Archive for March, 2014

The effects of the global economic downturn of 2008 persist. The developing countries, which appeared in 2009-10 to have recovered from the global crisis, slumped in 2011-12 and have stayed there. India’s GDP growth fell to 6.7 per cent in 2011-12, 4.5 per cent in 2012-13, and a projected 4.9 per cent in 2013-14 (the final figure is likely to be lower). The growth rate of industrial production fell to 2.7 per cent in 2011-12, 1.2 per cent in 2012-13, and 0.3 per cent in the first half of 2013-14. The services sector, which has been driving India’s GDP growth, slowed in the second quarter of the current financial year to its lowest level in 12 years.

The downturn is also reflected in the slowing of corporate profits. The ratio of net profits to sales has roughly halved from the boom days.[1]There is a serious corporate debt problem, with the impaired assets ratio for industry rising from 10.2 per cent in 2009 to 16 per cent in 2013.[2]

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Nirmal Chandra

We have just received, with deep grief, the news of the passing of a close friend, the outstanding Marxist economist Nirmal Chandra. Nirmal was a rare person, modest, and not given to displays of emotion or verbiage. It was from the concerns reflected in his work, and the penetrating sense of inquiry he brought to them, that one could discern his sense of commitment to the people. Nirmal also, in his unostentatious way, supported RUPE,  Analytical Monthly Review, Frontier, and other such ventures.  The loss is not only personal.

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India’s private corporate sector and foreign investors have left little doubt about their preference for Narendra Modi. The stock market is experiencing one of its periodic bouts of euphoria, in anticipation of Modi’s ascension to prime ministership. We plan to discuss later the reasons for this preference. The routine explanation given in the press – that Modi will take firm steps to revive ‘growth’ – does give us an indication of the reason, but is also misleading if taken at face value. Before we enter that question, it is worth clarifying a few points.

In one sense, the private corporate sector as a whole is entirely indifferent to results of the elections. Irrespective of which parliamentary party or coalition gets elected, broad continuity of economic policy is assured, as witness the policies of regimes since 1991 led by the Congress, BJP and the ‘United Front.’

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“I think Yats is the guy who’s got the economic experience, the governing experience.”

– US Assistant Secretary of State Victoria Nuland, in a phone conversation with the US ambassador to Ukraine, discussing who should be installed as prime minister of Ukraine. (The conversation was leaked on Youtube on February 6, 2014.)

“We will do everything not to default. If we get the financial support from the IMF, the U.S., we will do it. I’m going to be the most unpopular prime minister in the history of my country.”

– Arseniy Yatsenyuk, newly-installed prime minister of Ukraine

read more at

http://www.forbes.com/sites/kenrapoza/2014/02/27/washingtons-man-yatsenyuk-setting-ukraine-up-for-ruin/

 

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The following op-ed piece in the Business Standard (March 7, 2014), by a leading Washington-based economist, spells out an agenda for the current RBI Governor: to kill Indian public sector banks. The author spells out a possible tactical course – “an indirect way of privatising them.” He feels only Rajan is capable of performing this task. — RUPE

 Indian banking – reform by death

Arvind Subramanian

Arguably, the two most egregious economic policy mistakes of the past that continue to haunt India were the licensing of Indian industry during the Nehru years and the nationalisation of private banks by Indira Gandhi in 1969…. bank nationalisation endures as a millstone around the Indian economy…. Undoing this legacy may well turn out to be one of the most critical tasks for the Reserve Bank of India’s (RBI’s) current governor, Raghuram Rajan. The problem is so intractable and so embedded in Indian politics that only he can, and can afford to, take on the challenge. (more…)

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The Government has released balance of payments data for the third quarter of 2013-14, i.e., October-December 2013 (Q3 2013-14). They show a dramatic improvement in the current account deficit (CAD).

As we mentioned in Aspects no. 54, the current account balance is the balance of all current payments to, and receipts from, foreigners. This includes the balance of (i) merchandise trade, (ii) trade in services (e.g. software), (iii) transfers (e.g. workers’ remittances), and (iv) investment income (income on loans and investments made by foreigners to Indians, and vice-versa). In India the current account balance is generally in deficit. That is, our payments are more than our receipts. This gap has to be bridged by either drawing down the foreign exchange reserves, or by capital inflows in the form of loans or foreign investment.

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by Rahul Varman, rahulv[at]iitk.ac.in 

The royalties paid by Indian subsidiaries to their foreign parents have been attracting some attention periodically in recent times, but only in the business press. Perhaps this attention is due to the fact that the royalty outflows have been rapidly rising in the midst of an industrial slump. According to Government data, royalty payments have risen from 13 per cent of FDI flows in 2009-10 to 18 per cent in 2012-13. The outflows on account of royalty and fees for technical services, taken together, accounted for 16-33 per cent of the foreign direct investment (FDI) inflows between 2009-10 and 2012-13[1]. A senior Department of Industrial Policy and Promotion (DIPP) official was quoted recently in Economic Times[2] as complaining:

The increase in royalty outflow is a very disturbing trend and needs to be addressed. It is a drain on the economy and huge amount of money is going back. It is up to the finance ministry to take a call on the matter, which could be announced in the budget.

Royalty is most often associated with the fee paid to someone who owns a patent for its use or the money owed to an author for each copy of a book sold. It is the share of a product or a profit reserved by the owner for permitting another to use his/her property[3]. The business press often claims that two key things foreign companies have to offer to India, for which we need to make policies to win their favour and investments, are technology and branding. Foreign firms also generally claim that they are charging high royalties for bringing technology and international brands to their Indian subsidiaries; hence for the purpose of this discussion, royalty is a fee for bringing knowhow and trademarks from foreign shores.
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