How Indian Government gets and spends money

India's Financial inclusion effort.

India's Budget

The Indian FM presented a largely bureaucratic and long winded budget.
Like a good , kind elderly man, he tried to give something to everybody although he raised service tax a bit to keep funds coming.

• He spoke of renewed confidence in the Indian economy which had brought in substantial foreign inflows. 
• The Rupee had grown stronger by 6 % against a basket  of currencies.
• Financial  inclusion had covered 125 million families  in the Government's recent drive. There was greater transparency, in bidding, procedure.
• He took the deficit funding route for scaling up investment in infrastructure.  
• He promised to build 6  million new toilets for the very poor;provided incentives to FIIs; he said he would not reduce but enhance allocation to poverty elimination schemes, 
• He reduced corporate taxes, 
• He increased tax benefits to middle classes; 
• He did away with the wealth tax; 
• Fiscal deficit expected at 3.9 % instead of at 3.6 % with the difference reportedly going to infrastructure. 
• Monetary Policy Committee set up to ensure inflation targeting. 
• Set up a bank for the small entrepreneurs of the weaker sections.

The Mumbai Stock Exchange which was overbought on expectations, seems to have expected more. There was volatility and then it fell steeply.  

The Government must look to structural reforms rather than financial sops if it is to achieve 8.5 % growth. 

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Warren Buffet to Germany...

Not that US is weak, But that Germany is organized enough for Buffet to make an entry. Germany is a performing economy.
Since 2007 -2008, the Germany has performed in a direction different from the other large economies like France, Italy and Spain. Look at the major economies and their current unemployment rates.

Germany : 4.789

France: 10.3

Euro Area: 11. 5

Italy: 12.9

Spain: 23.7

Buffet also seems to accept that the gateway to Europe is Germany. 

Unemployment Spain, Italy, France and Germany.
Source: Bank of France


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US GDP Data

"Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes increased at an annual rate of 2.2 percent in the fourth quarter of 2014, according to the "second" estimate released by the Bureau of Economic Analysis.  
In the third quarter, real GDP increased 5.0 percent.
The deceleration in real GDP growth in the fourth quarter primarily reflected an upturn in imports, a downturn in federal government spending, and decelerations in nonresidential fixed investment and in exports that were partly offset by an acceleration in PCE, an upturn in private inventory investment, and an acceleration in state and local government spending."

Source : US Bureau of Economic Analysis

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Worries over Japanese ageing...

Unemployment rate : Seasonally adjusted was only  3.6%. 
Number of unemployed :2.31 million : 

 Labor  Force  in Ten Thousands by age groups

Total;	6587	100
15 -64	5891	89.43
15-24	525	8.91
25- 34	1207	18.32
35-44	1567	23.79
45 54	1402	21.28
55-64	1190	18.07
65 & above	696	10.57

As will be observed,  the ageing of the population  has already started affecting Japan.  Work related effective linkages to India or Australia, South East Asian nations may be useful. With less spending at home, export led growth has been Japanese mantra.

Source: Bureau of Statistics, Japan 

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Indian Economic Survey : The vast unsaid about Indian banks... Are the Gross NPAs more?

The India Government's just released economic survey has a  graph which seems to suggest that Indian banks' asset portfolio may be prone to larger shades of non performance than originally thought of or  publicised by regulators. Restructured assets need to be added to really study how infected the balance sheets of banks are. 

The Indian banks gross non performing assets plus restructured assets at over 13% for public sector banks and nearly 10 % for all scheduled commercial banks .

The Survey goes on to say that  "a steep decline in gross fixed capital formation, a large volume of projects in suspended animation, worryingly high number of stressed assets in banks’ balance sheets and a highly leveraged corporate sector- suggests that Indian firms face a classic debt overhang problem in the aftermath of a debt fuelled investment bubble, translating into a balance sheet syndrome with Indian characteristics."

(Why do Indian Projects fail? : The survey identifies some reasons why so many Indian projects are stalling or stalled: 

• Unfavourable market conditions- 
• Lack of promoter interest-
•  Lack of non-environmental clearances 
•  Land acquisition problem - 
• Lack of n Clearances - 
• Lack of funds 
• Fuel/feedstock/raw material supply problem  ) 

Are some of Mumbai Stock Exchange's companies  passing through  a debt overhang? Are the banks adding on to this typically Indian  problem with their  competitive disbursements and adverse selection of borrowers? Is there a contamination of the portfolio which is being window dressed by banks through restructuring? 

