Friday, June 28, 2013

India's GDP Shrank to $1.84 Trillion in 2012-13 in US Dollar Terms

Sharp fall in Indian currency against the US dollar and slower economic growth have caused India's GDP for Fiscal  Year 2012-13 to shrink in US $ terms to $1.84 trillion from $1.87 trillion a year earlier. The Indian rupee has plummeted from 47.80 in 2012 to 54.30 to a US dollar in 2013, according to Business Standard. Since this report was published in Business Standard newspaper, Indian rupee has declined further against the US dollar to Rs. 59.52 today. At this exchange rate, India's GDP is down to $1.68 trillion, about $200 billion less than it was in  Fiscal 2011-12.

Pakistan GDP Per Capita 1990-2012 Source: World Bank

Indian GDP Growth Rates 2004-2013
India's economy grew by 5.0% in 2012-13,  its slowest annual rate in a decade, down from 6.2% last fiscal year. In the fourth quarter ending in March, gross domestic product grew by 4.8% year-over-year, slightly higher than the previous quarter when it expanded by 4.5%, according to Indian government data.
In the January-March quarter, the manufacturing sector increased output by just 2.6%, while production in the country's mines shrank by 3.1%.

Global ratings agency Standard and Poor's warned in May that India faces at least "a one-in-three" chance of losing its prized sovereign grade rating amid new threats to economic growth and reforms. India's BBB-minus investment rating is already the lowest among BRICS and cutting it to "junk status" would raise the country's hefty borrowing costs. The Organisation for Economic Cooperation and Development (OECD) this week lowered its projection of India's GDP growth this year to 5.3%, from 5.9% earlier.

Meanwhile,  Pakistan's economy continues to struggle with its annual GDP rising just 3.6% to $252 billion ($242 billion at Rs. 100 to a USD exchange rate)  in fiscal 2012-13, according to Economic Survey of Pakistan 2012-13 estimates based on 9 months data. The country is facing militancy and energy shortages impacting its economy.

Other world economies have also slowed down. US is slowly recovering but Europe is still struggling. BRIC growth rates are also slowing. China is slowing with its workforce aging and shrinking. In India, the slow pace of reform is hurting its growth, and Brazil and Russia are struggling with slowing demand for their export commodities.

Africa has replaced Asia as the continent with most of the world's fastest growing economies, according to The Economist magazine. The top 10 fastest growing economies in the world are: Macau, Mongolia, Libya, Gambia, Angola, Bhutan, China, Timor-Leste, Iraq and Mozambique.

China and the US , the two largest economies, still continue to be the bright spots and the main locomotives of the world economy, offering hope of global economic recovery.

Related Links:

Haq's Musings

India's Hyphenation: India-Pakistan or India-China?

India's Share of World's Poor Jumps as World Poverty Declines

Forget Chindia--Chimerica Will Rescue the World

World Bank on Poverty Across India

Superpoor India's Superpower Delusions

Are India and Pakistan Failed States? 

India Home to World's Largest Number of Poor, Hungry and Illiterate

India Leads the World in Open Defecation

India Tops in Illiteracy and Defense Spending

Indians Poorer than sub-Saharan Africans


Anonymous said...

umm the usd has been strengthening this year not just India

EU,Brazil,Turkey,Japan,UK a large bunch of countries sharank in USD terms.

I think even Pakistan shrank in USD terms...

Anonymous said...

Hopefully India will grow to 6% this year due to good monsoons and some uptick in government investment plus increasing exports due to the low rupee and appreciating yuan which makes low to mid end goods produces both by India and China more favourable to source from India atleast to the extent there is spare capacity in India.

If you look at indian balance of trade the deficit is almost all due to Gold and crude oil imports both of which are set to reduce in price this year due to global slowdown.India exports more manufactured goods than it imports.

In services it is a surplus.

Then there is remittance the highest in the world.

So on the whole worrying but not catastrophic CAD is reducing quarter by quarter.

Hopewins said...

It's actually worse than you say. Their GDP in INR was 100 Trillion Rupees at the end of Fiscal Year 2012-13.

The current exchange rate is hovering around 60 INR/USD.

This means the GDP at the end of FY 2012-13 was 100/60 = 1.66 Trillion$.

Riaz Haq said...

HWJ: "This means the GDP at the end of FY 2012-13 was 100/60 = 1.66 Trillion$"

Actually it's a bit higher...about $1.68 trillion based on Rs. 100.2 trillion divided by 59.52

Hopewins said...

^^RH: "Actually it's a bit higher...about $1.68 trillion based on Rs. 100.2 trillion divided by 59.52"

Yes. And our GDP FY 2012-13 is now given by GOP as 23.81 Trillion PKR.

At exchange rate of 99.5 PKR/USD, we get out GDP as 240 Billion$

This means that we are CATCHING UP with India in nominal dollar terms since their economy is now only 7 times ours (instead of 8 as it was before).

The difference between savings & investment rates still continues though. India invested 33% of their GDP, whereas we invested only 12% of our GDP. India saved 30% of their GDP, while we saved only 9%. This is the ELEPHANT in the room that affects medium and long-term growth trends.

Hopewins said...

^^RH: "Global ratings agency Standard and Poor's warned in May that India faces at least "a one-in-three" chance of losing its prized sovereign grade rating amid new threats to economic growth and reforms. India's BBB-minus investment rating is already the lowest among BRICS and cutting it to "junk status" would raise the country's hefty borrowing costs."

It is not so simple.

Your statement is TRUE for our country, as our EXTERNAL GOVERNMENT-debt is 21% of GDP and 35% of all Government debt.

