Japan’s economy in 2013

Japanese Prime Minister Shinzo Abe announced his plan about a year back to rejuvenate Japan’s economy and bring it out of years of recession and deflation. It is interesting to take note of some of the decisions taken, and their impact on the country’s economy.

Abe’s “three arrows” to achieve this goal are monetary easing, expansive fiscal policy, and long-term growth. The three, in combination are to reinforce each other, and transform Japan’s economy – which has recently dropped to 3^rd place among the top countries according to GDP.

Since “Abenomics” or Abe’s economic policy changes have come into effect, the actual output has come closer to potential input, with the difference dropping below 1.5% (deflation gap). While looking at the Nikkei index, Japan’s stock market, it has recorded unprecedented growth in 2013, with it touching its highest closing level in 6 years on December 3^rd, 2013. Simultaneously, asset prices have risen, and corresponding improvements are seen in the labour market – unemployment rate has come down to 4%.

All this has had an impact on the GDP as well, with a growth rate of around 4% during the first half of 2013. With respect to long-term growth, one factor that is quite useful is the filing of patents during a year. It is said that this would forecast how well an economy would do in the next 10 years. Japan had the highest number of patent filings in the world in 2012. Innovation along with improved trade with emerging economies, which Abe has voraciously encouraged, will ensure the vision of long-term growth.

Optimistic outlook for India’s manufacturing sector in 2014

Indian Manufacturing Sector’s Purchasing Managers’ Index (PMI) which is seasonally prepared by Markit, has consistently been below 50.0 since July 2013. 50 is the point in the index that differentiates a state of growth from one of contraction. In November though, there has been a spike in manufacturing sector activity with the PMI climbing to 51.3 due to new orders and increased output.

This also coincides with a spike in GDP growth in the second quarter this fiscal year which can be attributed to increased performance of manufacturing, construction, farm, and services sectors. Export, which is an indicator of India’s economic health, has also grown but only marginally. This would suggest that the domestic market was the main contributing factor for the GDP growth.

Industry experts claim that easing of RBI’s interest tightening cycle was also one of the other contributing factors to the improved performance. This can be corroborated with the fact that Wholesale Price Index based inflation was at an eight-month high in October (7%), and Consumer Price Index based inflation rose to 10% in the same month.

Inflation is a continuing concern for the economy and it is expected that the RBI will raise the rates again towards the end of this fiscal year. The goal is to maintain the rate of 5% which the RBI considers acceptable, which will consequentially help lower borrowing costs and increase economic activity.

India – Most attractive investment destination

2013 has seen the effect of the global slowdown on emerging economies as well. Growth in the fastest growing economies – China and India were down as well. The Indian government, who was under intense pressure to attract investments, has seemed to have turned things around a little bit. After a series of relaxations in norms related to FDI, the market is a lot more favorable for investment.

The recent survey by Ernst & Young seems to reinforce this aspect, with India topping the list of most attractive investment destinations. India is followed closely by Brazil and China. The remaining countries forming the top 10 are listed below:

4. Canada
5. USA
6. South Africa
7. Vietnam
8. Myanmar
9. Mexico
10. Indonesia

The top 3 investors likely to invest in India are the US, France and Japan; and they have been given new opportunities to invest after the Government of India relaxed FDI norms in many sectors earlier this year.

The Capital Confidence barometer report from E&Y is based on feedback from about 1600 senior executives from big organizations across 70 countries. This feedback throws light on automotive, technology, life-sciences, and consumer products as the most anticipated sectors for deals to be made. Mergers and acquisition activities are also expected to rise in 2014. The economic slowdown may have temporarily dampened investor spirits, but the increase in efficiency to combat the slowdown, has led to a much more favorable business environment.

Why consider India as a business destination-II

In the pipeline are 4 important bills that will bring smiles to the business world. The Goods and Services Tax (GST) bill is to be placed in the winter session of Parliament, and is expected to increase efficiency in movement of products across the country. The Direct Tax Code bill which is supposed to revamp the existing tax structure is also expected to be introduced in the winter session. One important bill, and also the most controversial, is the Land Acquisition Act, which was passed and is expected to come into force from the 1^st of January, 2014. This will help remove the long delays and litigation over acquisition of land for business activities.

When it comes to labour, India has about 500 million people who are under 25 years of age, who are all looking to live better lives. With such a young population, labour is cheap and abundant, and they are looking to exploit numerous entrepreneurship opportunities present in the country.

Indians are known to save for emergencies more than most countries. Consumer spending in India as compared to the GDP is just 57%, which is much lower than the US at 72%. This is why the potential for spending, and thereby sales for businesses is huge. India is in a transition period, which is paving the way for a much more favorable business environment.