Do it yourself

 The recent macroeconomic data indicates that Indian economic activity may soon reach to its pre Covid level. The latest reading on Nomura India Business resumption Index is 93.4, just 6.6% below pre Covid induced lockdown level. The media headlines and official commentary claims it to be a “V” shaped recovery, implying that one year may have been lost, but Indian economy is nearly back to “normal”. There is section of experts which is terming it to be a “K” shaped recovery rather than a “V” shaped one; implying that one part of the economy has raced much ahead while the other continues to slide. Some noteworthy data includes: Fall in consumer and wholesale inflation, highlighting easing of logistic constraints. The inflation is now within the RBI tolerance band, and has prompted the governor to emphasize that surplus liquidity would need to be sucked out of the system. The very steep yield curve has started to flatten a bit. IIP growth is now back to February 2020 level. In De...

 There was this very famous soccer player. He was one of the main strikers for his country as well as club team. He won many matches for his teams. He was very popular amongst sports enthusiast, and as such attracted many corporates to become brand ambassador for their respective products. Unfortunately, one day he met with a serious accident in which many of his limbs were fractured. He remained in intensive care for many months. Doctors had to perform several surgeries to keep him alive and make him walk again. After spending two years in bed, the striker took his first step with the assistance of his wife and walking stick. The hospital management immediately broke the news to the media. The fans were ecstatic and celebrated the news by popping up champagne and ringing church bells. The doctors informed the team management and sponsors (who were keeping a close watch on the health conditions of their star striker), in confidence that their star would never be able to play agai...

As per some media report, the government of India is considering a proposal to revive the struggling MSME sector. It is reported that the government is considering building a contingency fund of Rs400bn that will be used to provide guarantee to Rs3trn of fresh loans to MSME sector. Earlier, the RBI had proposed a moratorium of 3 months on the repayment of principal and interest on the terms loans. Presently, banks have an outstanding credit of Rs15trn to MSME sector. Now it is indicated that each MSME will be extended additional credit equivalent to 20% of the outstanding credit for 6 months period to kick start their locked down businesses. This additional credit facility shall be fully guaranteed by the central government. "If" "implemented" "simply", without too many conditions and restrictions, it would be a meaningful measure to mitigate the collateral damage caused by coronavirus COVID-19. I would like to share the following though...

The medium term policy cum fiscal policy strategy statement, that forms the part of the budget documents states that the "Government has initiated structural reforms both on the supply and the demand side." It is argued that these structural reforms "have fiscal implications and are important tools to boost economic performance" and the "impact of these measures initiated is anticipated to have spill-over effect in the next financial year." By implication, the government is claiming that the short term growth has been sacrificed to cement the high growth trajectory in the medium term. The statement claims that "the measures initiated by the Government to cement the economic recovery are anticipated to have effects in the next FY as well." This leads me to revisit the debate whether the administrative changes to improve efficiency & eliminate redundancies; and incremental changes in the current practices, policies and progra...

Some of the headlines in yesterday's newspapers made interesting reading: A few days ago, the finance minister had categorically dismissed the talks about changes in the GST rates. She was quoted having said that "Buzz is everywhere other than in my office". Yesterday, West Bengal Finance Minister Amit Mitra, who is also former head of GST Council and FICCI General Secretary, reportedly, wrote to the finance minister requesting, “We should not in any way tinker with the rate structure or impose any new cess at a time when the industry and consumers are going through the most distressing times with ‘stagflation’ knocking at our door (stagnation accompanies by growing inflation).” ( see here ) It is very difficult for a common man to assimilate, how such a senior person would write an official request, if there is no buzz around. The commerce minister highlighted that he has taken an exercise to consult country’s top 25 corporate houses and lenders, to asse...

Yesterday, I made my periodic visit to the Delhi's wholesale and popular retail markets to assess the current trends and mood of the markets. A visit to markets at this point in time is important because this is the time when most of the retailers build inventory for the coming festival & marriage season which usually accounts for almost half of their annual sale. Unlike, previous years, this time I was not expecting any surprises; and I did get none. The mood of traders as well as buyers was despondent. The following is the feedback from my rendezvous with traders in Delhi. (a)    This year the trade is marginally slower than the last year. However, many traders are expecting the declining trend of past 3years to bottom out this season. Inventories have reduced materially. Costs rationalization has been mostly achieved. GST has been imbibed completely. Integration with (b)    The wholesale trade in grocery items, especially spices &,...

As per the Hindu lunar calendar the ancestors' fortnight ( पितृपक्ष ) , will start from tomorrow. As per the ancient Hindu traditions, all Hindus are obligated to serve Brahmins (Scholars) and feed crows during this fortnight. It is widely believed that serving Brahmins and feeding crows in this fortnight pleases souls of the ancestors and thus redeems the person performing this ritual from the debt of ancestors. Hindu religious traditions also mandate that a grand feast must be organized by all Hindus within 3weeks of the death of their parents, spouse or children. In this grand feast Brahmins, Dogs, Crows and the poor are served with delicious food. Brahmins and poor are also given cloths, cash and other gifts. I am not competent enough to comment about the traditions of other religions and cultures, but I am sure similar traditions are practiced by the followers of other religions also. The anecdotal evidence that I have collected from my interactions with...

Continuing from yesterday ( see here ) To understand whether the current economic slowdown is structural or cyclical; and whether the problem stems from the demand side of the supply side, I must understand the meaning of this jargon. Not being an economist, I would like to define this jargon from my own prism to suit my layman understanding. Structural economic slowdown, in my view, means that current economic activity is the best that can be achieved within the current social, legislative, political and economic context. To achieve higher growth that the present level, material improvements (know as structural reforms in common parlance) would be needed in all these spheres at policy, administration and execution levels. Cyclical economic slowdown on the hand means a temporary disequilibrium between the forces of demand and supply resulting in demand destruction. A disproportionate change in demand usually occurs due to excess liquidity, change in rates, ...

Continuing the debate on growth slowdown from yesterday ( see here ), I would argue that the economic growth trends in an economy like India (which is large, diverse and runs a multiparty democratic system) would usually take a longer time to establish. It would be unreasonable to attribute the slow down or acceleration in growth completely to any plan, strategy, measure (legislative or administrative) etc that has been implemented in recent times. Construction of core infrastructure like power plants, highways, ports, coal mines, etc usually entails a long gestation period that in many extends to more than 5yrs (full term of a government). The full impact of these projects on growth is therefore felt only after these are completed and commissioned. The current acceleration in growth therefore is mostly result of the efforts made in past many years. Similarly, a significant change in the economy like (i) opening more sectors to global competition; (ii) withdrawal of subsidie...