Reserve Bank may have to explain  quite a bit on this graph.

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IT Industry, India

"The Economic Survey 2014-15 says the IT and ITeS sector including Business Process Management (BPM), continues to be one of the largest employers in the country, directly employing nearly 35 lakh people. NASSCOM estimates the revenue of the IT-BPM industry at US$119 billion grew by 12 per cent in 2014-15 with export market alone making up almost $100 billion. The year witnessed hyper-growth in the technology start-up and software product landscape, India ranking as the fourth largest start-up hub in the world with over 3,100 start-ups in the country. Software products and services revenues for 2015-16 is projected to grow at 12-14 per cent. "

From Press Information Bureau, Government of India

India's inflation looks South: Economic Survey

Inflation shows a declining trend during the year 2014-15 (April-December)

Average WPI inflation declines to 3.4% in 2014-15 (April-December) as against an average of 6% during the previous year WPI food inflation falls to 4.8% during April-December, 2014 after a high of 9.4% in 2013-14 CPI inflation touches an all time low of 5% in Q3 of 2014-15 after remaining high at 9-10% for last two years Government measures to control food inflation and persistent decline in crude prices results in declining trend in inflation Source: Press Information Bureau, Government of India

India's Economic Survey 2015

Indian Growth rate may touch   8.5 % in coming fiscal
May need spending curbs if revenues are short.
Current account deficit at 1. 3%

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IMF gives Ghana a loan

IMF has reportedly agreed to grant Ghana a loan of about $940 million.

Ghana had about 9  % growth rate in 2011; since then receding resource prices, a  ballooning  17 % inflation , unemployment, ghost employment, wage bill inflation, corrupt practices, and large fiscal deficits rooted in subsidies have all contributed to  a stalled economy.

As a lead frontier emerging economy, Ghana has prospects.However, the nation has a lot of determined and value driven effort to do if it has to get back to growth. It could work as an educational hub of West Africa, a technological park across the Atlantic and as a medical hub. 

 The Cedi might just about hold for sometime unless IMF  is able to inspire a good rebound.  

 Views expressed without any risk or responsibility 

Data does not back Bullard's 'dollar strengthening' observations: ; Interest rates cannot rise so fast after all:

(St. Louis Fed President James Bullard had said that the U.S. central bank should drop the word “patient”  ) 

Data released by the U.S. Bureau of Labor Statistics:

UNEMPLOYMENT INSURANCE WEEKLY CLAIMS:

In the week ending February 21, the advance figure for seasonally adjusted initial claims was 313,000, an increase of 31,000 from the previous week's revised level.  

The 4-week moving average was 294,500, an increase of 11,500 from the previous week's revised average.  

Consumer Price

The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.7 percent

 in January on a seasonally adjusted basis. Over the last 12 months, the all items index decreased 0.1   percent before seasonal adjustment.

 The energy index fell 9.7 percent as the gasoline index fell 18.7 percent in

 January, the sharpest in a series of seven consecutive declines.  

The dollar cannot strengthen with this data; and unless employment falls to be on track, interest rates cannot seem to rise. 

Views Expressed without any risk or responsibility 

Bank of Greece calls for a Smart, Export led Economy

In its latest Annual Report Bank of Greece expects GDP growth  to be positive in 2015 and to pick up in 2016.

The main elements of uncertainty weighing on the prospects for economic activity in the medium term  :

• Ability to fulfil the transitional agreement struck with our partners,
• A possible deterioration in public finances  
• Reform fatigue.

 Drivers:

•  exports of goods and services and
• by private consumption and
• rising business investment. (through infrastructure projects)           
• favourable impact will  come from the execution of projects under the Public Investment Programme with an overall budget of €6.4 billion for 2015.

The  practicable measures that would pave the way  for success :

(a) Completing the reforms already launched, pursuing structural reforms in the goods and services markets and developing a “smart economy”. 

(b) Consolidating fiscal achievements.  

(c) Reviewing tax exemptions and other favourable tax treatment. 

(d) Lowering tax rates and reviewing the efficiency of public spending. 

(e) Increasing public sector efficiency.  

(f) Strengthening active labour market policies and reducing the number of unemployed.

(g) Effective management of non-performing loans (NPLs). 

(h) Securing the smooth financing of the Greek economy.  

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Bank of Greece data shows credit flows are largely negative still...

