What's new

The World in 2016 – 7 Pillars holding the Global Growth

Fortunately I am associated with one of the institutions (who have written this report and i have some real good contribution to it) in Real Life and thus my love for France stems from a deeper loyalty of Indo French relations and personal experiences.... So this does opens up a avenue of information which i had never imagined in my life when in past i worked with an India based bank before. And a stint in a foreign conglomerate abroad for quite some good time opened my eyes how we as a country for so long have been protected purely bcz we have such a big domestic demand and we were really happy living with that huge base of consumers. But world today has changed drastically for India as well

Inspite of hope that we have given to the whole world, the actual data is not very encouraging. The third quater or Q3 as we call it for most FIs wont show very drastic growth. The FIs will show some profit but there is a deeper issue of bad loans across the sectors which are either hidden, restructured or ever greening done to hide. The real bleeding of this issue is not yet seen. A good example is check for public sector banks like PNB (Punjab National Bank).. Its in very terrible shape.. There are dozen such banks in India going through a realisation phase where the monies lended is not gonna come back soon and they cant keep on giving a new loan to hide old loan dues forever. The provisions will shoot up and eat up the profit but that being a public entity will raise so many eyebrows that the whole system will suffere due to a contagion effect.

Take for example the power sector in India. Numerous FIs have given huge finances to this sector. Its having issues like
  • Issues of cyclical commodity price surge leading to increase in input costs
  • Discom issues and huge financial stress seen on them
  • Structural issues with inefficient systems
Fixing discoms needs
  • Capital
  • political will at state level
  • Bigger political will at center level to work with state to effect pricing changes
We always say demand is want backed by purchasing power. Unfortunately money especially from FI credit is almost stagnant to this sector.

On top we have bad loans or NPA issues. It puts us to the important question how long we can depend on economic growth to kind of put all these sectoral issues under carpet.

Take another example.. Corporate earnings is a subset of GDP of majorly listed entities. But India as a country has a much larger base of unlisted companies, Now consider a scenario where unlisted entities doing much better than listed ones. In such a case GDP growth will be much higher in true sense. But then also consider the reverse scenario. In such a case the growth that India is showing and giving the whole world may actually be much lower as real bleeding is well hidden among unlisted entities.

You mentioned job cuts.. You know most corporates in India may well give a max 10.8% average salary hike (source : India Inc to Dole Out 10.8% Salary Hike in 2016: Report - NDTVProfit.com . Even this estimation to me looks at higher side.and real salary post inflation adjustment may be much lower than last few years(but thats average for all sectors.)
Most of the important sectors like FIs in my personal estimate wills be avg salary hike at just around 7% and bonus (based on profitability if any) will be less than 1 multiple of months salary.Imagine a inflation rate at say 5 or 5.5%. So the real salary growth is in the range of 1.5-2% post inflation adjustment.
On top there would be job cuts, postponement of hiring and replacement of 2 high salary profiles with one medium salary profile. Imagine this contagion effect on the youth who are beginning their career or are less than say 5 years in experience.

If GOI does not initiate a massive restructuring across core sectors and increase investments, we are looking at a much bigger issue in India.Unfortunately the resolve shown by ruling majority in parliament has not translated into meaningful contribution for such structural changes. We may see USD/INR closer to 69 owing to maximum 5% deviation from FY beginning before RBI steps in and stops the plummeting currency. Indian tourists who flock the world will try more domestic vacation due to currency issues and this implies its good for domestic market but the effect on global tourism industry, airlines and hotel industry - you can imagine how such actions will have a bull whip effect.

India having a protectionist regime have always saved herself from the world market. But that issue cannot be sustainable for protecting the interests forever.

Take a look at China.. Its investments outside economy of herself has been in places which can fuel its new demands, shorten and raise efficiency in the supply chain and most importantly try and bridge the gap of reaching markets. These are important steps needed for re-composition as i have mentioned before. The effect of controlling a massively expanded economy and reworking the efficiency levles for demand supply gap and cost of production and avenues to reach market is a very important aspect. Thats why i said Chinese leadership is very important for their role os shaping the economic might for coming decades.