So we are heavily exposed to foreign ratings because our low savings forces GOP to borrow from abroad.

In India's case, their EXTERNAL GOVERNMENT-debt is 2% of GDP and 3% of all Government debt.

Their government is less exposed to foreign ratings because their high savings allows their government to borrow locally.

The difference is HUGE. We are at the mercy of the West/US. India is relatively more independent-- because of their higher savings depth.

Hopewins said...

Look at your graph:

What does it tell you?

A)Fastest growing economies are RESOURCE economies (plus China).

B)Fastest shrinking economies are Euro economies (plus Sanctioned-Iran & Conflict-Syria)

(B) is a long-term thing. The Euro system has fatal flaws and will take very long to fix.

(A) is dependent on the marginal purchases from the Chinese investment boom. If China applies the brakes on its investment binge, resources prices will fall and then all those resources economies could see their projected growth-rates EVAPORATE.

Riaz Haq said...

Here are a couple of excerpt from Pakistan Economic Survey 2012-13 Highlights:

The per capita income in Rupee term has increased from Rs. 118,085/- to Rs. 131,543/- in outgoing fiscal year as compared to last year. In dollar terms it increased from $ 1,323 to $ 1,368 in 2012-13 as compared to last year. Per Capita Income in dollar terms grew at a rate of 3.4 percent in 2012-13 as compared to 3.8 percent growth last year.
Total population is estimated 184.35 million during the year 2012-13 however, in 2011-12 the
population was 180.71 million.

This puts total Pak GDP in US dollar terms at $242 billion at Rs 100 to a US dollar exchange rate.

Iqbal Singh said...

Applying current exchange rate to figure out GDP is a tricky business.
Economics 101:
GDP is the gross domestic product of all the goods and services produced in the country.
GNP is the gross national product of all the goods and services produced in the country and its firms located elsewhere.
RER or real exchange rate is used with the GDP deflator to effectively calculate the PPP unlike the market exchange rate which is speculative or dependent of money supply. For example, the very mention of ending quantitative easing or printing less money in lay terms by the US makes the USD more expensive relative to other currencies.
Lastly, the current exchange rate is not used to calculate GDP because not all currencies belong to the same exchange rate regime. In other words currencies could be free floating, fixed or hybrid.

IMF or WORLD BANK do a thorough job and their data is more reliable.

Ramakanth said...
$238 billion pakistan GDP
$1972 billion india GDP

$540 billion pakistan GDP
$5041 billion india GDP

2013 iMF data mapper

Riaz Haq said...

Ramakanth: "
$238 billion pakistan GDP
$1972 billion india GDP

The figures in the IMF DataMapper are ACTUAL for 2012 and PROJECTED for 2013.

Well, the reality in India's case, as reported by Economic Survey of India, has turned out to be much worse than IMF projected because of sharp decline in the Indian rupee hitting Indian nominal GDP as discussed in my post.

The actual nominal GDP figures per Economic Surveys of India and Pakistan for 2013 are as follows:

India: $1.68 Trillion at INR 59.52 to USD

Pakistan: $242 Billion at PKR 100 to a USD

Riaz Haq said...

Here's an excerpt from The Economist Magazine on India's Economy:

The prospects of a revival have only been complicated by the possible winding down of quantitative easing (QE) in America. India has been a voracious consumer of the hot money that has sloshed around the world in recent years, using it to plug its balance-of-payments gap. On June 26th the rupee hit a record low of 61 per dollar. It has been the weakest emerging-market currency in the past month. Credit-default swaps on State Bank of India, a proxy for the riskiness of India’s government debt, have risen towards the levels of a year ago. India is the riskiest big emerging economy on this measure. Indian officials have been wheeled out to utter the dreaded words: “Don’t panic.”

Rupeeasy does it
Are the officials right? An apocalyptic scenario is that equity investors and multinational firms head for the exit. They form the vast bulk of the stock of foreign capital in India. This is unlikely. India is still growing faster than most countries and plenty of outsiders remain beguiled. In April Unilever offered $5 billion to buy out minority shareholders in its Indian unit. Net outflows of equity investments have been small so far.

Foreign bondholders are far less loyal. They have withdrawn $6.5 billion since mid-May. But the stock of external debt is a lowish 21% of GDP. Providing existing equity investors and multinationals stay put, India can probably handle a debt-buyers’ strike. Foreign reserves are 1.6 times likely financing requirements in the next year (defined as the current-account deficit plus short-term debt).

And although the world has got less forgiving as the end of QE looms, India’s stability has improved in some ways since last year. The government’s one unambiguous success is the public finances. Borrowing is still high but under Palaniappan Chidambaram, the finance minister since last August, it is no longer reckless. Control of spending and cuts in subsidies of fuel should mean the overall deficit in the year to March 2014 is 7% of GDP, according to Chetan Ahya of Morgan Stanley. For a while a deficit of 10% seemed possible. At this lower level India’s ratio of debt to GDP should be stable.
If deep reform is off the agenda, the government can still try the old approach of cranking the bureaucratic machine harder. Mr Chidambaram, once viewed as insufferable, is now praised by Mumbai’s tycoons for taking notes as they grumble about stalled projects. Since December a new committee headed by the prime minister, Manmohan Singh, has tried to push forward projects tangled in red tape: Mr Singh now personally reviews the rules for digging mud near road projects, for instance. But the committee has not made a meaningful difference. On The Economist’s count, the fresh capital investment it has sanctioned (rather than discussed or delegated to other bodies) amounts to 0.4% of GDP, spread over several years....

