Do it yourself

 EW, notwithstanding

My friend’s daughter who completed her MBA recently, has become an amateur trader, just like many of her peers. She has started self-learning technical analysis while trading in stocks, crypto, gold and currencies. During my visit to their place last weekend, she showed me the following 50 years charts of gold prices in USD and INR terms respectively. She wanted my views on the divergence in chart patterns and likely trends in the near future.

I am not well versed with technical analysis, particularly the Elliot Wave analysis. I am also not sure if she has drawn the wave cycles correctly on the charts. But assuming she has plotted the cycles correctly, prima facie, it appears that in USD terms gold price cycle is close to peak (wave 5 terminating) and is poised for a massive correction of 35-50%; whereas in INR terms the correction (wave 4) could be much lower and the subsequent peak (wave 5) much higher.

I imagined various scenarios and found only one plausible scenario, i.e., gold prices in USD term fall 50% in the next wave; INR depreciates 25% to Rs105/USD in the meantime; and the government of India hikes the duty on gold imports further by 10%. In this case, it is possible that gold prices in INR terms falls 25-30% to mark the wave 4.

I find this scenario frightening. A sharp depreciation in INR accompanied with 25-30% gold prices (which is widely presumed to be safe haven), could hurt several household investors who have aggressively invested in gold and foreign equities in the past year.

Regardless, I am not paying much attention to this analysis. In my view, it is more important to understand why the gold prices surged in 1979-1982; 2006-2010 and 2020-2024.

Between 1979 and 1982, interest rates more than doubled worldwide, dramatically raising the cost of loans. The U.S. dollar exchange rate improved, making the dollars needed to repay loans more expensive. Widespread recession dried up the markets for the exports of developing countries. Real prices for the export commodities that were essential to the developing economies fell to their lowest levels since the Great Depression.

One of the reasons for the widespread recession was sharp rise in crude oil prices during 1970s, that led to huge flows of US Dollars (World’s most preferred currency for trade) towards oil exporting Arab economies which were too small in size to absorb these dollars. These countries channelized these flows (popularly called petrodollars) to western banks which in turn lent it to the developing economies that had just started to industrialized. A stronger dollar made servicing these loans difficult, triggering a cycle of defaults, asset price crash and recession.

The story in 2006-2010 was similar. Unsustainable lending led to sharp rise in asset prices and inflation, followed by collapse of banking system, EM currencies, and commodity prices.

In recent years central banks and governments unleashed unprecedented monetary easing and fiscal support to mitigate the impact of Covid-19 pandemic. The monetary base of developed countries witnessed parabolic rise. Supply chain disruptions caused inflation to spike. Withdrawal of Covid-19 stimuli is now raising the specter of growth slowdown. Geopolitical realignments are threatening the supremacy of USD as world’s reserve currency triggering risk of USD weakening.

Now the question is, do we expect-

·         Interest rates to rise from here

·         USD to strengthen substantially from here, such that USD borrowers face material currency risk

·         Inflation to spike materially from current levels

·         Lending standards to deteriorate putting banking system at risk

·         US growth to materially outperform the emerging economies’ growth

·         World returning to gold standard in foreseeable future.

If not, then there is little empirical support for gold prices to rise materially from the current level; Elliot Wave projections notwithstanding.

Urbanization is intrinsic to development and often serves as a major driver of economic growth. As India reaches tipping point of transitioning from a mostly rural to an urban society, the focus must be on ensuring the best opportunities for economic growth for all sections of the society. — Dr. Rajiv Kumar, Former Vice Chairman, NITI Aayog

In October 2020, the NITI Aayog formed an Advisory Committee on ‘Reforms in Urban Planning Capacity in India’, to find ways to face the multiple challenges being faced in the cities and India’s commitments towards global agendas. After extensive deliberation with domain experts and think tanks, the Committee presented its report in September 2021. The highlights of the report are summarized below.

