Indian Economy : News,Discussions & Updates

sid4587 said:
means 1440 billion dollar?? wonder if that much is invested even by 2029....I assume 50 lakh crore on water,road,railways, SCM infra etc in 10 years, 20 lakh crore in energy(nuclear, solar, wind, dam) in 10 years. So total max 70 lakh crore that will sum upto 1 trillion dollar.
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More importantly where will all that money come from ? Loans from ADB, IMF, WB ? FDI ? What's our foreign exchange figure again ?

There is a lot we need to do on the infrastructure front, not just building new but also maintaining it. I suppose Modi will order more bullet train lines to be set up. Other areas would be airports, inland waterway ports, international rail/road links, metros etc.
There are a lot of investment intensive industries we are trying to enter like : semiconductor, aerospace, pharma etc. All of which will require investments.
Sanitation, water, food, medical services etc all needs heavy investments ASAP.
Of course there is defence, high-end research space etc all needing attention.

I can go on but the point is there are a thousand different places to spend on. Our problem is : 1)not having money and 2)not spending money properly. We seemed to have reduced corruption at the top level significantly, bottom levels need a lot of work. However, even without corruption and red tape we still have one major problem. Where is the money ?
 
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Gautam said:
More importantly where will all that money come from ? Loans from ADB, IMF, WB ? FDI ? What's our foreign exchange figure again ?

There is a lot we need to do on the infrastructure front, not just building new but also maintaining it. I suppose Modi will order more bullet train lines to be set up. Other areas would be airports, inland waterway ports, international rail/road links, metros etc.
There are a lot of investment intensive industries we are trying to enter like : semiconductor, aerospace, pharma etc. All of which will require investments.
Sanitation, water, food, medical services etc all needs heavy investments ASAP.
Of course there is defence, high-end research space etc all needing attention.

I can go on but the point is there are a thousand different places to spend on. Our problem is : 1)not having money and 2)not spending money properly. We seemed to have reduced corruption at the top level significantly, bottom levels need a lot of work. However, even without corruption and red tape we still have one major problem. Where is the money ?
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For any country, money is never a problem. That should never be the question! Money is simply a mechanism for barter. That is it, nothing more. India, or for that matter any other country, can expand it at will to any extent it feels like, except for the foreign trade where your trading partner would accept a third country's currency just because of the notion of a "perception", that it is more reliable and stable. But if you notice in the past ten years, the FED has expanded the monetary policy in a very irresponsible manner from around 8 trillion to over 22 trillion dollars only for the US spending. This daring expansion is only due to the "forced" trust that has been created in the international trade to use USD as a default preference for barter. And hence using this trust, the FED expanded the dollar monetary base within the US. This is one part of the story - the medium of exchange/barter.

What is critical is the expansion in production and consumption of goods and services domestically so that money supply can be expanded at an equal rate. A healthy expansion of goods and services will allow an equally healthy expansion of money supply. Such expansion needs to be done at both levels - domestic and international; this is what will bring a balanced prosperity in India.
 
 
Golden_Rule said:
What is critical is the expansion in production and consumption of goods and services domestically so that money supply can be expanded at an equal rate. A healthy expansion of goods and services will allow an equally healthy expansion of money supply. Such expansion needs to be done at both levels - domestic and international; this is what will bring a balanced prosperity in India.
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I can agree with all of this. But the problem is each political term in our country is only for 5 years, any economic activity within that time frame will be considered short term. How do we gather 1.44 trillon dollars equivalent rupees and spend it with in such a short time ?
 
Gautam said:
I can agree with all of this. But the problem is each political term in our country is only for 5 years, any economic activity within that time frame will be considered short term. How do we gather 1.44 trillon dollars equivalent rupees and spend it with in such a short time ?
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I agree with @Golden_Rule - let me elaborate to best answer.
USA is in different league, as its currency is forced in oil transactions & preferred used by many countries for trade, so it can pump in huge amounts without any negative impact of additional money in system. Any other country except USA cant do this, as it will have consequences.

So lets examine what happens if any other country pumps in large amount in economic system - it increases Inflation
Pumping in additional money can be used for Revenue & Capital Expenditure, both will have very different results & final outcome effect in economy be very different from each other. Revenue Expenditure is for salaries etc, while Capital Expenditure is in Infrastructure projects etc.

