July.
Meanwhile, wholesale inflation based on final index for June has been revised upwards to 5.66 per cent from the provisional estimate of 5.43 per cent.
The August WPI data is also provisional, the government said.
It also said the build up inflation rate in the financial year till August is 3 per cent compared to a build up rate of 5.23 per cent in the same period of 2013-14.
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Man its too much of good news all at once,kinda hard to digest :D
 
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Does anyone has any update or knows the status of any of tthe corridors other than DMIC???.
Thanks in advance.
 
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India has the potential to become the world’s fifth-largest exporter of goods by 2030 with the textile industry set to regain its place as the global garment hub, an HSBC report said.

“Despite struggling with a number of structural impediments to growth, prospects for medium-term growth in trade remain strong,” the HSBC report said.

“The economic potential for India remains strong, with the growing population and rapidly expanding middle class — it presents opportunities for business. India is forecast to emerge as the world’s largest middle-class market, surpassing both China and US,” said Sandeep Uppal, MD and head, commercial banking, HSBC India.

India can become major export hub by 2030: HSBC - Hindustan Times
 
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One thing i observe...Most of the investment is coming up in South and Western part of India....Gov should try to increase the economic investment and enviroment for FDI for these regions..In particular, the eastern part of India is really dragging the growth story behind...
 
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Emphasis is the article's.

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http://ftalphaville.ft.com/2014/09/23/1980232/india-a-finite-balance/

India: A finite balance
David Keohane

For those who don’t know, India is a big, extremely uneven, place. From HSBC (with our emphasis):

India is a federation, with the central and state governments having both separate and shared responsibilities. While central government policies and transfers shape state policy agendas, states still have a relatively high degree of autonomy. As a result, state policies vary greatly.

The rise of India can be seen in each state, but in some more than others. Between the 1990s and 2000s a handful saw average growth rates jump significantly – Uttarakhand in the north (8.5ppts) and Bihar (5.1ppts), Sikkim (8.4ppts) and Nagaland (4.7ppts) in the east.

A number of states and union territories have averaged double-digit growth since 2000, including Uttarakhand, Chandigarh, Sikkim and Nagaland. However, these are all relatively small states. The larger economies that have delivered impressive growth rates in this period include New Delhi (8.6%), Haryana (8.6%), Gujarat (8.8%), Maharashtra (7.7%) and Bihar (8.5%).

Volatility in the rate of growth also differs. Some states are more susceptible to changes in global economic conditions and subsequently took a relatively large hit during the global financial crisis of 2008-09. They were typically states with a larger share of manufacturing (Gujarat and Maharashtra) and a sizeable business services sector (Gujarat and Maharashtra again, and also Karnataka, which has a relatively large IT services sector).

And what about relative performance – is the gap between states closing? The answer is no. The richer states have, on average, experienced relatively faster per capita GDP growth than the poorer states, despite the strong performance of low income states such as Bihar, Orissa and Uttarakhand. The reality is that the pace at which richer states are pulling away appears to be increasing.

And in chart form:

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This is connected to the (unanswerable?) Sen – Bhagwati debate about the nature of India’s growth, the particularities of societal rigidity and caste politics and the questionable reality of trickle-down effects in a country which is overtly unequal — both within and between cities and states. But rather than get into that, there are some obviously simplistic policy implications here:

The quantitative analysis shows that initial conditions, such as the combination of income per capita and high growth, matter for the growth performance in subsequent decades. Demographics, on the other hand, do not appear to explain cross-state differences in growth performance. This is consistent with our previous finding that the demographic dividend may not yet be fully exploited, as growth in states with fast-growing populations faces a number of structural growth constraints.

However, the degree of business friendliness matters greatly for the relative growth performance of individual states. In our model, we have measured the degree of business friendliness as a composite measure, calculated as the product of: 1) the World Bank ranking for getting construction permits; 2) the World Bank ranking for trade openness; and 3) the OECD score for entrepreneurial product market rigidity.

According to the model estimates, a hypothetical state ranking at the top of the league in terms of business friendliness, as per our composite measure, will have a growth advantage of more than 4ppts over a state with the poorest business environment.

In reality, however, the most business friendly states do not get top grades across all categories and the least business friendly states do not consistently get bottom grades either. This means that differences in business friendliness in India are smaller than in the hypothetical case. In reality, therefore, actual differences in business friendliness explain less than 4ppts between the best and worst states in terms of growth; however, it can still explain a large chunk of the relative growth performance over the past decade.

