Economic relationship between India & China under the NDA Government

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India’s new prime minister Narendra Modi meet with China’s foreign minister on Monday and talked about building an Economic partnership,  China’s  president Mr Wang is also visiting India as special envoy as one of the agendas to be discussed is regional security, China is well acquainted with Modi as Modi has visited China 4 times during his post as chief minister of Gujarat state for 12 years.

Sushma Swaraj met Mr Wang for three hours on Sunday with his Indian counterpart, The discussion largely involved issues as reported by the Ministry.

An understanding and respect for each other is essential for spread of bipartite relations, as jointly announced by the two sides.  Both India and China look forward to economic cooperation and have dismissed the past tensions over the line of control (LOC) controversy as history, The emphasis was for India-China and Asia’s prosperity by working for reciprocally advantageous trade and investment as economic partners.

The visit was notably warm, with positive rhetoric from both sides. Wang repeatedly praised Narendra Modi’s election victory, referring to him as an old friend of China.

There are still some worries about Beijing’s developing power and the decades-old jarring (issue), over their shared 6,400-kilometer (4,000-mile) Himalayan LOC that triggered a brief war in 1962.

Modi said India didn’t want a war with China during the election campaign, however he said the country would be willing to deal with what he called Beijing’s probable expansionist strategies.

Narendra Modi has a good vision of India economy future included strong relationship with her Asian neighbours.

Accomplishing that objective with anything less than a positive relationship with China will be significantly challenging. Modi’s government has not yet addressed contentious economic issues between India and China such as India’s significant trade deficit with China.

Modi’s top foreign policy objective seems to be gearing India’s foreign relations towards powering its economic growth.

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Japan’s tremendous growth in Q1 2014

Japan

Japan’s economy, in the first quarter of 2014, grew at an annual rate of nearly 6%. This was largely due to the impending sales tax increase, and companies & consumers increased spending to avoid paying the extra tax. This sales tax increase (from 5% to 8%), however, is expected to cause a contraction in the on-going quarter.

Data released by Japan shows that it was, as expected, private consumption, corporate spending, and investments in real estate that most contributed to this growth. In real terms i.e. inflation adjusted growth in the first quarter over the preceding one was 1.5% – which is the fastest rate since the 2011 tsunami.

A lot of credit has to go to Prime Minister Shinzo Abe, whose goal it has been to get Japan’s economy back on track. The cornerstones to this plan are higher government spending, low interest rates, and economic overhauls. His plan is supposed to focus on the long-term which means it is not just about getting Japan out of its long-term deflationary rut. It is also about sustaining a steady level of growth.

Also a positive sign is the recovery of US and European economies, which would increase Japan’s exports, which have been declining over the last few years.

It is only when one has experience with international markets, as well as the Japanese market, can one predict the direction that the market can take.

Exit Polls effect on Indian Stocks

exit poll

2014 has been a good year for the Indian stock market with steady rise over the first few months. The Sensex, until May this year, has risen over 13% and has touched several record highs. 12th May was the last phase of the Indian elections. This included the city of Varanasi where the BJP’s prime ministerial candidate Narendra Modi was contesting from. Though expectations were of a new BJP led government, the exit polls confirm this forecast. The BSE Sensex rose over 500 points on Tuesday, 13th May after results from various exit polls showed that it will be a BJP led National Democratic Alliance that would form the next government.

These rises are not limited to the day of election results, as experts forecast long term rise of the index. This is because a stable government is expected to take charge of the slowing economy, and induce medium term economic growth with major policy reforms.

With respect to foreign investment, in the last 2 years India attracted about $22 billion annually of foreign flow into Indian equities. In comparison only $5.5 billion of such funds have entered Indian stocks in 2014. This shows the scope of growth and the impact of the change in government.

-Vaibhav Sharma is a keen observer of the Indian market and provides valuable insight into investing in India.

Intellectual Property Rights & reforms for India

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India’s intellectual property rights (IPR) regime is not considered an effective one by the international community. For one thing, the legal system must be fast-tracked, and the use of compulsory licensing for essential pharmaceutical drugs must be for exceptional cases and not a norm. This along with certain updates to its IPR legal structure would lead the way for many foreign companies to invest in India.