Two major factors which work in CHina's favour has been the developed infrastructure they had mustered and continue to develop portion and secondly the massive investments it makes in many domestic projects espeically in R&D. The China market is already a consumers market and no economy from world will not like to take advantage out of it.

Trans Pacific Partnership comprising of 12 nations 4 original and 8 negotiated to become members
TPP-nations.jpg

Source - Google search for images.

The TPP is suppose to have 40% of the world economy. But if you see their members like Chile, New Zealand, Singapore and Brunei - original members and Australia, Canada, Japan, Malaysia, Mexico, Peru, the United States, and Vietnam, joined them later. TBH limited trade is being done between these members and they majorly deal with Internet freedoms, intellectual property, regulations and other subjects etc which are actually not very important to understand from Trade angle. Its more like a controlling mechanism which comes as apart of feedback loop in a control system. But what it effectively lacks is the markets which has the potential for outcomes chiefly China, India and other economies where potential is huge. Some good points are also mentioned in Wikipedia on this Trans-Pacific Partnership - Wikipedia, the free encyclopedia

The other agreement TTIP or Transatlantic Trade and Investment Partnership infact involves almost 45-50% of the world economy. Its effectively an extension of TTP as its majorly EU and USA. At least both these entities have solid trade numbers every year and are highly interdependent. But again these numbers are based on interdependency on economic terms but still it does not give access to the potential markets with largest consumers like China and India.

In another opinion, it looks like both TTP and TTIP are just NATO alliance in trade form.
If i remmebr correctly a year back in some newspaper a view about such agreements on India was covered. One important aspect discussed was medicines and its cost and access.. The IP rights and access by Consumers in China and India where lcoally produced same molecule can be far more cheaper versus these treaty protected pharma majors contention was seen as a driving force of healthcare costs.

I remember a speech By Sujata Mehta from MEA, organised by FICCI. She had spoken about issues that will go well beyond trade in goods and services into areas such as transparency,regulatory issues, IP, labor laws, environment, investment, government procurement, and dispute settlement mechanisms. In Her opinion she commented that unless Indian industry change their overall perspectives and the way they operate, they wont be able to meet requirements as stated by both these treaties. In essence we wont be able to enlarge our trade basket nor we will be able to take any benefits out of it. On top such Trade treaties ensure that dominant forces like USA and EU can dictate terms which are detrimental for countries like India and China.. Combine this with recent Environment regulation of or Paris Climate accord, you see how developed economies in such treaties dominantly ask to control environmental issues which will have a direct impact on local economy's supply side and will impact labor side harshly.

Thus in essence, these treaties pose challenges and issues but since they dont have directly India and China as members they are not in a unique position as they believe themselves. Their might is well known but cannot sustain their might unless they have their markets for such economic might... Unless these treaty members market can actually replace China and India completely within their domestic demands among members, it cannot help them completely. But on the other side the strict rules and standards will create minor issues for India and China who would definitely engage with them and WTO to come to a better understanding and work out a meaningful acceptability.

@Spectre
Everyone around me talking about the recession which has started to set in. I hope it is not as bad as it was in 2007-2010.
go through some sites like bodybuilding.com and others when you search in google
Me is just trying to live a healthy life. Good metabolism(thanks to my genes and job) has been both a boon and bane for me. :)
 
Everyone around me talking about the recession which has started to set in. I hope it is not as bad as it was in 2007-2010.

Lighter note you can do a "ghar wapsi" too.. Back to home in India... Start up a new biz.. Choose a line which may be a but more recession proof.. Or recession insensitive..

We do need to find more avenues for such opportunities and each economy must build a class of such jobs.. This way employment and a steady source of demand supply and free cash in consumers hands remains intact.

