Global Economic Trends & Indian Economy

Global Economic trends & impact on India

20 Jan 2015 (AIR Money Talk)

Participants: B B Battacharya, Noted Economist and Mathani Busnur Mutt, Economic Journalist

Transcription:

Last week – Two Report on Global Economy – IMF & World Bank Report – both downgraded the Global trend - is the world Economy in the Bleak?

Stagnation in many part of the world – Europe is recovering what they last in last 7-8 years – Countries expect India & China all emerging countries like Brazil, Russia are in a bit of difficulties  –smaller economies are doing well;

June Projection – 3. 4% (WB Projection), in October 3.8% (IMF Projection) – but the new report downgraded it;

Long run global economic growth rate for last 25 years before 2003-04 was 3.3-3.4%, later it swing up to 4.5% (because of Emerging economies) – China remain in first position even after sliding down a little bit;

WB revised India’s projection of last report upward whereas IMF revised only US Economy; why they don’t want change in India’s growth?

Slow down factors –until EU recover from the debt & fiscal prolificacy – takes time, Japanese exhausted their growth potential - exhausted all investment potential; 50% saving for past 50 years, don’t leave any investment opportunity;

Both IMF & WB estimated, India’s Growth to be 6.3 & 6.4% in 2015. Is it dependent on US recovery?

No… India Export to Japan, China, Europe… Exports become significant component of India’s Growth Engine; other things like if Indian Economy recover – consumption pattern – domestic revival – depends on supply side constraints; from 5.4% to 6% is not a big change, we aim to 6 to 7% - it has potential unexplored;

Contraction of Russia’s GDP by 3%, as predicted by IMF – what will be the implication in Geopolitics stability?

Oil price down – countries view it optimistic – deprive the alternative investment – Russia fall in this term; Lesson to be learnt is over dependency on Oil reserve is not fair; They have not revived their Industries to that extent as a global competitor, to fight with China,  Germany’s Technology, or service sector… Still taking time to moving from Communist production; other emerging economy Brazil, Turkey, Mexico are also in transition.. so stagnating;

Will the oil price downfall, compensate the global slowdown?

It is one part of the global slowdown – Russia & OPEC countries; Bigger benefited from the consumer side – Europe, India… low cost on oil, diesel – could boost Automobile sector, transportation sector; It reduce the subsidy burden of the Govt. of countries like India; Biggest -stumbling block of the production & pricing system – Transportation cost will be reduced;

In Net term, India Benefit whereas Russia Loss – in the Net term production improve, but Global Slowdown reduce the demand – will the Net-Net let to gain or loss?

Oil price stabilize at $40-$50 at Brent crude – Shale gas has minimum cost of say $60; Oil price may stabilize around $60;

Structural Reform India need to capitalize the moment of opportunity?

Making supply condition much easier –Production bottle neck starts from – land, road, mine, forest & water- supply side constraint; demand will have backlash if Agriculture & other sectors of the economy are not going; last year Top 1% income drive the remaining 99%; classical Keynesian fall out of consumption; somehow it need to be balanced; in the nature of competency & efficiency the top grows faster;

Olivier Blanchard of IMF @ Hong kong – Reviving grow through Fiscal stimulus must be careful about not losing Fiscal Credibility; whereas in India, we are debating on slightly relaxed Fiscal deficit – they will apply 4.1% – Medium review of the Govt., they may think in terms of public finance to stimulate Economy; How you see the warning of Blanchard?

If the fiscal deficit goes to the productive public investment, then backlash will not occur; Question is not the size of fiscal deficit, it about the productivity of the fiscal deficit; Quantum of revenue expenditure considered being the leakages – in terms of ill targeted subsidies; if the increase in the fiscal deficit – utilized for the productive public investment – then within a year, it may fetch multiplier effect;

Rather than seeing the quantum (Size) of fiscal deficit, it is quality must be seen;

Revenue side often wasted – if the huge amount directed in to the production stream- E.g. More investment in Cold storage rather than food subsidy which consume more than Rs.2 Lakh Crore;

Core industrial growth of 6-7% would uplift the GDP growth of India from 5 to 7% – Industries sector would boost overall production - Global factor is not a matter much now, though Export is a factor;

