India's list of challenges just got revamped! - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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India's list of challenges just got revamped! 

A  A  A
In this issue:
» New challenges facing India
» George Soros injects life into gold debate
» Favourable monsoons to reduce inflation, feels India's Chief statistician
» US debt keeps piling on
» ....and more

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00:00
 
He may be among the top contenders for the now vacated IMF Chief position. But that may certainly not be on the top of his mind right now. We are referring to the Deputy Chairman of the Planning Commission, Mr Montek Singh Ahluwalia. What would be taking up most of his time instead is the mammoth task of preparing a blue print for India's next five year plan. While the same could be some time away, Mr Ahluwalia has certainly helped us understand its broad contours. In an article to be published in one of India's leading magazines, he has highlighted four critical challenges facing the economy in the Twelfth Five Year Plan. What is even more important is that as per him, these challenges are now more serious than they were at the start of the Eleventh Plan.

He has identified these four issues as urbanisation, energy as well as water management and environment friendly growth. We believe that Mr Ahluwalia couldn't be more on the ball on this one. Especially with respect to the first two issues. If India were to achieve its objective of sustaining a high GDP growth rate in the region of 8%-9%, two things are of utmost importance. More people will have to be moved out of agriculture and many more factories will have to be built. While the former would lead to huge influx into urban centres, the emergence of the latter would translate into significant augmentation of power generation capacity in the country. It isn't that these issues didn't pose a challenge before. But as Ahluwalia pointed out, the size of these challenges are bigger than ever before. And our failure to rise to these challenges could have serious repercussions on the India growth story.

Sadly, the evidence at hand does not inspire a lot of confidence. Our cities are bursting at the seams and we are falling woefully short on power capacity addition front every single time. The time though is fast running out. Unless we bring out some real reforms and also commit significant capital, we may not be able to make significant headway. In short, the twelfth five year plan is likely to be the acid test of the India growth story. Over to the Indian policymakers now.

Do you think we will successfully tackle the challenges as outlined by Mr Ahluwalia? Share your views with us or comment on our facebook page.

01:24  Chart of the day
 
We just highlighted our inability to meet our targets on the power capacity generation front. Today's chart of the day is perhaps yet another pointer to the same. As the chart shows, we have fallen well short of the targeted power capacity addition for all the four years of the eleventh five year plan so far. Infact, even for the fifth and final year, there is very little hope. As per a leading daily, the power ministry has said that it can only get about 7.7 GW capacities on-stream by FY12, much lower than the earlier plan of 20 GW. The Planning Commission however, wants the ministry to add at least 15.5 GW so that the overall capacity addition in the plan period reaches a respectable 50 GW. It would be interesting to see if the power ministry surprises on the upside.

Source: Economic Times

02:04
 
Whether gold as an asset class is in bubble territory has perhaps never before sparked so much debate as it has now. Judging by the action seen on this front around the world, the consensus seems to be that indeed now is the time to book some profits by selling this precious metal. For instance, billionaire investor George Soros dumped a large portion of his gold investments recently. Investors sold 2.5 m ounces of gold through exchange traded funds in January and February this year. Hedge funds are selling too and the otherwise bullish World Gold Council is bearish on this yellow metal as well. And why is that?

The primary reason is the Fed's position that it should complete its QE program by the end of June. So with no more money printing on the cards, expectations are that interest rates could actually rise. This could then make bonds more attractive and weaken the case for gold. Interestingly, there are many investors who have taken a long term view and are sticking to their gold positions. We believe that US' precarious debt position and the consequent concerns over the US dollar and paper currencies in general will keep gold on a firmer path from a long term perspective. In the meanwhile, corrections would certainly occur as is the case in any bull market. And hence, this should be looked upon as an opportunity to buy more of this metal.

02:54
 
We relied on monetary policies. We relied on subsidized pricing. Finally it is time to turn to the Rain Gods. Seeing no other solution to rein in the spiraling price rises, the chief statistician of India, Mr T.C Anant is looking forward to a good monsoon this year. In fact he assures of headline inflation (WPI) going below 8% if the Rain Gods show their mercy. It has been 18 months now since the WPI came in lower than 8%. This is despite a good monsoon last year as well. So we are not too sure if a good harvest will solve all our inflation problems. Especially when prices of commodities like crude oil have little to do with rainfall in India. Also, a good harvest does not necessarily mean lower pricing of food grains. Most often they are known to rot in open warehouses rather than being available to the poor for cheap. India needs additional storage capacity of 1.5 lakh tonnes and only 1% additional capacity was created in 2010. The government is already grappling with excess wheat production overflowing in its godowns. Hence we believe that the ace statistician's hopes are a little too optimistic.

