Is India the next Greece?
In this issue:
» RBI cuts CRR rate
» Will FDI help sinking airlines sector?
» Future bleak for capital goods sector?
» QE3 will not help US out of recession
» ...and more!
--------- A Service That Can Serve Your Family For Many Generations! (Till 18th September only) ---------
When we first envisioned our lifetime membership service, Equitymaster's Wealth Alliance, we wanted to create a service that would help many generations of a family build and grow their wealth. And that's exactly Wealth Alliance helps us do perfectly...
Through Equitymaster's Wealth Alliance, you not only get 4 of our top research services for a one-time fee... but also get the right to bequeath your membership to any one person of your choice.
And in addition, we are also giving a Rs 5,000 bonus for subscribing to Equitymaster's Wealth Alliance this time.
So don't let this amazing opportunity pass. This offer will be open till 18th September, 2012 only!
Click here to read full details and sign up! There's a 30-day, full money back guarantee on this in case you don't like it.
------------------------------------------------------------------------------------------------------
00:00 |
![]() |
|
This is the opinion of the head of HDFC Bank, Mr Aditya Puri. He opines that India's government inaction is going to lead it on the path of a financial disaster. In his opinion all that the government is doing is playing the blame game. Each political party is blaming the other for inaction and corruption. Unfortunately this has taken away their focus on the core issue of running the country. Mr Puri feels that if each and every government official just did his job, then India is well poised to be a shining star in Asia.
And there seems to be quite a bit of logic in this statement. If we look at the other countries in the region things are not so bright. China is going through a slowdown. Korea is not doing too well either. As a result, India has a great opportunity to emerge as a star. But the government inaction and lethargy is pulling it back. In Mr Puri's opinion there are some crucial areas that the government needs to work on. These are addressing the fiscal deficit, solving the coal issue, transparent and clear policies on land acquisition, mining and environment. And improving accountability and governance in government and public sector undertakings. Once action is taken in these areas, things are expected to improve in all likelihood.
Though it is important to note that India's high domestic savings and consumption rate makes the economy far less vulnerable than Greece. Hence, investors should not be alarmed by Mr Puri's observations. However, there is no doubt that the government must act fast to respond to the economic crises. This means that they need to stop humiliating the nation by stalling parliament sessions and taking a jab at each other in the media. Instead doing their work like Mr Puri suggests would be a better idea. But are they willing to do this? We hope they do.
Do you think India is headed on the same path as Greece? Do share your comments with us or post your views on our our Facebook page / Google+ page
01:00 |
Chart of the day | |
![]() |
Source: Livemint.com |
01:30 |
![]() |
|
Fearing an onslaught of higher commodity prices post the liquidity measures enacted by the Fed and the European Central Bank (ECB), the central bank has decided to keep rates unchanged. However, in order to boost liquidity, the RBI reduced the cash reserve ratio (CRR) by 0.25% to 4.5%. This will help inject Rs 170 bn into the system. This may please the SBI Chairman, who had a famous tussle over this ratio a few weeks earlier. A rate cut at this stage may have stoked inflation. As expected, the central bank has once again taken a conservative stance. The Reserve Bank of India (RBI) caution coupled with the government's new found resolve may just help macro numbers going forward.
02:10 |
![]() |
|
02:40 |
![]() |
|
The situation now, as you would know, is quite the opposite. And it is expected to remain like this for some time in the future! The key concerns include slowing investments (and therefore orders), excess capacities (in certain areas), unhealthy balance sheets, and the unwillingness of financial institutions to fund power projects. Regarding the latter, comparisons are being made to what the situation was way back in FY06. As reported by the Business Standard, project loan sanctions in the last quarter of FY12 stood at a figure of Rs 255 bn. This is the lowest level since FY06. Adding to the already long list of issues is the CAG's questioning of the coal block allocations - thereby putting all the related projects on hold.
03:40 |
![]() |
|
The real onus of job creation lies with the fiscal policy and what the other economies around the world are doing. And things are not looking good on both these fronts. The US, as we all know, is fast approaching a fiscal cliff. This is a condition where tax cuts will expire at the same time the Government will implement automatic spending cuts. Thus, this could well send the country sliding into recession if corrective measures are not taken. Besides, manufacturing, one of the key drivers of the US economy, would also slow down due to problems in Europe. In light of these factors, all that QE3 will end up doing is inflate stock prices without any marked improvement in the overall economic scenario.
