This will help India's growth match that of China... - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
PRINTER FRIENDLY | ARCHIVES

This will help India's growth match that of China... 

A  A  A
In this issue:
» Global steel production has done well so far
» US will continue to print money, says Marc Faber
» How ready is India to host the Commonwealth Games?
» No policy yet on decontrolling diesel
» ...and more!!


--------------------- 100% FREE subscription to The Daily Reckoning ---------------------
Now you can read what knowledgeable investors across the globe read every single day - for global market analysis and investment ideas. Yes, we are delighted to bring you The Daily Reckoning, a financial newsletter by Bill Bonner, Publisher and Editor, and three-time New York Times best-selling author.
As one reader put it, Bill "makes more sense in one e-mail than a month of CNBC".
Hurry! Start your free subscription to The Daily Reckoning today!

--------------------------------------------------------------------------------

00:00
 
There are various challenges that India needs to address. Especially if the economy has to grow at a sustainable and strong rate going forward. Strong infrastructure is certainly one of them. But the other equally important propeller is agriculture. After all, 60% of India's population thrives on agriculture as its source of livelihood. And so the importance of the farm sector cannot be undermined.

The government's cabinet secretary has recently reiterated that reaching double-digit growth is largely dependent on the farm sector achieving 4% growth. In fact, he is of the view that bolstering farm output is the key to India matching China's growth rate in the future.

The importance of agriculture over the years was relegated to the sidelines. This was because strong growth in services and manufacturing hogged the limelight. But it became the focal point last year when poor monsoons wreaked havoc on crop production. And pushed up prices of food items. And so, it has become imperative that for India's growth to be sustainable there will have to be strong contribution from all the three sectors. These being agriculture, manufacturing and services. Infact, the government opines that agricultural growth of 4%, industrial growth of 12% and services expansion at 10.5% was the combination needed to reach the goal of double digit growth.

Specifically on the agricultural front too, efforts will have to be made to reduce farmers' dependence on monsoons. This would mean introducing irrigation techniques and rain harvesting methods. So that a bad year in monsoons (like the one witnessed last year) will not greatly thwart agricultural production. The government's intention to increase farm output and focus on inclusive growth is all very well. How it proposes to carry this out is what will test its mettle in the long term.

01:23  Chart of the day
 
India maybe lagging China on many fronts. But this is likely to change soon. As today's chart of the day shows, as per estimates of the Economist Intelligence Unit, India's real GDP growth will match that of China by 2013. What is more, in previous years the gap was apparent between the two BRIC nations. But going forward there is not expected to be much to choose from between these two Asian giants. India will have to make sure that infrastructure and agricultural production is ramped up to move in tandem with China. China on its part will have to reduce its dependence on exports and focus more on domestic consumption.

Data Source: Economist Intelligence Unit

02:02
 
In a period when commodity prices have taken a hit, this might sound as welcome news for steel manufacturers. Global crude steel production has risen by around 28% YoY in the first six months of 2010. But the bad news is that a large part of this growth has been front-ended. This is to say that production has slowed down in the latter period of the first half. For instance, steel production dropped in June as compared to May. This was as steel mills worldwide scaled back their production in response to some weakness in demand.

What is more, industry observers are expecting production cuts to continue going forward. China, which was the savior for the industry all these years, is itself slowing down on its consumption. And that's going to weight heavy on the industry. Uncertain times indeed for the steelmakers!

Data Source: World Steel Association

02:37
 
It is perceived that fiscal and monetary policies are the two levers with which growth in an economy can be regulated. But we believe that most of the developed economies have pushed the fiscal knob to its maximum permissible limit. Little wonder most of them are singing the austerity tune these days. So does this mean that the Governments have finally decided to go slow on spending and are looking to cut their fiscal deficits? Certainly not believes Marc Faber, one of the top big picture guys in the world right now. "I am not a great believer in this austerity that they are proclaiming", Faber said recently in an interview. He further adds that even if Governments cut deficits, it is most likely to be offset by a very expansionary monetary policy. In other words, the US Fed and other central banks will print so much money that nominal interest rates would continue to remain low. This in turn could force people to spend and invest and thus push up economic growth. However, this is not going to solve any of the long term problems. Very likely, we could end up with an even bigger recession few years down the road. Thus it looks like there are no easy solutions in sight.

03:12
 
China has historically been known for its cheap (and thus low on quality) manufactured goods that seem to reach almost every corner of the planet. It now looks like India may be all set to achieve a similar distinction. Not for its products though, but for its infrastructure. As per reports in the Mint, many Commonwealth Games venues in New Delhi are far from finished with just a few months to go before the games begin. Many others are falling apart under the force of just a few weeks of rain. A shooting range built for the Games, and inaugurated two months ago, was extensively damaged by heavy rains recently. At another complex, rains felled the false ceiling. Many other venues have sprung leaks all over. Some experts are of the opinion that the government's modus operandi of giving contracts to the lowest bidder is what is causing these problems of quality. The last thing India needs is attaining a double digit GDP growth with such shaky foundations to boot.

