Are these new reforms worth cheering so much?

Prime Minister Manmohan Singh has taken everyone by surprise. Suddenly, he seems to have shifted from his perpetual 'silent mode' to 'animal spirits mode'. In a bid to end the policy logjam, a few policy initiatives were announced back to back over the last few days. First, a cut in diesel subsidies was announced. Next day, the door was opened up for foreign investment in multi-brand retail and aviation. The Finance Minister has proposed a National Investment Board to speed up clearances on large infrastructure projects.

The news media is abuzz with reports cheering the so-called 'bold' reforms. Even the stock markets have given a thumbs-up to the initiatives. The BSE-Sensex is at its one-year high already. With so much hoopla over the announcements, it is important to consider how big an impact they could have on the economy. And in doing so, to figure if the ongoing celebration is really worth it.

Let us start with the most basic question. Will the recent policy reforms revive investments in the economy? To a certain extent, investments will certainly get a boost. But these are certainly not the reforms that could be game-changers for India.

For instance, data from the Centre for Monitoring Indian Economy (CMIE) suggests that projects worth Rs 1.8 trillion were shelved during April-August 2012. This was in addition to projects worth Rs 4.5 trillion shelved in the fiscal year 2011-12. The reason for shelving of more than half of these projects was because of the inability of the promoters to acquire land. This is clear hint where the real big reforms ought to be happening.

Secondly, it will take a while before new investment proposals could match the boom years of 2004 to 2008. The main reason for the investment boom during this period was on account of cheap access to natural resources including land, coal, iron ore and bauxite. A similar scenario doesn't exist anymore.

In the opinion of Mr Mahesh Vyas (MD & CEO of CMIE), the Prime Minister's recent attempts to revive the investment climate in the country could take the proportion of investments in GDP to about 37% from the current 35.5% level.

If the impact of the new reforms is not going to be very significant, what is the reason for the sudden excitement? The answer is that the government has failed to initiate any meaningful policy reform in last several years. As such, the expectations have been abysmally low. It is only in contrast with the very poor expectations that the recent initiatives seem bold. The real game-changers for India would be progressive reforms related to land ownership and acquisition as well as labour laws. We would like to see if the Prime Minister takes up these issues with equal enthusiasm.  

The auto industry in India not worried about diesel price hike

The auto industry in India has been facing quite a few headwinds in the form of higher interest rates, fuel prices and fall in demand. Thus, most companies have seen volume growth slowdown in the past several months. The silver lining in the cloud has been the furious demand for diesel vehicles, which has lent some form of a cushion to the companies. As petrol prices have been freed, the recent hikes had led to an increasing gap between the prices of the fuel and diesel. This saw car buyers make a beeline for diesel cars. Diesel vehicles accounted for 40% of car sales in FY12, twice their share in the previous year.

Now that the diesel price has also been hiked, is the car industry worried? Not really. In fact, the industry has heaved a sigh of relief. This is because the government earlier was contemplating taxing diesel cars, a proposition that the industry was totally against. Thus, as far as auto companies are concerned, this is the lesser of the two evils. Also, even though diesel prices have been hiked, there is still substantial difference between the prices of the two fuels. This means that there will not be much of an adverse impact on the demand side unless the gap narrows considerably sometime in the future.

Despite slowdown advance tax numbers rise

                                                        Data source: Business Standard

Despite the ongoing slowdown in the economy, the advance tax collections from top 100 companies have increased by 10% year-on-year during the July-September quarter (2QFY13). Above chart shows advance tax payments of the top 5 firm. State Bank of India (SBI) was the highest tax payer during the quarter. Barring Reliance Industries Ltd (RIL), all other companies have witnessed a surge in the advance tax payment. It must be noted that the companies are supposed to pay 30% of the total advance tax for the fiscal during the current quarter.

India home to largest no. of fast growing firms

                                                                   Source: IB Times

News flow coming out of India, especially on the economic front, has been nothing to write about these past few months. Thankfully though, above chart highlights, India still has the distinction of being home to largest number of world's fastest growing public companies. In other words, nearly one fourth of the 1000 fastest growing public firms across the world are Indian as per a study conducted by the International Business Times. The sheer variety of the firms and also the fact that India has left its arch rival China far behind on this front, does make us positive about the long term  India growth story. If only the Government could put its house in order on the reforms front and we could well be the envy of the rest of the world.