An example is education system. Check how coaching tutoring classes lectures speakers and associated biz model is flourishing.. It's pretty good pay per hour basis.for individual sessions..

On tops its very on demand job with almost fully protected from recession

Another such sector is healthcare and allied sectors.

Ultimately defensive sectors which are partially or fully protecting from recession only can guarantee a strong base for individual economies. They cannot be 100% of the economy but a sizeable 30-40% can guarantee a strong and healthy base at anytime.
 
An update to this article..
I had discussed regarding Pillar 7 being Global Economy's Hope - India herself

In line with earlier discussion, here is the latest on India's economic Survey for the year 2016-17 as tabled in the parliament today

Economic Survey predicts India's GDP growth will be 7-7.5% in the next fiscal

Indian economy is likely to grow between 7 and 7.5% in the fiscal year 2016-17, according to the Economic Survey tabled in Parliament on Friday. (Point 10 Pillar 7 Global Economy's hope - India)

The survey has also projected 7.6% economic growth rate in 2015-16. But in a word of caution the survey warns that India's growth rate may be impacted if the world economy remains weak. (Point 3.2 The global story)

But there are several favorable domestic factors. The two factors which can boost consumption are increased spending from higher wages and allowances of government workers if the 7th pay commission is implemented and a normal monsoon. (Pillar 4 - Power of Consumers)

economic-survey.jpg

The Economic Survey has also projected 7.6% economic growth rate in 2015-16.


On the other hand turmoil in global economy could worsen the outlook of exports, contrary to expectations oil prices rise would increase the drag from consumption and the most serious risk is combination of the above two factors. (Point 4 Pillar 1 Oil Prices)

According the survey the Union Budget and economic policy will have to contend with an unusually challenging and weak external environment. While presenting an optimistic picture of the Indian economy amidst the gloomy and volatile international environment, the survey claims that India stands as a haven of stability and an outpost of opportunity. (Point 10 Pillar 7 Global Economy's hope - India)

It says the country’s macro-economy is stable, founded on the government’s commitment to fiscal consolidation and low inflation. The survey underlines that India’s economic growth is among the highest in the world, helped by a reorientation of government spending toward needed public infrastructure. (Point 10 Pillar 7 Global Economy's hope - India)

Describing these achievements as remarkable, the survey emphasises that the task is now to sustain them in an even more difficult global environment.

Even the increase in wages recommended by the 7th Pay Commission are unlikely to destabilise prices and will have little impact on inflation. While the fiscal deficit of 3.9% seems achievable in 2016-17, it is expected to be challenging in 2017-18

The Centre is also likely to enhance bank recapitalisation from Rs 25,000 crore to Rs 30,000 crore. Four Rs - Recognition, Recapitalization, Resolution and Reform are required to comprehensively resolve the twin balance sheet challenge of Public Sector Banks and some corporate houses, says the survey.

The survey further states that the country’s performance reflects the implementation of number of meaningful reforms. Claiming that there is a sense that corruption at the Centre has been meaningfully addressed and which has been reflected in transparent auctions of public assets.

Foreign Direct Investment (FDI) has been liberalised across the board and vigorous efforts have been undertaken to ease the cost of doing business.

Stability and predictability has been restored in tax decisions reflected in the settlement of the Minimum Alternate Tax (MAT) imposed on foreign companies.

Major public investment has been undertaken to strengthen the country’s infrastructure. In the farm sector, a major crop insurance programme has been instituted.

The survey has highlighted creation of bank accounts for over 200 million people under Pradhan Mantri Jan Dhan Yojan (PMJDY), the world’s largest direct benefit transfer programme in case of LPG with about 151 million beneficiaries receiving Rs 29,000 crore in their bank accounts and the infrastructure being created for extending the JAM (Jan Dhan Aadhar Mobile) agenda to other Government programmes and subsidies.