Riaz Haq said...

HWJ: "..(Pak) EXTERNAL GOVERNMENT-debt is 21% of GDP and 35% of all Government debt.....In India's case, their EXTERNAL GOVERNMENT-debt is 2% of GDP and 3% of all Government debt."

Here's what The Economist says about India's external debt:

".. the stock of external debt is a lowish 21% of GDP"

So India's total external debt is about the same percentage of its GDP as Pakistan's of its GDP.

Anonymous said...

".. the stock of external debt is a lowish 21% of GDP"

This is TOTAL debt NOT government debt.

This is because of mega corporations like TATA borrow abroad BUT they also get >50% of their revenues abroad think corus steel Jaguar land rover etc etc and have bond ratings better than India's sovereign debt rating.

Riaz Haq said...

Anon: "This is TOTAL debt NOT government debt."

It can still precipitate a debt crisis. Read the following:

1. “We are becoming little more dollarised than we were earlier. We need to curb this tendency, $390 billion of debt against $290 billion Fx reserves is a ratio in the recent times at one of the lows and that is the external debt numbers, external debt situation should get more focus now,” said Samiran Chakraborty of Standard Chartered Bank in an interview with CNBC-TV18.

2. Foreign institutional investors have pulled out a record $7.53 billion —Rs 44,162 crore with the dollar at Rs 60 — from the Indian debt and equity markets this month, more than double the previous high of $3.53 billion in October 2008 when India suffered the after-effects of the financial crisis triggered by the collapse of Lehman Brothers in the US.

FIIs sold a net $5.68 billion (Rs 33,135 crore) in debt and a net $1.85 billion (Rs 11,027 crore) in equities. While the debt outflow is the highest in Indian capital market history, the outflow from equities is the highest since October 2008. FIIs sold a net Rs 15,347 crore in equities in October 2008 as against Rs 11,027 crore this month.

Hopewins said...

^^RH: "$390 billion of debt against $290 billion Fx reserves"

So NET external debt for India is 100 Billion$ or 6% of GDP.

Our statistics:
1) Forex Reserves 11 Billion$
2) External Debt is 55 Billion$

Therefore, our NET external debt is 44 Billion$ or 19% of GDP.

Also keep in mind that India's external debt is 90% corporate and is used for acquisition of foreign assets. So there is a true dollar income stream against their external debt. In our case, 95% of our external debt has been used GOP to fund its budget deficit, and GOP does not have access to dollar income to service the debt. In other words, 90% of India's external debt is "borrow to produce", whereas 95% of our external debt is "borrow to consume".

The debt crisis you speak of is around the corner-- but for us and not for India.

Until GOP fixes the structural issues with our economy (including terrorism), we will keep lurching from one crisis to another.

Riaz Haq said...

HWJ: "So NET external debt for India is 100 Billion$ or 6% of GDP."

India has been a huge beneficiary of US Fed's easy money policy. It's enjoyed hot money (FII) inflows which could disappear with any tightening by Bernanke.Rapidly falling rupee could also scare away portfolio investments.

And India's short term debt is huge...with $172 billion due by March 2014.

India could very well face a serious debt crisis with any major change in US Fed policy.

Mahesh said...

Another 'side effect' of QE in the US means Indian Exports of Pharmaceuticals, Textiles, Auto Parts, Soft Ware and Engineering Goods will become cheaper due to currency fluctuations.

Software/IT exports alone will touch $95 billion in 2013-14 if rupee stays around $60-62 per NASSCOM. Remittances will be up 15% to around $75 billion because expats will take advantage of weaker rupee.

Riaz Haq said...

Here's a Reuters' report on GS analyst calling investments in emerging markets a "costly mistake":

LONDON, July 4 (Reuters) - Investors who wrongly called time on U.S. economic supremacy during the financial crisis are set to pay a hefty price for betting too much on the developing world, according to a top Goldman Sachs strategist.

The U.S. investment bank helped inspire a twenty-fold surge in financial investment in China, India, Russia and Brazil over the past decade, its chief economist popularising the term BRICs in a 2001 research paper.

Sharmin Mossavar-Rahmani, in charge of shaping the portfolios of the bank's rich private clients, has been arguing against that trend for four years, however, trying to persuade investors and colleagues they were safer sticking with the developed world.

The past six months has substantially vindicated that view. China's boom is finally wobbling under the weight of economic imbalances including an undervalued currency, and emerging stock markets are down 13 percent compared to an 11 percent rise in the U.S. S&P 500 index over the same period.

"Many investors and market commentators have been too euphoric about China over the last decade and this euphoria is finally abating. Many just followed the herd into emerging markets and over-allocated to many of the key countries," she says.

"It is easier to be part of the herd even if one is wrong, than stay apart from the herd and be right in the long run."

The net gains for U.S. stock markets may just be a taste of the reassertion of western dominance that may emerge in the next few years, Mossavar-Rahmani argues.

Structural advantages like abundant mineral wealth, positive demographics and, most importantly, inclusive, well-run political and economic institutions make the United States the best bet going forward, she says.

"(Emerging market) investors are taking on so many risks compared with the U.S. where the risk is largely cyclical rather than structural," she says.

Many of the cyclical issues affecting the U.S. such as high levels of debt, are also on their way to being resolved.

"One thing that normally puts investors off from increasing their U.S. holdings is the long term debt profile, but we think the magnitude of the work done to address this has been underappreciated by investors," she says.


The idea that authoritarian countries are less effective than open economies like the U.S. at incentivising entrepreneurship and innovation is long accepted in academia.