Extracts of  a Press Release the Bank of Greece has stated that 

Bank credit to the domestic private sector

In January 2015, the annual growth rate of total credit extended to the domestic private sector stood at -2.9% from -3.1% in the previous month.  The monthly net flow of total credit to the domestic private sector was negative, at €95 million (January 2014: negative net flow of €576 million). ... Credit to corporations Monthly net flow of credit to corporations in January 2015 was positive, at €328 million   (January 2014: negative net flow of €268 million),   The annual growth rate of credit stood at -3.1%, from -3.7% in the previous month.   ... Credit to sole proprietors and unincorporated partnerships The monthly net flow of credit to sole proprietors and unincorporated partnerships was negative, at €3 million in January 2015 (against a negative net flow of €2 million in January 2014) Annual growth rate stood at -0.3%, unchanged from the previous month. ... Credit to individuals and private non-profit institutions Monthly net flow of credit to individuals and private non-profit institutions was negative, at €420 million (January 2014: negative net flow of €306 million), w  annual growth rate stood at -3.0%, from -2.9% in the previous month. Our Comments: Confidence in the Greek system is so low. Entrepreneurial activity may  face continued and prolonged disruptions. Reals incomes should fall further as job creations hit nadir. Views expressed without any risk or responsibility

Australia has falling Capital Expenditure...

New Capital Expenditure, in volume term

The seasonally adjusted estimate fell 2.2%.

Source: Australian Bureau of Statistics


This blog author is of the view that with Chinese slowdown, Australia may face a further fall in its asset values and currency.

Views expressed without any risk or responsibility:

Draghi says financial conditions have eased

In his address to the European Parliament on 25th February, 2015, Mario Draghi has said that there has been broad based easing of financial conditions in money and bond markets in the euro area. He pointed out that lending rates to households and firms have come down. Growth in credit to the private sector turned positive in December for the first time since mid-2012.

Coupled with what he calls a measurable improvement in indicators of business and consumer confidence, the euro area seems to be looking marginally better. Draghi sounds more confident and that should bolster the euro.

Schaeuble, the German Finance Minister although , still sounds pessimistic  on the abilities of the Greeks to adhere to norms.  On balance, Draghi sounds more convincing and accomodative.

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Fed rate move to be pushed to later in 2015 rather than even mid 2015?

From a reading of Fed's latest Monetary Policy Report, it would appear that Fed may  begin raising the target range for the federal funds rate later rather than earlier in 2015 as the unemployment rate would be at or below 5.5 % at the end of the year. Inflation is largely expected to be at or below the Committee's 2 percent goal at the end of that year. (Underlining by us to emphasize the majority Fed View)

Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents Dec. 2014

Variable                                                               2014             2015            2016                       2017

Change in real GDP	2.3 to 2.4	2.6 to 3.0	2.5 to 3.0	2.3 to 2.5
Unemployment rate	5.8	5.2 to 5.3	5.0 to 5.2	4.9 to 5.3
PCE inflation	1.2 to 1.3	1.0 to 1.6	1.7 to 2.0	1.8 to 2.0

Source: Federal Monetary Policy Report Feb. 24 2015 

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Oil : An interesting article.

Recommended Read :
World Economic Forum:

What caused the big fall in oil prices?

By Lutz Kilian

Feb 25 2015

https://agenda.weforum.org/2015/02/what-caused-the-big-fall-in-oil-prices/?utm_content=buffer21810&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

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Kingfisher and the Indian Banks : Much ado about nothing?

There is  such a big news at taking over a Rs 100 crore property of Kingfisher in Mumbai by an SBI led consortium,  now struggling to recover Rs. 6800 crores outstanding as non performing asset: given as loans.

 The security given to banks in lieu of NPA of King Fisher Airlines as culled  out from  reports in 2011 shows that the collaterals include an intangible asset called brand value; this is an unusual collateral: brand value is seldom used in India as security. :

Brand Value	4100.00
Personal guarantees of Vijaya Malaya	248.97
Corporate Guarantee of United Breweries	1601.43
Pooled collateral guarantee	5238.59
Ground Support Equipment	101.58
Computers	22.43
Furniture and fixtures	33.35
One aircraft	107.77
Total Security (A)	11454.12
Since then (2011) the salvage value may be negligible for the following
Brand Value(KFA stopped flying in October 2012.)	4100.00
Personal guarantees of Vijaya Malaya	248.97
Ground Support	101.58
Computers	22.43
Furniture and fixtures	33.35
One aircraft	107.77
Value of negligible savage value (B)	4614.1
Value now outstanding possibly (A) - (B)	6840.02

However, certain aircraft lessors and vendors of Kingfisher Airlines Limited (KFA) have invoked the corporate guarantees given by the parent company on behalf of KFA. The total amount invoked and outstanding as on March 31, 2014 was  Rs. 15,275.400 million (Pr year Rs. 9,874.600 million)  

Consortium of KFA bankers have invoked parent company’s corporate guarantee and demanded payment of Rs 64,932.900 million due from KFA.

