India's economic growth disappoints

[Edevelop]

India's economic growth has remained subdued, due largely to a slowdown in the manufacturing sector, official figures have shown.

The economy grew at an annual rate of 4.6% between January and March, below analysts' forecasts and the same pace as the previous quarter.

For the full 2013-14 financial year, growth was 4.7%, the second straight year of sub-5% expansion.

New Prime Minister Narendra Modi has pledged to boost growth.

'Turnaround' coming
The manufacturing sector contracted at an annualised rate of 1.4% over the quarter, while the mining sector shrank by 0.4%. Offsetting this was a 6.3% growth in the agricultural sector.

"The quarter's weak growth was mostly due to weakness in investment, held back by last year's spike in interest rates, slow credit growth, and sentiment made more pessimistic by the rupee's volatility," said Bill Adams at PNC Financial Services Group.

Asia's third-largest economy has been weighed down in recent years by high inflation, a weak currency and a fall in foreign investment.

Two years ago, India's growth rate stood at about 8%. This level of growth is needed to provide enough jobs for India's growing population - economists estimate 10 million jobs need to be created each year.

The last government failed to meet that target - data shows that between 2004-05 and 2011-12, just 53 million jobs were created.

However, many economists are upbeat and expect growth to increase, and more jobs to be created, on the back of Mr Modi's election.

"As soon as investors see the first signals of growth-supportive policies, you will see a definite turnaround on the ground," said Adi Godrej, chairman of the Godrej group.

Spending on infrastructure is expected to increase significantly in the coming months, a stimulus that should help boost growth towards in the end of the year, analysts say.

BBC News - India's economic growth disappoints

 

[Chinese-Dragon]

Asia's third-largest economy has been weighed down in recent years by high inflation, a weak currency and a fall in foreign investment.

These are the main problems.

Investment is not a big problem for the Modi administration, who will most likely welcome overseas investment. And countries like China in particular are running out of places in which to divert our massive surpluses and reserves, due to our move away from an economic model that mostly relied on domestic investment. This means a huge amount of funds flowing into overseas investment instead.

Currency volatility is a problem, but also somewhat solvable.

Inflation is the real killer here. Can the Modi administration overturn or at least amend schemes like NEGERA, which artificially raise wages (and thus demand for goods and services) without an equivalent rise in productivity? I think this would be very difficult in political terms, and means that inflation will be very hard to tackle.

The good news is that cleaning up supply side inefficiencies, like the massive problems with India's food supply chain (in which most food rots before it reaches its destination) will be much easier, since it will not have such a big political backlash. And that will be of enormous help to the massive inflation burden that India is currently bearing.

Just my opinion.

 

[Arya Desa]

These are the main problems.

Investment is not a big problem for the Modi administration, who will most likely welcome overseas investment. And countries like China in particular are running out of places in which to divert our massive surpluses and reserves, due to our move away from an economic model that mostly relied on domestic investment. This means a huge amount of funds flowing into overseas investment instead.

Currency volatility is a problem, but also somewhat solvable.

Inflation is the real killer here. Can the Modi administration overturn or at least amend schemes like NEGERA, which artificially raise wages (and thus demand for goods and services) without an equivalent rise in productivity? I think this would be very difficult in political terms, and means that inflation will be very hard to tackle.

The good news is that cleaning up supply side inefficiencies, like the massive problems with India's food supply chain (in which most food rots before it reaches its destination) will be much easier, since it will not have such a big political backlash. And that will be of enormous help to the massive inflation burden that India is currently bearing.

Just my opinion.

Isn't having too much reserve really bad for a country, like having too much sugar?

 

[Chinese-Dragon]

Isn't having too much reserve really bad for a country, like having too much sugar?

Yes. Very much so.

And we have $4 trillion in reserves. Something is going to break unless we fix it first.

Personally I would divert everything possible into the CIC branch of our currency reserves, which is responsible for investing in "real" assets, like land/resources/factories/etc. overseas.

 

[Arya Desa]

Yes. Very much so.

And we have $4 trillion in reserves. Something is going to break unless we fix it first.

Personally I would divert everything possible into the CIC branch of our currency reserves, which is responsible for investing in "real" assets, like land/resources/factories/etc. overseas.

That's a good idea. China should continue buying large tracts of land in Africa. Truth be told, China has less habitable land than India due to rocky terrain and massive deserts. So if you can turn the African territories to farm land, then that frees up much needed space in China. If India ever gets rich enough, I hope she also does that.