Tue, 28th March 2017

Anirudh Sethi Report


Archives of “Economy” Category

India : Economic Survey advocates reforms to unleash economic dynamism and social justice -Full Text

India needs an evolution in the underlying economic vision across the political spectrum and further reforms are not just a matter of overcoming vested interests that obstruct them. This was stated in the Economic Survey 2016-17 presented in the Parliament today by the Union Finance Minister Shri Arun Jaitley.

The Survey lists the some of the challenges that might impede India’s progress. These challenges are classified by the Survey as follows: ambivalence about property rights and the private sector, deficiencies in State capacity, especially in delivering essential services and inefficient redistribution.

The Survey highlights difficulties in privatizing public enterprises, even for firms where economists have made strong arguments that they belong in the private sector. In this context, the Survey points towards the need to further privatize the Civil Aviation, Banking and Fertilizer sectors.

The Survey points out that the capacity of the State in delivering essential services such as health and education is weak due to low capacity, with high levels of corruption, clientelism, rules and red tape. At the level of the states, competitive populism is more in evidence than competitive service delivery, the Survey adds. Constraints to policy making due to strict adherence to rules and abundant caution in bureaucratic decision-making favours status quo, the Survey cautions.

According to the Survey, redistribution by the government is far from efficient in targeting the poor. This is intrinsic to current programs because spending is likely to be greatest in states with better institutions and which will therefore have fewer poor.

The Survey notes that over the past two years, the government has made considerable progress toward reducing subsidies, especially related to petroleum products. Technology has been the main instrument for addressing the leakage problem and the pilots for direct benefit transfer in fertilizer represent a very important new direction in this regard, the Survey adds.

Noting that India has come a lo¬¬ng way in terms of economic performance and reforms, Economic Survey 2016-17 says that there is still a journey ahead to achieve dynamism and social justice. Completing this journey will require broader societal shifts in the underlying vision, the Survey adds.

BOJ announce: Maintains policy

Bank of Japan monetary policy meeting concludes – policy unchanged

Keeps monetary policy steady

Maintains short-term interest rate target at -0.1 pct

Maintains 10-year jgb yield target around zero pct

Leaves unchanged pledge to buy jgbs more or less at current pace so its holdings increase at annual pace of around 80 trln yen

Extends deadline for loan programme aimed at boosting lending, supporting industries with growth potential

Debt buying for loan programme extended by 1 year

Bank of Japan seen bullish on GDP after eventful 2016

The Bank of Japan is poised to upgrade its three-year economic growth outlook in the final days of January in light of strong recent indicators, though stronger inflation forecasts will be a harder sell.

The central bank will compile its quarterly outlook on economic activity and prices at a two-day policy meeting beginning Monday. The report will outline the BOJ’s forecast for each of the three years through fiscal 2018,

 The last report, released in November, pegged gross-domestic product growth at 1% for fiscal 2016, 1.3% for fiscal 2017 and a slim 0.9% for fiscal 2018. Discussions this time are expected to center on the first two years, with the fiscal 2017 growth forecast thought to be headed for the mid-1% range.

Signs for an upgrade are strong. The BOJ in December boosted its outlook for Japan’s economy as a whole for the first time in 19 months. Such goods as smartphone parts and automobiles are driving up exports and industrial production, while consumer spending on durable goods such as cars is on the rebound as well. Changes made late last year to the GDP calculation method will also give the figure a boost: companies’ research and development spending, which has shown consistent growth over the years, now counts as investment.

BOJ Gov. Haruhiko Kuroda said at a World Economic Forum panel discussion Jan. 20 that he expects Japan’s economy to grow by around 1.5% in fiscal 2016 and fiscal 2017, significantly exceeding the country’s potential growth rate.

Indian economy at cusp of recession? Reforms fail to provide critical mass to push up growth

The first quarter of 2016-17 was marked by stories of green shoots firming up and further uplifting growth. We had discounted such views in these pages in May 2016, convincingly making the case that most lead indicators were not sustaining beyond a few months; pro-growth acceleration arguments were therefore, on a weak footing. Optimism nevertheless held high upon expectations of good monsoons and implementation of the 7th Pay Commission award to boost consumption. Both materialised. Plus bountiful revenues from fuel taxes ensured there wasn’t any fiscal stress in financing higher salaries.

