Wednesday, January 21, 2015

Make vs. buy

Thought for the day
"Historians are like deaf people who go on answering questions that no one has asked them."
-          Leo Tolstoy (Russian,1828-1910)
Word for the day
Afflated (adj)
Having inspiration; inspired
(Source: Dictionary.com)
Teaser for the day
Akar Patel compares Congress Party with Mogul dynasty!
Guess to whom he is being unreasonable!

Make vs. buy

At 7.4%, Chinese economy recorded its lowest rate of expansion in 24years in the year 2014. The consensus amongst global economists appears that the momentum may slow down further in the current year due to cooling property market and stressed financial system. Though the government is trying, through a series of modest stimulus measures, to maintain the economic activities around the current levels, analysts are assigning material probability to a hard landing in China.
Since the Chinese economy has been the most powerful engine of demand in past two decades, the weakness there has naturally spilled into the economies which have been feeding the Chinese demand for commodities - most notably minerals and metals. Economies from Australia, Canada, Chile, Venezuela, Middle East, South and East Africa to Indonesia are struggling with stock piles of commodities and prices are crashing to levels not seen in many years.
This is the background in which India has is reemerging from a decade of hiatus. The incumbent government intends to initiate a manufacturing renaissance. This would essentially need huge investments in building physical infrastructure and rise in aggregate demand for all commodities. The demand starved world is thus naturally exited about India - leadership, economy and markets.
The PM Modi has struck all the right cords so far. His mantra of 3D (democracy, demography and demand) has appealed to global community. The recent utterances of reputable global leaders, economists, policy makers, and investors show that his charisma as "divine intervention" has transcended beyond borders.
The Indian stock markets scaling new highs when most emerging markets appear struggling, indicates the investors' enthusiasm towards Indian assets.
I also share much of their enthusiasm, but with some caution. I believe that transition from a agro economy to industrial economy will be slow and excruciating. Expecting quick results may lead to avoidable disappointment. Please note that:
(a)   Most of the claimed "Demand" in India is still "Need". The "capacity to pay" that is quintessential to "Demand" is still low.
(b)   The "Democracy" is both the strength and weakness of India in economic context. Unlike China, it is not an easy order here to override sustainability concerns and regional aspirations for faster economic growth. Socio-political consideration would continue to take precedence over pure economic concerns.
(c)   The "Demography" is a still a raw strength. Without substantial investment in "gender equality" and "skill development" this resource cannot be exploited fully.
Another point to ponder is with China likely to ebb low for considerable time, should we be looking at exploiting the idle capacities there to our advantage or create redundancies here!

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