·         India is the second largest urban system in the world with almost 11% of the total global urban population living in Indian cities. In absolute numbers, the urban population in India is more than highly urbanized countries/regions across the globe. Observing India’s urbanization through Western lens has become a practice . Experience has shown that such objectivity diminishes the motivation and confidence needed to generate innovative solutions for indigenous problems. Indian cities are different from their Western counterparts in terms of culture, demography, lifestyle and so on. Adopting Western practices without tailoring them to suit Indian needs is not advisable.

·         India’s urban story may be lauded globally or suffer irreversible damages in the next 10-15 years depending upon corrective policy measures and actions taken at the beginning of this decade.

·         Over the years, cities have expanded and become burdened by the stresses and strains of unplanned urbanization, the brunt of which is faced by the poor and the marginalised, the biodiversity and the economy.

·         In urban areas, land is confronted with competing uses due to market forces, social necessities, as well as environmental concerns.

·         Issues like lack of availability of serviced land, traffic congestion, pressure on basic infrastructure, extreme air pollution, urban flooding, water scarcity and droughts are not merely a reflection of infrastructural shortcomings in the cities. These issues indicate a deep and substantial lack of adequate urban planning and governance frameworks.

·         Urban planning, which is the foundation for the integrated development of cities, citizens, and the environment, has not received adequate attention. A study conducted by TCPO and NIUA for NITI Aayog indicates that over 12,000 posts for town planners are required in the State town and country planning departments. This is in stark contrast to the present situation. There are fewer than 4000 sanctioned positions for ‘town planners’ in these departments, half of which are lying vacant.

·         A significant proportion of urbanization in the country is unacknowledged and unaddressed. Almost half of the 7933 ‘urban’ settlements are census towns, that is, they continue to be governed as ‘rural’ entities. Small and medium towns face vulnerabilities due to rapid growth and inadequate planning. 65% of the 7933 urban settlements do not have any master plan.

·         In many cities, development control regulations were formulated several decades ago and have been updated arbitrarily without sufficient empirical evidence on their impacts

·         The transfer of the urban planning function from States/UTs to elected urban local governments did not happen as was envisaged through the Constitutional (Seventy-Fourth amendment) Act 1992. Many agencies are involved in urban planning, implementation, infrastructure development at the city as well as State levels. The existing framework has become complex, which often leads to overlapping of functions, lack of accountability and coordination, time delays, resource wastage, etc.

·         Massive capacities for problem-solving, innovation, and ideation are required to address the present and future challenges in the planning and management of cities, towns, villages and their infrastructure. It may not be feasible to create such capacities in the public sector given the size and scale of urbanisation in India. However, the ecosystem of the private sector in urban planning domain has remained under-developed.

·         The country has been producing graduates with degrees such as Bachelor of Planning since more than 3 decades and Master of Planning since early 1950s. However, so far, the urban planning profession has not yet gained a strong and unique identity of its own. As a result, prospective employers, unaware of these courses and skill sets of available graduates, end up hiring professionals from other disciplines to undertake the tasks of planning, thereby creating a negative feedback loop.

The Committee suggested measures to strengthen the three pillars of cumulative urban planning capacity in the country: public sector, education/research sector, and private sector. The suggestions include programmatic intervention for planning of healthy cities, optimum utilization of urban land, ramping up human resources, re-engineering urban governance, involving citizens in urban planning, building local leadership, and enhance participation of private sector.

The committee advised that “The political leadership, decision-makers and planners need to reach a common consensus that a promise to save the environment from the strains of urbanization is a promise of economic growth in the long run. The road to reform may be long. Collaborative, concerted and cooperative efforts are required to strengthen the urban planning capacity of the country. The moment to start is now, if the country has to keep pace with the emerging demands of time.”

The finance minister took cognizance of the report and devoted six paragraphs in the budget speech of February 2022, while presenting the union budget for 2022-23. The FM proposed setting up a high-level committee of urban planners and economists to make recommendations on urban sector policies, capacity building, planning, implementation, and governance. She pledged support to the states for urban capacity building. Five existing academic institutions in different regions were designated as centers of excellence with endowment funds of INR 250 crore each, tasked to develop India-specific knowledge in urban planning and design.

I hope we shall see some results in the current tenure of the NDA government.