Where do the bankers stand in regard to the NPA  with such dwindling  and negative margin assets? 

These are apprehensions in mind and bankers would have better responses!

Views expressed without any risk or responsibility 

Forex and Bond Dealers and Stockbrokers as ants

The behavior of stockbrokers, bond traders and foreign exchange dealers, are often compared to that of ants. These young (and some old) professionals  tend to be  herd driven. These professionals imitate others in their trading inclinations in the markets. Dealers are then  copycats.   They cannot innovate; they can only follow (the trend). 

The 'ant behavior' among dealers  now could be cited in efforts  to wind down euro assets and to build up dollar assets. ( In anticipation of the rainy day of the US interest rates moving up)  The traffic of dealers to pile into dollars is more than  to pile into euro. 

In Mumbai Stock Exchange the ant behavior is quite pronounced. It was most visible in recent days: brokers kept on buying in hope even when all over the globe they sold on Greece; and then came the news of corporate espionage. Dealers  suddenly left Mumbai stock exchange indices; they let it  down once news came of a blue chip manager being arrested for corporate espionage.  Some leader ant sold, and all the others followed.  This looking away lasted 2 days and today the ant leader has indoctrinated the  need for a  reform laden budget and the herd has taken up the stock market by 200 points. Nothing has changed on the fundamentals. 

The new path is quickly tracked down by  the other ants.  A first entrant is followed by others. Ants pick up ‘hot tips’ and chase the pioneer.  People tend to move in to hot tips because other dealers did that .  

Where is the rationality of investment? You are only as rational as the leader ant is. What if he is a manipulator a la Harshad Mehta or Nick Leeson? 

(From a forthcoming book by the author) 

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Dollar talked down by Yellen

As predicted here, dollar weakened after the Yellen testimony.
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Yellen's Testimony on Fed Monetary Policy Key quotes

" basis of incoming data, the Committee is reasonably confident that inflation will move back over the medium term toward our 2 percent objective...

It is possible, for example, that it may be necessary for the federal funds rate to run temporarily below its normal longer-run level because the residual effects of the financial crisis may continue to weigh on economic activity. ..." 

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Yellen's Testimony Quotes

"Foreign economic developments, however, could pose risks to the outlook for U.S. economic growth. Although the pace of growth abroad appears to have stepped up slightly in the second half of last year, foreign economies are confronting a number of challenges that could restrain economic activity. In China, economic growth could slow more than anticipated as policymakers address financial vulnerabilities and manage the desired transition to less reliance on exports and investment as sources of growth. In the euro area, recovery remains slow, and inflation has fallen to very low levels; although highly accommodative monetary policy should help boost economic growth and inflation there, downside risks to economic activity in the region remain. The uncertainty surrounding the foreign outlook, however, does not exclusively reflect downside risks. We could see economic activity respond to the policy stimulus now being provided by foreign central banks more strongly than we currently anticipate, and the recent decline in world oil prices could boost overall global economic growth more than we expect.

U.S. inflation continues to run below the Committee's 2 percent objective. In large part, the recent softness in the all-items measure of inflation for personal consumption expenditures (PCE) reflects the drop in oil prices. Indeed, the PCE price index edged down during the fourth quarter of last year and looks to be on track to register a more significant decline this quarter because of falling consumer energy prices. But core PCE inflation has also slowed since last summer, in part reflecting declines in the prices of many imported items and perhaps also some pass-through of lower energy costs into core consumer prices."

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Yellen's thinking might be restrained by European deflation fears...

As the Federal Reserve Chairwoman Janet Yellen  speaks to the Congressional Committees in a little while from now  today and then tomorrow, she may have less worries in her mind on the US economy and growth rate but  more on the European woes. Europe looks like flattering Japan through imitation of its long, winding recession. The gloating Germans who have drubbed the Greeks may not have solved the European problem any better.  If there was a worry earlier of a massive flight of capital away from the emerging markets, it now looks like that those fears have been substituted by concerns on a faltering Europe which needs structural reforms and which is lost in its myriad directives and institutions. So the Fed may hold back ; soften the US monetary policy.

