GDP Growth rate: cautious approach

In my earlier blog, I mentioned that the Indian economy should grow at a steady and sustainable pace and should not be forced into a bull run. The GDP growth rate at 5.5%-6%, for next two-three fiscal years, would be suitable for a long-run sustainable economic growth.

Although, the green shoots of economic growth are visible, it is the time to nurture them well and wait patiently to see how they stem up before actually harvesting them.

Investment houses, brokers and analysts seem to be in a hurry to show off their optimism and in their desperation, are ignoring that the growth could only be sustainable, when it is consolidated well before moving to the next level.

Broking houses and investment analysts are justified in their enthusiasm in projecting GDP growth of 6.5% by FY 17, as they have not seen such level of optimism in the market, for at least, last 5 years.

Meanwhile, investors should consider that while, CPI has touched below 8% mark, any rise in global Oil prices and Rupee-Dollar equation may see Inflation going up.

The economists and bankers like Mr Keki Mistry, Chairman HDFC, Mr Aditya Puri, MD, HDFC Bank have been quoted in media expressing that it might take 6-8 quarters, before the investment measures would start yielding results.

Also, the key sectors i.e. Manufacturing, Agriculture, Energy, Infrastructure are still in the recovery mode. Although promoters and investors have subscribed to the growth story, they are still not confident of putting money on the block. The investment in manufacturing and infrastructure sector are yet to be rolled out and require traveling some distance before being reflected in the economic data.

The broking houses and investment analysts should work towards creating a environment conducive for FPOs and IPOs, so that retail investors may participate in the growth story as secondary market has become quite expensive.

Again, the word of caution would be on valuation of such FPOs/ IPOs. SEBI must ensure that the Investment Bankers / Promoters must leave enough on the table for the Retail Investors.

These would be good options for corporate to raise equity at a reasonable cost, when cost of funding has become unviable.

But, investors must discount over-enthusiasm and the Economists should consider all aspects before projecting GDP growth numbers as such inflated Economic Data, infused with over-enthusiasm, may not only hamper investor interests but also may prove fatal for overall economy as it would deter the investor sentiments. 

reference: http://timesofindia.indiatimes.com/city/mumbai/India-Rating-raises-India-GDP-forecast/articleshow/39809339.cms

"The Higher GDP growth in June quarter @ 5.7% leads to higher inflation". I strongly feel that the Indian Economy must grow at a steady and sustainable pace and should not be forced into a bull run. The GDP growth rate at 5.5%-6%, for next two-three fiscal years, would be suitable for a long-run sustainable economic growth.

I mentioned my thoughts in my blog (link mentioned below) as:

http://avinashsrivastava.blogspot.in/2014/08/would-8-gdp-growth-rate-be-sustainable.html

Also, MINT newspaper mentioned the same thoughts in its article on "The GDP numbers: treat with care, don’t take recovery for granted"

Read more at:http://www.livemint.com/Money/9H7XX4cVHCsJU1BeeB4w6H/GDP-numbers-treat-with-care-dont-take-recovery-for-grante.html?utm_source=copy
http://www.livemint.com/Money/9H7XX4cVHCsJU1BeeB4w6H/GDP-numbers-treat-with-care-dont-take-recovery-for-grante.html

8% GDP growth rate...why are we in a hurry!

The recent rally in the Sensex and Nifty reflects the faith of investors in the sluggish Indian economy. The recent upsurge in our stock market has also coincided with a falling inflation trajectory and strengthening rupee.

 

With optimism is at its peak, investors and analysts are predicting Sensex to cross 30000 points in next 8-12 months. The overall market & investor sentiment seems to have improved with regular feeds of key Economic Data. The experts expect the Indian GDP to achieve 8% growth level very soon.

Till very recent, Indian economy was reeling under a slow growth regime and the gap between the GDP growth rate and rate of inflation has widened majorly since 2010. This had resulted in high interest regime and made economic activities, expensive and unviable. It caused major sufferings for common man as high-interests, high commodity prices, low manufacturing, agriculture and service sector performances created a gloomy season, which further widened the income disparities forcing people to curtail their expenditures, reflecting in further economic slowdown and job cuts.

In this case, I believe in the old saying “slow and steady wins the race”. Since, an inflated growth rate may result in a continuous and persistent high inflation rate, which may further warrant high-interest rates.

The high inflation rates would adversely impact companies with high debts. The high inflation rate would also adversely impact market sentiments, investor moods and fortunes of industrial activities, which could get into another vicious cycle of low spends, job cuts etc.