Daron Acemoglu and James Robinson laid out the case for doubting the emerging power of China and others in a book 'Why Nations Fail' last year, arguing poor institutions that entrench inequality will hamper a country's path to prosperity.

But this view was largely put aside by professional investors who allowed themselves to be swept up in a "mania" about the rewards up for grabs in emerging markets, especially China....

Riaz Haq said...

Here's a Hindu newspaper report on Indian corporate foreign debt:

July 8, 2013:
India’s international investment position (IIP) saw significant deterioration in the year-ended March 31, 2013. The country’s net liabilities to other countries rose by $57.8 billion to $307.8 billion over the course of the year. This caused the net IIP to worsen from a negative 14 per cent of GDP to a negative 16.7 per cent.

The International Investment Position compares what India owes to entities located overseas (liabilities) relative to what it is owed by foreign entities (assets). In recent years, India’s liabilities have been expanding while assets have stagnated.


Liabilities have soared on the back of exporters taking more short term credit, and loans and deposits flowing in from overseas. A break-up of the country’s international liabilities indicates that overseas trade credit, loans and deposits extended to India, grew by 13.8 per cent in 2012-13 from 2011-12 levels. This amounted to 18.4 per cent of GDP in March 2013, up from 16.8 per cent in 2012-13.

This was a weak year for inbound foreign direct investments, which grew only by 5.1 per cent. Portfolio investment expanded by 10.4 per cent during the year. This was mainly in the form of equity inflows.

In contrast, Indian companies remained rather cautious about investing across the border. International assets — which capture investments in foreign currency — stagnated at 24.3 per cent of GDP compared to 24.5 per cent a year ago. This was driven by the 0.8 per cent decline in the foreign exchange reserves.

Portfolio investments by Indian companies fell by 6.6 per cent, but direct investments overseas rose by 6.3 per cent. This depicts the value of the country’s direct investment abroad, portfolio investments, equity and debt security investments, trade credits, loans and reserve assets, among others, as a proportion of its cumulative economic output in a given year.

The ratio of net foreign liabilities to GDP is regarded as an indicator of default risk. This indicates that the country’s liabilities to external parties have been rising as a proportion of its economic output.

Hopewins said...

^^RH: "Structural advantages like abundant mineral wealth, positive demographics and, most importantly, inclusive, well-run political and economic institutions make the United States the best bet going forward, she says."

Are these inclusive, well-run economic institutions the same as the failed or bailed-out banks, finance institutions, insurance companies like AIG, WaMU, Freddie mac, Lehman, GM, Goldman etcetera

Are these inclusive, well-run political institutions the same as the one that now in perpetual gridlock and brinkmanship over every little thing in Congress?

Can you comment?

Hopewins said...

^^RH: "Here's a Hindu newspaper report on Indian corporate foreign debt..."

This is not solely about debt. It is about debt (fixed and bonds) PLUS equity. And it is not solely about corporate matters, it also includes banking capital and government debt.

Please correct yourself.

If you need to know India's debt situation by itself, and also what portion of the Net International Investment Position is actually debt, you can go directly to the source:

Indian said...

Total Ignorance. GDP is not calculated on daily dollar exchange basis but on long term average basis. India's rupee GDP is 114+ trillion now. So, it is $2 trillion as long as the average is about 57. But, average is lower than 57. Currency fluctuation is nothing new. As it goes around, also comes around. In June 2012 it was 57, some time after it was 49, in may 2013 it was 53 , in June 2013 it was almost 62, now it is 59.

Riaz Haq said...

Indian: "Total Ignorance. GDP is not calculated on daily dollar exchange basis but on long term average basis. India's rupee GDP is 114+ trillion now. So, it is $2 trillion as long as the average is about 57."

Nominal GDP is calculated based on exchange rates. Indian rupee has been in a long-term decline for a couple of decades...the long term down trend is not about to reverse itself anytime soon, especially because of India's growing twin deficits.

Riaz Haq said...

Here's Reuters on how India is dealing with record slide of Indian Rupee against US dollar:

India is considering calling on its millions of non-resident citizens to help reverse a record slide in the rupee and does not favour the idea of a global sovereign bond at this time, senior government officials told Reuters on Monday.

However, the government strongly denied having ruled out a sovereign bond issue and said in a statement that "all options are on the table".

The officials, who spoke earlier on condition of anonymity, said India was running out of options and time to revive the currency and fund a record current account deficit but equally policymakers were wary of sending any distress signals to international markets.

Issuing a global bond might send such a signal, so instead policymakers will focus on attracting funds from Indians living abroad, such as by raising deposit rates in India or issuing bonds specifically designed for them - repeating measures carried out in 1998 and 2000 to steady a weak rupee.

The officials declined to be identified because of the sensitivity of discussing government deliberations. They were not immediately reachable for further comment.

The officials said other options included an increase in RBI policy rates and allowing select firms to raise capital overseas.

"All have agreed that it is not a time for India to issue sovereign bonds at this stage," one official said, adding that the central bank agreed with that position too.

"We do not have much options. Whatever has to be done, will be done in the next few weeks," the official said. "We have a window of only few weeks," he said.

"The government could ask banks to raise interest rates to attract an additional $15-20 billion," he said.

The news prompted the 10-year benchmark 7.16 percent, 2023 bond yield to jump 8 basis points to 8.08 percent, while the rupee ticked lower on the news that a global bond was not being considered right now.
India has the second-largest diaspora in the world, with a community estimated at more than 25 million, the Ministry of Overseas Indian Affairs says.