Also see Growing like ginger - 1

All citizens of India are very well aware that these are not some random pictures of India’s major metro cities. These represent regular life of the citizens of these cities. Water shortage, water logging, traffic jams, unhygienic colonies inhabited by poor, unplanned and illegal constructions, encroachment of public spaces, dangerously hanging electric supply wires, narrow lanes where fire tenders cannot reach in case of fire accident, stray animals posing risk of peoples’ life, are some of the common characteristics of Indian urbanization.

Numerous tier 2 towns and cities in India carry distinguished history, culture and traditions within themselves. However mostly unplanned and unmindful growth has made these cities look alike. Today one would struggle to distinguish Kashi, Patna, Bareilly, Moradabad, Aligarh, Agra, Panipat, Hissar, Jhansi, Praygraj (Allahabad) from each other. They all are equally cacophonous, raging, dirty, ill, concretized and mostly unlivable.

The roads are occupied by cycle and e-rickshaws, cows, stray dogs, a melee of young rash bikers, mini busses, cars, overloaded auto rickshaws, and street vendors. To make the things worse, most shop keepers encroach the footpaths in front of their shops. Shoppers and goods suppliers park their vehicles on roads. Pedestrians are forced to walk on roads. Brawls over parking are common and frequent.

Cities are growing like ginger - in all directions and without any plan. Each marriage adds a new room to already crumbling and overcrowded house. A shop mushrooms in front room or courtyard for every unemployed youth.

Urbanization is one of the central themes of the India growth story. With this state of unsustainable urbanization, the India growth story itself faces the risk of failing. A September 2021 NITI Aayog had reflected on this issue, but nothing much seem to have done about this. To continue tomorrow…

 There is strong evidence emerging that Indian corporates have learned their lessons from the global financial crisis very well. In the post Covid global risk rally, they have avoided most of the mistakes they made during the exuberant years of 2003-2008, and have emerged stronger.

In pre-GFC buoyancy companies like Tata Steel (Corus), Tata Tea (Tetley), Tata Motors (JLR), Indian Hotels (Orient Express), Havells (Phillips), Sun Pharma (Taro), Suzlon (Hensen), Hindalco (Novelis), Reliance Telecom (Flag), etc. got lured by cheap debt and bought global businesses (in some cases bigger than their India operations), paying top dollars. Most of these acquisitions inflicted severe pain to the parent entities in the ensuing years.

This time, despite near zero rates and abundant liquidity, they have been very careful in acquiring businesses abroad. IT services companies have some niche small sized acquisitions to augment their resource pool. These acquisitions have been mostly earnings accretive almost immediately.

Indian companies have (a) continued to deleverage despite raising their capex; (b) managed their cashflows well; and (c) rationalized their operational expenses especially wages well to raise larger resources through internal accruals.

Lower dividend payout: As per a recent latest ET report, in FY24 the Indian companies curtailed their dividend payout to the lowest in nine years. As the capacity utilization increased above the long-term average, companies reserved more money for capital expenditure. FY24 dividend payout ratio was 34% (including buybacks 38%), down from 43% in FY23 and 37% in FY22.

Leverage trending lower: As per India Ratings, net leverage of top 250 companies (excluding BFSI) has trended lower in the post-Covid period. The net leverage of about 3100 other listed companies has not changed much from the long-term trends.

Indian companies have done modular capex in the past five years. Due to a calibrated approach adopted in capital expenditure, in the majority of cases cash generated from operations has been sufficient to meet the capital expenditure.

Despite the consensus expecting lower rates and a weaker USD, Indian companies are not rushing to raise money through ECBs. Peter Guenthardt, head of Asia Pacific global corporate & investment banking at Bank of America, recently commented, “After having deleveraged their books, Indian corporates are likely to go slow on overseas dollar loans as current rates are expensive, although there is "huge pent-up demand" for buying into local firms' equity”. (see here)

In the FY23 net ECB flows into India were just US$1bn and in FY24 it was US$9.5bn. Though, in FY24, registrations for ECBs with RBI surged to the highest in four years.

