"Old age comes
suddenly, and not gradually as is thought."
—Emily Dickinson (American,
1830-1886)
Word for the day
Narcotize (v)
To make dull. Stupefy
Malice towards none
When will our studio experts
accept that predicting Modi's actions is not their domain!
First random thought this morning
In fact, I do not find anything worth bothering, losing sleep or
being elated about the recent cabinet reshuffle. But there is so much of analysis
and commentary over it that I almost feel compelled to have a publically stated
view on it. So here it is:
I find the portfolio allocation inappropriate. For example, Coal
is perhaps the largest customer of railway. Same person holding both the portfolio
is a clear conflict of interest. Similarly, energy is a key sector for growth,
and neither we have an integrated ministry, nor a full time minister for
Petroleum & gas, coal or renewables.
Red flags - 2
One of the primary arguments in favor of underlying strength and
resilience of Indian economy is the structural change in inflation trajectory.
The most popular argument is that in past decade or so, the supply
side constraints that historically hindered the growth cycles of Indian economy
have mostly dissipated.
In most of the previous growth cycles, the rising demand was
almost immediately met by high inflation (due to supply constrained) and
therefore higher rates. The growth cycles were thus curtailed to 3-4yrs in most
cases. The popular argument is that huge capacity addition in past decade or so
has obliterated this phenomenon structurally. Large capacities built in core
sectors like cement, steel, power, roads, refining, etc., which mostly lie
unutilized presently, shall make sure that inflation and therefore higher
rates, do not kick in early in the growth cycle; and therefore the next cycle
could be longer, steeper and more resilient.
By this popular argument, the prevalent high real rates are not justified
and should ease materially - leading to a sustained demand growth cycle over
next many years.
To me, broadly the argument sounds valid, but not very exciting; that is
If we factor in other structural and cyclical changes also. For example
consider the following—
(a) The benefits of
capacity addition in manufacturing might get materially neutralized by some
structural adjustments in the cost structure of the producers. Rise in cost of
compliance, labor, natural resources, etc. may add materially to the pricing
pressures.
(b) The efforts made by the
global central bankers in past one decade to ease disinflationary pressure
seems to have begun yielding results. The inflation thus created shall be
imported into India, especially if lower rates force depreciation of currency.
(c) Capacity addition in agriculture
is still quite inadequate. Rising urban wage structure and farm subsidy
rationalization shall also eventually reflect in farm prices. Volatility apart,
we may see a structural upmove in farm produce prices.....to continue tomorrow.
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