The Role of Project Professionals Creating Agile Organisations - PMI UK Agile Forum - 18th Sept 2014
18th Sept, 2015 ASCENT
1
In 2013, when global financial markets were roiled by the ‘taper tantrum’, India also experienced large capital outflows that led to a steep depreciation in the exchange rate. Along with Brazil, South Africa, Indonesia and Turkey, India became part of the “Fragile Five” – a group of countries with inherently strong growth potential but highly vulnerable to external crises. In 2015, equities, debt, and currencies in emerging markets are being hit hard by the simultaneous expectation of a slowdown in China and an interest rate hike in the US. Indian markets appear to be one of the fittest among them. The table below compares key macroeconomic indicators in 2013-14 (the year of the rupee crisis) and 2014-15, as well as their position relative to a five year average trend. Two factors are responsible for the strengthening of the economy: the decline in commodity prices and the nature of India’s demand drivers. First, India is a net importer of commodities, so falling commodity prices have helped to bring inflation down substantially over the last year. Declining input prices have lowered the costs of production and kept net corporate margins robust, despite a slowdown in demand and sales. The low inflation environment has opened up opportunities for reducing interest rates; and RBI has already eased rates by 75 basis points in 2015. Monetary transmission is slow, but some banks have reduced lending rates, and more are expected to follow by the end of the year. In addition, the fall in international crude oil prices has improved India’s balance of payments by reducing the value of its oil imports. In 2013, a rising current account deficit led to a sell-off of foreign investment; last year, the low deficit attracted $40 billion through foreign direct and portfolio investment. The country’s forex reserves are at its highest ever level, and provide a comfortable cushion against debt servicing and import payments. Second, since the Indian growth story is driven by domestic consumption, rather than exports, it does not find itself in the dire situation of exporting nations such as Brazil, Malaysia, Russia, Taiwan and Australia. Private consumption has been growing steadily at 7%-8% y-o-y in the last two quarters, suggesting that households are using savings from lower inflation to spend on consumer goods. Quarterly investment growth is low at around 4%, mainly the consequence of low demand and already low capacity utilisation. However, government capital expenditure is growing at a higher rate than last year so far; if this trend continues; public investment could help to boost aggregate demand. GDP grew by 7% in the April-June 2015 quarter, equal to China’s real economic growth, and much higher than output growth in other emerging economies. As always, the main question to ask is whether India has the ability to sustain and build upon its present macroeconomic strengths. The RBI has acquired credibility as an inflation fighter; and the government has a strong political mandate. The Union fiscal deficit has been controlled through a moderate reform of the subsidy system. On the other hand, key reforms like the GST Act and the Land Acquisition Act have been deferred. Infrastructure scarcity continues to limit the growth of domestic manufacturing and exports. The large overhang of bad loans prevents banks from going all out to lend to industry; and the slack in the economy prevents corporates from going all out to invest and expand. Inflation has been smartly kept in check, but the below normal monsoon has the potential to hurt food prices later in the year. In sum, the only conclusion that can be drawn is that though India is not as vulnerable to an external shock as it was in 2013, there is still a great deal of uncertainty about domestic economic conditions and external developments. The economy is less fragile, but has a long way to go before it becomes fighting fit. ASCENT India: From Fragile to Fit? - Uma Shashikant & Deepa Vasudevan 18th Sept, 2015 All rights reserved. No part of content may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission in writing from Centre for Investment Education and Learning (CIEL). World in terms of Nominal GDP - Deepa Vasudevan This picture shows the relative size of each country’s economy in terms of nominal GDP. Each area is further divided into three sectors- agriculture, industry and services. The USA and China together account for 37.2% of world GDP, which explains why policy actions in the two largest economies impact countries around the world! It can be observed that most large economies tend to be service oriented. China is an exception because it has grown largely on the strength of its manufacturing sector, so industry and services are roughly balanced. The contribu- tion of agriculture, in particular, reduces sharply with economic development. We can expect India to follow a similar trend in future. The structure, outline, approach, content, framework and materials in this newsletter