More importantly, learning from the mistakes made in the pre-GFC euphoria, more than 70% of ECBs raised in FY24 were effectively hedged in terms of explicit hedging, rupee denominated loans or loans from foreign parents, limiting the impact of external shocks, according to an article called ‘State of the Economy’ in RBI’s May bulletin.

This prudence augurs very well for the Indian companies and markets, as it makes the growth sustainable, predictable, and profitable.

One of the basic principles of economics is that no one makes abnormal gains (or loss) from an economic activity over a longer period. The forces of demand and supply tend to attain a state of equilibrium as higher margins attract more supplies and lower margins push the marginal suppliers out of the market. In the short term, however, suppliers can make super profits taking advantage of the demand-supply inequilibrium. Most economic activities thus follow a cyclical path rather than a linear path.

This principle does not apply to the states where markets are not free and monopolies with state protection and patronage are allowed to thrive at the expense of consumers.

We have also witnessed that businesses that own niche intellectual property rights (IPRs) or ownership of scarce natural resources have defied this principle for a much longer period of time, as compared to the usual businesses.

Applying this principle to the current market scenario, I find that the investors may be ignoring this elementary principle in their growth and profitability assumptions for the basic engineering businesses like Solar & Wind equipment & EPC, Railway equipment & EPC, Defense electronic & war equipment, and low margin electronic manufacturing, etc. Most global solar panel manufacturers are already struggling with oversupply issues.

Most analysts are projecting a linear growth for these businesses over the next several years. They are valuing these businesses on the basis of multiples of order book and sales.

I have not read any research report that says, “the fabled electronic manufacturing services (EMS) business is akin to garment export business. Its low margin assembly business which would require consistent capex and government support. These businesses will face stress every 3 to 5 years when their contracts come up for renewal. All of them carry the risk of the OEM going out of business which might take them along into a deep pit.”

 

Recently, ISRO chairman S Somanath “highlighted the challenges faced by the satellite launch market, stating that rockets are available but there is a lack of demand. The market is depressed, and even companies like Arianespace struggle with profitability without government subsidies. The main issue is that there are a limited number of players in the satellite market, leading to fierce competition. To address this, there is a need to create internal demand and a robust ecosystem, as waiting for foreign satellites is not a sustainable approach”. (Economic Times, 17 June 2024)

There is a rush to buy the defense tech indigenization and export theme. Demand for the stocks of potential drone manufacturers far exceeds the supply, resulting in an exponential rise in stock prices. Investors are not recognizing that in countries like the US and China, high school students are learning how to design and manufacture drones. Artificial intelligence (AI) may make conventional weapons redundant in no time. The future wars may be fought in cyber space rather than the battlefields with guns and missiles. The ongoing Russia-Ukraine war is a classic example of the complete failure of conventional weapons and war strategies.

The following meme regarding popularity of Electric Vehicles most aptly sums up the fallacy of these popular investment themes. (Sourced from social media, copyrights fully acknowledged)

Investors accepting the promise of 100% EV vehicles in two decades must assess the scenario where the copper price exceeds the gold price!!!

The year 2024 started with the fervor of Ram Bhakti. The stock market made a new high in mid-January. Investors felt that the grand opening of Ram temple in Ayodhya will stimulate economic activity and provide a material impetus to economic growth. However, the stock market could not hold gains and ended the month of January almost unchanged.

 The Reserve Bank of India (RBI) recently released the results of forward-looking surveys. Based on the feedback received from the respondents the survey results provide important insights with respect to consumer confidence, inflationary expectations and economic growth expectations.

Consumer confidence

The survey collects current perceptions (vis-à-vis a year ago) and one year ahead expectations of households on general economic situation, employment scenario, overall price situation, own income and spending across 19 major cities.

As per the survey results, Consumer confidence for the current period paused on its uptrend as sentiments on all parameters, except spending. The current situation index (CSI)2 moderated to 97.1 in May 2024 from 98.5 two months ago. (A value below indicates a state of pessimism)

However, for the year ahead, consumer confidence remained at elevated level in the optimistic terrain though it declined, albeit marginally, due to relatively tempered sentiments on the general economic situation and employment prospects. The future expectations index (FEI) stood at 124.8 in May 2024 (125.2 in the previous survey round).

