Thursday, June 12, 2025

The world urgently needs a revival of statesmanship

The recent violence in Los Angeles, California, stemming from protests against Immigration and Customs Enforcement (ICE) raids starting June 6, 2025, has evoked strong responses from global communities. The militarized response to what began as localized unrest has triggered a much wider debate, both within the United States and internationally. The deployment of 2,000 National Guard troops and the placement of 700 U.S. Marines on “high alert,” coupled with the use of tear gas, rubber bullets, and curfews, has drawn sharp criticism. This heavy-handed approach is not entirely unexpected, given President Trump’s experience with the 2021 Capitol Hill riot, which underscored his administration’s preference for forceful responses to civil unrest. The ensuing tension between the California state government, led by Governor Gavin Newsom and Mayor Karen Bass, and the federal government has raised further concerns about governance, human rights, and the risk of escalating conflict.

The global response has been swift and critical. The United Nations has called for de-escalation, urging U.S. authorities to avoid “further militarization” of the response to the LA protests and to uphold the right to peaceful assembly. Australian Prime Minister Anthony Albanese expressed concern over the handling of the unrest, particularly the use of rubber bullets. Canada, Ireland, Germany, and the Netherlands have issued travel advisories for their citizens visiting the U.S., citing risks of detention due to aggressive immigration enforcement. Amnesty International USA condemned the deployment of National Guard troops as an “unnecessary militarized reaction” aimed at “crushing dissent” rather than protecting communities. Human Rights Watch (HRW) framed the LA protests as part of a broader fight for human rights in the U.S., noting that ICE raids targeting sensitive locations like courthouses, schools, and workplaces have sparked nationwide demonstrations. The Economist described the U.S. administration’s response as appearing to “create confrontation” and fuel a “cycle of protest, violence, and repression” for political gain, rather than prioritizing order.

Notably, the U.S. is not alone in witnessing violent protests or militarized responses to civic unrest, particularly in recent years. Civilians have faced brutality in active war zones like Israel-Palestine and Russia-Ukraine; in terrorism- and gang-war-infested countries such as Pakistan, Sudan, Somalia, Syria, Lebanon, Colombia, Venezuela, Ecuador, Peru, South Africa, and Kenya; and in nations governed by non-democratic regimes, including Myanmar, Bangladesh, the Democratic Republic of Congo, and Haiti. In India also, ethnic violence and alleged state oppression in Manipur have led to civilian suffering, internet shutdowns, and persistent unrest. These cases highlight a grim reality: the use of force against civilians is a global phenomenon, often exacerbated by weak governance, conflict, or authoritarianism.

Yet, the phenomenon of violent protests and their suppression by force is not confined to the developing world or conflict zones. Developed democracies like Canada, France, the United Kingdom, Germany, the Netherlands, Ireland, Belgium, and Spain have also experienced significant civil unrest in recent years. The Allianz Risk Barometer 2025 identifies France, the UK, Germany, and Spain as global hotspots for protest and riot activity, with over 80,000 incidents recorded in 2024 alone. In France, protests over economic policies and immigration have frequently turned violent, while the UK has seen riots linked to immigration and political polarization. Germany and the Netherlands have faced farmer protests and demonstrations over energy costs, and Ireland has grappled with tensions over immigration policies. These parallels with the U.S. and Canada underscore a troubling trend: even stable democracies are not immune to the forces driving public discontent and violence.

In most cases, the catalysts for violent civilian protests are clear: restrictive immigration policies that limit labor mobility, economic stress inducers, e.g., unemployment, inflation, and unfair taxation, curbs on personal liberties such as religious freedom or reproductive rights, suppression of ethnic or religious minorities, and deepening political polarization. These issues, while diverse, share a common thread: they erode trust between governments and their citizens, creating fertile ground for unrest. The Los Angeles protests, sparked by ICE raids targeting immigrant communities, exemplify how policy decisions can ignite broader social tensions, particularly when met with disproportionate force.

In my view, the primary reason behind the rise in violent tendencies in recent times is the overwhelming dominance of divisive and parochial political agendas across the world. Statesmanship, a hallmark of much of the 20th century, has all but vanished from the global stage. The world once saw leaders like Franklin D. Roosevelt, Winston Churchill, Nelson Mandela, and Nehru, who, despite their flaws, prioritized unity, long-term vision, and humanitarian values over short-term political gains. Today, too many leaders are elected on platforms that amplify division, fear, and narrow self-interest. These leaders often lack a global perspective or a commitment to addressing the root causes of unrest—poverty, inequality, and injustice. Instead, they resort to populist rhetoric or militarized responses, further alienating their citizens and fueling cycles of protest and repression.

