Double trouble for the Indian economy
In this issue:
» Another bubble scenario in the US?
» Holidaying in the summer? Flight rates are set to increase.
» Growing Apples among US homeowners
» P-Notes - to tax or not to tax?
» ...and more!
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India is part of a not so illustrious club of nations that suffer from the twin deficit problem. The other members include the US, UK, Greece and Ireland. All of these countries suffered heavily post the financial crisis and have still not fully recovered. In this article however, we will keep our focus on India. The Reserve Bank Of India (RBI) recently stated that the current account deficit of the balance of payments (BoP) rose to 4.3% of GDP at the end of the 3QFY12. This is compared to 2.3% of GDP seen in the previous fiscal. For the first time since 2008-09, capital inflows were unable to finance the current account deficit. This forced a drawdown of forex reserves by nearly US$ 13 bn.
On the fiscal front, the woes continue. India's fiscal deficit projections have also been raised for FY12. The government has revised it upwards to 5.9% of GDP from 4.6% projected earlier. But, the actual deficit may be even worse. According to latest data, India's fiscal deficit in April-February was Rs 4.9 trillion, already around 95% of the revised full-year target of Rs 5.2 trillion.
The twin deficit problem preceded India's 1991 economic crisis. Now, things are not as bad as they were then. But, with the country's finances in disrepair, handling external shocks such as a prolonged global slowdown and high crude prices may be a challenge. Plus, given India's fiscal scenario, the RBI may not cut rates in a hurry. If India doesn't get its act together soon and exercise discipline on its finances, the consequences could very well be disastrous.
What do you think of India's twin-deficit problem, and can it be cured? Share your comments Let us know your comments on our Facebook page / Google+ page.
01:20 | Chart of the day | |
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Data source: Wall Street Journal |
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How possibly could have things gone so wrong? Well, it appears that since jobs are fast moving to low cost destinations like India and China, freshly minted graduates in the US are feeling the heat. They thus are not being absorbed by the job market as fast as before. The fact that that the US economy itself has slowed down a great deal is also playing havoc with the job market we believe. Thus, settling for a lower salary and tightening their expenses seem to be the only viable option before the students as of now. Otherwise the education sector too will be in need of a bailout, according to us.
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The latter avoids the huge registration costs in case the investments are not heavy. The markets welcomed the news. But the issue is far from being settled. This is because FIIs are still under the scanner for tax liabilities. If these convert into actual taxes, there are strong chances that FIIs will pass it to end clients - P note holders. Post this clarification, we hope such a scan will filter out speculative investments and curb volatility. But having said that, the Government needs to articulate its policies better. The lack of clarity and resulting panic can cause us to lose genuine investors as well as disturb the markets.
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An All-American survey made by CNBC further reinforces the above-mentioned points. According to the report, half of US households own at least one Apple product. Moreover, one in ten homes, who do not own any Apple products, is planning to buy one within a year. The survey also showed that homes with relatively higher income levels tend to own an average of three Apple products as compared to 0.6 for lower-income homes.
Jay Campbell, the vice president of Hart Research Associates (which conducts the CNBC survey), puts the result of this survey aptly - "It's a fantastic business model - the more of our [Apple] products you own, the more likely you are to buy more."
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The Indian stock markets were marginally up 0.2% during the week. However, it brings some relief to the investors after 5 consecutive weeks of losses. Amongst the other world markets, Japan and Singapore (both up by 0.7%) were the only gainers. China had the worst performance during the week and was down by 3.7% followed by Brazil (down by 2%).
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Data Source: Yahoo Finance |
04:50 | Weekend investing mantra |
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3 Responses to "Double trouble for the Indian economy"
KuttchaGhati
Mar 31, 2012With Noddle spinned Manmohan and Pronobda the Bengali needing to eat a ton of fish per hour simply to not slip into donkey hood , we can expect the mother of ALL crises to hit us . Capo di tuti capi Sonia the Italian financial genius cum Bar maid at large with her cretin runt Rahul and Priyanka the serial proselytiser cum nightclub floor burner what else can you expect . Amyarta Sen will soon come -up with his Noble wisdom that all this is bhely bhley good , the JNU Bengali Mafia will be there to back it up . Mamata bringing up the rear . Rupee will be 100 to the $ by 2014 , inflation at 20 % and we will be at the doors of the IMF being dictated to by the Chinese ! What this space
g r chari
Mar 31, 2012The twin problems are no doubt as bad as it can get, but our handling of or addressing the problem is the cause of worry. No major policy is in place to rein-in the burgeoning twin deficits and just like the farmer waiting for the rain gods to shower its bounty on him, our govt. is waiting for windfall gains to come from disinvestments and sale of scarce spectrum to balance its current account deficit; actually this money should be deployed for national reconstruction and capital formation. The govt. is more keen in political management (read day-to-day survival) than economic management of the country.
Arif Manikfan
Apr 2, 2012The policy makers responsible for the development of indian economy were keen in presenting a populist budget so that they may not take risk compromising their return to power. Whereas the true fact is that the indian economy is already bleeding and recourse for its revival has to be done at the earliest. Let it be not that when one even if voted back to power wont complain that it's too late now. One has aptly said that to destroy a nation, there is no need of any deadly weapons for mass destruction. Just derail the economy. Its a silent killer. So, put every other thing aside and give top priority in bringing back the economy on track