Consumers expect higher rise in overall spending over the next one year vis-à-vis the previous survey round; more respondents expect an increase in both essential and non-essential (discretionary) spending.

Household inflationary expectations

Households’ inflation expectations for the three months and one year ahead periods increased by 20 basis points (bps) and 10 bps, respectively, but remained in single digits; their perception on current inflation, however, moderated by 10 bps and stood at 8.0 per cent in the latest survey round.

Higher share of respondents expected prices and inflation to rise for all major product groups over the next three months as well as one-year periods

At the aggregate level, female respondents had marginally lower inflation assessment and expectations than their male counterparts. Among occupation categories, self-employed respondents group expected highest inflation.

For one year horizon, households’ expectations on general prices remained closely aligned with their assessment related to food prices and housing.

Forecast on macroeconomic indicators

GDP: Real gross domestic product (GDP) is expected to grow by 6.8 per cent in 2024-25, revised up by 10 basis points (bps) from the previous round. It is expected to grow by 6.7 per cent in 2025-26, revised up by 20 bps from March 2024 survey round.

Forecasters have assigned highest probability to real GDP growth in the range 6.5-6.9 per cent for both the years 2024-25 and 2025-26.

Annual growth in real private final consumption expenditure (PFCE) and real gross fixed capital formation (GFCF) for 2024-25 are expected at 6.0 per cent and 8.6 per cent, respectively. Real gross value added (GVA) growth projection has been revised up marginally to 6.6 per cent for 2024-25 and kept unchanged at 6.4 per cent for 2025-26.

Inflation: Annual headline inflation, based on consumer price index (CPI), is expected at 4.5 per cent for both the years 2024-25 and 2025-26.

External sector: Merchandise exports and imports are projected to grow by 3.9 per cent and 5.2 per cent, respectively, during 2024-25 and by 5.1 per cent and 6.0 per cent, respectively, during 2025-26, in US dollar terms. Current account deficit (CAD) is expected at 1.0 per cent (of GDP at current market prices) during 2024-25 and at 1.1 per cent during 2025-26.

 

The stock price of Heritage Foods Limited, a milk processing company based in Andhra Pradesh, promoted by the family of N. Chandrababu Naidu (leader of Telugu Desham Party and CM of Andhra Pradesh) rose ~65% in the last week. The rise in stock price is apparently in response to the victory of Mr. Naidu’s party in Andhra Pradesh Assembly elections and the likelihood of it getting a pivotal role in the central government.

Stock prices of many PSEs and companies perceived to be close to victorious NDA partners witnessed heightened volatility and lost 8-15% value after election results.

What does this market behavior tell us?

Does it show that the market participants seriously believe that the elected Chief Minister of an Indian State, will “unduly” favor his family business? Or the working of a PSE depends on the number of MPs a ruling party (or coalition) has in the Parliament? Or the fate of a business in India materially depends on the closeness with the ruling party enjoyed by its promoters?

If any of this is even partially true, does it make sense to even consider investment in such a business? How the fund managers and advisors who swear in the names of Peter Lynch, Warren Buffet, Charlie Munger, could even think of investing (or advising investment) in such businesses?

Anyways, I would leave this debate for the market experts. As a tiny investor, my concern is limited to the point, whether I need to change my investment strategy or stay on my course, in light of the change in government at the center and two states (Andhra Pradesh and Odisha) since the elections are now over and a new government is taking shape.

Changed circumstance

Three notable political changes have occurred in India in the past week.

First, the NDA alliance has won the mandate to form the central government in India. The BJP, which had a strong majority in the outgoing parliament, has secured 240 (out of 543) seats in the 18^th Lok Sabha. After ten years, the BJP has fallen short of a simple majority in the Lok Sabha. It has now formed a government dependent on support of its NDA allies. Two key allies Janata Dal (United) led by the Bihar CM Nitish Kumar, and Telugu Desham Party (TDP), led by N. Chandrababu Naidu, the new CM of Andhra Pradesh.

