The biggest threat to India
(Mar 5, 2009)
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In this issue:
One would have thought that given the spate of terror attacks on India over the years, Pakistan was the biggest threat to India. But that may not turn out to be the case. It is actually China that is likely to emerge as a bigger problem simply because the dragon nation does not have enough water. As reported in Mint, while India has 9.5% of its surface area covered with water, China has a miniscule 2.8%. This is a problem for the latter where industrialisation has taken place at a scorching pace.
» Promises galore but no execution
» America's latest stock picker
» RBI's final kick
» Low inflation fails to cheer markets
» ...and more!
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More industrialisation means more water consumption. And China has begun to take serious steps to address the issue which means that India is likely to have its hands full dealing with the dragon. For instance, one of the reasons for annexing Tibet is that China now controls 1,700 km of the Yarlung Zangbo river, the Tibetan part of the Brahmaputra. Given that the balance (around 2,900 km) flows into India through Arunachal Pradesh it is feared that China is now interested in certain parts of Arunachal Pradesh. What with Pakistan giving headaches to India on a consistent basis, the last thing that the latter wants is another big confrontation with the fastest growing economy in the world.
"Promises are meant to be broken," so goes the mantra for those dishonest. Take for instance our politicians, most of whom have built their entire careers out of promises...the broken ones. The current breed is no different. Or what would justify this thought put forward by the media advisor of the Prime Minister - "Never before has any government monitored so closely and continuously the implementation of its political manifesto. This is the first time such an exercise has been undertaken." The gentleman is referring to the government's success in implementing whatever it had promised after coming to power in 2004.
The reality, however, remains different. As the term of the government comes to an end, the country remains in dilemma as to where have the politicians - our policymakers - brought us to. Dishonesty and corruption continue to rule the roost wherever one sees, and social ills like poverty and illiteracy remains rampant. People staying outside large cities continue to be denied access to proper education and medical facilities, potable drinking water, and clean sanitation. Basic infrastructure remains creaky.
Take a basic commodity like electricity. The government promised 'electricity for all' by 2012. But into the third year of the current five year plan where a total of 78,000 MW of new capacity addition was planned, given the current pace, we are likely to miss the target by almost 60% - alternatively, we'll achieve just about 40% of the planned addition. For a student, 40% marks mean near failure. Why isn't the same for the government?
As proposed through the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) for rural electrification, the government had a target of providing electricity to 125,000 villages and connecting 23 m below poverty line (BPL) households across the country by the end of March 2009. As per the Mint, as on January 15th, only around 55,000 villages had been electrified and 4.5 m BPL families connected.
Our government continues to work on the old rhetoric popularised by an ex-Prime Minister - "Humein dekhna hai, hum dekh rahe hain, hum dekhte rahenge (We have to watch, we are watching, we will continue to watch)!
Keep watching! But who will execute the task?
We hope (against hope) that our next government realises that an ounce of performance is worth pounds of promises!
The President of the US is its commander-in-chief. But stock picker-in-chief? Well, Obama seems to be America's latest stock picker. As reported by the San Francisco Chronicle, he said, "It bobs up and down from day to day, And if you spend all your time worrying about that, you're probably going to get the long-term strategy wrong." He added, "Profit and earnings ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it." We admit that it is rather unusual for a US president to time the market. But his advice is sound nonetheless.
After much criticism for not vouching to safeguard the belongings of the Father of the Nation Mahatma Gandhi, the Indian Government through the Ministry of State for External Affairs has decided to bid for acquiring Gandhiji's belongings in the auction to be held in the US. The Indian embassy in Washington and the Consulate-General in New York has established contact with the US-based owner of Gandhiji's memorabilia to acquire the five items, either after stopping the bidding process or by participating in it through some NRIs. We wonder if people care as much for his principles as his belongings?
Japan plunging into recession may turn out to be a blessing in disguise for India. This is because the former's cost cutting initiatives would mean that Indian IT outsourcing firms may finally be able to gain a foothold into this US$ 108 bn Japanese IT services market. As reported in a leading business daily, auto-makers Toyota and Nissan are giving out outsourcing deals worth around US$ 100-200 m each, while Japanese electronics majors are augmenting their existing contracts.
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What is interesting to note is that the scale of the global financial crisis and the impact that it is having on the Japanese economy is steadily changing Japan's way of thinking. Prior to the crisis erupting on a full blown scale, Japan was content in outsourcing contracts to companies within the country and the remaining to China and Korea. For instance, of the US$ 8 bn IT contracts outsourced by Japanese firms last year, India's share was only about US$1 to US$ 1.5 bn, a far cry from China, which accounted for almost US$ 5 bn of work. But things are already beginning to kick off. For instance, TCS along with Infosys and IBM is in the reckoning for an outsourcing contract worth around US$ 60-100 m from Sony. Many more may soon follow. Indeed, one country's loss is another country's gain!
Having exhausted almost all means of fiscal stimulus and encouraged by the drop in inflation (measured in terms of WPI), the RBI has made a final attempt at reviving the economy with another monetary stimulus. The central bank cut the benchmark interest rates - repo and reverse repo rates - for the fifth time yesterday since October 2008 after economic growth slowed to a five-year low. While the repo rate (at which banks borrow from the RBI) was dropped to a record low of 5% from 5.5%, the reverse repo rate (at which banks park their funds with the RBI) was lowered to 3.5% from 4%.
Despite the RBI's attempts at lowering the cost of funds for banks, concerns over rising credit risk together with the slowing of economic activity have moderated credit growth in recent months. Even as some public sector and private sector banks have cut lending rates in response to the RBI's monetary policy stance, according to the latest data, non-food bank credit has decelerated further to 19.7% YoY in February 2009 as compared to 22.7% YoY in February 2008.
Many of the small economies like Singapore, Hong Kong and Taiwan in East Asia are in for a rough ride. All three have, in the recent past, transformed themselves into global trading centers focusing on a high proportion of exports and global trade. Due to the swift growth in their exports, when the times were good, everyone praised them for attaining such a lucrative position.
But now that times are bad, those very same economic development strategies are now backfiring. With the importers in the West aggressively cutting down or halting orders, exports for these tiny economies have collapsed. Their reliance on exports is costing them big. Going by the words of Preston Chen, chairman of the Chinese National Federation of Industries in Taiwan, things are indeed bad. According to him "Half of the industries just got a bad cold. They probably can recover quickly. The other 50% - they've got, not cancer, but close."
Leading the pack of losers in the Asian region, the benchmark BSE-Sensex closed lower by as much as 2.9% today despite reports of lower inflation and the RBI's monetary stimulus. The BSE's banking (down 4.1%), energy (down 3.7%) and power (down 3.3%) indices were the biggest losers of the day. India's inflation (measured in terms of WPI) dropped to 3.0% YoY for the week ended 21 February, 2009, from the previous week's number of 3.4%, coming well within the RBI's comfort range. The Chinese and Japanese indices were the lead gainers in Asia today. The European markets have, however, opened lower.
"Hold no more stocks than you can remain informed on." - Peter Lynch
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