Central bank figures show non-resident Indians (NRIs) held $58 billion in dollar deposits in India as of September 2012, plus local currency deposits worth 3 trillion rupees.

Since the rupee's rapid decline, inflows of money from NRIs have risen, the government official said. The currency traded at around 59.70 per dollar on Monday to be about a percent above its record low of 61.21 hit on July 8.

"The rating agencies are already watching us closely, we have to manage the situation in a subtle manner," he said.

The government's first line of defence therefore would be to woo non-resident Indians, sources said.

NRIs lapped up bonds and deposits issued by India in 1998 and 2000, helping bridge massive gaps in India's funding needs. Now, with a current account deficit at a record 4.8 percent of economic output, the country needs all the funding it can get.

The government sources said India could consider raising the repo rate, the central bank's main policy rate, if the rupee falls towards 61-62 to the dollar, citing recent meetings between the government and the RBI.

The government is also considering allowing select companies such as state-run India Infrastructure Finance Co Ltd or IDFC Ltd (IDFC.NS) to raise up to $4 billion in debt abroad, they said.

The first official said state-owned banks are likely to be asked to raise funds from overseas markets to meet their capital needs.

"Even if 5-7 banks raise $1 billion each, it will help us," he said.

Riaz Haq said...

Here's India Today on Goldman Sachs' downgrade of Indian economy:

US investment bank Goldman Sachs on Thursday downgraded its ratings on Indian stocks, calling them underweight as the rupee continued to tumbling against the dollar and economic growth remains sluggish.
The bank said the external funding environment has also become challenging causing the Reserve Bank of India (RBI) to tighten liquidity.
The bank also expected corporate earnings to grow at 5 per cent for the current fiscal year and 11 per cent for the next year, below consensus estimates.
"Recent activity data in the second quarter of 2013 has been sluggish with no signs of a pick-up in investment demand... Against a backdrop of lower growth, tighter liquidity and rising macro vulnerabilities, we downgrade India to underweight," the bank said.
"Our forecast for the dollar-rupee remains at 60 for the year but we expect continued weakness to 65 through 2016. The rupee remains inexpensive relative to our fair value estimate of dollar-rupee 65 which also suggests the currency can continue to weaken," it said.
"We even think that there is a greater probability of the RBI keeping liquidity tight even beyond 6 months, and hiking policy rates as well, rather than cutting them," it said.

Read more at:

Riaz Haq said...

With Indian rupee's free fall to 61.10 to a US dollar, Indian GDP in USD terms is down to about $1.64 trillion based on Rs. 100.2 trillion divided by 61.10

Anonymous said...

All Indians should start buying gold, seriously... When Indian debt bubble collapses India will be in a bad state.. Im advising you to

Riaz Haq said...

Anon: "All Indians should start buying gold, seriously... When Indian debt bubble collapses India will be in a bad state.. Im advising you to"

Indians' love of gold is in large part responsible for worsening current account deficit and pressure on rupee. That's why Indian govt is rightly restricting gold imports.

Riaz Haq said...

Here's Hindustan Times on Indian stocks collapse:

Stung by the rupee hitting historic low, stock markets on Tuesday collapsed on all-round selling with the S&P BSE Sensex nosediving by 449.22 points to end below the 19,000-mark, edging India out of the trillion dollar club.

Sentiment was extremely poor on Dalal Street as the rupee plunged to record low of 61.80 against the US dollar, stoking fears of a higher current account gap as import costs surge.

The Bombay Stock Exchange 30-share barometer resumed weak and continued its downslide to end at 18,733.04, a steep fall of 449.22 points or 2.34 %. In the last ten trading sessions, Sensex has fallen in nine days while yesterday has managed to settle in positive terrain.

After today's plunge and the rupee's decline, India's market capitalisation stood at Rs. 60.18 lakh crore, which translates to $989 billion at exchange rate of 60.8 versus the dollar. The rupee retreated from record lows to trade at 60.8 levels at 1710 hours.

Dipen Shah, Head of PCG Research, Kotak Securities said: "Markets ended sharply lower on the back of continuing concerns about the rupee and some disappointing results. The rupee traded at a new low and that caused concerns in market." ...

Riaz Haq said...

Jim Rogers: Why I’m shorting India

Hedge fund manager Jim Rogers, who moved to Singapore in 2007 because he thought the centre of the world is shifting to Asia, says India is set to miss out on the Asian century. The chairman of Rogers Holdings says that if there is one country an individual must visit, it has to be India for its “spectacular sensory feast, beautiful, food, colour and religions”, but it is also the worst country to do business in. Rogers also slammed the Indian government’s recent curbs on gold imports, saying Indian citizens had no choice but to buy the metal because they had very little faith in investing in other sectors of its economy. In an interview, Rogers spoke about the financial crisis and his bets for the future and defended his decision to be extremely negative about India in his just-released book Street Smarts: Adventures on the Road and in the Markets.

Riaz Haq said...

Here's an excerpt of a Reuters' story on India rupee hitting a new record low:

The central bank's capital outflow restrictions came a day before the dollar spiked after U.S. jobless claims data on Thursday suggested an early end to the Fed's asset purchases.

That prospect looms over India at a time when it is suffering from a current account deficit that hit a record high of 4.8 percent of gross domestic product and an economy growing at a decade low of 5 percent.

Foreign investors have already sold a net $11.6 billion of Indian debt and equities since late May, sparking fears of continued weakness.