This is not the only hold-up for companies, as even with new sectors being opened up for FDI, there are several measures that are still not implemented. Only when issues such as land acquisition and revenue sharing are sorted out can a clear go-ahead be given to international companies. This is because in the current scenario, companies need to have a lot of patience and resources to tackle the cash flow uncertainties.

In terms of money pumped into India over the last ten years – European corporations lead the way with nearly $200 billion, followed by Japanese and US firms with $130 billion and $50 billion respectively. The common route undertaken by most of these companies is greenfield ventures or strategic acquisitions.

There is still widespread optimism when it comes to India as an investment market because of the potential, and the recent willingness for reforms.

 

 

 

Increasing Indian Economy in 2014

Indian-Economy1

India’s growth is anticipated to increase from 4.4 per cent in 2013 to 5.4 per cent in 2014, supported by slightly stronger international growth, rising export activity, and implementation of recently approved investment opportunities. India has also managed to reduce its CAD, or current account deficit due to a rise in exports in recent months and due to measures implemented to curb gold imports.

Policy measures to bolster capital flows have additionally helped cut back external vulnerabilities, says the United Nations agency – IMF.

Overall growth is expected to depend on policies supporting investment, while the confidence boost from recent policy actions, however, could stay below trend, it added.

Government has to perform certain tasks to spice up the economy- investment addressing delays within the implementation of infrastructure, rising policy frameworks within the power and mining sectors, reforming the intensive network of subsidies, and securing passage of the new merchandise and services tax to underpin medium term financial consolidation.

According to the globe Economic Outlook, additionally to endeavor near-term vulnerabilities, Asia ought to additionally still push ahead with structural reforms to reinforce medium-term prospects. In China, reforms that liberalise the national economy and lift the value of capital are going to be key to raising the allocation of credit and boosting productivity growth. For Asia as an entire, growth is anticipated to accelerate from about 2 per cent in 2013, to a slightly better 5.5 per cent in 2014 and 2015.

India & Modern Economic Path

Economics

A new government will be formed in India in May. The major issues debated have been with respect to corruption and economic growth. This is primarily because of the plethora of corruption scandals that have plagued the current government, as well as the slowing growth of the country’s economy.

Whichever parties form the government, the key to getting the economy back on track is by embracing modern policies that focus on increasing productivity across all sectors, liberalized trade, and robust innovation policies. Such a strategy would encourage and develop local industries that can compete globally. It would also solve unemployment by creating job opportunities within the country.

Restrictive policies that are forced on companies to benefit domestic industries is a short-term action. Such policies are counterproductive to long-term sustainability of domestic industries, as they make them less competitive globally and discourage foreign investments.

A modern economy also requires the setting up and diligent functioning of regulatory bodies. This would serve consumers by protecting their interests, as well as increase the threshold and level of operations of companies. It would also require inter-organization coordination as there are several bodies already present at state and national levels, but fail due to lack of coordination and bureaucracy. There are several international regulatory bodies and trade bodies as well, that need to be considered by modern economies, that India aims to be.

Growth & the Bottom of the Pyramid

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2000-05 2006-11
Number of non-agricultural jobs created 7.5m 7.5m
Change in number of agricultural workforce +20m -36m
Direction of rural wages Stagnant Rising

 

Since independence, this is the first time that the net change in the size of the agricultural workforce indicated a fall in number than a rise. Millions of people have left the agricultural sector for employment in other industries, which is a common phenomenon in developing economies and involves reducing agricultural employment, but increasing output through mechanization and modern techniques. This structural transformation leads to increased productivity for the entire economy.

Such a transformation has also led to the first time that the number of poor in the country has fallen over a 5 year period. Non-agricultural jobs included construction related and industrial employment, and when combined with higher agricultural productivity, they also have led to an increase in the level of workers’ wages. Demand for labor as well as the policy for minimum prices for cereals and wages has led to this rise.

This segment of the population, which has increased wages, also expresses an increased demand of consumer products. Demand increase leads to increase in production and thereby employment. This feedback loop will sustain significant growth in the Indian economy for the following decade and it is important for businesses to consider the bottom of the pyramid for their growth as well.