by CIEL shall be and remain along with all intellectual property rights therein or related thereto] the exclusive property of CIEL. (c) Moneykraft. A Centre for Investment Education and Learning Initiative Measures of Economic Activity Upto Dec 2014 GDP at factor cost 1. GVA at basic prices 2. GDP at market prices GVA: Total Value added by all sectors measured at basic prices GDP: Total Value of domestically produced output at market prices 1. Include Production taxes E.g Land revenues, stamp duties 2. Exclude Production Subsidies 1. Include Indirect Product taxes E.g Excise, Service tax, Import duties 2. Exclude Product Subsidies E.g Food, Fuel, Fertilizer GDP = GVA + Indirect Taxes - Subsidies GVA GDP Can be used for analyzingsectoral trends in output 1. Measures Overall Economic health 2. Used for Global Comparisons When GDP and GVA show different growth trends A rise in the rate of indirect tax without an increase in tax base does not increase real GDP This explains why real GVA increased but real GDP declined in Q12015-16 GROSS VALUE ADDED (GVA) VS. GROSS DOMESTIC PRODUCT (GDP) Basic Prices Market Prices From Jan 2015 6 7 8 9 2014-15Q1 2014-15Q2 2014-15Q3 2014-15Q4 2015-16Q1 GVA GDP % y-o-y Source : http://howmuch.net/articles/one-diagram-that-will-change-the-way-you-look-at-the-us-economy Website: www.howmuch.net - is a cost information website Macroeconomic Indicators Real Economy GDP growth (%) Growth in IIP (%) Gross Domesc Investment (as % of GDP) Inflaon CPI (%) WPI (%) Money and Financial Markets Broad Money Growth (%) Growth in Bank Credit (%) Ten-year G-sec benchmark (%) Average Call money rate (%) Rs./US$ exchange rate Government Finances Revenue Deficit (% to GDP) Fiscal Deficit (% to GDP) Trade Trade balance(as % to GDP) Current Account Balance (as % to GDP) External Vulnerability Forex reserves($ bn) Import Cover of Reserves (in Months) External Debt (As % to GDP) Debt Service Coverage Rao Average 2009-10 to 2013-14 7.0 3.5 35.8 10.3* 7.1 14.7 16.7 8.0 7.2 51.2 3.9 5.3 9.0 3.2 294.9 8.5 20.6 5.6 2013-14 6.9 -0.1 32.3 9.5 6.0 13.4 13.9 8.4 8.3 60.5 3.1 4.4 7.7 1.7 303.7 7.8 23.6 5.9 2014-15 na 2.0 9.0 8.0 4.0 7.3 2.8 5.9 10.8 8.3 61.1 2.9 6.8 1.3 340 8.9 23.8 7.5 *CPI-IW for the five year average; the new CPI for 2013-15 Source: RBI, CCIL, Budget Documents, CSO
Transcript of 18th Sept, 2015 ASCENT
In 2013, when global financial markets were roiled by the ‘taper tantrum’, India also experienced large capital outflows that led to a steep depreciation in the exchange rate. Along with Brazil, South Africa, Indonesia and Turkey, India became part of the “Fragile Five” – a group of countries with inherently strong growth potential but highly vulnerable to external crises. In 2015, equities, debt, and currencies in emerging markets are being hit hard by the simultaneous expectation of a slowdown in China and an interest rate hike in the US. Indian markets appear to be one of the fittest among them. The table below compares key macroeconomic indicators in 2013-14 (the year of the rupee crisis) and 2014-15, as well as their position relative to a five year average trend.
Two factors are responsible for the strengthening of the economy: the decline in commodity prices and the nature of India’s demand drivers. First, India is a net importer of commodities, so falling commodity prices have helped to bring inflation down substantially over the last year. Declining input prices have lowered the costs of production and kept net corporate margins robust, despite a slowdown in demand and sales. The low inflation environment has opened up opportunities for reducing interest rates; and RBI has already eased rates by 75 basis points in 2015. Monetary transmission is slow, but some banks have reduced lending rates, and more are expected to follow by the end of the year. In addition, the fall in international crude oil prices has improved India’s balance of payments by reducing the value of its oil imports. In 2013, a rising current account deficit led to a sell-off of foreign investment; last year, the low deficit attracted $40 billion through foreign direct and portfolio investment. The country’s forex reserves are at its highest ever level, and provide a comfortable cushion against debt servicing and import payments.
Second, since the Indian growth story is driven by domestic consumption, rather than exports, it does not find itself in the dire situation of exporting nations such as Brazil, Malaysia, Russia, Taiwan and Australia. Private consumption has been growing steadily at 7%-8% y-o-y in the last two quarters, suggesting that households are using savings from lower inflation to spend on consumer goods. Quarterly investment growth is low at around 4%, mainly the consequence of low demand and already low capacity utilisation. However, government capital expenditure is growing at a higher rate than last year so far; if this trend continues; public investment could help to boost aggregate demand. GDP grew by 7% in the April-June 2015 quarter, equal to China’s real economic growth, and much higher than output growth in other emerging economies.
