Dismal near future for Indian Economy

Indian Economy stares at a dismal near future.

The index of Industrial Production IIP has shrunk by 1.8% and situation has been further compromised by double digit inflation numbers which is up at 11.24%.

With the announcement of these economic factors, the situation has just became gloomier for the Congress-led government at New Delhi. The results of the recently concluded state polls has clearly shown the Congress party that the people are not in any mood to tolerate any more indecision and inaction.

The Indian Government comprises of some the top economists who are able to talk impressively about the economic scenario, but who have failed to deliver when it comes to controlling the Indian economic outlook.

Gold v/s Current Account Deficit

India economy situation is grim.

Our current account deficit is bloating uncontrolled and the biggest contributor to this is the increasing import of gold. Our citizens are in an increasing rush to buy gold. Statistics show that India has imported an average of 70 tonnes of gold per month during the last fiscal and this import does not seem to stop.

The government is exercising its control to make gold investment difficult, but to no avail

The government has increased in import duty of gold. The finance minister has asked the banks to stop selling gold.


I feel the government is treating the symptom and not the cause. It needs to speculate as to what makes gold so lucrative for the Indian investor. Our policymakers need to create a reliable and safe investment vehicle where people can put their money, instead of gold.
Although, the immediate goal for the government is to somehow stop this inflow of gold, it should to take into consideration the fact that the Indian investors have funds at hand but they do not have venues to invest these funds into.

The financial wizards at the nation's helm also need to evaluate why people do not want to invest in some of the other erstwhile popular investment options like some entrepreneurship venture or shares or real estate or some other business.

Apparently more needs to be done to stop this gold rush.

Arvind Kejriwal strikes again - targets Swiss Account holders

Account Holders in Swiss Banks are the target of Arvind Kejriwal's recent expose and on top of the list of then names taken by the anti-graft crusader are Mukesh Ambani, Anil Ambani and some of their companies including the Reliance Industries Ltd.

This time the shares of Reliance Industries (RIL) reacted even as Kejriwal was addressing the media. The stock closed down 1%, while Anil's Reliance Communications (RCom) end down by 2.2%.

The center of Arvind's exposure was HSBC's alleged role in transferring the moneys to-and-from HSBC's Swiss branch.The names taken by Arvind as he made the disclosures today read like the who's who of Indian industry - The Burman's of Dabur, Goyal of Jet Airways.

According to the expose - In July 2011, Indian Government received a list of roughly 700 people having bank accounts in HSBC, Geneva. The list contains bank balances of these people in 2006. Even the name of Kokilaben Ambani - mother of Mukesh and Anil Ambani - is supposed to have been in the list of account holders, although the balance in the account was nil.

Today's expose by Arvind Kejriwal has once again raised questions on the loyalty and honesty of the Indian politicians.

It remains to be seen how long the government can go on without ordering an all out probe into the corrupt practices of the people in high places within the government and outside.

One thing is certain - the Indian Economy is headed for a major shake down.

US markets tanked when Obama won!!!

Apparently the stock markets had gambled that Republican Party would beat Obama, and that is why the US stock markets fell by around 2%.

I actually found this reaction of the market forces surprising.

America has traditionally voted its Presidents power for a second term. There are very few instances when a US President was ousted after his first term.So, I think it was surprising when the markets reacted as if they had not expected Barack Obama to win.

Some experts on the television mentioned that the markets were reacting to the fiscal deficit and other economy related challenges the newly elected President is facing, but am unable to accept this discussion.

Even Mitt Romney would have faced the same challenges. And, given the financial mess the US is in since early 2008, I don't think even he would be in a position to do anything radical to change the country's fiscal condition.

Reliance v/s Arvind Kejriwal

Arvind Kejriwal's latest allegations against Reliance have rather serious implications for the Indian Economy.

The Allegations

Arvind Kejriwal has this time targeted the biggest industrial establishment of India - Reliance Industries Ltd. He has claimed that Mukesh Ambani used his financial clout to manipulate government policies and wrongfully renegotiate the price at which his company Reliance Industries sells gas to the government.He has even alleged that Reliance is infact blackmailing the government to increase the rate by more than 3 times.

He further charged that 2 ministers were moved out of the Oil Ministry for their stand against Reliance's request.

If the allegations are true then below are the Implications - As I see them

• There are ministers who are not willing to give into the pressure from biggies like Mukesh Ambani.
• The increased cost will be passed on to the common man in the form of higher taxes and / or tariffs.
• If the jump in prices, as sought by Reliance, goes through - the cost of electricity and fertilizers is going to shoot through the roof.
• Reliance will make a huge-huge profit. It is already making profits at the current prices - the entire threefold jump will be pocketed by the company.

If the allegation are not true then It will spoil the industrial environment of the country.

RBI reduces CRR, Sandy lashes New York

There have been two major events effecting our economy happened today...

First Event: RBI reduces CRR

RBI has infused about Rs 17500 crore into the system by reducing CRR by 0.25%. The news was not received very well by the bourses that were looking forward to and had actually factored in a reduction in the rates.

BSE tumbled about 200 points while NSE tumbled below the 5600 mark.

Second Event: Hurricane Sandy has lashed the East Coast of the USA

Hurricane Sandy  battered the East Coast of the USA. It has ravaged New York the world's biggest and busiest commercial center. Reports of several deaths have also started trickling in taking the toll higher with each report.Once Sandy passes, the actual reports of losses of property and life will start coming in.

Power outage has impacted more the 6 million people.

New York Exchange was shut down for the second consecutive day. Trading is expected to resume on Wednesday.

Cheque Bouncing could also lead to a cheating case also

In future, if you issue a cheque without sufficient balance in your account be careful, besides a cheque bouncing case you could also be tried for cheating.

