India Insight

from Global Investing:

Retail volte face confirms India as BRIC that disappoints

Jim O'Neill, the Goldman Sachs banker who coined the term BRICs to capture the fast-growing emerging-markets quartet of Brazil, Russia, India and China,  has fingered India as the BRIC that has disappointed the most over the past decade in terms of reforms, FDI and productivity. New Delhi's latest decision to put on hold a landmark reform of its retail sector will only confirm this view.

The government's backtracking on plans to allow foreign investment in supermarkets will not surprise those accustomed to New Delhi's record on key economic reforms. But it means India's weak performance on FDI receipts will continue and that's bad news for the worsening balance of payments deficit.  Speaking of the retail volte face, O'Neill said: "They shouldn’t raise people's hopes of FDI and then in a week, say, 'we’re only joking'".

Various Indian lobby groups that oppose the reforms contend that foreign giants such as Wal-Mart and Tesco will kill off the livelihoods of millions of small traders.

Not so, according to  a study by the Vale Columbia Centre for Sustainable Economic Development, a think-tank that studies FDI trends. The Centre's Nandita Dasgupta notes that many emerging economies that have allowed 100-percent foreign participation in retail since the early 1990s have seen encouraging results. These include Argentina, Brazil, Chile, Russia, China, Indonesia, Malaysia and Thailand. In China, FDI in retail was permitted 20 years ago. But there is no evidence the huge investments have hurt mom-and-pop operations or domestic retail chains, Dasgupta says. In fact, since 2004 the number of small Chinese outlets has increased to around 2.5 million from 1.9 million. Between 1992 and 2001, employment in retail and wholesale almost doubled to 54 million.

In Indonesia, where FDI to retail was liberalised 10 years ago, 90 percent of the business remains with small traders, Dasgupta points out.

from MacroScope:

India’s central bank battles alone in inflation struggle

INDIA-ECONOMY/RATES What more does India's central bank have to do? Last week data showed March inflation rising to almost 9 percent on an annual basis. More importantly, core inflation is above 7 percent for the first time in 3 years meaning demand-side pressures are rising fast. And that's despite the Reserve Bank of India raising interest rates eight times since last March.

The inflation data comes just after a quarterly HSBC report based on purchasing managers indexes showed that inflation in India seemed impervious to monetary policy tightening.

The truth, is the inflation-fighting central bank has little backup from the government which remains stubbornly in spending mode. Its foot-dragging on reform and foreign investment contributes towards keeping food price inflation high. This year's fiscal deficit target is 4.8 percent of GDP and even this
is seen as optimistic.

from Global Investing:

What worries the BRICs

Some fascinating data about the growing power of emerging markets, particularly the BRICs, was on display at the OECD's annual investment conference in Paris this week. Not the least of it came from MIGA, the World Bank's Multilateral Investment Guarantee Agency, which tries to help protect foreign direct investors from various forms of political risk.

MIGA has mainly focused on encouraging investment into developing countries, but a lot of its latest work is about investment from emerging economies.

This has been exploding over the past decade. Net outward investment from developing countries reached $198 billion in 2008 from around $20 billion in 2000. The 2008 figure was only 10.8 percent of global FDI, but it was just 1.4 percent in 2000.

from Global Investing:

Time to kick Russia out of the BRICs?

It may end up sounding like a famous ball-point pen maker, but an argument is being made that Goldman Sach's famous marketing device, the BRICs, should really be the BICs. Does Russia really deserve to be a BRIC, asks Anders Åslund, senior fellow at the Peterson Institute for International Economics, in an article for Foreign Policy.

Åslund, who is also co-author with Andrew Kuchins of "The Russian Balance Sheet", reckons the Russia of Putin and Medvedev is just not worthy of inclusion alongside Brazil, India and China  in the list of blue-chip economic powerhouses. He writes:

The country's economic performance has plummeted to such a dismal level that one must ask whether it is entitled to have any say at all on the global economy, compared with the other, more functional members of its cohort.

India, China leaders move to ease new strains in ties

While Indian Prime Minister Manmohan Singh’s meeting with Pakistani President Asif Ali Zardari in Russia captured all the attention,  Singh’s talks with Chinese President Hu Jintao may turn out to be just as important in easing off renewed pressure on the complex relationship between the world’s rising powers.

India said this month it will bolster its defences on the unsettled China border, deploying up to 50,000 troops and its most latest Su-30 fighter aircraft at a base in the northeast.

While upgrading the defences has been a long-running objective, the timing seemed to suggest New Delhi’s renewed fears of “strategic encirclement” by China by deepening ties with all of its neighbours, not just Pakistan but also Sri Lanka and Nepal.

from MacroScope:

Victory for emerging BRICs?

Emerging market ministers, particularly those from the BRIC economies -- Brazil, Russia, India and China -- are painting this weekend's G20 meeting as a victory in dragging them out of the shadows of global policy-making.

The finance ministers' statement included the promise of more money for the International Monetary Fund and regional development banks, on whom struggling emerging economies rely for support.

It accelerated a review of IMF quotas by two years to 2011, which should give emerging economies more say in the running of the multilateral lender. It also suggested that the headship of IFIs -- international financial institutions -- would no longer be guaranteed to Americans or Europeans. 

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