However, the survey has expressed concern over approval of Goods and Services Tax (GST) Bill being elusive so far, the disinvestment programme falling short of targets and the next stage of subsidy rationalisation being a work-in-progress. It adds that corporate and bank balance sheets remain stressed affecting the prospects for reviving private investments. It further says that perhaps the underlying anxiety is that the Indian economy is not realizing its full potential.

The survey states that the country’s long run potential growth rate is still around 8-10% and realising this potential requires a push on at least three fronts.

First, India has moved away from being reflexivity anti-markets and uncritically pro-state to being pro-entrepreneurship and skeptical about the state. But being pro-industry must evolve into being genuinely pro-competition. Similarly, skepticism about the state must translate into making it leaner.

It emphasizes that the key to creating a more captive environment will be to address the exit problem which affects the Indian economy. Second, the Survey calls for major investments in health and education of people to exploit India’s demographic dividend to optimal extent. Third, it says that India cannot afford to neglect its agriculture.

Economic Survey predicts India's GDP growth will be 7-7.5% in the next fiscal - IBNLive
++
Another article

Survey_2752519g.jpg


Economic Survey estimates 7 to 7.5% growth rate for 2016-17
  • PTI

Ahead of the Union Budget, the Economic Survey on Friday termed external environment as challenging but projected a 7-7.5 per cent GDP growth rate in the next fiscal which could accelerate to eight per cent in a couple of years.

The Economic Survey for 2015-16, which was tabled in Parliament today, also made a case for carrying forward the reform process to achieve macroeconomic stability.

Inspite of challenges and lower than projected GDP growth rate during 2015-16, “the fiscal deficit target of 3.9 per cent of GDP seems achievable.”

After a 7.2 per cent economic growth in 2014-15, it said the expansion in economy will be 7.6 per cent in the current fiscal, the fastest in the world.

However, it cautioned that if the world economy remained weak, India’s growth will face considerable headwinds.

On the domestic side, two factors can boost consumption, increased spending from higher wages and allowances of government workers if the 7th Pay Commission is implemented and return of normal monsoon.

At the same time, the Survey enumerated three downside risks — turmoil in global economy could worsen the outlook of exports, contrary to expectations oil price rise would increase the drag from consumption and the most serious risk is the combination of these two factors.

“One of the most critical shortterm challenges confronting the Indian economy is the twin balance sheet problem — the impaired financial positions of the public sector banks and some corporate houses. The twin balance sheet challenge is the major impediment to private investment and a fullfledged economic recovery,” the Survey said.

Inflation_2752510a.jpg


Source: Press Information Bureau

Stock markets resilient

Indian stocks are relatively resilient despite volatility in the worldwide financial markets and the country can become a leading investment destination going ahead, the Economic Survey.

“The (Indian) market has rebounded time and time again, and it is hoped that as the global financial markets settle down, India can become the leading investment destination owing to its robust macroeconomic fundamentals,” as per the 2015—16 report card of the state of the economy tabled by Finance Minister Arun Jaitley in Parliament on Friday.

“Despite volatility in global financial markets, the Indian equity market has been relatively resilient during this period compared to the other major emerging market economies,” it added.

The Survey also said that the average borrowings by banks have increased significantly in the immediate aftermath of US fed rate hike, resulting in appreciation of the rupee.

However, subsequent to easing of liquidity conditions, the rupee started depreciating.

On trends witnessed in capital markets, the Survey said that during the fiscal 2015-16 till December the resource mobilisation through the public and right issues has surged rapidly as compared to the last financial year.

During this period, 71 companies raised Rs. 51,311 crore from the capital market compared to Rs. 11,581 crore during the corresponding period of 2014-15. Fund garnered by mutual funds also increased substantially to Rs. 1,61,696 crore from Rs. 87,942 crore.

During 2015-16 so far, the Indian equity market has remained subdued. The BSE’s benchmark Sensex declined by 8.5 per cent (till January 5, 2016) over March 2015, mainly on account of turmoil in global equity markets.

