Indian Economy : News,Discussions & Updates

RISING SUN

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ExplainSpeaking on economy: How robust is India’s economic recovery?
Dear Readers,

The past week has thrown up some heartening news on the economic front.

First up, after contracting for six months on the trot, India’s exports staged a turnaround and grew in September. The pace of growth was marginal at 5.27% but under the circumstances, any growth is a cheerful development. However, imports declined by close to 20% and that is typically bad news for a growing economy.

As this chart below on the level of trade normalisation shows, exports have returned to 98.4% of normal in September, while imports have risen at a slower pace to 73.7% of normal.

Source: CEIC and Nomura estimates
Then there was optimistic news from the crucial automobile sector. Maruti Suzuki registered a 34% jump in sales in September — selling the most number of cars in a month in the past two years. It was not the only company to improve. Hyundai (24%), Honda (10%) and Mahindra & Mahindra (3.5%) — all saw positive growth even though some such as Toyota (minus 20%) missed out. Two-wheelers, led by Hero MotoCorp, also saw health sales.

The hopes of robust sales during the forthcoming festive season is the likely driver for these purchases as dealers stock up. Given the shape of the economy, it is hardly surprising that the focus of such sales is at the lower end of passenger cars and also in rural areas.

An allied improvement was in the demand for petrol, which grew by 2% over September last year, and rose for the first time since the nationwide lockdown was announced in later March. Consumption of diesel, however, registered a fall year-on-year (that is, in September this year compared to September 2019).

There seems to be more demand for personal mobility and less for community mobility, and this is showing up both in the demand for the type of fuel and the type of cars. For instance, jet fuel sales in September were down 54%, year-on-year.

But possibly the biggest bit of news was the sharp spike in the Nikkei Manufacturing Purchasing Managers’ Index. This index, which is compiled by IHS Markit and is seen as a proxy for factory-level activity, jumped to 56.8 in September from 52.0 in August. Anything above the 50-level in this index implies growth; anything below 50 implies contraction. According to Reuters, the index registered its highest reading since January 2012.

All this news in September is in stark contrast to August, which saw the output of India’s eight core sectors of infrastructure decline by almost 9%. What made this decline worse is the fact that it was in comparison to the non-existent growth in August 2019.

The obvious questions then are: Has the Indian economy decidedly staged a turnaround? Is the worst over?

Well, if one looks at September, one might be tempted to arrive at that conclusion. But the age-old wisdom is that one swallow doesn’t make a summer.

Look, for instance, at what happened when India opened up after the nationwide lockdown in late March and April. The chart below (Source: Nomura), showing the pace of economic normalisation, brings out the essential point: That the rate of improvement in economic activity decelerated with each passing month from May to August.

Source: Nomura
In fact, in some sectors of the economy, such as External (that is, exports, foreign visitors etc.) and Industry (that is, cement, steel etc.), the rate of improvement was turned negative in August — look at the green highlights in the chart above.

Typically, one would have expected that as the country opened up more and more, the pace of economic normalisation would have increased and quickly attained its overall potential.

Yet, according to this index by Nomura economists Sonal Varma and Aurodeep Nandi, as of August, aggregate demand was still less than 70% of potential and aggregate supply was slightly better at 85.7%.

Moreover, according to some, even as September ended, economic activity was beginning to stagnate yet again.

For instance, Nomura India Business Resumption Index (NIBRI), shown in the chart below, combines inputs from Google mobility indices, driving mobility from Apple, power demand and the labour force participation rate to prepare a weekly tracker of economic activity normalisation. The Chart shows a distinct improvement in September. But note the dip for the week ending September 27.

Nomura India Business Resumption Index (NIBRI)
Another example is the SBI Business Activity Index. As shown in the chart below, highlighted in green, economic activity jumped up in early September but then stagnated towards the end.

Source: SBI Research
In other words, even if September shows a lot of promise, one should wait before jumping to a conclusion.

Stay safe!

Udit
 
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RISING SUN

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India's exports turn positive for the first time in seven months
New Delhi: India’s outbound shipments turned positive for the first time in seven months, with merchandise exports registering 5.3% growth in September, driven mostly by pick up in external demand for goods in sectors such as engineering, petroleum, pharmaceuticals and readymade garments.

Mint was first to report on 25 September, quoting provisional figures, that exports have turned positive in the first three weeks of September growing by 8.3%.