03:47
 
Petrol prices have been recently moved to a market price mechanism. But question marks remain over diesel prices. While prices were increased by Rs 2, the heavily used transport fuel remains government determined. As reported by a leading business daily, the policy makers have not thought about decontrolling LPG, kerosene or diesel as of now. They have to look at a lot of things, like its effect on consumers, before they can go ahead. Of course, the recent nationwide strike would have also given the government second thoughts. In our view, the political backlash and a higher global crude oil prices will test the resolve of the government over this issue. After all, the economics of reducing subsidies is one thing, the politics is quite another. Often politics wins.

04:15
 
India has a reason to cheer. India's exports grew by over 30% YoY for the fifth straight month in June. Data showed that sectors like engineering, chemicals, pharmaceuticals and iron ore have witnessed impressive growth rates. But is this growth sustainable? Will it continue at this pace for the rest of the year? Industry experts are skeptical of this. They feel that exports have started to turn around for the better. However, there is a slowdown in China who has decided to cut down on its production this year. Such decisions will hurt China's demand of goods from India, especially for iron ore. To add to this, uncertainty linked to the Euro zone continues to worry exporters. A number of exporters are complaining about not getting payments from buyers in Europe on time. Now that government spending is cut in parts of Europe, it could result in a further fall in demand. All in all it looks like India will have to hold off its celebrations. At least for the time being.

04:44
 
In the meanwhile, Indian markets traded well above the dotted line throughout today's trading session. At the time of writing, the BSE-Sensex was trading higher by around 83 points (up 0.5%). Gains were largely seen in metals, auto and oil & gas stocks, while healthcare and banking stocks were at the receiving end.

04:55  Today's investing mantra
"Spend at least as much time researching a stock as you would choosing a refrigerator." - Peter Lynch
The 5 Minute WrapUp Premium is now Live!
A brand new initiative of Equitymaster, this is the Premium version of our daily e-newsletter The 5 Minute WrapUp.

Join us in this journey to uncover the sensible way of managing money and identifying investment opportunities across various asset classes including Stocks, Gold, Fixed Deposits... that over time can help you realize your life's goals...

Latest EditionGet Access
Recent Articles:
This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)
August 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
This Company Beat the Business World's 'Three Killer Cs'
August 16, 2017
And what it has in common with beating the stock market too.
Let's Hope This Correction Continues
August 14, 2017
Last week's correction is making a number of Super Investor stocks look a lot more attractive...
Insider at It Again. This Time Stealing from Buffett and Berkshire
August 12, 2017
What is Equitymaster Insider Ankit Shah stealing from Berkshire's success?

Equitymaster requests your view! Post a comment on "This will help India's growth match that of China...". Click here!

4 Responses to "This will help India's growth match that of China..."

shastry

Jul 21, 2010

The chart of the day in which it is mentioned that India's growth matches that of china by 2014.It may be so because china's %change of real GDP growth is seen falling rather India's growth increasing.

Like 

pichappan

Jul 21, 2010


Every where in this country, Govt spendings are
going in vain.As far as Govt spendings are concerned,
simply mis managed, wasted, in dulgence of leakage is
predominant.Day after day, sitution is going out of
control.Will the top political,legal,administrative
leadership awake and be prepared to meet the challange to put the nation in right path of progress and welfare
of all its people

Like 

Dr. Atul Tiwari

Jul 21, 2010

Porblem is not uncontrolled market in India. See when fuel prices will change monthly, then same will not be reflected in market. IE- An auto driver who raised its rate from 25 to 30/ will not decrease it revrsal of fuel cost. In same way a kirana man will not decrease the price of goods & its not possible also. If fuel price dcreases for .50np after being raised Rs 2/ how one will calculate each time / what he will do with old stock purchased at a higher price on 26th day of month. In china, first - market is well regulated, second- law of land is respected & feared 3- contracts are awarded on quality cum cost basis (not only cost). So lastly its political & administrative will whci controlls the inflation, not only the market factors.

Like 

RAVI S BAWASKAR

Jul 21, 2010

HOW ABOUT HANDING OVER EARTHMOVING EQUIPMENTS BY GOVT. TO BE HANDED OVER TO VILLAGE PANCHYATS AS YOUNG GENERATION ARE BIT RELUCTUNT TO WORK IN FARMS,THIS WILL GENERATE MECHANICAL FARMING ALL OVER & EASILY ACHIVE DOUBLE DIGIT GROWTH IN AGRICULTURE & iNDUSTRIAL PRODUCTION IN GOVT.& PRIVATE SECTORS.
BEST REGARDS
RAVI

Like 
  
Equitymaster requests your view! Post a comment on "This will help India's growth match that of China...". Click here!

MOST POPULAR | ARCHIVES | TELL YOUR FRIENDS ABOUT THE 5 MINUTE WRAPUP | WRITE TO US

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.

Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement

Disclosure & Disclaimer: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.

This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.

This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, the same may be ignored.

This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Our research recommendations are general in nature and available electronically to all kind of subscribers irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the securities referred to in this material and the income from them may go down as well as up, and subscribers may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any decisions based on this document.

As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407