The absence of statesmanship is not just a leadership failure; it is a systemic crisis. Global challenges like climate change, migration, and economic inequality require cooperative, forward-thinking solutions, yet many leaders prioritize domestic political survival over collective progress. In the U.S., the LA unrest reflects a failure to bridge divides between immigrant communities and policymakers, exacerbated by a federal response that prioritizes control over dialogue. Similarly, in Europe, protests over immigration and economic policies highlight a disconnect between governments and their increasingly frustrated populations. Even in war-torn regions like Sudan or Myanmar, the lack of visionary leadership perpetuates cycles of violence and displacement.

To break this cycle, the world urgently needs a new generation of statesmen and stateswomen—leaders who can rise above parochial agendas and embrace a humanitarian approach to governance. These leaders must prioritize dialogue over confrontation, addressing the root causes of unrest rather than merely suppressing its symptoms. For instance, immigration policies could focus on integration and economic opportunity rather than punitive enforcement, as seen in the LA raids. Economic reforms could tackle inequality and inflation through inclusive growth, rather than austerity measures that disproportionately harm the vulnerable. Political polarization could be countered by fostering civic engagement and rebuilding trust in institutions, rather than exploiting divisions for electoral gain.

Moreover, the international community has a role to play in fostering statesmanship. The UN, regional organizations, and civil society must hold leaders accountable for human rights abuses and militarized responses, while supporting initiatives that promote peacebuilding and social cohesion. Grassroots movements, empowered by technology and global connectivity, can also pressure governments to prioritize the common good over divisive politics. Education and public discourse must emphasize empathy, critical thinking, and global citizenship, equipping future leaders to navigate an interconnected world.

The violence in Los Angeles, like unrest elsewhere, is a symptom of a deeper malaise: a world led by division rather than vision. The global outcry over the LA protests—whether from the UN, human rights groups, or concerned citizens on platforms like X—signals a shared desire for change. Yet, change will not come without leadership that transcends borders, ideologies, and short-term gains. The world urgently needs statesmen and stateswomen who can heal divides, inspire hope, and forge a path toward a more just and peaceful future. Only then can we move beyond the cycles of protest, violence, and repression that define our time.

Wednesday, June 11, 2025

The Indian economy – disconnect in growth statistics

 While the 7.4% GDP growth number for 4QFY25, and claims of continuing strong growth momentum in April 2025 are encouraging, the RBI assessment of FY26 growth and aggressive policy stance raise some doubts. A careful analysis of the GDP data released by the NSO also leaves some doubts about the consistency and sustainability of the 4QFY25 growth numbers.

Many economists have noted discrepancies and incongruencies in the data, as well as comparisons with other economic indicators and external analyses.

For example, I found the following noteworthy.

Discrepancy Between GDP and GVA Growth Rates

In Q4 FY25, GDP growth is 7.4%, while GVA growth is 6.8%. The divergence between GDP and GVA growth rates is notable, as GDP includes net taxes (taxes minus subsidies), which can distort the picture of underlying economic activity captured by GVA.

The gap suggests that tax revenues or subsidy adjustments may have inflated GDP growth relative to GVA. For instance, higher GST collections or reduced subsidies might have boosted GDP figures without reflecting proportional growth in actual economic output. This discrepancy raises questions about the sustainability of growth driven by fiscal adjustments rather than core sectoral performance.

As per Systematix research, “Recent robust GST collections have been interpreted as evidence of strong economic growth, supporting the 4QFY25 real GDP growth of 7.4%. However, this narrative contrasts with on-ground economic indicators suggesting a demand slowdown. Our analysis reveals that rising GST collections stem not from stronger economic growth but from increased indirect tax incidence in a slowing economy. This trend aligns with the government’s pro-cyclical fiscal tightening framework over recent years. We estimate an excess tax collection of INR 2.9 trillion over the past two years (2QFY24–1QFY26E), which has elevated the net indirect tax burden on Indian households to a historical peak. This has suppressed household spending power, exacerbating the lack of real income growth.”

Q2 FY25 Growth Slowdown vs. Q4 Recovery

2QFY25 reported a seven-quarter low GDP growth of 5.4%. 1QFY25 growth slowdown could be explained by the spending restrictions due to the imposition of the model code of conduct during the general elections (March-June 2025). Logically, 2QFY25 should have witnessed excessive government spending due to spillover effects from the previous quarter.

