D H Pai's Feed
Oct 29, 2014
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If Europe gets into a debt crisis

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(Any opinions expressed here are those of the author and not necessarily those of Thomson Reuters)

Just over a week back, Europe appeared to be headed for another debt crisis, rattling global markets. Interest on Greece’s sovereign bonds shot up 9 percent. Others followed, including weaker countries like Spain, Portugal, Italy and, shockingly, France. Only Germany offered some protection to investors, albeit with a sharp decline in interest rate.

Oct 13, 2014
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Targeting inflation at 4 percent

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Finance Minister Arun Jaitley seems to have finally taken the responsibility of targeting inflation as it is a sensitive political issue and could not be left to the discretion of the Reserve Bank of India (RBI). With CPI as the anchor, the target will be 4 percent measured annually (+/-2 percent).

Inflation has been a bone of contention for nearly three years now. The RBI has kept the repo rate a wee bit above inflation rate on the supposition that inflation will go down and growth will follow. But the finance ministry wanted the interest rate to be low enough to stimulate growth, which has almost halved in the past two years. The RBI had the upper hand in deciding interest policy because it enjoys autonomy and need not go by the insinuations of the finance ministry.

Sep 24, 2014
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Little chance of an RBI rate cut

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(Any opinions expressed here are those of the author and not necessarily those of Thomson Reuters)

At the Reserve Bank of India (RBI) monetary policy review in August, India’s policy parameters looked encouraging but the central bank was not eager to make any significant change to monetary policy – and none at all to the interest rate. Since then, perspectives have changed. And yet, it is unlikely that the RBI will make any cut, though desirable, to the interest rate.

Sep 11, 2014
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How falling crude prices affect India

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(Any opinions expressed here are those of the author and not necessarily those of Thomson Reuters)

Brent crude prices have dropped below $100 a barrel, causing anxiety within the Organization of the Petroleum Exporting Countries (OPEC) and giving some relief to India and China. The market is bearish at present but the future is unpredictable.

Sep 1, 2014
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Where the growth in Q1 came from

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

GDP growth of 5.7 percent in the April-June quarter was unexpected in view of the southward drift of India’s economy over the past two years. No wonder it pepped up the Bharatiya Janata Party-led government at a time when the ruling coalition is listing its achievements after 100 days in office. The question is where this growth came from and whether it will be sustained in future.

India’s economy has been slowing after achieving 9 percent growth three years ago. That was because the Congress-led government failed to fuel the economy. The absence of policy reforms, paralytic governance – combined with persistent inflation – discouraged investment. Growth tapered to 4.7 percent last year.

Aug 25, 2014
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Why inflation is so persistent

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Inflation has been high for nearly four years and has not responded to the policies of the Reserve Bank of India or the central government. This is because the kind of inflation that we have is of an unusual variety and cannot be checked by conventional means.

It is important to look at the numbers. In July, the consumer price index (CPI) was up 8 percent and threatens to crawl up further after a deficient monsoon. That’s because 68 percent of the increase in CPI comes from food.

Jul 28, 2014
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How high will the Sensex go?

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Since April, the stock market has been in a frenzy after a long period of utter gloom. In quick succession, the Sensex jumped month after month to cross 26,000 on July 7. This was not mere euphoria created by the election of the Narendra Modi government, with a single-party majority in the Lok Sabha after a long time.

Jul 14, 2014
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Budget 2014 is only the first step

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Much was expected from Budget 2014/15 without realizing that India’s economy has its own rhythm, which changes only by small degrees if left to itself. That is why big-ticket reforms are necessary to quicken the pace. Finance Minister Arun Jaitley had reason to move forward with caution and make changes only at the fringes.

No wonder then that P. Chidambaram almost welcomed the budget as if it was a carryover from his own budget. Even the increase in shareholding by foreign investors in the insurance and defence sector, which Jaitley has announced, had been on the previous government’s agenda. Now that the opposition has shrunk, the Modi government took the first opportunity to do that, though with conditions.

Jun 24, 2014
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Higher tax revenue from higher growth

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The 2013-14 budget got completely out of hand because of a whopping shortfall in tax revenue. Development outlays had to be drastically cut to manage the fiscal deficit.

The key to the budget is revenue. The ratio of gross tax revenue to GDP reached a high of 11.9 percent when GDP growth was at its peak of more than 9 percent in 2007-08. Since then, both declined and the ratio has been in the narrow range of 10-10.7 percent. GDP growth is a painless way of raising revenue.

Jun 11, 2014
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How to get India on the highway to high growth

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The president’s address to parliament this week lays out the new government’s roadmap to get India’s economy back to high growth. That will take time and is not easy either.

True, the BJP government led by Narendra Modi inherited a weak economy – growth was a mere 4.7 percent; industry was static; there was no employment generation; and inflation was at over 8 percent. The only comfort was that foreign exchange reserves exceeded $312 billion.

    • About D H Pai

      "I undertake research on current macroeconomic issues of interest, mainly to industry, as president of RPG Foundation, a private think tank. I have also been bringing out for the past 18 years a monthly publication entitled 'State of Business' for circulation electronically among select contributors."
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