As always, the main question to ask is whether India has the ability to sustain and build upon its present macroeconomic strengths. The RBI has acquired credibility as an inflation fighter; and the government has a strong political mandate. The Union fiscal deficit has been controlled through a moderate reform of the subsidy system.
On the other hand, key reforms like the GST Act and the Land Acquisition Act have been deferred. Infrastructure scarcity continues to limit the growth of domestic manufacturing and exports. The large overhang of bad loans prevents banks from going all out to lend to industry; and the slack in the economy prevents corporates from going all out to invest and expand. Inflation has been smartly kept in check, but the below normal monsoon has the potential to hurt food prices later in the year. In sum, the only conclusion that can be drawn is that though India is not as vulnerable to an external shock as it was in 2013, there is still a great deal of uncertainty about domestic economic conditions and external developments. The economy is less fragile, but has a long way to go before it becomes fighting fit.
ASCENTIndia: From Fragile to Fit?- Uma Shashikant & Deepa Vasudevan
18th Sept, 2015
All rights reserved. No part of content may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission in writing from Centre for Investment Education and Learning (CIEL).
World in terms of Nominal GDP- Deepa Vasudevan
This picture shows the relative size of each country’s economy in terms of nominal GDP. Each area is further divided into three sectors- agriculture, industry and services. The USA and China together account for 37.2% of world GDP, which explains why policy actions in the two largest economies impact countries around the world! It can be observed that most large economies tend to be service oriented. China is an exception because it has grown largely on the strength of its manufacturing sector, so industry and services are roughly balanced. The contribu-tion of agriculture, in particular, reduces sharply with economic development. We can expect India to follow a similar trend in future.
The structure, outline, approach, content, framework and materials in this newsletter by CIEL shall be and remain along with all intellectual property rights therein or related thereto] the exclusive property of CIEL.(c) Moneykraft. A Centre for Investment Education and Learning Initiative
Measures of Economic ActivityUpto
Dec 2014
GDP at factor cost 1. GVA at basic prices 2. GDP at market prices
GVA: Total Value added by all sectors measured at basic prices GDP: Total Value of domestically produced output at market prices
1. Include Production taxes E.g Land revenues, stamp duties
2. Exclude Production Subsidies
1. Include Indirect Product taxes E.g Excise, Service tax, Import duties
2. Exclude Product Subsidies E.g Food, Fuel, Fertilizer
GDP = GVA + Indirect Taxes - Subsidies
GVA GDP
Can be used for analyzingsectoral trends in output
1. Measures Overall Economic health
2. Used for Global Comparisons
When GDP and GVA show different growth trends
A rise in the rate of indirect tax without an increase in tax base does not increase real GDP
This explains why real GVA increased but real GDP declined in Q12015-16
GROSS VALUE ADDED (GVA) VS.
GROSS DOMESTIC PRODUCT (GDP)
Basic Prices Market Prices
From Jan 2015
6
7
8
9
2014-15Q1 2014-15Q2 2014-15Q3 2014-15Q4 2015-16Q1
GVA
GDP
% y-o-y
Source : http://howmuch.net/articles/one-diagram-that-will-change-the-way-you-look-at-the-us-economyWebsite: www.howmuch.net - is a cost information website
Macroeconomic Indicators
Real EconomyGDP growth (%)Growth in IIP (%)Gross Domestic Investment (as % of GDP)InflationCPI (%)WPI (%)Money and Financial MarketsBroad Money Growth (%)Growth in Bank Credit (%)Ten-year G-sec benchmark (%)Average Call money rate (%)Rs./US$ exchange rateGovernment FinancesRevenue Deficit (% to GDP)Fiscal Deficit (% to GDP)TradeTrade balance(as % to GDP)Current Account Balance (as % to GDP)External VulnerabilityForex reserves($ bn)Import Cover of Reserves (in Months)External Debt (As % to GDP)Debt Service Coverage Ratio
Average2009-10 to2013-14
7.03.5
35.8
10.3*7.1
14.716.78.07.2
51.2
3.95.3
9.03.2
294.98.5
20.65.6
2013-14
6.9-0.132.3
9.56.0
13.413.9
8.48.3
60.5
3.14.4
7.71.7
303.77.8
23.65.9
2014-15
na
2.0
9.0
8.0
4.0
7.32.8
5.9
10.8
8.3
61.1
2.9
6.81.3
3408.9
23.87.5
*CPI-IW for the five year average; the new CPI for 2013-15Source: RBI, CCIL, Budget Documents, CSO