India's main NSE index .NSEI fell 4 percent at one point on Friday, while benchmark 10-year bond yields surged to their highest since May 2012 as prices headed for their worst week in four-and-a-half years.

UBS strategist Manik Narain said that as emerging central banks tightened policy to defend their currencies, stocks would be affected, something that is already happening in India.

"India is losing control over the currency and you are starting to see the weakness transmitting to stock markets. There could be a self-perpetuating cycle where currency weakness flushes out equity investors and that takes the rupee weaker still."


The RBI's new measures also included further capping the amount that companies can invest abroad.

But overseas investments from India had already been on the wane, averaging a monthly $400 million in the first half of the year from $710 million in 2012, according to DBS data.

The biggest fear is that the RBI's action could be the start of a far stronger move to restrain capital.

"The steps taken so far only target residents, but if this raises expectations that they could potentially resort to capital controls targeted at non-residents, that could have adverse near-term implications for capital flows," HSBC's Chief economist for India and ASEAN Leif Eskesen said.

"It will, therefore, be critical to tread very carefully when it comes to capital controls, to anchor expectations, and also not use it as a substitute for more appropriate and effective measures," Eskesen said in a note to clients.


As policy makers struggling to find a solution for the rupee's falls, investors expect more weakness ahead. Overseas investors betting via one-month offshore non-deliverable forwards quoted the rupee trading at 62.46, while onshore bets see the rupee at 62.35 within the month.

Meanwhile, a Reuters poll on Thursday showed short positions in the Indian rupee have hit the highest in two months.

At heart of India's failed defense of the rupee so far is that none of the measures unveiled so far have given markets assurance that the country can attract foreign flows in an increasingly difficult global environment.

India last month unveiled plans to further ease restrictions on foreign direct investment (FDI) but previous measures have had mixed results. FDI fell to $36.9 billion in the fiscal year ending in March from $46.6 billion the previous year.

This week it announced measures to attract near-term capital inflows, including by spurring state-run companies to sell debt abroad and raising funds from Indians abroad.

Riaz Haq said...

India on verge of financial crisis, says The Guardian:

The Reserve Bank of India (RBI) in Mumbai. The country is facing its own financial crisis. Photograph: Vivek Prakash/REUTERS
India's financial woes are rapidly approaching the critical stage. The rupee has depreciated by 44% in the past two years and hit a record low against the US dollar on Monday. The stock market is plunging, bond yields are nudging 10% and capital is flooding out of the country.

In a sense, this is a classic case of deja vu, a revisiting of the Asian crisis of 1997-98 that acted as an unheeded warning sign of what was in store for the global economy a decade later. An emerging economy exhibiting strong growth attracts the attention of foreign investors. Inward investment comes in together with hot money flows that circumvent capital controls. Capital inflows push up the exchange rate, making imports cheaper and exports dearer. The trade deficit balloons, growth slows, deep-seated structural flaws become more prominent and the hot money leaves.

The trigger for the run on the rupee has been the news from Washington that the Federal Reserve is considering scaling back - "tapering" - its bond-buying stimulus programme from next month. This has consequences for all emerging market economies: firstly, there is the fear that a reduced stimulus will mean weaker growth in the US, with a knock-on impact on exports from the developing world. Secondly, high-yielding currencies such as the rupee have benefited from a search for yield on the part of global investors. If policy is going to be tightened in the US, then the dollar becomes more attractive and the rupee less so.

But while the Indonesian rupee and the South African rand are also feeling the heat, it is India – with its large trade and budget deficits – that looks like the accident most likely to happen. On past form, emerging market crises go through three stages: in stage one, policymakers do nothing in the hope that the problem goes away. In stage two, they cobble together some panic measures, normally involving half-baked capital controls and selling of dollars in an attempt to underpin their currencies. In stage three, they either come up with a workable plan themselves or call in the IMF. India is on the cusp of stage three.

Mayraj said...

$170 billion in domestic loans, I hope.
What is Chidambaram doing? Sounds like he is sleeping.

Pavan said...

$170 billion due next year is the external debt. The internal debt is about 600 billion dollars. Just the interest on the debt is 60 billion dollars.

Mayraj said...

But foreign exchange is only 280 billion dollars.

Riaz Haq said...

Indian rupee continued its downward spiral...down 4.4 percent to a record this week in its worst performance since 1993 on signs the U.S. is getting closer to reducing stimulus that fueled demand for emerging-market assets.

At INR 65 to a US $, India's 2012-13 GDP is down to $1.54 trillion....Rs. 100.2 trillion/65.

#RBI actions too little too late as #India 's #financialcrisis intensifies. 1990s Asia currency crisis being repeated?

Riaz Haq said...

Here's Wall Street Journal quoting BRIC coiner Jim O'Neill as saying “If I were to change it, I would just leave the ‘C’:

SAO PAULO–Former Goldman Sachs Asset Management Chairman Jim O’Neill, who coined the BRIC acronym describing four burgeoning emerging market countries, stands by the term he invented more than a decade ago, but admits that three of the countries have disappointed him in recent years.

The acronym created in 2001 groups Brazil, Russia, India and China, and has become a reference for a perceived shift in economic power toward developing economies.

“If I were to change it, I would just leave the ‘C,’” Mr. O’Neill said in an interview. “But then, I don’t think it would be much of an acronym.”

Economic growth in other BRIC countries has been disappointing, and the economic outlook for developing economies in general has changed in the last few years amid the end of a commodities boom and a slowdown in Chinese growth–which nevertheless remains high compared with that of its counterparts.