04:30 |
![]() |
|
04:55 |
Today's investment mantra |
Today's Premium Edition.
Recent Articles
- All Good Things Come to an End... April 8, 2020
- Why your favourite e-letter won't reach you every week day.
- A Safe Stock to Lockdown Now April 2, 2020
- The market crashc has made strong, established brands attractive. Here's a stock to make the most of this opportunity...
- One Stock that is All Charged Up for the Post Coronavirus Rebound April 1, 2020
- A stock with strong moat is currently trading near 5-year lows.
- Sorry Warren Buffett, I'm Following This Man Instead of You in 2020 March 30, 2020
- This man warned of an impending market correction while everyone else was celebrating the renewed optimism in early 2020...
Equitymaster requests your view! Post a comment on "Is India the next Greece?". Click here!
9 Responses to "Is India the next Greece?"
THIRUMURTHY.R
Sep 18, 2012We should remember that Spain, Portugal and Italy closely follow Greece in macroeconomic crises. India is far better than these countries right now. This may be short lived but to say India is the next Greece is stretching it a bit.
I am still hopeful that the crises of the Eurozone will be tackled in a robust manner. Strong pointers in this direction are the proposed control and oversight of Banks and proposed fiscal consolidation norms across the Eurozone. These will kick in sooner than we think.
When Eurozone stabilises, India will be a frontrunner in real growth acceleration.
The US too is addressing the problem of employment generation through QEs. This too is good news. Dollar being the reserve currency, the value of the dollar relative to other currencies may not fall too fast, despite the fact that any significant reduction of fiscal deficit by US government will take eight to ten years. This relatively stable value of the Dollar, coupled with increased US employment generation and slow but steady fiscal consolidation will help India because India's traditional exports to US will not be displaced by job growth in the US. The consumption oriented growth trajectory of the US will continue to give market access to India in an equitable manner. That is, if India too gives access to US trade, the natural and organic two way growth potential will be a win-win game for both the countries. It would be stupid to conclude that the Indian market would be swamped by US trade. There are so many other players, local and foreign, in the market for this to happen. The Indian entrepreneur too is second to none in the world. Anyone setting shop in India will be doing a costly mistake if he does not know how to utilise local resources and local entrepreneurship.
The bold policy initiative by India in permitting foreign direct investment in multi-brand retail and in the aviation sector will certainly attract US investments, among others. This will be a durable long term growth component for India. Enough study of the history of foreign investments world over has been done for India to avoid the pitfalls in FDI and roll out a win-win model of trade with the larger economies. Barring outright stupid decisions, it is highly unlikely that Indian economy will not benefit through FDIs in the areas mentioned above.
This makes India a very unlikely candidate to follow Greece.
India's look east policy too will gather momentum. The odds are in favour of India playing a more active role in ASEAN. Trade with the ASEAN countries is bound to pick up.
SAARC too is picking up in volume of business traded. There is no going back on this.
China recognises India as a partner in growth. The Chinese have always invested in shrewd, hard-nosed economics and trade, untramelled by their ideology. This will continue to auger well for the world at large and for India in particular. There are practical reasons to believe that the dollar reserves of China will be increasingly used for equitable economic growth of the rest of the world. India is well poised to capitalise on this. Hawkish and militaristic Chinese view of the world is likely to change sooner than later. This is because humanity is on the cusp of a kind of togetherness we have never before witnessed thanks to the marvels of technology. Common denominators of collective existence and multiculturalism across the world may perhaps compel China to open up and become a vibrant part of the making of the global human being.
India and China will grow together as economic powerhouses in Asia.
Rating agencies have to follow their rating Dharma. They cannot be asked to factor in bullish or bearish moods of the market. They have to analyse large volume of data by applying accepted econometric and other methods. Therefore there is no point in crying foul when they lower the ratings. India's ratings by these agencies, though important, are by no means a ready reckoner for what the country's potential for growth is, which is truly huge by any standard. How soon this potential translates into real growth depends on India's resolve to get its act together.
Multiparty democracy as it is in India may appear to be a drag on economic development. But then, those in a tearing hurry to improve economic development have been known to be insensitive to the human and physical environment they operate in, to the long term detriment of that development itself. Maybe, the dynamics of a democratic polity is a necessary self-corrective component of the whole process of growth and development. That said, politicians in India are badly in need of a makeover of mindset. Corruption and cronyism is definitely out. That chapter of politics is in the hospice on just morphine. The sooner the political elite consisting of the politician, the bureaucrat and, the businessman see this reality the better for them. A New India has arisen. If the political elite continue to pooh-pooh this reality New India will dump them in the dustbins of history unceremoniously.
