Some food for thought
"We can know nothing till after this grave debate. The soul
must withdraw, for this is not its hour. Now the knife must divide the flesh,
and lay the ravage bare, and do its work completely."
—Georges Duhamel (French Novelist, 1884-1966)
Word for the day
Orgulous (adj)
Haughty; Proud.
First thought this morning
A couple of years
back Malishka, a famous FM radio presenter in Mumbai made a satirical video
about ill monsoon preparedness of Mumbai civic authorities (see here). The people
loved the video but the civic authorities rejected it as cheap publicity stunt.
Last year Malishka came out with a new song with the same theme (see here). Mumbai
authorities were dismissive, as usual.
However, this
year civic authorities responsible for making city safe during monsoon season
were unusually proactive. They claimed that this year they are fully prepared
and even invited Malishka to inspect the preparedness. Nonetheless, two weeks
and two days of rain later, Mumbai roads are inundated and interspersed with
perilous potholes. Traffic is crawling. Trains are running late. Schools are
shut. The threat of epidemic is looming.
This has been the
story of every monsoon for decades. The apathy of civic authorities is
appalling and shameless. Explanations and clarifications are unconvincing.
Accountability is absconding.
Prime Minister
must begin his mission for improvement in 'Ease of Living" with fixing
accountability in Mumbai civic administration and promising that 2020 will not
see any case of water logging in Mumbai.
Chart for the day
Notes from my Diary
Almost all automobile manufacturers in India are facing sever
slowdown in demand for past many months. In sales of two wheelers, cars
tractors, and commercial vehicles of various companies have dropped 8-22% yoy.
A recent survey also indicated a slight setback in the Indian
manufacturing sector as Manufacturing Purchasing Managers' Index (PMI) reading
fell to 52.1 in June, down from May's three-month high of 52.7. The growth
moderation is inter alia attributed to lower growth in new work intakes, which
in turn reflected in slower rises in output and employment.
India's industrial production has been stuck in low orbit ever
since the global financial crisis slowed down the global growth trajectory in
2008-09. Besides a brief bump in 2009-10 due to fiscal & monetary stimulus
and very low base, our IIP growth never appeared accelerating to the levels
seen in 5yr period prior to the crisis.
Incidentally, India is not in minority group, insofar as the
trend in industrial production growth is concerned. This has in fact been the
trend world over.
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This trend is reflecting in (a) poor capacity addition, (b) below par capacity utilization rates and (c) subdued business sentiment.
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In fact poor capex is also a global phenomenon. Except for a
brief period in 2016-17, global capex has been contracting, rather sharply.
Despite sharp tax cuts by Trump administration and pick up in global growth in
past two years, capex has failed to pick up.
This trend throws up some interesting questions, particularly in
Indian context. For example, consider the following:
1. In Indian
context, historically inflation had mostly been pulled by demand outpacing
supply. Shortages and bottlenecks in supply of everything usually resulted in
higher inflation. However, in past few years, despite poor capacity addition
and lower capacity utilization, inflation has remained benign.
What could be reasons for this phenomenon?
I am not satisfied with the blinkered explanations provided by
various experts. I believe a variety of forces have worked together for this
outcome, and to that extent it may be a structural gain for Indian economy. For
example, inter alia, the following factors might be responsible for structural
change in the inflation trajectory in India.
- Demonetarization of high value currency notes in 2016.
- Complete breakdown of banker-politician-hoarder-trader cartel for food commodities.
- Meaningful improvement in logistics leading to lower second round impact of higher energy and tax cost. So seasonal spikes are controlled.
- Keeping INR marginally overvalued to make imports more competitive.
- Inflation targeting by MPC.
- Large capacity additions in 1998-2008 decade, in anticipation of future demand, that has not materialized as yet. Poor capacity utilization and high rate of NPA appears a direct outcome of this phenomenon, and therefore could be said to be a cost of keeping inflation benign.
2. If the risk
aversion and high NPA is the reason for poor capacity addition and lower
demand, then how would we explain this:
- The amount of investment in startups and ecommerce ventures with very high cash burn rates has been consistently rising all these year.
- Wherever, a genuine need has arisen the capital has not been a constraint for capacity addition. Telecom, retail, electronic manufacturing etc are some of the examples.
- Large stressed steel producers have attracted multiple bids in IBC process.
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In my view, policy makers would need to take a holistic view of
the economy rather than addressing each piece separately by different teams who
are either not talking to each other or in fact competing with each other.
The other important issue is that Sino-US trade conflict has created
a massive opportunity in manufacturing sector. Most of the global corporations,
which relied mostly on China and Taiwan for manufacturing of their products are
looking to spread their risk by diversifying their manufacturing process. India
has so far not shown any intent to attract the investments fleeting away from
China.