03:35
 
The world's biggest economy is on the verge of a failure. The U.S debt balance has exploded to US$ 14.3 trillion. It's no ordinary number. Beyond any common man's conceptualization, it denotes the legal borrowing limit for America. If the debt limit does not get raised, it could make US government default on its financial obligations. Seems like America has got the perfect ingredients for onset of a catastrophe. Or is there a way out?

Desperate times call for desperate measures. The White house is trying to strike a deal with law makers to raise debt limit in exchange for cut in federal spending. We don't doubt that the debt ceiling will be raised, this being done 78 times since 1960 in U.S. However, we don't think that will help to keep the wheels of the economy turn smoothly. U.S introduced second round of quantitative easing to revive the economy from aftermaths of subprime crisis. Any cut in spending at this time could be a death blow for already fragile recovery and the ripples will be felt all around the world.

04:13
 
It was a lackluster week for the majority of the world's stock markets. Except for UK and Singapore, all the global indices ended the week on a negative note. The European stock markets were down on euro zone debt worries. Even the US stock markets were down by 0.7% over the week due to disappointing corporate earnings. Indian stock markets were not an exception either. They were down by almost 1.1% during the week due to weak investor sentiments amidst expectations of further rise in interest rates. Disappointing corporate earnings by index heavyweights like SBI further exacerbated the fall.

Talking about the other markets, in Europe, Germany was the biggest loser down by about 1.8% while France closed the week down by 0.7%. However, UK was up by 0.4%. In the Americas, Brazil was down by 1.0% while US was down by 0.7%. China closed the week down 0.4%.

Source: CNNfn, Yahoo finance, Kitco
Countries are representative of their benchmark indices


04:54  Weekend investing mantra
"Unless you can watch your stock holdings decline by 50% without becoming panic-stricken, you should not be in the stock market" - Warren Buffett
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14 Responses to "India's list of challenges just got revamped!"

Naveen

May 23, 2011

Here are my three point formula PPP (Power, Produce, Performance) for Mr. Ahluwalia to think on for next plan...

Point number C below:- A proactive governement vs a numb minded governemnt .. In a democratic country a right tool for responsibility and honesty.

A. Produce
1) Poor storage facilities:- loss of Produce real 12 - 21 percentage (skewed data provided by the interested as 4-5percentage)
2) Poor transportation (Railroad, interior roads), transit godowns:- time factor poor Mixed crops, increased distribution cost, poor pricing models (locally) leading to poor forecast, agricultural cartels
3) Increased private sector participation along with public sectors and government institutions:- Allows transparecncy in data and policies - better governance
4) Tools:- satellite forcast and technology available at grassroot, flexible farming options from research institues
5) Legislation, policies - unification of divided land (tillale land increment (by area) - 17-18 percentage)
6) Incentivised attitude and responsibility:- increased farmers belief and attitude of his possessions - land, knowledge, trust among each other, responsibility on funded loans (without any, should i say much, political assurance to some farmers on Non performance on loans given)

B) Power -
1) tools - metering, tools from inception to delivery of projects reducing timeline, inflation realted budget etc
2) Technology- power loss during transmission (estimated overall 22 percentage) etc
3) Energy Resources -
a. Suitability, Variety, Grading, Pricing
b. Research - Global trend, Human Environmental Value HEV) on each MW of eanergy consumed - Cause and effect leading to Suggestion, trial and a government Action

C) Performance: Reporting Standards, policies to be established and acted to be in place by the government for the citizens: - these should be on above parameters as an cause and effect (objective) data yearly, quarterly....

If you please think and digest thru clearly all three parameters 'PPP' points towards E (energy-economy)...
P x P x P = E

Let simplicity rule our so called democratic India.

