Oriented or coiled in a leftward direction, as a
left-spiraling snail shell.
Malice towards none
Pt. Deendayal Upadhyay is the newest member of the Gandhi
family!
First random thought this morning
The debate over INR depreciation, like most other issues, has
turned acrimonious. Armies on both the sides have entrenched themselves well.
The ammunition being used is however the same old. The primary argument is
"your depreciation is worse than my depreciation".
Some experts have intervened to highlight that INR's relative
valuation vs. any foreign currency is a normal economic phenomenon, primarily
guided by the inflation differential in the respective economies. But the point
they have missed is that it is purely a political debate and involves not an
iota of economics. It is to seek accountability from the prime minister
himself, who often ignored economics, castigated previous government, and made
a political promise of appreciating INR vs. USD.
Economic and market review - 4
Any discussion on improvement or
otherwise in the macroeconomic conditions in India would be insufficient if we do
not incorporate the structural changes witnessed in past decade or so.
It may itself be a matter of
debate whether some of the changes highlighted herein are structural or just
cyclical. Nonetheless, I find these changes structural and see them impacting
Indian economy in the long term.
First of all, the composition of
household finances is changing structurally in my view. Household savings have
historically funded the fiscal deficit and corporate profligacy at relatively
much cheaper rate. Availability of large pool of household savings, even in the
long phases of negative real rates, has kept Indian economy reasonably
insulated from the turmoil in global economy, including Asian crisis of late
1980s, dotcom burst of 2000 and global financial crisis of 2008-09.
Of late the household savings have
been shrinking and the share of household credit (personal loans) has been
rising. This has forced government to increase the quota of foreign investors
in deficit funding. This has made our debt markets and deficit financing more
vulnerable to global events. In fact, it would be interesting to study the
recent spike in domestic yields in light of selling of Indian bonds by foreign
investors.
Lower household savings have also
resulted in lower overall private consumption in past few years. Private
consumption again has been a key strength of the Indian economy. Despite higher
personal loan levels, household consumption has witnessed a declining trend.
This, read with poor growth in per capita income over past many years,
highlights another structural weakness that is creeping into Indian economy.
Trying to emulate the advanced economy, we may end in a deep abyss. Brazil is a
classic example, what we must not do. But unfortunately, we may be doing
exactly that.
Growth in housing sector is key to
sustainable growth for any developing economy. As a policy, the focus of the
government has been on developing the affordable housing sector. The effort has
yielded some results in past 2years. However, affordability of the households
has not increased much beyond a few metro cities. As per RBI housing price
index (HPI), house prices have increased on average 8-10% in past four years,
approximately the same as the rise in per capita income.
We may rejoice the spikes in
monthly IIP data or the tag of fastest growing economy in the world. But, we
must lose sight of the fact that long term growth trend has stayed mostly flat
in past five years, and there is little visibility of situation changing in
next couple of years at least.
Phenomenal rise in sale of
personal vehicles is often cited as a barometer of sustainable economic growth
in India. In my view, we must analyze all dimensions of this phenomenon, rather
than focusing just on the headline numbers.
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