In India- Globalization – large market – linkage with global economies – not like in the case of Singapore;
Self-reliance in the Industries not only corporate but also MSME;

GIST:

1.  Global Economic Trends & Impact on India

Two Report on Global Economy – IMF & World Bank Report (Dec 2014) – downgraded Global Economic Trend – stagnation in many part of the world – Europe recovering about 7-8 years – Countries except India & China – all emerging countries like Brazil, Russia in difficulties – Japan exhausted their growth potential; Slow down fact until EU recover from the debt & fiscal prolificacy; Lesson from the contracting Russian GDP is over dependency on Oil reserve is not sustainable; Oil price downfall benefit Europe & India by reducing Transportation cost, Subsidy burden of Govt. whereas it affected heavily Russia & OPEC; Structural Reforms, India need to capitalize the moment of Opportunity – making supply condition much easier, production bottlenecks starting from Road, Land, Mine, Forest & water; Olivier Blanchard of IMF – countries reviving growth through Fiscal stimulus must be careful about losing Fiscal Credibility; India relaxing its Fiscal Deficit norms – it focus on production public investment – rather than looking into quantum of  fiscal deficit, quality of the fiscal deficit should be concerned – which could fetch multiplier effect within a month time E.g. Money can be invested in cold storage rather than food subsidy which consume more than Rs. 2 Lakh Crore;  Quantum of Revenue expenditure considered being the leakages – ill targeted subsidies; Core Industrial growth of 6-7% would uplift the GPD from 5% to 7%;

India’s CAD and Global Economic Trend

20 Jan 2015 (AIR Money Talk)

Participants: P Guha Takurtha, Noted Economist and Sanjay Thapur, Journalist

Current economic growth path & various macroeconomic corrections – we are to have Surplus CAD in 10 years; how do you see it?

There was time when CAD going 4% of GDP- govt. impose curbs/restricted on the Gold Import; primary reason why CAD show Surplus – it has sharp hold on the low global crude price; India import roughly 80% of the domestic need - single biggest item on the import bill;  

Are we saving on Dollar?

Primary reasons why inflation comes down in the country – the price of the oil import reduce by 50%; there are different set problems in the international sphere – recession in Europe, Russia and Japan; this would not be the good news for India’s Export;

It would affect the Rupee value against the dollar?

Absolutely…. External Currency value of rupee is becoming weaker against USD; and also Euro, Rubble value viz-a-viz USD weakening almost 40%; Import costly and exports cheaper – as recession prevailing in Western countries – the opportunity is not advantageous; 

It is not only oil, what about the other commodities? Whether they further strengthen USD – weakening Rupee – bringing India to precarious condition?

Price of other commodities is also falling down - Including prices of Food, metals;

Forex Reserve record high – Indian Stock market is buoyant (brings more FII) – this gives a type of cushion at the situation;

ECB gives Stimulus packages – as Europe in Recession – push the problem little more?

Left govt. to take charge in Greece – it oppose the austerity measure of the previous govt.; it can be seen in France, Spain, Netherlands – rise of populist group – left & right – political impact of the recession; adequate political & Economic Integration is required;

Eurozone/Europe is not monolithic or homogenous conglomeration of countries – relatively powerful countries like Germany & France in favour of austerity measures packed by the IMF whereas   also rising countries resent austerity measures with in the Europe- Ireland, Italy, Spain & Portugal are oppose to it; After Ukraine & imposition of sanction also after certain section in the Europe which is exporting to Russia;

Stronger Rupee has both good sign and bad sign. In 2016 as many analysts say, Rupee is going to further depreciate. How to tackle this in upcoming budget? How will this affect ‘Make in India’ Campaign?

If Rupee vis-à-vis USD becomes weaker ie. Rupee Depreciation – then Export become cheaper and Import become expensive; if Economic market is not there, it cannot be advantageous; Look East Policy – rate of growth of china coming down- China is one of the India’s Biggest trading partner;

To promote domestic investment – making India destination for the Investment; Ordinance to improve FDI in Insurance will not automatically brings in Investment. It need a business friendly Infrastructure; making the products competitive within and outside India;

In the context of CAD, one big export part is Software Export, H1B Visa issues with US – will it be eased out?

Issue linked with political situation & election of US;