Compare, commerce & industry minister Anand Sharma on Nov 8:
Goldman’s latest report on Indian economy and its eagerness to push the case of a particular political leader and his party exposes two things—Goldman is parading its ignorance about the basic facts of Indian economy; and it also exposes its eagerness to mess around with India’s domestic politics. It only makes Goldman’s credibility and motives highly suspect.
A few charts and some commentary plucked from a rather bullish note on India from Goldman’s Asia Pacific team:
“I still find it difficult to imagine a father presenting his favourite daughter with a certificate for a gold-linked exchange traded fund on her big day,” says one senior policy maker.
That’s from a long Diwali read on India’s gold obsession by Avantika Chilkoti and James Crabtree which is well worth your time and to which we might add a cheeky few thoughts — it seems the RBI’s attempts to offer alternative to India’s gold-lust says more than a little about the limitations facing the central bank and Rajan. Read more
The Indian government’s efforts to support the rupee seem, for now, to have worked:
Can you call this a shakedown? Probably not.
To be added to the growing collection of central bank educational tools… Frankly, this isn’t a patch on the ECB’s Top Floor or the BoE’s Monetary Policy Balloon (and I won’t even bother comparing it to Inflation Island, a giant of the genre) but, tbf, the RBI probably has less resources to throw at its gaming division.
If India continues its current path it will face a catastrophic shortage of jobs, creating a young and angry population, and with it conditions for social unrest and economic disaster. Whether India exploits or is undermined by its demographics will likely be determined by the policy choices over the next two administrations. It simply cannot afford a repeat of the last five years.
That’s from a recent Espirito Santo note that makes for refreshing reading compared with the usual demographic dividend stories that cruise through our inboxes every few days. Read more
Our word for capital famously comes from the French for livestock, cheptel. And people are generally bullish about milking investments, and finding cash cows. Still, watch out for herd mentality (herd in Latin, pecus, giving us pecuniary).
Sadly none of those puns made it into a Gates Foundation-backed NBER paper released on Monday (H/T Modeled Behavior):
CONTINUED EXISTENCE OF COWS DISPROVES CENTRAL TENETS OF CAPITALISM?
(Update: which refers to… this)
But no matter. The paper has found something astonishing about cattle as an investment in rural India, with implications for financial liberalisation across the developing world: Read more
Nobody sees anything coming these days.
New RBI governor Raghuram Rajan followed the Fed’s decision to not taper with his own unexpected move — the RBI raised its key interest rate by 25 basis points, citing the threat of rising inflation. It also rolled back on some of its liquidity tightening but at least a few people got that one right. Read more
Or, the line between a pretty standard EM problem and those of a uniquely enormous democracy heading into an election which happens to suffer from many of those standard EM issues.
First, the negative loopiness from Goldman’s Tushar Poddar: Read more
*Use interesting onion stat to highlight Indian inflation problem ahead of Rajan’s first rate decision where the expectation is for a hold, but language and liquidity steps are in the spotlight*
*Attempt weak onion+tears metaphor*
*Delete because too weak/awful* Read more
From a SocGen note earlier last week:
ETF disinvestment more than accounted for the net change in jewellery+investment demand. When all the elements of supply and demand are taken together, the gold market registered a surplus of 217 tonnes in H1 2013 against a small surplus of just 37 tonnes in H1 2012. Read more
As announced amid Raghuram Rajan’s ‘big bang’ on Wednesday — BofAML reckon that this could bring in $10bn for the Indian central bank from non-resident deposits and stabilise the rupee:
FT Alphaville readers are well versed on the potential downsides of collateral scarcity in western markets.
But consider how a collateral scarcity problem might unfold in an emerging market in which the most valued form of collateral isn’t national debt denominated in your own debt but rather a commodity like gold, whose supply is dictated by externalities outside of a government’s control? Read more
The Indian rupee’s plunge continues.
As the FT reported on Wednesday, consensus opinion is that the weakness is connected to India’s growing current account deficit and unimpressive attempts thus far to bring it back to reasonable levels.
But Bloomberg on Wednesday alluded to another interesting connection: India’s attempts to suppress gold consumption. Read more
If you were wondering how fears over policy ‘credibility’ could send the Sensex in such a spin on Friday — India’s benchmark closed down almost 4 per cent — and trash the rupee…
Here’s an illuminating chart from Nomura: Read more
See if you can spot it (chart of the Nifty from Google Finance):
Right, we’ve had a few looks at India over the last while — at its crumbling rupee, widely reported deficits and stumbling, ineffective political system. Heck, Standards & Poor’s even got in on the act and prompted us to ask if the Brics are about to become the Brcs.
That all makes Monday’s decision to keep rates on hold by the Reserve Bank of India a bit more suprising than it might otherwise have been. From the RBI’s statement (our emphasis): Read more
Slowing GDP growth and political roadblocks to economic policymaking could put India at risk of losing its investment-grade rating.
That’s the Standard & Poor’s latest warning on India, coming just two months after it revised the country’s BBB- rating (one notch above junk) from stable to negative as GDP growth fell to 5.1 per cent in the first quarter. Are the Brics about to become the Brcs? Read more
“Bas! Bas!” is surely a familiar cry in the Reserve Bank of India right now as India’s rupee continues to plummet. So far, it has dropped 15 per cent against the US dollar since the start of February, hitting multiple new record lows on its way.
