World Bank sees India's growth touching 6.7% in two years
The World Bank, on Thursday, lowered India's growth outlook for the current fiscal to 5.7% from 6.1% estimated earlier and also lowered the growth projection for the world economy to 2.2% from 2.4% that it estimated in January this year. Citing slower-than-expected expansion in China, India and Brazil, and a stubborn contraction in Europe as reasons for the slower growth, the bank said that India's gross domestic product in factor cost terms is projected to grow 5.7% in the current fiscal (ending March 2014), and then accelerate to 6.5% and 6.7%, respectively, in the subsequent two financial years. According to the report, India's greater dependence on foreign investment inflows to finance its significantly larger current account deficit compared to the past has increased its vulnerability to a sudden reversal of investor sentiment. The bank, however, feels that the continued progress in implementing reforms that relieve supplyside constraints, such as reducing energy supply bottlenecks, labour market reforms, improving the business climate, and investing in education, health and infrastructure would be the key to growth.
The Indian economy is expected to grow at 5.7% this year, according to World Bank's twice-yearly Global Economic Prospects report that had pegged the country's growth rate at 6.1%.
(Source: The Economic Times)
India is Asia's weakest link in QE-driven rout
India's rupee currency has weakened the most among emerging markets after the South African rand since May as investors flee assets most vulnerable to the end of super-loose U.S. monetary policy. In the financial year that ended in March 2013, India's current account, which includes the balance of its trade and interest payments, had a deficit of $95 billion or more than 4 percent of economic output, according to estimates by Citi economist Rohini Malkani. Capital inflows were a net $92.6 billion, helping meeting that shortfall in the current account, as in recent years. But India's troubles start now. With the rupee down 8 percent since May, short-term external debt of $92 billion, and foreign reserves of $258 billion that barely cover six months of imports, the country desperately needs to retain foreign investment and avert a balance-of-payments crisis. UBS analysts estimate India has been the biggest recipient of equity flows in emerging markets, receiving $67 billion in inflows since January 2010 compared with $63 billion in the 10 years before that. India's stock market doubled in value between 2009 and 2012 even as the pace of economic growth slowed. While emerging European economies such as Hungary and Croatia have massive levels of foreign debt and therefore will find it increasingly difficult to service this debt with a weakening domestic currency, countries in Asia such as South Korea, Thailand and the Philippines with foreign currency debt around 30 percent of GDP are also likely to feel some pressure.
(Source: The Financial Express)
FM P. Chidambaram promises to speed up projects, relook FDI caps
A day after Fitch upgraded the outlook on India to stable from negative, finance minister P. Chidambaram on Thursday promised steps to revive investment including higher FDI caps in some sectors, fast-tracking of several large projects and an early resolution to coal and gas pricing. Confident the current account deficit could be financed without drawing down reserves, he ruled out a further hike in gold import duties and didn’t clarify on NRI bonds, saying no decision had been taken. Late on Wednesday, the government upped the FII limit for gilts by $5 billion to $30 billion, with the additional quota targeted at long-term investors like pension and sovereign wealth funds. Addressing a press conference in the capital, the FM said the government would identify 30-40 projects that just needed a little push or one last clearance before they could take off. The FM added the government was looking at every sectoral cap, including defence, to see where FDI caps could be increased.
MORE PROMISES TO KEEP :
- Report on FDI sectoral caps from Arvind Mayaram panel next week. FM to discuss report with commerce minister
- Infrastructure projects held up for want of final clearances to be shortlisted from 250 projects and fast-tracked
- Sebi decision on KM Chandrasekhar report on foreign investment norms on June 25
- Resolution on coal and gas pricing related issues in the next few weeks
(Source: The Financial Express)
Chidambaram meets PM on coal, gas pricing
Finance Minister P Chidambaram met Prime Minister Manmohan Singh on Thursday to discuss the contentious issues of coal and gas pricing, both of which may see a resolution next week. With the contours of a pooling mechanism almost finalised for coal by a group of ministers, a go-ahead from the Cabinet Committee of Economic Affairs would be smoother. However, gas price increase is not only facing heat from political opponents, but is also being opposed by power and fertiliser lobbies. Chidambaram said a decision on revising natural gas prices was important to revive investment. The petroleum ministry has proposed increasing natural gas prices by at least 60 per cent to $6.7 per million British thermal unit. The Planning Commission and the ministry of finance want the price to be even higher, Petroleum Minister M Veerappa Moily told Business Standard.
(Source: Business Standard)
Returning to the wonder years of 8% growth
For India this can be achieved by unlocking elements of production function - labour, capital, and productivity; and plucking low hanging fruits. The harder part of the growth challenge is how to get from 7% to 8% over the next five years. To understand the task at hand, it is useful to look at the ingredients of growth. Looking through a ‘production function’ lens, GDP is produced by combining (physical) capital and (skilled) labour at the economy’s level of productivity. Physical capital increases through investments. Labour has both a quantity and a quality dimension – the large pool of labour in India is an advantage only if it is suitably skilled to be employable. Finally, productivity is an indicator of both technical progress and the ability of the economy to utilise capital and labour efficiently. Using this framework, it can be shown that there can be several paths to 8% growth. There could be a series of ‘extreme’ paths, which depend heavily on one particular input. For instance, 8% growth could in theory happen through very high growth in physical capital (an investment rate as high as 43%), with no real change in the skills of workers or in the economy’s productivity. But these extreme paths are not feasible: they expect too much from one particular input, to an extent that is impossible. In the current environment when India’s educational system is overburdened by sheer demand for quality education, company-led formal apprenticeship programmes that place employers at the heart of education, can play a powerful role in imparting job-relevant skills to the thousands entering the workforce. Finally, in order to grow the ‘physical capital’, the importance of having adequate and uninterrupted power supply and therefore cleaning up the political economy of coal is well known.
(Source: Business Standard)
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