Preliminary data released by the commerce ministry ahead of schedule showed exports grew 5.3% to $27.4 billion while imports contracted 19.6% to $30.3 billion, leaving behind a trade deficit of $2.9 billion. Thus, in the first of the financial year (April-September), exports have declined 21.4% to $125.1 billion while imports contracted 40.1% to $148.7 billion, creating a trade deficit of $23.6 billion. Non-oil non-gold exports rose 11.1%, while non-oil non-gold imports dipped 13.3% in September.

Aditi Nayar, principal economist at ICRA, said the growth in merchandise exports in September is heartening after the faltering trend seen in the previous month. “Regardless, the sharp gap in non-oil non gold merchandise imports remains a cause for concern regarding the strength of domestic demand," she added.

Among major countries, exports to China (20.8%) and the US (15.5%) grew at the fastest pace in September while India’s imports from most major economies contracted in September, including China (10.1%).

India’s merchandise trade has been weakening even before the pandemic hit the economy and external demand. In 13 of the last 15 months, starting June 2019, India’s exports have been in negative territory. However, since March of this year, both exports and imports started declining in high double digits, even temporarily leading to a trade surplus in June for the first time in 18 years.

Data compiled by the World Trade Organization (WTO) showed global merchandise trade declined by 21% in the June quarter. “In comparison, the decline in merchandise trade values during the financial crisis was deeper with a 33% drop recorded in the second quarter of 2009," it said. In April, WTO had projected global merchandise trade to drop by 13% to 32% in 2020 because of the pandemic.

India’s economy contracted 23.9% in the June quarter, hit by the double whammy of a demand contraction and supply shock because of a countrywide lockdown considered to be the strictest in the world.
 

Gautam

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ET prime article :


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Gautam

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INDIA'S RICE EXPORTS COULD JUMP TO RECORD ON THAI DROUGHT EFFECTS​

Reporting by Rajendra Jadhav
Editing by Christian Schmollinger
10/7/2020
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Highlights :
  • Thailand's rice exports plunge on lower output
  • Buyers shift to India on lower prices, ample stocks
  • India's 2020 exports seen at 14 million tons vs 9.9 million tons a year ago
  • Huge inventory, weak rupee gives India an edge

MUMBAI, Oct 7 (Reuters) - India's rice exports in 2020 may rise by nearly 42% from a year ago to record highs because of reduced shipments from rival exporters and a depreciating rupee, industry officials said this week. Higher shipments from India, the world's biggest rice exporter, could cap global prices, reduce the country's bulging inventories and limit Indian state stockpiler purchases from farmers.

India's rice exports could jump to 14 million tonnes in 2020, up from last year's 9.9 million tonnes, the lowest in eight years, said B.V. Krishna Rao, president of the Rice Exporters Association. "Thailand's shipments are falling due to the drought. Vietnam is struggling because of lower crop. That share is naturally coming to India," Rao said.

Thailand, the world's second-largest rice exporter, suffered through a drought earlier this year that has affected the rice crop. Shipments in 2020 could fall to 6.5 million tonnes, the lowest in 20 years. Vietnam, the third-biggest global exporter, has contended with low water levels in the Mekong River Delta, the country's main rice growing region, that has limited supply.

India mainly exports non-basmati rice to Bangladesh, Nepal, Benin and Senegal, and premium basmati rice to Iran, Saudi Arabia and Iraq. India's rice shipments in 2020 will rise because of robust demand for non-basmati rice from African countries, said Nitin Gupta, vice president for Olam India's rice business.

"Basmati rice demand is more-or-less stable, but in non-basmati we have seen a huge surge in demand due to attractive prices," Gupta said.
India's non-basmati rice exports may double from a year ago to 9.5 million tonnes, while basmati rice exports would remain stable around 4.5 million tonnes, he said.

India was offering 5% broken parboiled rice at $380 per tonne on a free-on-board basis, while Thailand was offering the same grade at $490 per tonne, dealers said. Indian exporters have offered rice at lower prices at a time when global prices have jumped on limited supplies because of the rupee's depreciation, Rao said.

The rupee has declined 3% against the U.S. dollar so far this year. In addition to lower Southeast Asian sales, China has also cut exports to Africa after floods hit local crops, said a Mumbai-based dealer with a global trading firm.

"Unlike other countries, India has massive surplus. Exports won't create shortage in the local market," the dealer said.
Also, the higher exports should cut into Indian inventories and limit government purchases from farmers at minimum support prices, said Rao from the Rice Exporters Association.