The higher interest rates would mean higher cost of money and would further result as limited spending in the economy. 

Hence, I strongly feel that the Indian economy must grow at a steady and sustainable pace and should not be forced into a bull run. The GDP growth rate at 5.5%-6%, for next two-three fiscal years, would be suitable for a long-run sustainable economic growth, which would allow poorest of the poor to participate in the India growth story and would not be reeling under high cost-high inflation regime. 

A steady GDP growth rate would even avert any major upsurge in inflation and the overall economic activities would remain sustainable, while the overall growth story remains inclusive!

Yes DLF! to Yes Maximum!

Yes DLF to Yes Maximum

Cricket offers lots of exciting moments during the game. IPL, the latest and shortest format of the game offers a complete entertainment package, as it engages people across age-groups, demographics and geographies,  while offering one of the biggest platform to the brands.

IPL, as an engaging event, holds opportunities for the brands and has brought in investments to the game, and the number crunchers actually started comparing it with EPL and NBA. More and more investments got attracted as more and more brands were light struck by sheer glamour and energy.

The money not only helped nurturing the budding talents but also supported old hands at cricket by  engaging them through various ways and means.

In the initial stages of IPL there were lot of apprehensions about success of the format and midst of all sorts of speculations came brands, which shown some real strength by not only committing themselves for trying something new, challenging and paved the path of success for themselves as well as for all others involved in India's biggest fanfare  has made some smart moves by creating and nurturing various properties.

DLF was the first sponsor in history of Indian Cricket to bring in the concept of deriving Maximum benefits through Title Sponsors as it volunteered to offer prizes to inspire young talent and established categories i.e. DLF Maximum Sixes Award and DLF Player of the League.

DLF helped not only players to win their prizes but also created opportunities for BCCI-IPL to earn money as well. It also helped brands like Yes Bank, as in round II of IPL (after initial 5 years when all Central sponsorships came to an end), BCCI raked in money through these categories and brands like Yes Bank bagged it for a cost. 

Is India still a preferred investment desti-nation?

Is India still a preferred investment desti-nation?

The potholes in the journey:

· Sinking GDP growth well below expectation: below 5% in FY 12-13. Q-on-Q  projections continue to fail.

o Govt must loosen its wallet strings to fund infrastructure projects across country.

o It is prudent to release major amount of money for infra projects primarily road, highways connecting major cities as well as rural roads

· Food Inflation (despite the government’s claims; aam aadmi has no respite from the food inflation)

FOOD Security bill:

o State governments must create a common knowledge pool for inclusive and sustainable rural development and agricultural produce.

• Central agencies shall take initiative under Agriculture Ministry

§  Focus on increasing agriculture produce

§  Need to launch another operation ‘Green’ and ‘Flood’

§  Increase Agriculture, Poultry, Dairy, Fisheries produce

·         Major dent of INR 3.5 trillion on exchequer as a result of Food security bill

REVENUE DEFICITS:

o   Both State and Central Govts shall bear the burden and simultaneously try to identify new source of revenues including increase in direct and indirect tax collections

o   DTC could be a major revenue driver

·         Fiscal deficit

·         Declining Rupee

o   This has been addressed to some extent  as dollars have started flowing in

·         Expensive Oil & Gas

·         Lack of implementation of reforms

·         Rising interest rates (rising NPAs of Banks)

·         Dip in industrial and manufacturing growth rate

·         FIIs pulling out investments from India

·         Grim situation in basic health, education, infrastructure, law & order

·         General elections in 2014

·         Indecision tendency of government

Major Legislations hanging with a thread in thin air

o   Lokpal

o   Land Acquisition

o   Real Estate Regulatory Bill

o   Pension Bill

o   100% FDI in Indian Retail

o   GST

o   Mining Bill

Indian Real Estate must address roadblocks to accelerate growth

The basic mantra for INDIAN REAL ESTATE SECTOR is to: 

dilute licensing except for safety reasons, increase competition, allow market forces to operate, gain 'Industry' status

The Indian real estate sector is a key growth driver of the country’s economy. The positive outlook of Indian Government is the key factor behind the sudden rise of the Indian Real Estate sector - the second largest employer after agriculture, in India.

The contribution of the residential segment alone to India’s GDP is around 5 to 6 per cent and to accelerate the overall GDP, it would be imperative to grant an Industry Stature to real estate and help it to adapt professional practices.