The central bank has attempted to get inventive in response but nothing seems to be stopping the slide (metaphorically speaking, in the chart, the higher it gets the weaker the rupee): Read more
Here’s an eye-opening chart if ever there was one (H/T Sean Corrigan at Diapason):
India, the world’s second-largest cotton producer, has banned exports of the commodity with immediate effect, boosting global prices, Reuters reports. The government cited an excess of exports beyond their quota for the move, which analysts said was also aimed at ensuring sufficient supply of cotton for domestic textile companies which have been under pressure as prices have risen, the FT adds. The ban is likely to throw the cotton market – already dubbed the ‘widow-maker’ for its volatility – into further turmoil. Major cotton-producing states in India have attacked the central government’s ban and warned it will hurt farmers, according to the Times of India.
The government of India cut its growth forecast for the fiscal year ending March 31st to 6.9 per cent, which would make it the slowest rate of growth in three years, the WSJ reports. The previous year saw growth of 8.4 per cent and the initial projection for this year had been for a rate of 9.0 per cent. Subsequent revisions to that figure had brought it within a range of 7.25 to 7.75 per cent. Economic uncertainty globally has negatively impacted exports and the Reserve Bank of India has engaged in 13 rounds of monetary tightening in the last two years, curbing demand in domestic markets too. Only recently, in January, has the central bank taken a move to ease by cutting reserve requirements.
Reuters reports that Google and Facebook have reacted to a court directive in India on Monday warning them of a potential crackdown by authorities if they do not take steps to protect religious sensibilities. The two companies are among 21 that have been asked to block potentially offensive material. The move, off the back of private petitions to the court, have stoked fears over censorship. Last year, a law was passed in India that made companies like Google responsible for user-generated content on their sites, giving them 36-hours to take down content deemed offensive once there has been a complaint. The WSJ reports that the content in question in this case involved images of religious figures. These have since been taken down by Google but only on its localised India domain, making the content still available elsewhere.
France’s Dassault has been awarded frontrunner status in the hotly contested $20bn race to supply 126 fighter jets to India, reports the FT. The Indian government said the French Rafale fighter jet had beaten the four-nation Eurofighter Typhoon to become preferred bidder to equip India with the multi-role fighter jets in one of the world’s largest military contracts. Dassault now enters exclusive talks with the Indian government.
France’s Dassault has been awarded frontrunner status in the hotly contested $20bn race to supply 126 fighter jets to India, providing a much-needed boost for French economic and industrial prestige, the FT reports. The Indian government said the French Rafale fighter jet had beaten the four-nation Eurofighter Typhoon to become preferred bidder to equip India with the multi-role fighter jets in one of the world’s largest military contracts. Dassault now enters exclusive talks with the Indian government. The contract, estimated to be worth $15bn-$20bn, will help shape India’s air power for the next three decades and serve as the bedrock of a strategic partnership.
Starbucks on Monday unveiled long-awaited plans to bring its coffee shops to one of the world’s greatest tea-loving nations through an $80m Indian joint venture with Tata Global Beverages, the FT reports. The first outlet will open in Mumbai or Delhi by September as part of a wider Asian expansion by the US-based coffee retailer, which has 544 stores in China and has been eyeing the Indian market since 2006. The 50/50 joint venture comes despite recent rule changes allowing 100 per cent foreign ownership of single brand retail stores, underscoring the difficulties faced by western companies seeking to enter India’s $450bn retail market without local partners. Starbucks is seeking to reduce the dominance of the US in its operations. More than 12,000 of its 17,000-plus stores are in its home market. The Americas region – including a few hundred stores in Canada and Latin America – accounts for three-quarters of its revenue.
Europe’s carmakers are crying foul over a proposed trade agreement between the European Union and India, which they say would restrict access to one of their most important but highly protected markets, says the FT. The industry, led by Germany’s powerful VDA carmakers’ association, says the agreement as discussed would grant Indian-built cars immediate duty-free access to the EU but would only reduce the tariff barrier to European vehicle exports to a level of 30 per cent, which would stay intact indefinitely. “The results which are on the table are not deserving of the name ‘free trade’ because it’s not a real free-trade deal,” said Matthias Wissmann, VDA president. “The Indian side wants to keep a 30 per cent tariff on passenger cars and gives only vague promises that it will negotiate with the EU again in 2017.” The intervention by one of Europe’s biggest industries adds to a host of barriers to an agreement, where the two sides are still at odds on a range of topics, including visas, the Indian commercial sector and the opposition of some Indian states.
Ikea is withholding its entry into India despite New Delhi’s move to open its market to foreign retailers, Mikael Ohlsson, chief executive, told the FT. Mr Ohlsson said that India’s requirements that single-brand retailers source 30 per cent of their goods from local small and medium-sized companies was an obstacle to its investment that needed reviewing. Mr Ohlsson said the outright ownership of operations granted to foreign single-brand retailers earlier this month was “a very positive change”. But he warned that the conditions applied to local sourcing were “concerning” and more easily met by food retailers than single-brand companies with established, global product ranges. The world’s largest furniture retailer is tripling its rate of expansion in China to three new stores a year, and is seeking to open more stores in Moscow in the year ahead.