X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
An unflattering inheritance - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Feb 17, 2009

    An unflattering inheritance

    Double whammy for the new government
    Just as Barack Obama became President of the United States of America at a time when the US was in the midst of its worst crisis ever, so will the new Indian government inherit finances which are in an absolutely sorry state. As reported by the acting Finance Minister Pranab Mukherjee in his interim budget speech yesterday, India's fiscal deficit will stand at an appalling 6% of GDP in FY09. That he expects the same to reduce to 5.5% of GDP in FY10 is hardly a matter of comfort. Certainly, the new government will have a tough task on its hands getting this percentage down especially in a scenario when the global financial crisis has not abated.

    The fiscal deficit can be curbed either by raising tax revenues or curbing expenditures. The problem for the government is that it has its hands more or less tied on both fronts. Not surprisingly, as a fallout of the slowdown, tax receipts have been waning. At the same time, if the economy has to revive, the government will have to spend to boost demand. Subsidies continue to be a major spoke in the wheel and the government did nothing really to address the issue when the Indian economy was growing at a scorching pace.

    These subsidies on food, fertilizers and petroleum among others make up the third largest component of the government's non-plan expenditure after interest costs and defence spending. In fact, efforts to curb spending were done by compromising on capital expenditure which does not bode well given the poor state of India's infrastructure. Indeed, the new government will seriously need to get its act together to address the issue of the soaring fiscal deficit, which if uncontrolled could harm India's economic health.

    Glaxo's largesse to poorest countries
    As seeking a larger share of the pie and improving profitability gets increasingly difficult in developed nations, some of the largest pharma companies are willing to compromise margins to get an entry into unchartered territories. As per Wall Street Journal, GlaxoSmithKline (GSK) Plc, the second-largest pharmaceutical company in the world has signaled a groundbreaking change by promising to cap the prices of the patented medicines that it sells in the poorest countries.

    In fact, the company's management has indicated that it would not even hesitate from sharing critical knowledge about potential generic drugs that are currently protected by patents. GSK Plc has decided to significantly reduce the price of the drugs that it sells in 50 sub-Saharan African countries. It plans to charge not more than 25% of the average price that it charges for the same drugs in the developed world, as long as it can cover costs. GSK currently garners revenues of about 30 m annually from selling drugs to the 50 countries and has operations in 14 of them.

    The quandary of ethanol producers
    The ethanol industry which was in limelight last year on account of higher crude prices is now in a serious jeopardy. With the US economy slowing down and demand for cars falling, the ethanol industry is burdened with excess capacity. To add fuel to the fire, while oil prices have plunged, the prices of corn from which nearly all commercial ethanol in the US is made has continued to remain high. No wonder then that excess capacity is posing a problem. As per Renewable Fuels Association, out of 180 plants in the US, nearly 25 plants have been closed over the last three months. Recently, in order to reduce dependence on foreign oil, US had mandated doubling of corn ethanol use. However, with the deepening recession, meeting the target would most likely be difficult.

    In India, while the government is taking steps to encourage the ethanol sector, the scenario here is not bright either. There is a shortage of sugarcane of up to 30%, due to which the availability of molasses will be on lower side. This in turn will translate into higher raw material costs. Also, with the auto industry in doldrums, lower demand for cars would only mean lower offtake.

     

     

    Equitymaster requests your view! Post a comment on "An unflattering inheritance". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    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.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. 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
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 18, 2017 (Close)

    MARKET STATS