One of the most important factors, which has been discussed across all forums and which happens to be the bottleneck in the growth of real estate industry, is the complex and outdated procedure of seeking approvals. 

Currently, such inefficiencies ultimately are being passed on to the customers. Delay on this account also majorly affects the demand-supply of housing units. Hence, there is a need for a uniform approval process.

In any project management scenario -Time is money and any project delay adds to the cost of the project which is ultimately passed on to the customer’s.

The bottlenecks may be overcome by careful mapping of the regulatory jurisdictions, authorities and laws and to remove duplication of efforts and abrogate rudimentary processes. Whilst a unified regulatory framework would be of a major help, re-engineering of the processes and mapping of various regulatory authorities will help real estate development to catch up with the economic development of the nation.

The Indian real estate market is in growing stage and dominated by a large number of small players, with very few organised plyers i.e. corporates and large players with national footprint. The Indian real estate market, as compared to the other more developed Asian and Western real estate markets, is characterised by smaller size, lower availability of good quality space and higher prices.

Supply of urban land is largely controlled by state-owned development bodies like the Development Authorities i.e. DDA and Housing Boards leaving very limited developed space for competitive supply lines. The LARR 2013 would further pose challenges for land acquisition process and would make projects unviable.

There is a huge opportunity for leveraging the large portfolios of un-utilised and underutilized real estate assets of various government agencies. Inviting private participation in housing under Public-Private Partnerships (PPP) would attract investment in this sector. 

A conscious effort on the part of these agencies, coupled with policy initiatives, can unlock the value of these non-performing assets while revenues generated from such initiatives can be utilised for the development of infrastructure.

Is it really CAD which is bothering us

The decade had a promising start in 2010-11 with GDP growth of 8.4 per cent, bringing down fiscal deficit to 4.7 per cent from 6.4 of GDP in 2009-10, as well as containing current account deficit to 2.6 per cent from 2.8 per cent in 2009-10. 

The GDP decelerated sharply to a nine year low of 6.5 per cent during 2011-12 and even below 5 percent in 2012-13. 

The symptoms are quite evident i.e. sinking rupee, rising inflation, rising prices of commodities and fuel. 

But, government seems to be engaged in addressing the symptoms rather than curing root cause of the problems. 

Government claims that CAD is rising due to increase in demand for dollars for Oil and Gold imports. 

However, with subdued equity inflows, depleting foreign exchange reserves, rising external debt and deteriorating international investment positions, the macro economic scenario is getting awry and nothing seems to be going in right direction with inflation at over 9 per cent in the first eight months of 2011-12, before softening moderately in December 12 and remained sticky in the range of 6.9-7.7 per cent.

With GDP growth slumping to decade's low of 5 per cent in 2012-13, and no visible pick-up in any key levers of the economy "the situation remains grim". While the fiscal deficit situation will not allow government expenditure to go up, every means need to be explored for raising consumption and investment demand.

Measures like Reserve Bank lowering interest rates to boost economy and announcements (rather ad-hoc) regarding FDI increase in key sectors may provide interim relief in correcting sentiments but may reflect only in long term.

There has been policy paralysis on literally every front including Power, Telecom, Retail, Infrastructure, Real Estate, Agriculture, Service and Manufacturing sector.  

This country has not seen any new green field project being set up for a long time. There are numerous hurdles at every stage i.e. land acquisitions, approvals, clearances, permissions, finance. Regulations are all time high making conducting business a difficult proposition.

India has unique structure with layers of markets which works as insulation to external factors. We need to work towards further strengthening these layers and penetrate further, efficiently and effectively, into lower layers. 

The social and infrastructure development go hand in hand. Poverty can not be addressed through 'Subsidies' being offered to poor, but opportunity. 

An 'Opportunity' to Learn more and subsequently Earn more!  

One thing which I don't understand is, that even though right people are in right place at right time, i.e. an economist and intellectual PM, an experienced FM along with experienced Cabinet and a learned professional at Planning Commission, how the economic scenario and sentiments are sinking? 

The 6000 administrative officers are far less numbers to administrate the country and they should not be further dragged into running businesses for Government. 

Government wants to bring in inclusive and sustainable development, which is possible only with participation of private sector, which is inevitable in country's growth. Involvement of Private Sector means inclusion of large number of countrymen as well as foreign investors to invest, contribute and participate in India's growth story.

Government should work as a facilitator and provide effective and efficient governance, conducive environment, favorable and proficient policies to enable people conduct businesses and contribute to one of the fast emerging markets of the world which is eventually also the largest democracy in the world.