Meanwhile, signs of a recovery in the U.S and expectations the Federal Reserve will soon reduce its bond-buying program have helped strengthen the U.S. dollar, sucking money out of emerging markets and putting even more pressure on their less developed economies.

It has become “fashionable” to say the developed world is recovering while emerging markets are all slowing down, Mr. O’Neill said. “But what people don’t understand is the size of China,” he added.

The economist said that if China’s economy grows 7.5% this year, as he expects, that would create an additional $1 trillion in wealth, in U.S. dollar terms. “For the U.S. to contribute at the same level, it would have to grow around 3.75%,” Mr. O’Neill said.

Economists currently expect the U.S. economy to expand 1.5% in 2013, down from 2% projected in May, according to a recent survey by the Federal Reserve Bank of Philadelphia.

From 2011 to 2020, Mr. O’Neill said he has assumed average growth for the BRIC countries of 6.6% a year, less than the 8.5% average in the previous decade. Most of it up to now has come from China.

India has been the biggest disappointment among the BRIC countries, while Brazil has been the most volatile in terms of investor perceptions, the economist said.

“Between 2001 and 2004, many people told me I should never have included Brazil. Then, from 2008 to 2010, people told me I was a genius for including Brazil and now, again, people say Brazil doesn’t deserve to be there,” he said.

Brazil’s economic growth, which reached 7.5% in 2010, has been weak since then in spite of multiple government stimulus measures. The country seems doomed to growth of 2% or so in both 2013 and 2014, according to economists’ forecasts.

Brazil’s rapid growth in 2010 raised expectations, but many people forgot that the country is vulnerable to big moves in commodities prices, Mr. O’Neill said.

Another problem, he said, is that private investment remains a small share of the country’s gross domestic product. Brazil’s investment rate has been stuck at around 18% of GDP, the lowest level of any BRIC country, for a decade.


“They should only worry if there’s a pickup in inflation expectations; otherwise, they should relax,” he said, before the central bank late Thursday unveiled a massive intervention program to provide relief for the currency.

Brazilian inflation is currently 6.15%, close to the 6.5% ceiling of the central bank’s target range for 2013.

Even in the face of weak growth, Mr. O’Neill says he doesn’t plan to add or subtract letters from his famous acronym.

“If, by the end of 2015, there is persistent weak growth in Brazil, India or Russia, then I might,” he said, noting, however, that he expects Brazil to surprise positively in 2015, possibly even in 2014.

Anonymous said...

The relentless rout of the Indian rupee continued with the currency of the Asia’s third largest economy breaching the key level of 66.00 to the dollar on Tuesday, portending that its abysmal plunge to 70 is well nigh imminent.
The rupee’s steep plunge to a new all-time low of 66.24 from 64.30 on Monday was partly on fears over a US-led military strike in Syria, which could push oil prices higher globally, even as investors became more nervous over the astronomical cost of a new move by New Delhi to provide subsidised food to millions of Indians.

The inexorable dive of the rupee did little to cheer the bewildered non-resident Indians in the Gulf who are caught in a paradoxical situation with those who remitted the money over the past few weeks ruing over their loss as the fall of the currency continued unabated.

In 10 weeks or so, the partly convertible Indian currency lost 22 per cent of its value against the dollar-pegged dirham — from just over Rs14 per dirham in May to Rs18.21 on Tuesday.

The new bout of alarm over India’s fiscal deficit in the wake of the $20 billion food security plan eclipsed an announcement by Finance Minister P. Chidambaram that the government had approved infrastructure projects worth $28.38 billion, a step aimed at reviving economic growth and shoring up investor confidence.

Despite Chidambaram’s promise on Tuesday that the government would meet its fiscal deficit target, the rupee plumbed new depths.

Anonymous said...

Don't panic guys. India's currency would be back to it's normal range (somewhere in 50s) around Match, 2014. It is still undervalued @ 62.50. This government (I hate them) still has 6 months or so to save it's ever declining reputation. They are coming up with number of reforms and investment friendly policies to increase their vote bank before general elections in May, 2014. With expected growth rate of 5.3% and rupee in 50s, GDP would stand close to whopping 2 trillion dollars by March, 2014. Forget about rupee going back to 45 level again. Gone are those days. Every currency in this world gets devalued sooner or later. Don't forget that rupee was around 45 for nearly 10 years. So, it was bound to fall someday. As per Corporates and Business houses, rupee in mid 50s would do a lot of good for Indian economy. What happens in India is that when we put hell of pressure on our government, then only they rush with number of reforms. Otherwise, they are always yawning and snoring. Don't just look at negatives, look at positives too:-

1. World's largest food bill/scheme for 70% population i.e. 840 million people of India.

2. India is fast becoming a 'Superpower' in IT/technology if not economically.

3. India has almost completed it's 'Nuclear Triad' to strengthen it's military. It's now 3rd or 4th strongest military in the world just behind US, China in terms of technolgy, strategy, personnel, budget, etc.

4. India is going to Mars in November, 2013. Just two months from now. Only 'US' has done it before as per my knowledge.

5. Land bill and Pension bill passed too.

6. India has started with it's biggest ever infrastructure project worth 100 billion dollars. It's called Delhi-Mumbai Industrial Corridor where 20 cities would be developed by 2040. It would create millions of jobs and strengthen our manufacturing and ultimately economy.

7. Current Account deficit would be down to 70 billion dollars by March, 2014. Just 3.8% of economy.

8. Growth rate would be atleast 6% to 6.5% in next fiscal year. Mind you, it's gonna jump in the third quarter of this year too.