 
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Gautam

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Frugal praise and rich criticism don’t do policymaking any good


Updated: 05 Oct 2020, 09:05 PM IST
By V. Anantha Nageswaran

Critiques that shift reform goalposts damage the credibility of critics more than the government
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There is not much to choose between children, adults and expert-elites. Children hanker after a toy that they do not have. Once they get it, they lose interest and start craving another. For adults, their toys are different, but otherwise they are no different from children. Experts will berate the government for not undertaking structural reforms. Once such reform measures are announced, they will try to pick holes in the manner of their announcement, they will move goalposts, and list reforms that are not yet done. The reforms announced would have been on top of their list of demands but once announced, they inexplicably become inconsequential.

Take the case of the labour reforms. Neelkanth Mishra and his colleagues at Credit Suisse are eloquent in their description:

“In a culmination of several years of work, 41 central labour laws have been reduced to four (12 repealed 2016-19, and 29 now subsumed). The number of sections fall by 60% (1232 to 480), one registration is now needed instead of six, one license instead of four, and decriminalisation of several (though not all) offences. Codes have been made contemporary (e.g., penalties raised; fixed-term employment introduced as 69% of incremental factory workers [in] 1998-2018 were contractors; social security introduced for gig workers), and firm-size thresholds raised to further ease compliance burden: from 10 to 20 to be called a factory, 20 to 50 for contract worker laws to apply, and 100 to 300 for standing orders (including for layoffs)" (Labour Reforms: a Historical Change, 28 September 2020).


Or, for that matter, take the case of the decriminalization of many offences under the Companies Act. Most of them were introduced in the wake of the Satyam Computer scandal. It is often the case that private sector behaviour leads to over-regulation and an intrusive state. That is often missed in the debate on state versus markets. The private sector is rarely held to account for its actions that give rise to executive overreach. It is analogous to the mindless commentary in America that blames Donald Trump for being a populist and for exploiting resentment among workers, without even a token acknowledgement of the underlying greed and unfair distribution of the spoils of globalization that gave rise to their discontent. In this warped logic, the consequence is blamed for the cause. That is what happened with the Companies Act amendments of 2013. Yet, rare is the government that rolls back its penal provisions. That has been done.

Sanjeev Sanyal, principal economic adviser to the government, wrote a column (Economic Times, 21 September 2020) explaining the significance of the ‘netting’ bill (‘Bilateral Netting of Qualified Financial Contracts’) that has been passed. It may appear to be trivial but the payoff can be transformative. The new law, as he puts it, is a major step towards enabling the financial system to expand and greatly lower the capital adequacy burden, since capital is now required to be maintained on net and not gross exposure.

Another bill on ‘factoring’ that allows many non-banking financial corporations to be a ‘factor’ such that receivables of small businesses can be easily sold and cash realized to enable working capital availability has been introduced in Parliament. Once passed, its impact over time will be as significant as, if not greater, than bilateral netting.

This column has written quite frequently on the threshold effect that has held back Indian enterprises from expanding. These have focused too much on staying below thresholds to avail of finance concessions and tax rebates. The reclassification of micro, small and medium enterprises (MSMEs) with enhanced limits for investment and new criteria on sales turnover partially addresses the tyranny of thresholds. It is still a work-in-progress. However, along with the new definitions, the government has revamped the process of registration for MSMEs at the Udyam portal. Registration there enables automatic MSME enrolment in the Government e-Market place, the Goods and Services Tax Network and also in the Trade Receivables Exchange. The benefits of digitization are just beginning to be felt.

Similarly, excessive fears appear to have been generated on farm sector reforms, which expand the choices available to farmers to market their produce. The system of minimum support prices serves as insurance, and portable ration cards that allow Indians to draw their quota of foodgrains from the public distribution system anywhere in the country necessitates state procurement from farmers. Full empowerment of farmers is still being worked on. Export bans and recourse to imports must be rare exceptions, at most. Nevertheless, what has been done is in response to a long-standing reform demand, and yet in its fulfilment some critics have managed to display parsimony in praise. Professor Ashok Gulati, though, called it India’s 1991 moment for agriculture.

Criticism will acquire legitimacy and be taken seriously when it is offered in conjunction with the acknowledgement and praise of good deeds. If not, the credibility of critics, more than that of the government, will be at stake.

V. Anantha Nageswaran is a member of the Economic Advisory Council to the Prime Minister. These are the author’s personal views.

 
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Gautam

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When Stiglitz’ criticisms are actually endorsements


By Anantha Nageswaran
Oct 7, 2020

A good friend of mine sent me this news report that contains some critical observations made by Professor Joseph Stiglitz on the Indian government while speaking at a FICCI event. Quite what prompted a Chamber of Commerce and Industry to invite Stiglitz will remain a mystery.
So, what did Mr. Stiglitz bring to the party? He criticised India’s lockdown. Why? Because he has hindsight wisdom. Had PM Modi not taken the virus seriously and fell back on Indians’ innate immunity or endurance, etc., the Prime Minister would not have heard the end of it. He would have been panned as anti-science, that he ignored experts, etc.

