Skip to main content


Showing posts from March, 2011

Japan - Impact on India

A number of clients wrote to me seeking our views on the fallout of the tragic events that occurred in Japan. My first impressions are that their impact on India are likely to border on the marginal. Over the course of the past few days, the Bank of Japan pumped USD 280 bn into the economy and simultaneously offered a bond issue amounting to Y15 tn (approx USD 180 bn). In the short term, the Yen is bound to rise against a basket of currencies as Japan recalls its investments overseas and creates a demand for its own currency. In the longer term however, the economic impact of the tragedy will involve several rounds of pump priming and greater levels of Government borrowing, all of which will contribute towards rising fiscal imbalances. It is logical therefore, that the Yen will fall in value and this would much be as much a strategic imperative to bolster the competitiveness of the domestic economy as it would be an economic necessity. In the short term, the recall of Yen investments

Bengal - politics

I spent the year-end in Calcutta and noticed that very little had changed over the decades in that once grand metropolis. The crowds and commotion; familiar sounds of New Market and Chowrangee; the fairways at Tollygunge; the excitement of the races at the Royal Calcutta Turf Club and even the red flags with the sickle and hammer symbol fluttering peacefully outside offices and commercial establishments. Oddly, Calcutta seemed to me to be stuck in time but in a pleasant and reassuring sort of way. However, this may be about to change and abruptly. As West Bengal heads for assembly elections in the coming months, the gossip in the watering holes of the city’s old clubs is that Left Front would almost certainly give way to the Trinamool Congress Party and its leader Mamata Banerjee (presently the Union Minister for Railways) would assume the corner office at Writer’s Building. This may not in theory be bad for Bengal and Calcutta, but businessmen worry that the familiarity and predictab

Growth Moderation

IMA’s recently concluded Human Resource Survey reveals rapidly rising salaries and therefore perceptions of an upbeat business environment. Whilst our own forecasts propose economic growth close to 8.6 percent in this fiscal year, I fear that going forward things may turn out rather differently. Rising imbalances in some economic and financial parameters throw up risks. If they played out, they could spoil the plot. This paper will seek to explain. The Treasury has forecast a fiscal deficit of 4.6% of GDP in the coming year, down from the current 5.1%. On the face of it, the target does not appear particularly hard to achieve judging by a favourably downward trend in the past few years. However, its calculations assume a net rise in borrowings of only 2% and disregard the windfall profits from the sale of 3G spectrum. Effectively, the reduction in deficit amounts to approximately Rs 1 trillion. To make things worse the estimated subsidy on oil, which adds up to Rs 230 billion, is Rs 1