Sudip Bandyopadhyay’s Blog

Entire South East Asia is currently evaluating and emulating relevant lessons from “Thaksinomics” made famous by the ex-Prime Minister of Thailand, Mr. Thaksin Shinawatra.  His bottom-up approach to economics has gathered widespread appeal across the developing world. Thaksin’s approach – that access to capital, employment opportunities and basic social services can transform disadvantaged regions into growth engines – is now an accepted wisdom. As rural debt holidays and village-level business loans energized grass-roots manufacturing and services, and improvements to Thailand’s weak social safety net – particularly the creation of a nearly free system of basic medical care – liberated rural households to save less and spend more.  Thaksin called it “dual track” development, building a vibrant local market alongside the export sector, and it worked.

Chinese President Hu Jintao called for “Harmonious Growth” when the Chinese National People’s Congress met last March.  This week the Chinese and the Hong Kong press have been speculating that Beijing would soon declare a massive fiscal stimulus package targeting disadvantaged sectors of the economy.
The Income disparities and structural flaws are particularly apparent in the fast developing BRIC nations.  India, China, Russia and Brazil all suffer from these flaws.  A massive oil discovery and investment grade credit ratings  fuelled expectations that prosperity for Brazil’s 185 million people was only a matter of time.  But a historic neglect of education is a major road block in Brazil’s quest to join the big leagues of developed economies.  A shortage of skilled labour is already proving a drag on economic growth and diversification, and experts say Brazil will continue to struggle until its schools improve and more of its workers are properly educated.

Many critical structural reforms are still awaited in India and needs to be carried out without any further delay to ensure political, economic & social harmony.  The proposed pension, Commodity Market, Banking & other Financial Sector reforms,  Rural education and development initiatives needs to be put on an accelerated growth trajectory.  The real task of Balanced Nation Building needs to start without any further delay.

Indian Capital Markets last week witnessed a sharp movements during the week and ended in positive territory inspite of  negative headwinds again coming in from the crude oil basket. Crude prices after correcting earlier saw a spike to touch $ 119  a barrel during the week on reports that the Tropical storm Gustav was potentially likely to affect oil supplies in the near term. On the positive side, headline Inflation numbers during the week turned out to be moderately lower at 12.40% from 12.64% in the previous week.  The decline in Inflationary levels was primarily driven down by lower prices of non-administered fuel products but Inflation is yet to peak off convincingly which could take another 3-6 weeks.

Meanwhile the GDP growth during Q1 2008-09 (Apr-Jun) stood at 7.90% slightly below the consensus expectation of 8.02%; (Q4 2007-08: 8.8%; Q1 2007-08: 9.2%). This is the first time that  GDP growth has slipped below 8% after nine quarters. Reflecting the slowdown in macro numbers, Moodys has also scaled down its GDP growth  target for India to 7.9% in 2008-09 from 9% last year against the backdrop of  rising interest rates and slow credit growth. More importantly high oil prices, and a whopping fertliser subsidy bill is likely to ensure that the government exceed the fiscal deficit target of 2.5% of the GDP for 2008-09 by a significantly higher margin.  In case oil prices continue to remain high for a much longer period, it would be no surprise that the government would have to then take some hard decisions. Also with the monsoons being only moderately positive till date and not excellent as compared to last year, there is a growing belief that Agriculture growth for the coming year may well disappoint and offer little support to the GDP growth this year. Incidentally  Q1FY09  Farm sector growth stood at 3% versus 4.4% (YoY).

Meanwhile on the global markets front, stronger exports and higher consumer spending supported by the government saw GDP growth in the US growing robustly by 3.3% in Q2 after recording a 0.9% growth in Q1 of current year. Consumer spending which fuels two thirds of the US economy grew at 1.7% with exports growing at 13.2% in this period.

In the domestic capital market, expiry of Aug Series in F & O had usual jitters and series closed indecisively. However start to the Sept series was with a bang on the back of very positive global cues and moderating domestic inflation. Unlike last month this series has started off on little heavier side with more roll-overs on stock futures side.(83%), indicating more action outside index. FII’s continued to remain net sellers through the month of Aug to the tune of Rs 3088 crs thereby indicating cautious approach on the Indian markets. Volumes still continue to remain low and are clearly indicative of lesser participation from the Institutional players.

In view of a truncated week and no build ups on positive or negative side either, the coming week may see a ‘ranged’ and indecisive movement in the index.  Action may get shifted to stock specific trading.

( ** this is the transcript of the weekly column I write for Economic Times )