Indonesia a better I in BRICS than India?

                                                          Source: Livemint.com

Has the time come to reconfigure the famous BRIC acronym? If above chart is any indication, it has perhaps. As the chart shows, by logging in two consecutive quarters of high GDP growth rates than India, the emerging market of Indonesia has staked a strong claim to take India's position in BRIC. However, we believe that these are early days yet and any hard conclusion cannot be reached by relying on just six months worth of performance. If the Government of India undertakes some bold reforms like it has done recently, the position of 'I' in BRIC is more or less secure we believe.

What will be the future of Asia?

It needs no telling that the economic center of gravity has moved from West to East. Asian countries, thanks to their high savings rate and a low base of GDP per capita, will continue to log in higher growth rates than their western counterparts for many more years to come. But what goes unnoticed perhaps is another important fact. As pointed out by the Economist, by 2030, Asia (excluding Japan) will be home to half of the world's elderly. And by virtue of this, it will also host most of the world's pensioners and patients.

Thus, it goes without saying that these countries will certainly have a big challenge on their hands. They will have to ensure that the elderly get all the help they need. This is not the only challenge though. As income levels rise, there will be a clamour for other Government sponsored schemes too like health insurance and unemployment benefits. Needless to say, this is going to put a big strain on the Government exchequer. Thus, it is imperative that a fine balance is achieved. The balance between making the schemes fiscally feasible and also ensuring that every citizen gets to lead the dignified life he /she deserves. As The Economist rightly points out, the welfare state should not only free the continent from squalor. It should also not sink it in too much debt.

Slow down in global economy hurting India's exports

India's exports during the month of July 2012 dropped to US$ 22.4 bn, a decline of 14.8% over the same month last year. It is worth noting that this is the steepest decline in the last three years. The main reason for the drop is the ongoing sovereign debt crisis in the Eurozone and the slowdown in the US. This is a clear indicator of the ongoing slowdown in the global economy. But India's domestic economy is also showing clear signs of a slowdown. While exports declined, imports during the same period also dropped by 7.6% to US$ 37.9 bn.

The government had set a lofty exports target of US$ 360 bn for this year. Looking at the current grim situation, the government has already admitted that achieving the target would be quite challenging. With all major economic indicators pointing towards a slowdown, the Indian economy is likely to face some serious challenges in the medium term.

In India, this breed of passenger vehicles has grown impressively

Management guru Stephen Covey had quoted "Management is efficiency in climbing the ladder of success; leadership determines whether the ladder is leaning If we remember correctly, it was Steve Jobs who once said that you can't ask customers what they want. Because by the time you build it, they will want something new. With the kind of path breaking products Apple has churned out over the years, Jobs has certainly walked the talk. By the way, there is an altogether different industry and that too in India that also seems to have taken this lesson to heart. And the industry is none other than the auto industry. Previously, most of the owners of small cars who looked for upgrades could do so by opting for sedans or hatchbacks. But in a move reminiscent of Apple's maneuvers, car makers took to launching new SUVs (Sports Utility Vehicles) and compact MPVs (Multi Purpose Vehicles), segment that customers barely thought of. Did the move work? Brilliantly we believe. This new breed of passenger vehicles has taken the market by storm. So much so that manufacturers are finding it hard to meet demand. What more, they have also given the struggling auto industry something to look forward to.

GDP growth in June 12 quarter

                                                                                Data Source: The Economist

After slowing down to 5.3% in the March 2012 quarter, India's GDP growth showed no signs of picking up in the June 2012 quarter as well. Growth during the quarter came in at around 5.5%. However, as above chart shows, when compared to its peers, India fared much better as it was ahead of countries such as Russia, Japan and the US.  Although it lagged behind China, the latter also displayed signs of a slowdown as growth came in lower than 8%. Japan saw some growth led by reconstruction activity post the earthquake and the tsunami that hit the nation last year. Not surprisingly, the Eurozone witnessed a dip in growth as debt problems continued to mar the countries in the region.