If additional money is pumped in and that is used for revenue expenditure, its one time money used & lost permanently with no long term benefit, it doesn't bring in any benefit to economy & actually endup being a long term liability. This is the case of Pakistan - Its additional annual money goes in salary/military etc & not in any infrastructure & social economic uplifting process - hence it is contracting & losing out all economic capabilities. So it is very important if any country prints & pumps in more money in economy, it is never used up in revenue expenditure or never used in partial revenue expenditure. Revenue expenditure should always be based on economy size, its true revenue generation ability, which comes from true demand & supply of goods & services.

Any country can pump in additional money in local currency for Capital Expenditure, its traded with slight inflation increase. When money is pumped into buildup infrastructure, it has short term inflation impact, but mid & long term very desirous impact on economy. You increase the overall industrial activity (demand) to meet the infrastructure requirement, this creates jobs in both the industries manufacturing, but also create job on implementation of infrastructure on short term basis.
In mid term basis the new money pumped, ends up circulating in the economy, which creates more demand supply. It increases other industries output too as overall demand supply has picked up. This helps increase the overall base in economy.
The new infrastructure, too adds to efficiency in economy & speeds up industrial activity around the project, thus gaining on its own slow by steady buildup, leading to more wealth creation.
In long term picture gets more rosier, as overall economy base is increased.

Now lets examine current economic situation, inflation is around 4-5%, economy faces a severe liquidity crunch, last couple of quarters has showed demand & supply is slowing down drastically & non financial banking sector is on verge of collapse which will effect Banking sector in Domino effect, something I already highlighted in Indian Economy : News,Discussions & Updates post.

So if India prints say 1.44 trillion dollar worth of Rupees for purely Capital Expenditure in Infrastructure, country will face couple of bases points extra inflation, couple of years inflation at 7-8% is not all that bad, not doing will be worse. It will solve current economic problems of severe liquidity crunch. the slowdown in demand/supply will be reversed. The non financial banking sector & resultant Banking sector eminent collapse be avoided. More jobs be created, more infrastructure be available, which will create more economic activity & more wealth. It will increase overall base lvl economy size & increase long term revenue generation.
The inflation can brought down after couple of years, as economy stabilizes.

So yes if I was advisor to govt, I would seriously recommend, govt to print more rupees, spend it on Capital expenditure only, and any new money not to be spend in any additional revenue expenditure. pump in as much money as possible on Capital expenditure, while keeping inflation cap at 8% as maximum value for next couple of years 3 be good & then bring it down to 4-5% for last 2 years in tenure. It will not only solve all the economic problems faced today, it will help create a better base for tomorrow & increase wealth creation with additional infrastructure & increase overall base demand supply lvl in economy.

Not sure if 1.44 trillion dollar rupees can be pumped in while keeping inflation capped at max 8%, but as much is possible additional done, will be all good for economy. Japan & other countries possible infrastructure fund creation to compete with China, can be used here. Especially Japan can provide a lot of fund for infrastructure at low rates of interest in partnership with Japanese govt & few other from private sector, which can be more viable in able to generate assured returns, ie economical feasible projects of self return.
A combination of 3, printing additional money, low rate of interest by Japanese govt for infrastructure projects & other allies financing & economical feasible projects of self return via private sector assured returns, can fulfill the requirement of 1.44 trillion to a large extent.
High rate of return on Infrastructure Projects - Private sector can fulfill it
Mid rate of return on Infrastructure Projects - Private + friendly govt like Japanese financed on low interest rate
Low rate of return on Infrastructure Projects - Govt additional money printed, used for it, for long term return
 
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A very informative post. Thank you for taking your time to write this. Much appreciated.
Here are some of my guesses for the projects 3 categories.
LoneWolfSandeep said:
High rate of return on Infrastructure Projects - Private sector can fulfill it
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Roads, bridges, railway lines, Airports, housing etc.
LoneWolfSandeep said:
Mid rate of return on Infrastructure Projects - Private + friendly govt like Japanese financed on low interest rate
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Expensive projects that we have little experience in, like bullet trains.
LoneWolfSandeep said:
Low rate of return on Infrastructure Projects - Govt additional money printed, used for it, for long term return
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power plants, mining some rare materials etc.
LoneWolfSandeep said:
Any country can pump in additional money in local currency for Capital Expenditure, its traded with slight inflation increase.
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Why does inflation increase when additional local currency is pumped in the system ? Demand-Supply balance ? With more supply, value of currency decreases and thus the same thing costs more to buy, is that close to the actual reason.