The net investment by Foreign Portfolio Investors (FPIs) in the Indian market was at Rs. 63,663 crore in 2015 as compared to Rs. 2,56,213 crore in 2014.

Economic Survey for 2016-17 released - The Hindu
 
From PIB (press Information Bureau) for the same Economic Survey 2016-17
vlNFv2A9_400x400.jpg



Economic growth forecast 7.0-7.75%. Wide range due to external&monsoon uncertainties. Inflation forecast 4.5-5%

CcH8JCSUMAA1VEZ.jpg


Twin balance sheet challenge needs 4Rs: Recognition,Recapitalisation(RBI can help), Resolution &Reform.

CcH8z1EUEAE2P5Q.jpg


Fiscal policy must balance stability (declining deficit, debt) while insuring against growth slowdown

CcH8hzNUkAExdks.jpg

Ease liquidity to enable pass thru to market rates. Ease repo rate due to benign inflation outlook
CcH8SOjUEAAc4eK.jpg


Eco Survey themes: macro policy & outlook, structural reform & exit, strengthening state's relations w/ rich, poor
CcH72gSUEAALi7E.jpg





This following is for @Spectre Its his area of interest as was discussed in this thread only

@Nihonjin1051 You may find this interesting how GOI is responding mega trade agreements via more emphasis on FTA with multiple countries.

Looming trade policy challenge: how to respond to mega-regional trade agreements like TPP?
CcIAi6YUcAAQw1Z.jpg


Press Information Bureau , Government of India, Ministry of Finance
26-February-2016 12:27 IST
FTAs leading to increased Imports and Exports

Since the mid- 2000s India’s Free Trade Agreements have doubled to about 42 today. They have increased trade with FTA countries more than would have happened otherwise. Increased trade has been more on the import than export side, because India maintains relatively high tariffs and hence had larger tariff reductions than its FTA partners.

In case of the ASEAN FTA, the country has benefitted on both sides of trade flows with a statistically significant 33 per cent increase in exports and 79 per cent increase in imports.

The trade increases have been much greater with the ASEAN than other FTAs and they have been greater in certain industries, such as metals on the import side. On the export side, FTAs have led to increased dynamism in apparels, especially in ASEAN markets.

The overall effect on trade of an FTA is positive and statistically significant. The cumulative effect between the year of the FTA and 2013 on trade with ASEAN, Japan, and Korea is approximately equal to 50 per cent. India’s increased trade with FTA countries is not due to diversion of imports from more efficient non- FTA countries.

On the import side, a ten per cent reduction in FTA tariffs for metals and machinery increased imports by 1.4 per cent and 2.1 per cent respectively, compared to other products from FTAs or all products from Non-FTA countries.

In the current contest of slowing demand and excess capacity with threats of circumvention of trade rules, progress on FTAs, if pursues, must be combined with strengthening India’s ability to respond with WTO-consistent measures such as anti-dumping and conventional duties and safeguard measures. Analytical and other preparatory work must begin in earnest to prepare India for a mega-regional world.
FTAs leading to increased Imports and Exports

A GIF released by PIB, GOI
#EconomicSurvey's key points, in reader-friendly format...
 
The government could not properly transfer lower oil prices and lower inflation into growth.

Then there is disruptive opposition that is not letting government pass crucial economic reforms in Parliament.

Certain sectors such as IT,technology, retail and eCommerce are growing fast and is attracting lots of investments, while traditional sectors manufacturing and Agribusiness are falling behind.

Monsoon is not as expected in the last two years and we might see the effect this year on GDP, then there is slowing China and not so good world economy

So there are positives but also negatives that might dampen the forecasts of economic outlook
 
Here is the Economic Times review of Indian Economy based on Economic survey 2016-17

ET review of Economy based on Economic survey 2016-17.jpg
 
Back
Top Bottom