The rapid recovery from 5.4% in Q2 to 7.4% in Q4 appears inconsistent with the broader FY25 growth of 6.5%, suggesting uneven economic momentum. The low Q2 growth was attributed to reduced government spending and weak private investment, but the factors driving the Q4 rebound (e.g., manufacturing and construction) are not fully explained in the press release.

Sectoral Growth Inconsistencies

Agriculture (3.8% in FY25)

The agriculture sector’s growth improved significantly from 1.4% in FY24 to 3.8% in FY25, attributed to a good monsoon. However, this contrasts with reports of uneven monsoon distribution and challenges like low reservoir levels in some regions, which could have limited agricultural output in certain areas.

The uniform 3.8% growth figure may mask regional variations or overstate the sector’s recovery, especially since agricultural income growth (e.g., farm wages) has not kept pace, as noted in some external analyses.

Manufacturing (5.0% in FY25)

Manufacturing growth slowed sharply from 9.9% in FY24 to 5.0% in FY25, yet Q4 FY25 GDP growth (7.4%) suggests a manufacturing rebound. This is inconsistent with high-frequency indicators like the Index of Industrial Production (IIP), which showed subdued industrial activity in most parts of FY25.

The slowdown aligns with high input costs and weak export demand, but the Q4 recovery lacks detailed sectoral data to confirm whether manufacturing truly drove the uptick or if other factors (e.g., statistical adjustments) played a role.

Construction (9.4% in FY25)

Construction grew at 9.4%, down slightly from 10.4% in FY24, yet government capital expenditure reportedly slowed in FY25. This raises questions about the source of growth, as public infrastructure spending is a key driver of construction.

Private sector construction (e.g., real estate) may have contributed, but the press release does not disaggregate public vs. private contributions, creating ambiguity.

Expenditure-Side Discrepancies

Private Final Consumption Expenditure (PFCE) grew at 7.2% in FY25 (up from 5.6% in FY24), indicating strong household spending. However, this contrasts with external reports of weak rural demand and urban consumption slowdowns, particularly in discretionary goods (e.g., automobiles, FMCG).

The robust PFCE growth may be driven by urban or high-income consumption, but the lack of granular data obscures whether this reflects broad-based demand or is skewed by specific segments.

Government Final Consumption Expenditure (GFCE) growth slowed to 2.3% in FY25 from 8.1% in FY24, reflecting fiscal consolidation. However, the strong Q4 GDP growth (7.4%) and high growth in public administration (7.8%) suggest continued government spending in certain areas, creating a potential mismatch.

The low GFCE growth may understate government contributions in Q4, or the sectoral growth in public administration may reflect non-expenditure factors (e.g., statistical adjustments).

Gross Fixed Capital Formation (GFCF) growth slowed to 7.1% in FY25 from 8.8% in FY24, indicating weaker investment. This aligns with reports of sluggish private investment but contrasts with the strong construction sector growth (9.4%), which typically relies on capital investment.

The disconnect suggests that construction growth may be driven by specific sub-sectors (e.g., real estate) rather than broad investment, but the press release lacks clarity on this.

Mismatch with High-Frequency Indicators

The GDP growth of 6.5% for FY25 and 7.4% for Q4 FY25 appears optimistic compared to high-frequency indicators like-

Index of Industrial Production (IIP): Showed weaker industrial growth, particularly in manufacturing, contradicting the Q4 rebound.

Purchasing Managers’ Index (PMI): Indicated slower manufacturing and services activity in parts of FY25.

Core Sector Output: The eight core industries (e.g., coal, steel, cement) showed subdued growth in some quarters, inconsistent with the strong construction and manufacturing contributions in Q4.

These indicators suggest a more sluggish economy than the NSO’s GDP figures imply, raising concerns about potential overestimation or statistical discrepancies in the GDP calculations.

 

Comparison with External Forecasts

The NSO’s FY25 GDP growth estimate of 6.5% is lower than the Reserve Bank of India’s (RBI) revised forecast of 6.6% (down from 7.2%) but higher than some private forecasts (e.g., 6.0–6.3% by agencies like ICRA or SBI). The Q4 growth of 7.4% also exceeds many analysts’ expectations (e.g., 6.8% median estimate).