Second, TDP led by Mr. Naidu has secured an absolute majority in the Andhra Pradesh Legislative Assembly, ousting the ruling YSRCP, led by Jaganmohan Reddy who was CM of the state for 10 years. This marks return of Mr. Naidu to power after two decades.

Third, Biju Janta Dal (BJD, led by Naveen Patnaik, lost power in Odisha state after 25years. The BJP secured a simple majority in the recently concluded assembly elections and is forming first ever government in the state on its own.

Market reaction

After an initial knee jerk reaction on the election result day, the markets have scaled new highs and look even more exuberant. On Friday, the Monetary Policy Committee of RBI decided to hold the policy rates unchanged with a 4:2 vote. Two members voted for rate cut and a change of policy stance from “withdrawal of accommodation” to “neutral”. This is also adding to the market buoyancy.

Investment strategy implication

I do not see any reason to change my investment strategy in light of the evolving political scenario. As stated earlier (see here), “I believe that in India economic policies, and therefore financial markets, are politics agnostic. I do not see the outcome of general elections impacting the Indian economy in any significant manner. The economic policy of India is still a work in progress. all governments in India in the past 40 years have made incremental improvements in the policy framework to make it congruent with the scale of economic development and changes in India's position in the global economic and strategic order.”

However, I do expect some positive developments for the economy, and therefore markets. In my view, for example—

·         The decision making at the central government level may improve materially with a stronger consultative and the decision-making process. Decisions like demonetization, abrogation of article 370 and CAA etc. had added elements of unpredictability and disruptiveness to the policy making paradigm in the past ten years. The need for a wider consultation for important decisions could eliminate these elements. On the flip side there could be some delays in decision making and market volatility may increase in cases where there is no agreement between the alliance partners.

·         In Andhra Pradesh, the work on the abandoned new Capital (Amravati) might start again. This may provide significant impetus to investment in the state.

·         The government may focus on affording more cash in the hands of the poor, especially rural poor. This may provide good support to the rural consumption, which is showing some green shoots.

·         The policy support to private capex (e.g., through PLI scheme) may continue and even get enhanced.

·         Overall, the growth may become more inclusive.

My strategy is premised on the assumption that after the final budget (July 2024) the markets shall be guided by the earnings, macro conditions, and global developments, rather than the outcome of elections. For now, I do not see any reason to change that premise.

While driving to a meeting yesterday afternoon my Google navigation suddenly stopped. My Android phone showed a message saying, “your device needs to cool down”. I had to wait for 15 minutes under the hot sun with outside temperature close to 45˙C for the navigation to start again. I am not sure whether it was the outside heat or some problem with the Google’s Map App, but it forced me to think, “what if the current high temperatures in most parts of India become a norm and we witness a few weeks of intense heat wave conditions every summer”?

There have been multiple cases of air-conditioners malfunctioning in the past couple of weeks, causing fire in premises and loss of precious lives. Almost all cities and towns are reporting disruption in power distribution due to breakdown in transformers and cables, caused by excessive heat and overloading. On enquiry, I found that there has been a sharp rise in cases of breakdown in household electrical appliances like refrigerators, microwave ovens, air-conditioners, washing machines due to voltage fluctuation, over-heating and short circuits. (see here, here and here)

Over 25,000 deaths have been reported from many states due to heatstroke, dehydration, and other related illnesses during the past three months. (see here)

Most hill stations in north India are reporting massive influx of tourists causing a breakdown of local infrastructure and excruciating traffic jams. (see here)

Massive forest fires have been reported from Himalayan states of Uttarakhand, Himachal Pradesh and Jammu and Kashmir. Thousands of hectares of precious forests have been lost in these fires. (see here)

If I look around my ambience, I find that we would need to implement hundreds of changes in our lifestyle, infrastructure, technology, and practices, to adapt to a situation where a 3-4 weeks heatwave condition becomes a norm over the next few years.

For example, consider the following—

·         Energy efficient air-conditioners, which have become more popular these days, may not be effective in a consistent temperature above 45˙C. Most air-conditioners may need to be replaced.

