Has India's standard of living really improved?

In this issue:
» Pimco's Gross forced to apologise
» Asia is one of top regions for infra investments
» Will Eurozone's 'comprehensive strategy' work?
» Boosting farm output the only solution to inflation
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00:00

India as a country is a contradiction of sorts. No doubt it has come a long way in terms of growth over the past many years and is holding its own in the global arena. Many statesmen have acclaimed India as a responsible, rising power, inviting it to take a seat at the top table of world affairs. GDP growth at 8.5% has put it along China as one of the world's fastest growing economies. With a population of around 1.2 bn, there is huge scope for the domestic consumption theme to play out over the next many years. And there are opportunities galore in retail, education and infrastructure. India also boasts of being among the top nations having the highest number of millionaires in the world. India Inc. has also done its bit to put India on the global map and companies especially in the IT, auto and pharma space have continued to expand their footprint abroad.

But while the accolades are plenty, one cannot ignore the brickbats either. And these in recent times have taken the ugly shape of high inflation and mounting corruption. Moreover, questions persist as to whether the government will be able to transform the lives of millions of poor in the country. With no long term reforms in place, large sections of the Indian population continue to be hampered by rising prices and erosion in purchasing power. The UPA government came to power with reforms being its main agenda and resulting scams and scandals have tied its hands as a result of which it has been busy trying to tidy up its own affairs rather than focus on developmental activities. Recent attempts to define the poverty line have only been met with rising criticism and have highlighted the government's inability to grasp the ground reality. Indeed, GDP growth in the long term is quite meaningless if it does not improve the standard of living of its citizens and instead increases income inequality.

The latter especially is dangerous and could lead to more insurgencies or revolutions of the kind that were witnessed in the Arab world. Of course, all is not bleak and India's growth rates are still much better than that of the developed world which is grappling with prolonged recession. Moreover, some of India's current problems have been there in the past as well and the Indian economy has been able to grow at a fast rate inspite of it. However, times are changing, intolerance among citizens has increased and the government has to step up its pace on the structural reform front in a bid to diminish the income equality divide.

Do you think that India's high GDP growth has improved the standard of living of its citizens? Share your views with us or you can also comment on our Facebook page.

01:26		Chart of the day

After two stupendous years (read FY10 and FY11) for the auto industry, where sales numbers across all vehicles registered robust growth, the scenario in FY12 so far has been rather mixed. As today's chart of the day shows, growth in total domestic sales were largely led by commercial vehicles and two wheelers as passenger vehicles failed to put up a strong show. Rising interest rates and fuel prices dampened demand for passenger vehicles and labour unrest at Maruti's plant at Manesar only compounded woes.

*Commercial vehicles
Data Source: SIAM

02:06

The kind of reputation Warren Buffett enjoys in equities, a certain Mr Bill Gross does in fixed income securities. Therefore it came as something of a shocker when Gross was forced to apologise to investors over his dismal performance this year. But how did the script go wrong for Gross in the first place? Well, it so happened that while Gross was betting on higher inflation and thus, higher bond yields in the US, the reality turned out to be vastly different. Things progressed much worse than anticipated and consequently, people rushed to the safety of US bonds, causing its prices to rise rather than fall as expected by Gross.

And now, Gross is being painted as a villain by economists who believe that printing one's way to glory is the only viable solution for kick starting economic growth. We do not agree. We are of the view that the key to long term economic growth is investment that is a result of higher savings and not printing of money. And it is only when the malinvestments of yesteryears are cleared out of the system will the platform for a sustainable growth be laid. Thus, while Gross may be a bit early in his assessment, he is certainly on the right path as far as we are concerned. The next few months will certainly show who gets to laugh the last.

02:43

We experienced a power cut in our office in South Mumbai yesterday. Almost the entire commercial district came to a standstill. While this may be a one off incident in South Mumbai, it doesn't detract from the fact that infrastructure in our country is in abysmal condition. What maybe a once-in-a-blue moon situation here is a constant reality in many parts of India.

It's little wonder then that Asia appears as one of the top destinations for infrastructure investments. This is because of the rapid pace of development and the need for infra investments in its emerging economies. India is one of the preferred destinations for fund managers to invest capital. According to research firm Preqin which tracks private equity investments, there are currently 38 unlisted infrastructure funds which have a preference for investing in India. Out of these, 25 have already raised US$ 9.5 bn and another 13 are currently in the market, seeking an additional US$ 7.3 bn. Plus, nine more India focused infra funds are expected to be launched by unlisted fund managers in 2011. Well, we hope that this money at least rebuilds some of our creaky infra, and helps develop greenfield projects.

03:17

The eurozone is trying to wriggle its way out of the sovereign debt crisis to which it has not been able to find a solution yet. Next Sunday, the 27 EU leaders will convene their sixth summit this year with the hope of finding a way to deal with the crisis. There are some key elements in the latest "comprehensive strategy" that the summit will focus on. Greece is, of course, on top of the agenda. The aim would be to reduce Greece's debt and give it longer to recover. The other important goals include shoring up European banks' ability to absorb losses, leveraging the rescue fund to prevent contagion to larger economies and initiating steps towards closer euro zone fiscal integration. But the road ahead doesn't seem to be easy at all for several reasons. The situation has been deteriorating at a much faster pace. The Greece debt relief may be too miniscule to prevent an eventual hard default. The bleak economic outlook coupled with the austerity measures will make things even more difficult. So, we are really doubtful if any 'comprehensive strategy ' is going to solve the eurozone crisis anytime soon. A lot of pain is still in the offing. And the effects of the same will surely spill all over the global economy.

03:48

The government seems to have finally got around to understanding the basics of economics. The Reserve Bank of India (RBI) was on the offensive, trying to control high inflation on the demand side. But nobody was bothering about the supply side. Now, according to Finance Minister, Pranab Mukherjee, boosting India's farm output is the only long-term solution. This is expected to help address supply issues and cool high commodity prices. But inadequate infrastructure causes 40% of the farm produce to rot before reaching markets. Thus the focus needs to be two-fold.

Food has remained costly despite good rainfall over the past two years. The inflationary crisis in India has still shown no signs of abating. This is despite 12 rate hikes over a period of 18 months. The cumulative 5% increase in policy rates over this period is the fastest pace of tightening since the RBI was established. And still, inflation remains stubbornly above 9%. Well, we believe that not just focusing on boosting farm output, but also improving the food distribution system is the key to cooling prices. Thus, it may be time for the RBI to stop, and the government to take the reins.

04:15

That US is slipping into another recession is not something new. It is a point that nearly everyone agrees on. But the bigger question is how the US would come out of this mess. As suggested by economist, Graeme Maxton, US needs to reduce its debt burden. And the only way to do that is by raising the tax rates in the country. Raising rates would mean the consumers would have to cut back on their spending and pay back the debts instead. This in the long run would work well. As the debt burden comes down, it would start fuelling growth in the future.

04:47

In the meanwhile, the Indian stock markets languished in the red for the larger part of the day as selling activity persisted among index heavyweights. At the time of writing, the benchmark BSE-Sensex was down by 294 points (2%). Losses were largely seen in IT, banking and metals stocks. Asian stock markets too were trading in the red with Hong Kong and Indonesia leading the pack of losers.

04:56

Today's investing mantra

"The best assets you can have during inflation are your abilities." - Warren Buffett