Regards

Like 

Seth

May 23, 2011

The challanges that India will face in the coming years has correctly been identified by Mr. M S Ahluwalia. Now how to achieve the targetted URBANISATION efficiently is the question. The Government and all the agencies responsible for tackling the problem of urbanisation needs are busy developing utopian models without matching these plans with the prevailing ground realities.
The slums come up in cities because there is no cheap land available in the cities, land is available in most cities which is designated or zoned for non residential use. Less than 5 % of the total land of this country is currently occupied by any for of habitation, be it Urban or rural.
The shortage is of land where residential development is permitted. The Government charges huge amounts of money to convert the land use,thus making the converted land not suited to affordable/ low cost housing.
There is a solution to this problem which can be considered by all those right thinking persons championing the casue of the worker housing that will be required with intensive industrialisation.
THE GOVERNMENT, CENTRAL & STATE GOVERNMENTS STOP PROFITIEARING FROM THE ZONING LAWS.
OPEN A WINDOW FOR A LIMITED TIME PERMITTING LAND OWNERS IN VILLAGES AROUND CITIES TO BUILD HOMES TO SELL OR RENT OUT. THEY CAN BE MANDEATED TO PROVIDE THE BASIC AMENITIES LIKE WATER AND ELECTRICITY. THE BROAD 2LANE / 4 LANE ROADS WILL COME EVENTUALLY, RIGHT NOW THEY CAN MAKE DO WITH VILLAGE ROADS.
THE WINDOW WOULD REMAIN OPEN FOR SAY 4 YEARS AND ANY ENTITY WISHING TO AVAIL THE WAIVER OF THE STATE LEVIES MUST COMPLETE THE PROJECT WITHIN THE PERIOD PRESCRIBED.
I believe that suchj an opportunity will generate huge responses from land owners, builders, developers to create the required affordable housing stocks. The Government can go back to collecting their billions from land use change after this momentum has bridged the gap between demand and supply of workers housing around industrial eatates / cities/ towns.

Like 

kamal

May 22, 2011

GDP should not be the only criteria for measuring the success in growth of a nation. How equitable this GDP distribution is, is also very important. If the gap between the haves' and have nots increase beyond a certain point, it could mean disaster for that country. Moving over from agriculture to industry as suggested is also flawed thinking. Without strong agricultural growth, a strong industrial growth would be less meaningful and skewed. In a self consuming economy like ours, we need to expand agriculture too along with the industrial sector. Infrastructure needs can be met with a balanced long term approach. Regarding power, alternate sources of power for small sectors like domestic etc. should be explored. Relying on borrowed technology cannot help us in the long run. Instead, we should lay equal stress on research as an aid in development.

Like 

Vishal

May 22, 2011

Pushing India towards urbanization and reducing dependance on agriculture may only provide short term relief and boost to the Indian growth story.
Stalin industrialized a backward Soviet and enabled it to beat Hitler following a similar philosophy. As long as he shifted people out of agriculture into industry, economic productivity rose, since industry is far more productive than farming. But once this process was largely completed by the 1960s, the fundamental inefficiency of the Soviet model became apparent. It could produce missiles and nuclear bombs galore, but could not produce a faucet or shirt of world class. Its agriculture refused to respond to ever larger doses of investment, and it became pathetically dependent on its mortal enemies—the US and Europe—for grain, meat and dairy products. Soviets hoped perestroika and glasnost would rescue the model. Instead the red empire collapsed. I hope India does not follow the same model.

Like 

Tamal Dasgupta

May 22, 2011

The problems have been staring us in the face for quite some time now. The question is who in the Government is doing what about it? I am deeply frustrated.

Like 

sd

May 22, 2011

What if the US govt decides to pledge some portion of its 8000Tn gold reserves? Soros seems to believe so...QE2 gets over. $ gets stronger, commodities speculation collapses. Emerging economies are benifited by lowering of inflation & investors get back. Europe also gets the same idea...what happens to gold, silver & oil prices? Wasn't that the gameplan at G20 to save the world? It's a fixed match...

Like 

O P Sharma

May 21, 2011

The weather God is listening

Like 

N B Mehta

May 21, 2011

My feeling is that Dr, A,.P.j Kalam.s 2020 vision paper may be made blue print of planning.This will reverse the trend from urban areas to rural areas. The quality of life in most urban areas is pathetic.Though self has lived in urban areas
and these areas provide more job opportunities.The Planning for next 30 years should be for reversing the trend by providing PURA concept to rural areas.

Like 

Madhu

May 21, 2011

Can I have the link to the articla of Mr ahkuvalia Pl.
the issues are serious. How does explain the poor performance under his nose?

Like 

Sushil Sahrawat

May 21, 2011

First of all the policymakers must come to the ground level & identify the problems of the middle class & poor peoples...

Like 
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