·         Power distribution infrastructure, especially transformers and cables, would need an overhaul to undertake much higher peak load and consistent high atmospheric temperature. Household electric cables may also need a redesign to make them more heat resistant.

·         Footwear and clothes would need a redesign to suit high temperatures. Maybe office dress codes would also need reconsideration to allow less formal clothing during summers.

·         Overhead water tanks (mostly plastic) are a popular method of water storage across India. High temperatures over 45˙C may lead to significant loss of stored water due to evaporation. We may need to redesign the civic water supply and household water storage systems.

·         There are a number of colonies and markets in most Indian cities where fire tenders cannot reach at all, or can reach with considerable difficulty and time loss, in case of a fire. Fire safety systems for such areas may require a complete rethink.

·         Building designs would need to factor in consistent high outside temperature. Definition of the energy efficient buildings may need suitable modification.

·         The resistance training for school going children to make them tolerant to consistently high temperatures may be required.

·         Our food habits may need to change to incorporate foods and drinks which help build resistance against outside heat and keep the body cooler from inside.

·         The healthcare system would need to equip itself to handle a larger number of emergencies due to heatstroke and related illnesses.

·         The cases of skin cancer due to excessive exposure to UV rays may rise materially. We may need to take effective preventive measures to mitigate this disaster.

·         Adequate infrastructure and safety arrangements would need to be deployed to curb frequent forest fires. More urban forests would need to be planned to control excessive heat.

·         Tourism management in hill states would need a complete rethink, including restricting the number of tourists.

·         Feasibility of implementing day-light saving and differential office timing for various departments needs to be explored. Office and school hours may start early in summers, and some departments may consider working from late in the evening.

·         Entire public transport may need to become air-conditioned. The frequency of public transport during late evening and night hours may need to increase.

This all is besides the need to substantially augment the water and electricity supply to meet the enhanced needs of people and businesses.

It would be a good idea to send a team of experts to UAE, Saudi and Some African countries to learn how they manage to live with consistent high temperatures.

Some readers may like to reject this thought as paranoia and current high temperature as aberration. Maybe they are right. But what if?

A new central government will assume office in India, in a few days. This is a great opportunity to look at the current state of affairs with a new perspective and reorient the policy framework.

 FY24 Real GDP growth surpassed all estimates, even the most optimistic once, by a wide margin – growing 8.2% in FY24. The forecasts for FY25 have been upgraded sharply higher. Now most professional forecasters are projecting FY25e GDP growth to be in the 6.7-7.2% range.

FY24 Real GDP growth has been led by investments (+9%). Consumption growth, both public (+2.5%) and private (+4%), continues to remain poor. The share of private consumption fell to 55.8%, lowest in decades. Exports (+2.6%) growth was also one of the lowest in a decade (excluding Covid affected FY20 and FY21).

On the supply side, FY24 witnessed one of the worst agricultural GVA growth (+1.4%) in a decade; whereas Industrial growth (+9.5%) led by manufacturing and construction, was extremely strong. Services growth slowed down to 7.6% from 10% in FY23.

In 4QFY24, the surprise came largely from exports (+8.1%). Government consumption (+0.9%) completely collapsed due to election related restrictions.

On the supply side, agriculture GVA (+0.6%) and Services GVA (6.7%) growth was below par. Industry GVA growth (8.4%) did much better. However, adjusted for base effect (4QFY23 Agricultural GVA growth 7.6% and Industrial GVA Growth 3.4%) things look better.

FY24 Nominal GDP growth came at 9.6% (FY23 14.2%). Nominal GDP (GDP at Current Prices) is estimated at ₹295.36 trillion, against ₹269.50 trillion in FY23.

Fiscal Balance: Given the higher nominal GDP than previous estimates and better tax collections, FY24RE for Fiscal deficit has been revised downward to 5.6% from previous estimate of 5.8%. In addition, Rs2.1 trillion transfer from the RBI has also helped the fiscal balance materially. It is, therefore, likely that FY25BE for fiscal deficit would also be revised lower from 5.1% presented in the interim budget.

A favorable fiscal balance, favorable monsoon, and visibility of tax buoyancy shall afford greater fiscal leverage to govt for capex and social programs.