The higher-than-expected Q4 growth and the annual estimate suggest either a stronger-than-anticipated recovery or potential overestimation in the NSO’s provisional data. The reliance on provisional estimates, which are subject to revision, adds uncertainty.

Other disconnects

There are some other disconnects in the GDP data. For example, the nominal growth in 4QFY25 at 10.8%, much ahead of money supply growth of 9.6% is fully explained. A growing economy would usually need higher money supply due to higher transaction demand. This mismatch can probably be explained by the use of an erroneous deflator. Besides, external trade data, sharp contraction in subsidy payments etc. also raise some doubts.

Also read

The state of the Indian economy

The Indian economy – glass half full

The Indian economy – glass half empty

RBI makes a bold bet

Tuesday, June 10, 2025

RBI makes a bold bet

The Reserve Bank of India’s (RBI) monetary policy statement on June 6, 2025 marked a significant shift in India’s monetary policy framework, reflecting a bold approach to stimulate economic growth while navigating global uncertainties and domestic inflation dynamics.

Thursday, June 5, 2025

The Indian economy – glass half empty

The Indian economy has indubitably shown brilliant resilience and sustained the base growth rate of ~6%. In the current year FY26 also the real GDP is expected to grow in the range of 6.3% to 6.6% (vs 6.5% in FY25).

Wednesday, June 4, 2025

The Indian economy – glass half full

Tuesday, June 3, 2025

The state of the Indian economy

The National Statistical Office (NSO) released provisional estimates (PE) of the annual growth statistics for the Indian economy, last Friday. The data indicates that the Indian economy grew at a rate of 7.4% (real GDP) in 4QFY25 and at a rate of 6.5% for the full year FY25.

The key highlights of the growth data could be listed as follows:

FY25 Growth

Real GDP: Estimated at 187.97 lakh crore at constant (2011-12) prices.

Growth rate: 6.5% compared to 176.51 lakh crore in FY 2023-24 (8.2% growth in FY24).

Nominal GDP: Estimated at 330.68 lakh crore.

Growth rate: 9.8% compared to 301.23 lakh crore in FY 2023-24.

Real Gross Value Added (GVA): Estimated at 171.87 lakh crore at constant prices.

Growth rate: 6.4% compared to 7.2% in FY 2023-24.

Nominal GVA: Growth rate: 9.5% compared to 8.5% in FY 2023-24.

Quarterly GDP Estimates for Q4 FY 2024-25 (January-March 2025)

Real GDP: Estimated at 51.35 lakh crore at constant prices.

Growth rate: 7.4% compared to 47.82 lakh crore in Q4 FY 2023-24.

Real GVA: Estimated at 45.76 lakh crore at constant prices.

Growth rate: 6.8% compared to Q4 FY 2023-24.

Observations

The 6.5% real GDP growth in FY25 is lower than the 8.2% recorded in FY24, reflecting a slowdown attributed to factors like reduced government capital expenditure and sluggish private investment.

The Q4 FY25 growth of 7.4% indicates a rebound from the 5.4% growth in Q2 FY25, driven by strong performances in manufacturing, construction, financial services, and agriculture, supported by a good monsoon and easing inflation.

The agriculture sector’s improved performance (3.8% growth) is a notable positive, while manufacturing and mining sectors saw slower growth compared to FY24.

The estimates are provisional and subject to revision as more data becomes available, with the next update (Second Advance Estimates and Q3 FY25 data) scheduled for February 28, 2025.

Sectoral trends

In FY25, most sectors experienced slower growth in FY25 compared to FY24, contributing to the overall real GVA growth of 6.4% (down from 7.2%). The slowdown is attributed to a high base effect from FY24, reduced government capital expenditure, high interest rates, and global economic challenges.

Agriculture’s recovery (3.8%) and construction’s robust growth (9.4%) were key positives, supported by favorable monsoons and infrastructure investments, respectively. Q4 FY25 showed a rebound (6.8% GVA growth), indicating improving economic momentum.

Manufacturing (5.0%) and mining (4.2%) remained the key areas of concerns, reflecting industrial and external demand weaknesses. Trade and hospitality also saw moderated growth due to cautious consumer behavior.

Agriculture, Livestock, Forestry, and Fishing

Growth Rate: 3.8% in FY25 (up from 1.4% in FY24).

Farm sector recorded a significant recovery compared to the previous year’s low growth. The improvement is primarily driven by favorable monsoon conditions, which boosted agricultural output. Enhanced livestock and fishery activities also contributed. The sector’s resilience is notable, as it supports rural economies and overall food security, despite challenges like fluctuating global commodity prices.

