Thought for the day
"For one swallow does not make a summer, nor does one
day; and so too one day, or a short time, does not make a man blessed and
happy."
-
Aristotle (Greek, 384-322BC)
Word for the day
Winnow (v)
To separate or distinguish (valuable from worthless parts)
(Source: Dictionary.com)
Teaser for the day
Just as a matter of curiosity, would like to know from AAP
- "Is there any political outfit in the country, besides AAP, which is
honest and works for common people?" or is it "AAP vs. ALL?"
"Pre-requisites"
vs. "perquisites"
The primary lesson of economics is that at any given point of
time Price of any object having any economic value is determined by the
equilibrium of Demand for and Supply of that object at that point
of time.
The incumbent government has shown vision to accelerate India's
economic growth by encouraging substantial rise in capital investment.
Execution of projects like "Make in India", "24*7 Electricity
for all", "Railway Modernization", "Smart Cities",
"Rapid Expansion of Expressways", "Development of
Waterways", "Development of Coastal Transport Corridor",
"River Linking" etc., would need capital investment at a scale not
seen so far.
The problem is such capital is not available within the country.
Moreover, whatever capital is available, it has (a) low risk appetite and/or
(b) better alternatives like buying existing stressed assets in India or
outside at a bargain price. The required capital therefore has to come from
outside.
Here we need to differentiate between the abundant "global
liquidity" due to unprecedented QE by central bankers and "global
capital".
The global liquidity is intangible, mostly represented by book
entries. It could be used to take advantage of temporary arbitrage
opportunities available in global currencies and resources trades in
dematerialized form. This liquidity can hardly be invested for 20-30yrs in a
infrastructure project in a developing country like India where flows of
capital are still controlled by the government and currency is still not fully
convertible.
The global capital on the other hand is scarce with very low
risk appetite. Apparently, the oppressed savers in Japan & EU, and US
corporates flush with cash are the only source of risk capital at present. The
sovereign wealth funds of Arab nations which have supplied capital to the
troubled world in past decade may not be that potent given the energy price
outlook.
Given that in India (a) the demand for capital shall remain
materially higher than supply and (b) the risk appetite of global capital may
continue to remain low - the price of the capital shall most likely find
equilibrium at a much higher level.
The government will have to ensure a higher RoE for equity
investment through cheaper resources, lower taxes, and stable currency and/or a
higher rate of interest on debt capital. It should also be noted that the ease
of doing business and higher capital account convertibility would be
"pre-requisites" and not "perquisites".
The RBI governor recently suggested in an interview that
domestic interest rates are not likely to rise in next 3-4years. He has also
made it amply clear that he is looking for a slightly depreciating currency
rather than a stronger currency.
There is still no wider consensus within the government to
invite foreign capital at investors' conditions and in sectors they are
interested to invest in.
Under the circumstances, in my view, the profitable trade is
still on Indian consumer. I am happy to note market is with me on this.
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