And yet, the economy slowed even before demonetisation. The advance GDP estimates, which do not incorporate demonetisation effects, project a deceleration to 7.1% in 2016-17 from 7.6% last year. But the more striking feature is a sharper slowdown of both industry and services (excluding public administration); the former is anticipated growing only 6.1% from 8.8% a year ago, while the latter is seen chugging along at 6.8% instead of 8.6% in 2015-16. From the demand side, gross fixed capital formation (GFCF) is projected to contract; private consumption will slow down to 6.5% against 7.4% last year.

This slowdown is a bit of an anti-climax for the government and RBI and raises policy concerns: How come private consumption slowed in a year when inflation fell, agriculture growth rebounded and the government disbursed a hefty pay hike? Why does private investment remain withdrawn and is retreating at a confluence of falling loan rates and FDI at historic peak in a backdrop of rock-solid macroeconomic stability?

These questions can neither be brushed aside as temporary aberrations, nor buried under near-term concerns about post-demonetisation developments. Because this trend reversal could be worryingly related to the government’s strategy of incremental reforms!


IMF out with its latest prescriptions for the eurozone economy

IMF report on the eurozone economy

  • ECB should keep mon pol accommodative for an extended period
  • For sustained recovery of eurozone inflation to 2%, Germany must have inflation above that target
  • Compliance with EU budget rules has been lax, enforcement weak
  • Eurozone economic recover is firming but medium-term prospects are weak

India-China rivalry reaches into orbit and beyond

A new space race is underway in Asia, with China and India dueling for dominance while other countries make leaps of their own. National pride and defense are major motivators, but so are practical considerations — generating income from satellite launches, mitigating natural disasters and monitoring crops. By establishing a presence in Earth’s orbit, and perhaps the expanse beyond it, governments and companies aim to ensure prosperity on the ground.

After India’s decision in November to scrap its largest bank notes, the picture on the back of the new 2,000-rupee replacement bill was surely the last thing on the minds of cash-strapped citizens. The image, though, highlights a major national achievement and emphasizes the country’s highest aspiration: to secure its place among the stars.

India’s new 2,000-rupee note features an image of the Mangalyaan Mars probe. 

The note features a picture of India’s Mangalyaan probe, Asia’s first successful Mars orbiter. Launched in November 2013, the craft traveled around 670 million km and began circling the red planet the following September. Prime Minister Narendra Modi lauded the mission in a televised address. “History has been created,” he said. “We have dared to reach out into the unknown and have achieved the near impossible.”

Of course, India is hardly alone up there. Regional rival China in 2003 became only the third nation in history to achieve manned spaceflight, after the former Soviet Union and the U.S. Just as the 20th-century space race pitted those Cold War enemies against each other, a 21st-century race is picking up in Asia, with New Delhi and Beijing doing some serious jockeying.

The broad goals of enhancing national defense and gaining international prestige remain powerful motivators for reaching skyward. But Asian countries also have specific, diverse and practical ambitions: to develop their own high-speed communications infrastructure, to explore for natural resources, to mitigate natural disasters and to snag satellite launch contracts from other nations.

A waterlogged street in Kolkata last September: India is using satellite data to limit the impact of natural disasters. © Sipa USA via AP

Japan Trade balance (Dec.) Y +641.4bn yen (expected Y 281.1bn)

December trade balance

Trade balance Y 641.1bn yen
  • expected Y 281.1bn, prior was Y 150.8bn
Trade balance (adjusted) Y 356.7bn
  • expected Y 209.9bn, prior was Y 536.1bn
Exports +5.4% y/y
  • expected  +1.1%, prior was -0.4%
  • The first y/y rise for exports in 15 months
Imports y/y: -2.6%
  • expected -0.8%, prior was -8.8%
Some country detail, exports to the US up 1.3% y/y
  • To China +12.5% y/y
  • To Asia +12% y/y
  • To the EU, down 4% y/y

Why The World Economy Is Likely To Collapse (In 1 Simple Chart)

No difficult economic terms, no tough charts, just simple math.

1 – The worlds population of under 40 year olds (excluding Africa) has essentially peaked (chart below…bars represent 0-40yr/old population, dashed lines UN future estimates).  What is interesting about the under 40 year old population is that they are responsible for about 97% of all pregnancies / births.  It’s not impossible for 40+ year old women to have children, just statistically very rare (particularly outside the developed world).


Ok, we’ve established the global under 40 population (excluding Africa) has essentially peaked…now we lay out the chart below that a shrinking population (above) isn’t replacing themselves.  Chart below shows world fertility rates, again breaking world fertility (ex-Africa) from the African fertility rate.  The world (ex-Africa) has fallen below the 2.1 births per female replacement level…and even Africa is rapidly slowing.