Just recently, I came across an article in New York Times that said that the World Health Organisation’s decision initially not to advise a travel ban was not based on science but politics. China banned travel from Wuhan to the rest of China but allowed Wuhan residents to fan out to the rest of the planet to propagate the message. Sorry, propagate the virus.

The truth remains that doomsday predictions made in March for the mortality rates around the world had a big role to play in influencing political leadership to take extreme preventive actions. Mr. Stiglitz would have done himself proud and the community of experts he belongs to a service if he had turned the gaze inward and asked them to acknowledge the errors that they made: chiefly displaying certitude when they should have displayed humility about what they knew and what they did not know.

The list of countries which did well or which did not do well in tackling the virus is highly dynamic. Conclusions made as to success stories and failures are being hastily and embarrassingly revised with nary an acknowledgement of the errors made in displaying certitude in such judgements.

In India, for example, Kerala was held up as an incredible success story. It may well be true that, under the circumstances, they did a terrific job of containing the virus. But, yet, it is now on the threshold of re-emerging as the most vulnerable hot spot from being a model state. Again, it is not their fault. They may still get on top of this one. But, a lot remains to be learnt about the virus transmission.

As for the Indian government not having stimulated the economy enough, the government’s stimulus efforts operated through a combination of three forces: direct government spending, monetary measures and structural reforms. Second, the government had not flinched from extending its measures that it announced in May as part of the Atma Nirbhar Bharat 1.0 package.

According to a letter issued by the National Credit Guarantee Trust Company to lending institutions dated 4th August, tree things were done:

(a) The upper limit of the loans outstanding was raised to Rupees 50.0 crores from 25.0 crores.
(b) The Credit Guarantee consequently went up to 10 crores (20% of 50 crores).
(c) The turnover limit for enterprises that are eligible for additional credit was raised to Rupees 250.0 crores in line with the revisions made to the classifications of micro, small and medium enterprises.

Stimulus cheques sent in America were not spent. Bulk of it was saved or used to repay loans. A NBER working paper published recently has brought out this fact and I have blogged on it here. Again, timing does seem to matter.

While I had personally made the case for more stimulus spending, I had also acknowledged the following:

(a) It is hard to figure how to and when. Easier to be wise in hindsight.
(b) It is hard to know if the positives would outweigh the negatives
(c) I would concede that they have more information than we do on the security aspect.

In fact, given the recent comment by economists and strategists in Credit Suisse that GDP growth upward revisions for 2020-21 may now start coming (I have blogged here on that), India’s fiscal stimulus might become a case study of maximum targeted bang for the fiscal buck, if economists and experts are open-minded, that is.

The security aspect [see (c) above] concerns China and it is incredible that even a strenuous search on the Internet fails to turn up anything critical that Mr. Stiglitz might have said on China’s role in bringing the global economy to a grinding halt. That is par for the course. He has been partial to dictators and autocratic regimes.

Gene Epstein’s brilliant take-down of Mr. Stiglitz in 2018 mentions Stiglitz’ praise for the dictators of Venezuela and Ethiopia. The former, Hugo Chavez, ruined his country and it has not recovered since.

Comments from a colleague at Columbia University are laser-sharp:


“Joe’s career tragically demonstrates that if one combines legitimate credentials as a clever and creative theorist with extreme left-wing bias and a colossal ignorance of history, one can accomplish a great deal of harm in the world.” [Link]


Well before Mr. Modi became the Prime Minister of India in 2014, I had commented on Mr. Stiglitz commenting on India in a column for Mint published on 28th January 2013:


Stiglitz’s remarks on the usefulness of the badly designed “Right to Food” legislation, on the role of foreign direct investment and on the importance of internal markets for India ignore its economic reality, poor governance and cynical political calculations behind populist welfare schemes. He might have qualified his praise with caveats but headline writers are neither patient nor knowledgeable enough to pick up the nuances. The damage is done….

…. Economists who offer sweepingly general prescriptions cause more harm than good to their reputations, to their profession and to the people they claim to serve with their knowledge. [Link]


Well, Mr. Stiglitz has been remarkably consistent. He continues to offer sweepingly general judgements without regard to facts and context. But, based on his track record, it appears that to be praised or spared by him is a badge of embarrassment and to be targeted by him is a badge of honour.

 
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