The Fed  may like to  but may still be patient.

For the US industry, a depreciated dollar helps compete better.
Buy on the rumor, sell on the fact!

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Singapore price fall- January 2015 data

"CPI-All Items inflation eased to -0.4 % in January from -0.1% in December 2014, mainly on account of sharper price declines in direct oil-related items as well as lower food and services inflation

MAS Core Inflation, which excludes the costs of accommodation and private road transport, came in at 1.0% in January compared to 1.5% in December, due to the cut in electricity tariffs as well as the fall in food and services inflation.  "

 Source: MAS

Our comments: Singapore price fall a cause for worry  for Singapore Dollar?
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Indian banks and bargaining power of trade unions... Buying peace; not reforms!

The Indian banks  gave the bankers  an increase of 15 % in their emoluments under threat of a trade union call for a strike. If you adjust for inflation at 6 %; this  is about 9 % real increase. ( Annual increase in financial burden on the banks is reported at  Rs. 4,725 crores ) The amount is to be paid with retrospective from November 2012. real sector is expected to grow at around 7.% % even by revised estimates.

With alarming rates of NPA and a  maximum growth rate of 15 % per annum possible as estimated by the industry, , this quantum is a heavy financial burden on the banks. Where will they recoup this heavy burden?Why are the  white collar unions threatening? The Prime Minister hinted at lazy banking and then gave them sops to avoid a strike? The message is indiscipline. Reforms are meaningless if wages are not tied to productivity.

Indian industry will have to pay  the price if not lesser deposit rates! Imagine resources garnered through jan dhan yojna getting less to pay for white collar bankers. This is getting back to populism days.

The wages of 'lazy banking' as suggested earlier is an enhanced pay packet!
No wonder why rating agencies do not buy the India story. India needs a Thatcher.


Views expressed With  no risk or responsibility!

UK Retail Sales slowing: effects...

The weakness of the retail sales in UK will have some impact on: (+1%  instead of +42%)
a) purchase orders which would be reduced;
a slow down or postponement of intended investment; and
c) possibility of job losses yin the sector.

In consumer spending, there is a lag between perceived drop in real income and a reduction in prices. With the drop in inflation which is largely on account of energy prices, real incomes would have increased; but the consumer sees that in the overall a slowdown leading to wage falls or even job losses threatens future incomes. So, the consumer refrains from spending. With Europe not doing too well and large entities  in UK in a bit of a struggle, people hold back spending. The future from this side of the Atlantic looks a shade worrisome.

So the data indicates a softened UK assets and Great Britain Pound.

Without any risk or responsibility.
, 

Lack of Ethics : Corporate Entities and politicians need to undertake serious soul searching

With reports from UK and Switzerland over misdeeds by HSBC (and even its CE!) , and from India over the detention of a Reliance Industry Ltd employee for reportedly stealing information of a sensitive nature from the Energy Ministry's files, one wonders over the trade-off between profitability and morality.
Is it that the management which indulges in illegality or bypasses / circumvents the law has to be respected by stakeholders?
Is that company which indulges in illegal activities or abets illegal activity with intent to profit and whose shares are bought and sold by shareholders deserving of such trades in the stock market?
Do the politicians who shield the unethical corporations  on pretext of national jingoism or on  unethical considerations to be let off?
Or is it that these companies are too big to fail and therefore to be excused on each occasion to follow a criminal path later in the line?
CSR and shared value statements on the one hand and misdeeds on the other?
Can companies disown the conducts of its employees if such conduct  is for the pecuniary gain of the company, under the doctrine of indoor management?

(Both of these large corporations  have previous histories of being suspect; yet both have grown so huge that a tumble in their shares might affect stock market indices quite a bit)

Views expressed here are without any risk or responsibility. 

SHARE OF ECONOMIES IN WORLD GDP

SHARE OF ECONOMIES IN WORLD GDP

GDP 2013 value at purchasing power parities (PPP)

Why Asia matters and why Europe may have peaked.

                                                     

COUNTRY/ GROUP	SHARE
Developing Asia (incl India & China)	28.7
USA	16.4
China	15.8
Euro Area	12.3
Latin America	8.7
Middle east & North Africa	7.7
India	6.6
Japan	4.6
Germany	3.4
Sub Saharan Africa	3
France	2.5
U.K.	2.3
Spain	1.5
Canada	1.5

Source: IMF World Economic Outlook (October 2014).

Without any risk or responsibility