Supreme Court of India, today, ruled that the two trials do not breach double jeopardy doctrine.

The decision was delivered by a bench of Justice B. S. Chauhan and Justice J. K. Khehar while dismissing an appeal for quashing a criminal case of cheating and breach of trust pending before a Chief Judicial Magistrate in Gujarat.

China may impose duties on US cars

China appears to be planning to impose duties on some cars imported from the United States (US). The move, being interpreted by a tit-for-tat by experts, has come after Barack Obama administration imposed duties on Chinese tires.

The duty war between the US and China is being seen as a big negative for the global automotive industry, which presently depends on China for its growth. If this duty war escalates any further it could serve as fuel to the fire, that the global economy is currently in.

Air India and Kingfisher Airlines in trouble

11 accounts of Air India and 10 accounts of Kingfisher Airlines were frozen by the Service Tax Department. This was done in view of default on service tax payments.

According to the Commissioner of Service Tax in Mumbai, Air India owes Rs. 150 crore while Kingfisher owes Rs. 70 crore. The commissioner further alleged that both had defaulted in paying in the money that they had already collected in the name of service tax from their customers.

Both companies are already badly debt-ridden.

It is reported that Vijay Mallya the liquor baron and promoter of Kingfisher Airlines, may be trying to sell Kingfisher House to raise funds, whereas the government owned Air India is expecting the Government of India to cough up the funds to enable it to survive.

The debt of Kingfisher is a whopping 12,000 crore, while Air India is sitting on a even bigger debt of 62,000 crore.

Rupee devalues - Stock Market tanks

The value of the Indian Rupee fell 1.6% today (21-Nov-2011) to close at 52.155 against the US Dollar, and the way things are poised it is likely to breach its all time low of 52.20 that it had touched on 3 March 2009.

This is likely to make imports expensive, and especially impact the oil imports which are already playing havoc with inflation.

Experts believe this has happened due to large scale exiting of the FIIs from the Indian Stock markets.

The stock markets in India tanked -

• the Bombay Stock Exchange (BSE) Sensitive Index (SENSEX) witnessed a fall of 425 points (2.6%) to close at 15946, just below the sentimental level of 16000.
• the NIFTY index of the National Stock Exchange (NSE) too witnessed a 2.6% fall (127 points) to close at 4778.

Similar, dismal trends were displayed by the European Stock Exchanges, also.

Is Indian Economy crumbling!

Indian economy has begun to show signs of fatigue. It is failing on growth and it is failing on inflation.

The IIP numbers have fallen to new lows. The growth was on 1.9% for September in contrast to the same period last year when the IIP growth stood at 6.1%. This is the lowest this figure has gone in the last two years. The other negative indicators are the state of our country's private airline companies. All are reporting losses. The crisis at Vijay Mallaya's Kingfisher is  the worst among the lot.

Even as industrial growth is falling, inflation has made life difficult for the common man, who in turn has started to mount pressure on the Government. RBI has repeatedly raised its repo and reverse repo rates in a bid to control the beast called inflation - that refuses to be tamed. Each time the "great" economists of our country release statements claiming that inflation will come down, the beast retaliates with an even bigger leap upward.

The signals being received from the overseas are also not very encouraging. The debt crisis that has been brewing in Europe is threatening to bloom into a full fledge recession - double-dip recession as some people prefer to call it. Time alone will tell whether the Union will manage to come out of the crisis or whether there will be no Union left at all.

Leaders are fleeing the scene. After a change in leadership in Greece, Italy's PM Berlusconi has submitted his resignation.

China Currency Bill passed by the US Senate

US has been voicing its concern for a long time over the way China has been using unfair means and manipulating its currency to the disadvantage of US businesses. It is said that the Chinese businesses have a 30% pricing edge over their US competitors due to the low yuan.

US lawmakers have reacted to this by proposing a bill that will allow them to punish Beijing for the manipulation.

The US Senate voted 63-35 passed the legislation to punish Beijing's currency manipulation that is often blamed in that country for the high rate of unemployment. Those against the bill have voiced their concern that the bill could go against the provisions of World Trade Organization. However, nobody has disputed the fact that the way China keeps its yuan low is unfair.

The bill needs to be passed in the House of Representatives before going to the US President.

Experts believe that if cleared the bill will trigger a large-scale trade war that will have large-scale consequences, especially in the economically troubled US and Europe.

Cabinet clears new mining bill

The Union Cabinet has today approved a new bill for mining in the country, in which the miners will have to share 26% of their profits.

The new bill which will have be presented in parliament for its approval, proposes that the coal companies must share 26% of their profits with the local folks. Other mining companies will have to share an amount equal to their royalties.

The proposal will help local communities implement ambitious development plans which could change the face of rural India like never done before, that is if the government can come up with an effective anti-corruption bill.

Rupee declines against the US Dollar

Trading currently at Rs 49.76 per dollar, the rupee has declined significantly over the recent months to its 28 month low.

RBI Governor D. Subbarao has said that the movement of the rupee has nothing to do with fundamentals the Indian economy. He added that the rupee declined due to the fall in confidence in the global markets. He said that the Reserve Bank of India will intervene only there is volatility or potential disruption to macroeconomic situation.

Rural and urban poverty lines - 781 and 965 respectively

A rural person needs Rs 765 per month while his urban counterpart requires Rs. 965 per month to live.

An affidavit to this effect was filed by Planning Commission in the Supreme Court in which it defined the poverty line at June 2011 price levels. It has said... the poverty line at June 2011 price level can be placed provisionally at Rs 965 per capita per month in urban areas and Rs.781 per capita per month in rural areas.

The affidavit by Planning Commission was filed in response to an order by a division bench of the Supreme Court requiring it to revise the norms of per capita amount looking at the price index of May 2011 or any subsequent dates.