Inflation is arguably the most important criteria used by the masses to judge the economic performance of a government. As such rise in inflation is likely going to cost Modi politically. Granted he does have a lot of political capital to sell, still 8% inflation will become problematic. Especially in India where we have never ending elections.
 
Gautam said:
A very informative post. Thank you for taking your time to write this. Much appreciated.
Here are some of my guesses for the projects 3 categories.

Roads, bridges, railway lines, Airports, housing etc.

Expensive projects that we have little experience in, like bullet trains.

power plants, mining some rare materials etc.
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I wouldn't do such generalized categorization of high, mid & low rate of return in infrastructure. Instead any big project can have some parts which will give high returns & some portion which will not, so its better on piece meal basis. Example a long highway, passing through multiple cities, between 2 major cities, will give high rate of return as lot of traffic flows & other section may not be the case, as traffic may not be that high & terrain difficult. Similarly a Airport in a Teir1 City may be high returns, Teir 2 High or Mid depending on city & Teir 3 low rate of return.
But we need different investment strategies for different expected rate of return projects
Gautam said:
Why does inflation increase when additional local currency is pumped in the system ? Demand-Supply balance ? With more supply, value of currency decreases and thus the same thing costs more to buy, is that close to the actual reason.

Inflation is arguably the most important criteria used by the masses to judge the economic performance of a government. As such rise in inflation is likely going to cost Modi politically. Granted he does have a lot of political capital to sell, still 8% inflation will become problematic. Especially in India where we have never ending elections.
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Well we are in condition where there is severe liquidity crunch & shrinking demand supply - we have no option but to increase liquidity in market. Small pain is must in way of inflation or will cause extreme severe pain in economy, if we dont. that's why said to limit political fallout, keep last to years low inflation for next tenure.
your question - Why does inflation increase when additional local currency is pumped in the system ?
Yes its a Demand-Supply thing, if money supply increases more than real growth it causes inflation, you can get detailed money supply & inflation correlation explanation here https://www.economicshelp.org/blog/111/inflation/money-supply-inflation/
Hope that provides, required clarity.
Seriously wish Modi ji don't hire a lawyer or politician for FM post, instead put some economics turned Politian etc in helm of FM position. If giving the post of FM to a pure Politian is a must, due to political compulsion, then hire & create a team of renounced economists to create a Economic thinktank & policy advisory/direction team based on govt vision & objectives. Modiji wants to work, but the team below him is not necessary the most capable or best. Half baked understanding of economy is a recipe for disaster in long term, correction needed ASAP.
Ideally money supply should keep increasing year-on-year at same rate as increase in Economy growth rate for free increase in liquidity & economy boost.
 
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Bali78 said:
Piyush Goyal is the best option for FM position.
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That's what the rumours are. But I prefer a professional. Just like PVN Rao wanted I G Patel who declined and suggested MMS who in turn scripted history, it's time we got a professional. Modi's job would be to manage the politics of it and leave the economic & financial where withal to the professionals. We don't have much time. The last 5 years have been a disappointment as far as the economy was concerned. Look at the leap China has taken inspite of the looming trade war with the US, the internal scenario and the many hiccups the BRI is facing. Their GDP has gone from 11 trillion USD in 2015 to 14 trillion USD in 2018.
 
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_Anonymous_ said:
If AS is the heir apparent, he'd get the HM post. That's the most important post today in India notwithstanding the FM post.
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Seniority in RSS decides the posts. Rajnath will stay HM. Amit Shah will start off as RM and take over from Rajnath in due coarse of time. This will give him exposure to two most important ministries before he takes over from Modi in 2027. Yogi might move in as his HM in 2027.
 
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