Forget US shutdown, India might be on the verge of a shutdown

Discussion in 'Economy & Infrastructure' started by happy, Oct 1, 2013.

  1. happy

    happy Senior Member Senior Member

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    Two sets of data were released by the government – current account deficit and fiscal deficit. Like a child receiving his answer papers and showing the one where he scores higher, government is trying to highlight its achievement talking only about the better of the two.

    Current Account Deficit (CAD) for the June quarter at $21.8 bn is better than analyst expectation of $23 bn. As a pendulum swinging from one extreme to another, analysts are now predicting that going forward CAD will come down to $10 billion in the September quarter and the year-end figure can be less than $60 billion (around $14 billion per quarter). Let’s accept this number for the moment.

    CAD has been way above the RBI comfort zone of 2.5-3% of the GDP for nearly three years now. And Gold has borne the blame for this deterioration.In the year 2011-12, out of the CAD of $78.2 bn, net gold imports stood at $49.2 bn (net of exports). Looking at it differently, out of the 4.2% of deficit in that year 2.7% was on account of gold imports.

    Net gold import of $49.2 bn in 2011-12 accounts to around $4.1 bn per month or $12.3 bn per quarter. If we remove this figure from the current CAD of $21.8 billion, CAD can be below $10 bn. But this does not take into account the rise in exports during the period and fall or rise in imports of other commodities. Further, the assumption is that we will be importing gold and exporting all of it, thus at the net level there will be no imports.

    It is true gold imports have crashed in August 2013 to around 3 tonnes as compared to 35 tonnes in August 2012 and 142 tonnes in June 2013. Imports have improved marginally from its low in September and are likely to pick up in October as festive demand increases. Traders in the bullion market say that imports during the October to December 2013 months are likely to be in the range of 70-75 tonnes. So much for optimism on CAD numbers.

    We now look at the numbers where the government has not scored well.

    In the first five months of the current fiscal, government has reached 74.6% of the fiscal deficit target of the entire year’s Budget estimate (BE). Finance Minister P Chidambaram has repeatedly said that this year's fiscal deficit target will be 4.8% of the gross domestic product (GDP). Now everyone knows Chidambaram is a man of his words. If he says 4.8% of GDP will be targeted, he will see to it that the figure is achieved. He might have kept a couplet from Thiruvalluvar, his favourite poet ready when he achieves it.

    But the question is how will he achieve it, especially since in the first five months 75% of the deficit target has been reached. The last time fiscal deficit crossed 75% in the first five months, the country posted a record deficit of 8%. But that was in 2008-09, a year of global financial crisis. This time it’s different, let’s pray.

    This year the fiscal deficit number is high because of an enormous rise in Plan expenditure. It could be a result of back-log of previous year, when there was a complete clamp down on plan expenditure so that the finance minister could keep his word of meeting the target of 4.9%. Higher plan expenditure could also be because government would have front-loaded this year’s expenditure as the remaining year would be lost in elections and there would be restrictions in taking up new projects.

    In any case, it will be an uphill task to meet the fiscal deficit target. There are only two ways it could be done. Increase the revenue or cut expenditure. A small increase in IIP numbers have buoyed Economic Affairs secretary Arvind Mayaram to say that there will be a pickup in tax collections going forward. Let’s wish him luck and hope that the IIP numbers based on which he made the prediction are not a dead cat bounce, because few believe the sharp jump in capital goods numbers disclosed by the government.

    Further, government will need more than tax collections to bridge the gap. It will need to meet its divestment target of Rs 40,000 crore. In the first five months, it could divest only Rs 1,434 crore worth of PSU stocks. While Coal India, the biggest divestment is still pending, there are labour issues which can delay if not result in cancelling its divestment.

    Clamping on further expenditure seems to be the only possibility. In the first five months of previous fiscal, deficit had touched 65.7% of the budgeted estimate (which was stated at the start of the year at 5.1% of the GDP). Yet Chidambaram managed to bring it down to 4.9% of GDP by slamming the brakes hard which resulted in a sharp fall in GDP growth. This year he will need his feet along with the brakes to achieve the target, especially since the government has implemented the food security bill and started distributing freebies which will only increase as elections are held.

    A government orchestrated shutdown in India in the second half is a possibility which can stall all hopes of growth. Yet we worry about a US shutdown.

    Forget US shutdown, India might be on the verge of a shutdown | Business Standard
     
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  3. happy

    happy Senior Member Senior Member

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    All alone? Pick up phone

    With the US economy clawing back to health and ours slowing down, we were once again beginning to look at them with envy. But Americans are such big-hearted people. To lift our spirits, to give us occasion to gloat once again, they have obligingly driven their government to a shutdown. And this time, Indians can be gleeful and helpful.

    After all, our government has honed the standby mode to perfection. It conserves energy most of the time; only unenlightened folk call this policy paralysis. However, with the US now adopting the model India has perfected, perhaps ill-informed naysayers will now take some pride in showing off indigenous traditions of masterly inaction.

    Look how many American teachers, babus, security personnel et al are off on furlough and the Statue of Liberty isn't hanging its head in shame. Only thing is that what's happening officially under the stars and stripes banner, always happens unofficially under the tricolour.

    But in this hour of crisis, we should go forcefully beyond a cautious exchange of our tried and tested slimdown programme for their laissez-faire software, especially with our BPOs having helpfully set up so many hotlines between the two countries already. If there's somethin' strange in their life, if their computer breaks down or their car insurance needs renewing, who're Americans gonna call? India. You say you're having some trouble with your government? We say, try turning it off and on again.

    Nonetheless, Indians are compassionate. So we do feel sorrow for the travails of America abruptly adopting a system we took decades to perfect. Ku Klux Klan had to cancel a rally. Farmer couldn't cash cheque for a cow he sold. Restrooms are locked in US national parks. No feeding the bears, no mule rides in the Grand Canyon. Grrr.

    Us Indians are also fair and balanced. We can hardly cavil about Obamacare after having embraced the expansive and budget-killing food security Act. And we don't mind that right-wing Republicans want to stage the American Civil War all over again, doing all they can to sabotage a black president. What if they try to drag America back 150 years, don't we have our khap panchayats, honour killings, communal riots et al which we all respect?

    Yes, that's democracy. Indians get this. Americans are learning this. Chinese are feeling jealous. As one summary of the Chinese blogosphere put it, the fact that American society hasn't collapsed into chaos even though American government has shut down is proof of the robustness of the American system. But here's some news for the Chinese. The Indian system is even more robust than the American one: it has withstood such trials innumerable times.

    All alone? Pick up phone - The Times of India
     
    sesha_maruthi27 likes this.

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