Extremely relevant when discussing Modi’s slow-burn reforms even it leaves the broader social questions largely unanswered. More, including the maps below, in the usual place.

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And the companion piece:

http://blogs.ft.com/beyond-brics/2014/09/23/forget-modi-indias-states-hold-the-key/

Forget Modi, India’s states hold the key
Sep 23, 2014 2:00pmby Mian Ridge

Investors interested in India are watching Prime Minister Narendra Modi to see if he will deliver the reforms needed to kick-start the economy.

But India’s economic future is also being determined to a large degree at the state level, according to HSBC, with some states surging forward and others lagging behind. The per capita GDP of Delhi, for instance, is $3,600. In the vast state of Uttar Pradesh, which has a population roughly the size of Brazil’s, it is $690.

That puts Delhi on a par with Ukraine, and Uttar Pradesh with Rwanda.

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Better infrastructure, a larger private sector and – crucially – friendlier business environments seem to be the ingredients for a successful state, it said in a note:Unfolding the tapestry – a guide to India’s states.

India is too often looked at as “one homogenous country”, but there are important differences across India’s 36 states and territories. The rise of local political parties in recent years has given states more independence, and fiscal autonomy has increased too, with obvious results:

For example, some are opening up their economies, cutting red tape and introducing reforms based on what works for them. In turn, this has delivered impressive growth rates. Others are not making much progress in these areas and are struggling to deal with significant poverty. A top-down, one-size-fits-all perspective does not work for a country as vast and diverse as India.

The picture is indeed complex. Bihar, which has one of the highest levels of poverty in India and a pitiful per capita GDP of $529, also happens to be one of a handful of dynamic states that have delivered impressive growth rates since 2009 (see chart) thanks in its case to state-level reforms.

Others include Gujarat, where Modi was chief minister for over a decade, and the central state of Madhya Pradesh which benefits from its proximity to Delhi.

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This is also reflected in per capita GDP numbers (see chart).

8e64f1de546e7663b5c32d58eb7fce4f.pngHSBC observes that much has been made of India’s “demographic dividend”: 50 per cent of Indians are aged under 24, compared to 36 per cent in China and 42 per cent in Brazil.

The dividend can remain unpaid, it shows. The states with faster growing workforces were not been the growth leaders in the 2000s, because other constrains on growth – lack of infrastructure, skills gaps and restrictive labour and product markets – had held them back.

Our quantitative analysis shows that what matters most for economic growth is a combination of the underlying conditions (for example, how rich or poor the state is) and how easy it is to do business.

Five states accounted for half of total investments in 2011. Three of them – Gujarat, Andhra Pradesh, and Orissa – were also ranked as the most business friendly states in a 2009 World Bank survey.

Our quantitative analysis shows that the relative differences in business friendliness can explain up to 2.5 ppts of the growth differential between the reformist and non-reformist states.

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There were reminders throughout the note that the task of unshackling India from the tightly controlled “Licence Raj” begun by Manmohan Singh when he was finance minister in the 1990s, remained but “half done”.

Despite a handful of industrialised states, India has a low industrial base, and that was down to poor infrastructure and rigid labour markets.

The combination of the strict rules about laying off workers, which do not apply to service companies, and the reservation of specific areas for small operations, have restricted the scale of businesses. Almost 90% of manufacturing employment involves enterprises with fewer than 10 employees. This has effectively prevented many Indian states from exploiting economies of scale, with major implications for growth.

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Meanwhile the dominant economic sector, services, which HSBC expected to grow, faced competition from other countries.

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This means that India, at both the central and state level, has to work hard to retain its competitive edge on these fronts by pushing through reforms to raise skill levels and aligning skills with future private sector needs. India should, however, also enable growth in other segments of the services sector, for example, by further opening up the retail sector to foreign companies.​
 
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Deloitte may sign up 1.4 million sq ft of office space in Hyderabad

India's commercial real estate market is seeing big deals being struck once again in the top cities. In one of the largest leasing deals in the country, Deloitte is close to signing up 1.4 million sq ft of office space in Hyderabad for its BPO business. This isn't the only 1 million sq ft plus leasing deal in the market at present. Several top companies are looking for space to consolidate their offices and, more importantly, prepare for the impending growth that is expected as the economy improves. Bangalore leads in terms of companies looking for large office spaces.

Deloitte may sign up 1.4 million sq ft of office space in Hyderabad - Economic Times
 
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