9. Catching terrorists, death sentences for rapists and strengthened national border is a bit encouraging if not much.

10. Remittances are at all time high at 70 billion dollars per year. Thanks to 25 milion Indians living abroad making it the world's second largest diaspora.

So, there are many positives, ONLY IF YOU CARE TO SEE. Moreover, these are not my predictions but are pure facts. As for some of the world's developed (euphemism for exposed market leaders) nations, don't get too excited about fake recovery because fake optimism without any real efforts is of NO USE. And get ready for another RECESSION coming in about few months time from now. Word of advice:- Don't care about our economy, care about yours first. Word up 'New York Tmes', Bloomberg, Financial Times, BBC, Daily Mail, Guardian, CNN and the likes ....

Thank You

Dr. Chuttar Chodh
Non- Certified Executive
Government of India

Riaz Haq said...

At Rs 61.79 to a US $ today, Indian economy as of March 2013 is about $1.62 trillion.

Indian rupee now appears to settling around 61 to 62 to a US $.

Riaz Haq said...

Here's an excerpt of a PBS interview of India's central bank chief Rajan:

HARI SREENIVASAN: A few years ago, there was this notion that the developing countries were going to be this new engine. And now you see the BRIC countries, Brazil, Russia, India, China kind of slowing down a bit. India is growing at half the rate it was a couple of years ago. Are we waiting for larger economies to become the power, sort of the steam engine again, or can India rebound on its own?

RAGHURAM RAJAN: Well, I think everyone is looking for a new model of growth.

And I think India is going to discover that model over time. And -- and that model requires doing things a little differently, more investment, less consumption, more effective implementation of large products. I have no doubt that Indian growth will pick up from 5 percent, where it is now, is not bad. It's bad relative to the 10 percent it was growing at in some years in the past.

But going back to higher rates of growth, I think once it figures out how to do things more cleanly and better, I think it will resume that level of growth.

HARI SREENIVASAN: So, a few months ago, there was this meme in the Indian press about the price of onions and how they had doubled and in some places tripled. Now the price of vegetables in markets have come down for several reasons, but, really, the bigger question is about inflation.

Consumer inflation in India is 11 percent and almost 11.25 percent this month. How does the central bank address that, especially when the poor feel inflation on food and fuel prices disproportionately hard?


I think it's a important challenge. I think, as you said, vegetable prices have come down. There's a spike. They have come down substantially since then. So, we should see some of that inflation fall off. But whether it's 9 or whether it's 11, it's still too high. We need to bring it down.

Some of it has to be done by addressing the supply constraints in the economy. That will happen over time. But we have to also ensure that, from the central bank's perspective, we send a clear signal that higher rates of inflation will not be tolerated.

I think you have to bring both sides together to get inflation down to healthy levels.

HARI SREENIVASAN: Help us understand the balance between growth and inflation. Right? On the -- there are estimates that about a million new Indians will enter the work force -- or, I should say, be of working age every month for the next 10 years.

So how does the central bank create an environment where you can actually create jobs for all those people without contributing to inflation?

RAGHURAM RAJAN: Well, the first thing is, we don't directly have an effect on growth, other than through maintaining inflation relatively low.

Over the long term, these tradeoffs are -- basically disappear. And, essentially, the best way we can keep growth going is by maintaining a low level of inflation. However, as a developing country central bank, we have additional tools to the ones that developed countries have. We can develop the system. We can ensure, for example, payments reach every part of India.

Remittances can be sent by a migrant laborer to his village back at very lost cost. That helps the village flourish, helps more reallocation of labor to places where they can be employed. That can help growth.....

Riaz Haq said...

US Fed decision to reduce bond purchases from $85 billion a month to $65 billion a month is playing havoc with emerging markets. The Indian rupee is down some 14% against the USD in the past year. India has a current account deficit of 4.37% of GDP...The Turkish lira is down 24% against the USD in the past year. Turkey has a current account deficit of 7.22% of GDP..The rupiah was the worst performing emerging market currency in 2013 and is down 21% against the USD in the past year. Indonesia has a current account deficit of 3.71% of GDP..The Brazil real is down over 15% against the USD in the past year. Brazil has a current account deficit of 3.59% of GDP..The South African rand is down over 19% against the USD in the past year. South Africa has a current account deficit of 6.8% of GDP.....

Riaz Haq said...

Sri Lanka's per capita income has quintupled over the last two decades from about $700 to $3500, significantly outperforming all other South Asian economies. During the same period, Pakistan's per capita GDP has increased from $500 to $1300 while India's is up from $400 to $1400.

In addition to its high per capita GDP for the South Asia region, Sri Lanka has also excelled on Human Development Index (HDI), a key indicator of social development assessed each year by the United Nations Development Program (UNDP).

Riaz Haq said...

Has the Indian economy shrunk over the last one year? A PTI press release states that India's economy is expected to grow to $1.7 trillion by the end of the financial year 2013-2014. But how much was the Indian economy's size previous year? In dollar terms was it less or higher than $1.7 trillion? Interestingly as per an IMF report, name World Economy Outlook published in April 2013, the Indian GDP for the financial year 2012 was $1.8 trillion and was expected to be $1.9 trillion for the financial year ended 2013-2014. Therefore from that perspective the Indian economy has not risen to $ 1.7 trillion but has actually shrunk in dollar terms from $1.8 trillion to $1.7 trillion at a time when it should have been ideally been $1.9 trillion. In terms of rupees, surely the value of the Indian economy has grown up to Rs 105.39 Lakh Crore from Rs 93.88 Lakh Crore in 2012-2013

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