The growth trend also indicates better crop yields and government support through schemes like minimum support prices (MSP) and rural infrastructure investments.

Mining and Quarrying

Growth Rate: 4.2% in FY25 (down from 7.1% in FY24).

Mining sector experienced a notable slowdown, reflecting reduced demand for minerals and challenges in global commodity markets. Domestic factors like regulatory constraints and environmental clearances may have also impacted mining activities.

The decline suggests a moderation in industrial demand for raw materials, potentially linked to slower manufacturing growth and global economic uncertainties.

Manufacturing

Growth Rate: 5.0% in FY25 (down from 9.9% in FY24).

Manufacturing growth decelerated significantly, driven by weaker domestic and export demand, high input costs, and supply chain disruptions. The sector faced challenges from elevated interest rates and stricter lending norms, which constrained industrial expansion.

However, despite the slowdown, manufacturing showed some recovery in Q4 FY25, contributing to the overall GDP growth of 7.4% for that quarter. Government initiatives like "Make in India" and production-linked incentives (PLI) continue to support the sector, but external pressures limited growth.

Electricity, Gas, Water Supply, and Other Utility Services

Growth Rate: 7.5% in FY25 (down from 7.8% in FY24).

The utilities sector maintained relatively strong growth, though slightly lower than the previous year. Steady demand for electricity, driven by industrial and domestic consumption, and investments in renewable energy supported this performance. Water supply and utility services also contributed positively.

The marginal decline reflects stable but not exceptional growth, with ongoing infrastructure investments in clean energy and utilities providing a foundation for resilience.

Construction

Growth Rate: 9.4% in FY25 (down from 10.4% in FY24).

Construction remained a robust performer, driven by government-led infrastructure projects, urban development, and real estate demand. The slight slowdown from FY24 is attributed to reduced government capital expenditure compared to the previous year’s high base.

The sector’s strong growth underscores its role as a key driver of economic activity, supported by initiatives like the National Infrastructure Pipeline and housing schemes.

Trade, Hotels, Transport, Communication, and Broadcasting

Growth Rate: 6.1% in FY25 (down from 7.5% in FY24).

This sector saw a moderation in growth due to weaker performance in trade and hospitality, impacted by reduced consumer spending in certain segments and global trade slowdowns. Transport and communication services, however, benefited from digital infrastructure investments and logistics improvements.

The decline reflects challenges in discretionary spending, though digital services and logistics provided some cushion.

Financial, Real Estate, and Professional Services

Growth Rate: 7.3% in FY25 (down from 8.4% in FY24).

This part of the services sector maintained solid growth, driven by financial services (banking, insurance) and real estate, supported by urban demand and digital financial inclusion. Professional services, including IT and consulting, continued to perform well, though export-oriented IT services faced global headwinds.

The slight decline from 8.4% to 7.3% reflects global economic uncertainties affecting IT exports, but domestic financial services remained a strong contributor.

Public Administration, Defense, and Other Services

Growth Rate: 7.8% in FY25 (down from 7.9% in FY24).

This public services sector showed steady growth, driven by government spending on public administration, defense, and social services. The marginal decline reflects a normalization from FY24’s high growth, with fiscal constraints limiting expenditure growth.

The sector’s consistent performance (7.8%) highlights the prominent role of government spending in stabilizing economic growth, particularly in Q4 FY25.

 

More on Growth trends tomorrow.

Thursday, May 29, 2025

Watchlist for investors

The macro environment in India looks stable and resilient, despite the scare of war and trade uncertainties. The south-west monsoon has started on a buoyant note, and IMD reconfirmed its forecast of above normal (106% of LPA) for the current season. Enhanced dividend payout by the RBI has lessened fiscal slippage concerns. Concerted efforts by the RBI to improve system liquidity have also yielded positive results. Fiscal strength, benign inflation outlook, and improved liquidity have resulted in the benchmark 10yr bond yields falling to the lowest level since 2021; reversal in FPI flows since March 2025; stability in currency and improved growth outlook.

Wednesday, May 28, 2025

Investment lessons from IPL

The 2025 season of the Indian Premier League (IPL) has entered the final phase. Four teams – Gujarat Titans, Punjab Kings, Royal Challengers Bengaluru and Mumbai Indians, shall now play for the coveted trophy.