r2i forum

As it has been noted in many threads, the general economic outlook of India and the US does influence our R2I/LIA decisions.

I'm sure we are all interested, even if fleetingly, in the economic outlook of India, whether we are LII or LIA, .

It'd be nice to have a thread to discuss topics, read articles about and or state opinions about the Indian economy and hence this thread.

The pitfalls of the 'economy game'
By Kaushik Basu
Professor of economics, Cornell University

Excerpts (Bold fonts added to draw attention to statements I found interesting)

"This will also be the year that FDI will exceed money that comes into India as portfolio investment.

Inevitably, there is mention in the press about how India has not only broken away from the relatively slow Hindu rate of growth but may actually be entering into a Confucian growth path."

"Xiamen airport, which is small by Chinese standards, is a top-class international airport, much bigger than Delhi or Mumbai and more handsomely endowed with shops and traveller facilities than any Indian air terminal.

The city of Xiamen seemed on an entrepreneurial high."

"Coming into India a traveller cannot but notice the gap - the poverty is visibly greater and the infrastructure palpably worse.

Yet it is evident that India also is on a materialistic high.

It is an irony of our times that if you want to get away from extreme materialism you may have to think of going to Europe or America.

Banks are like bustling bazaars with people seeking advice on where to invest their money and entrepreneurs seeking loans."

"India's industrial output growth rate reached 14% per annum by the end of last year - the highest since 1996.

Given that most of India's boom thus far has been in the area of services, this stirring of the industrial and manufacturing sector is reason for hope.

Since the country is starting out on a low base in manufacturing, the growth potential is large. And this sector also brings with it the potential for greater employment generation."

"It looks as if for the first time India could get into a sustained annual growth rate of nine to 11%, which would indeed be comparable to China.

It is important at this point to realise that the "economy game" is not like cricket or war.

Your opponent's loss does not mean your victory.

Typically, when another nation does badly, it is bad news for you too - the global economy is not a zero sum game.

Hence, India doing well should be good news for China, and vice versa."

"But even with all these caveats, there is no denying that the Budget of 2007-08 is coming at a propitious time, and the Indian economy could well be at the start of the best 20 or 25 years in its history."

Interesting article about INDIAN Economy

Hard Times Ahead?

http://www.financialexpress.com/fe_full_story.php?content_id=155997

[QUOTE]If the realty bubble bursts and the capital market goes into a deep correction, the impact is bound to slow down the growth of a wide cross-section of manufacturing companies. This, in turn, will have a domino effect on foreign portfolio inflows. While all this pain may indeed curb inflation, will it cool public anger over the rise in prices of staples such as rice, dal, wheat, milk, onions and potatoes? Their prices have risen anywhere between 30% to 200%, so the drop of a couple of percentage points in the overall inflation rate is hardly likely to reduce these prices substantially. Since the government?s panic about rising prices is heightened by forthcoming state elections, it would make far better sense to figure out ways of supplying these food essentials at controlled prices to lower income groups. While economists may sneer at such an inelegant solution, it is perhaps better than the alternative scenario projected by worried bankers, traders and select industrialists on condition of anonymity. Ironically, nobody wants to speak publicly about this scary picture for fear of offending either the central bank or the finance ministry.

Instead, they prefer to start preparing for tougher times and even a possible repeat of the debilitating slow down of the latter 1990s.

Macro fundamentals are robust: Economic Surve...

[quote]
ECO SURVEY ON MACROS

Economy "decidedly taken off" to higher growth
Challenge is to tame inflation without hurting growth
And ensure that everbody is invited
Inflation need not be the price for high growth
Infrastructure is improving; attracting global money
Merchandise imports do not suggest over-heating
There should be no let-up in fiscal-deficit control
Fiscal deficit should not be expanded to finance infrastructure
Inclusive growth is not low growth
Unemployment is increasing because growth is not high enough
Global issues are a concern, but do not pose a risk
[/quote]

The Trouble With India

The problems are even contributing to overheating in the economy. Inflation spiked in the first week of February to a two-year high of 6.7%, due in part to bottlenecks caused by the country's lousy transport network. Up to 40% of farm produce is lost because it rots in the fields or spoils en route to consumers, which contributes to rising prices for staples such as lentils and onions.

India today is about where China was a decade ago. Back then, China's economy was shifting into overdrive, but its roads and power grid weren't up to the task. So Beijing launched a massive upgrade initiative, building more than 25,000 miles of expressways that now crisscross the country and are as good as the best roads in the U.S. or Europe. India, by contrast, has just 3,700 miles of such highways. It's no wonder that when foreign companies weigh putting new plants in China vs. India to produce global exports, China more often wins out.

India ups interest rates to 7.75%

"The Reserve Bank of India increased rates to 7.75% from 7.5%, its highest level in almost four-and-a-half years.
The bank said it had been necessary to take "demonstrable and determined action" to tackle inflation, but the move came as a surprise to analysts."

No doubt the GoI is taking these measures to keep India competitive in the global market, as well as w/ the common man's interests in mind in the long run.

My thoughts are how this can affect the R2I'ers positively/negatively in the short run:

1) RE prices will come down or be in check and a good time for cash flush R2I'ers to enter purchase their primary residence.

2) Will prop up the sliding dollar against the INR

Comments please.

"My thoughts are how this can affect the R2I'ers positively/negatively in the short run:

1) RE prices will come down or be in check and a good time for cash flush R2I'ers to enter purchase their primary residence.

2) Will prop up the sliding dollar against the INR

Comments please.
"

Well, RE has seen the good days and still doing OK now even with increasing interest rates. But here is my prediction:
With the next democrat govt in US, the IT industry in India will be hit mildly as H1B visas will be increased drastically(thanks to dedicated lobbys) and that will reflect more on the jobs that will get outsourced. There may be layoffs also that will spill over into the RE. I expect the prices to fall further by 2009-2010. Good time for folks in the sidelines to get in. If anyone wants to make some profits out of their investments, my take on it is, this is the time.

Again, this is my own prediction and encourage folks to use their own judgement and analysis regarding RE investment. I also expect the dollar to prop up against rupee.