S.S.Ranganathan
Sep 18, 2012I agree that there is a real danger of India becoming the next
Greece.I hope it does not happen because,if it does there will be total anarchy and lawlessness.It is up to the people
to become really vocal and warn the cental and state Goverments that they will have to face the wrath of the electorate if they do not take steps to prevent our country from suffering the same fate as Greece.
swapan
Sep 17, 2012i agree with puri`s observation.perhaps he has (intentionally)side tracked the issue of mammoth corruption because of his position.india will soon meet greece`s fate and in course soon meet doomsday.only almighty`s help will be able to set it right.alas! by that time lot of waters will have flown through the ganga.indian should be made well informed of`occupy wall street`movement which one day shatter edifice of india`s governance.
fernswin
Sep 17, 2012Mr. Puri has his head on his shoulders.The news in todays papers is anything but heartening.Mamta Banerjee is not fit to be a leader of the party. She messed the rail Budject and set back the Rlys. of funds badly needed by them. The other block head is Jayalalitha.To say that all trhese people oppose FDI in malls, is like having blinkers. Are malls not existin? Have any kirana shops closed? Are people not aware that these shops give them A/Cs and they can order on the phone? They also give them home delivery. Are these jokers not aware of all this?They arebent on holding the Country to ransom, so that thsy can get elected soon, and people Like Sushma Swaraj, Arun Jaitley are all hankering to occupy the Chairs vaccated by the incompetent men, and the silent P.M., who was an economist par excellence, but has forgotten all economics after occupying the Chair, by playing footsy with the idiots surrounding him. How long will we have to suffer uncertainty,and fear of what the morrow will hold?Unless the silent P.M. for once opens his mouth, and endorses what his Finance Minister proposes, we are doomed to poverty.Ferns
harry
Sep 17, 2012I sincerely recommend that you do a little more research before giving such quotes. It undermines your credibility. Also the media really really needs to have some restraint before publishing such trash.
VIJAY MULLAJI
Sep 17, 2012THE POSSIBILITY OF INDIA BECOMING NEXT GREECE IN THE LONG RUN CAN NOT BE RULED OUT ALTOGETHER. THE FISCAL DEFICIT
IS GETTING OUT OF CONTROL AND INFLATION HAS ALREADY CROSSED DANGER MARK. WE CAN NOT SURVIVE MERELY ON THE STRENGTH OF OUR HIGH RATE OF SAVINGS AND DOMESTIC CONSUMPTION. THE LEAKAGES IN GOVERNMENT EXPENDITURE IS A CAUSE FOR CONCERN
PM MENON
Sep 17, 2012YES SIR. NO DOUBT ON THAT IF WE HAVE ANOTHER QUARTER OF THE DISGRACE THAT THIS SO CALLED DEMOCRACY IS... EVERY PARTY WITHOUT EXCEPTION HAS ONLY ONE AGENDA- NO NO & NO. LIKE IN GOVT ORGS JUST DONT DO ANYTYHING. THAT ENSURES IN A MYOPIC INDIAN WAY THAT YOU DID NOT MAKE ANY MISTAKES.!!!!! IF YOU DONT MAKE MISTAKES (KNOWN TO PUBLIC) THEN YOU WILL GET PROMOTED. TO HEAD A GOVT ORG: BE A RES CATEGORY IF POSSIBLE, STAY ALIVE AND DONT EVER DO ANYTHING!! SIMPLE MANTRA.
POSSIBLE DIFFERENCE FROM GREECE IS THAT THERE WILL BE NO GERMANY OR FRANCE ETC HOLDING A CARPET UNDER THE CRUMBLING FLOOR. THE DROP WILL BE SHARP AND STEEP.ADD A FEW NATURAL CALAMITIES ( OR MAN MADE ONES LIKE UNCLEARED GARBAGE AND BLOCKED DRAINS AND WHAM! YOU HAVE IT. THE VULTURES ARE ALREADY HOVERING. ITS POSSIBLY A MATTER OF TIME. NO MORE WILL?? ITS WHEN!!!
sharad sharda
Sep 19, 2012Not a single political party is concerned about the well being of our country and in turn countrymen. They see only their political interest and most of them have become a tool for regional imbalances too. What Mr. Puri has suggested, if followed in letter and spirit, India will undoubtedly become an economic super-power in the continent.