Friday, October 29, 2010


The India growth story has been repeated by everyone. There are arguments as to whether India's GDP would grow at 8.5% or 9% or higher. Numbers are playing a key game. Therefore, it is interesting to note that the numbers for the standard of living in the country give a different picture altogether. While GDP has been growing, but then so has the population of the country. As a result, India's GDP per person, which is an indicator for the standard of living, actually ranks at amongst the lowest in the world.

Source : EquityMaster

Wednesday, October 27, 2010

Quantitative Easing, Currency Wars and its Global Impact

The US is initating a Global Currency War with its Quantitative Easing. The inflation that is supposed to happen in US due to Quantitative Easing is not happenning there but it is happening everywhere else. The FDI dollars are inflating the Stock and Commodity Prices stroking the inflation in India. Subba Rao, RBI Governer, says there is a hidden cost in maintaining the Dollar Rupee Exchange Rate.. Are Countries like India indirectly paying for the US excesses by trying to maintain the currency rates..


India and QE

India, like many other emerging economies, is finding it tough to cope with huge capital inflows as investors from the West seek higher returns in these markets, given their robust growth.

“The biggest problem thrown up by capital flows is currency appreciation, which erodes export competitiveness. Intervention in the forex market to prevent appreciation entails costs. If the resultant liquidity is left unsterilised , it fuels inflationary pressures. If the resultant liquidity is sterilised, it puts upward pressure on interest rates which, apart from hurting competitiveness, also encourages further flows,” Mr Rao said in his speech.

The Indian rupee has appreciated by nearly 6% since early September on the back of inflows of over $11 billion through the portfolio route alone. Central banks often manage huge capital inflows by buying dollars and infusing the local currency in order to protect their respective currency from steep appreciation. However, if inflows are too high, the central bank has to mop up the excess local currency by selling bonds or sterlising inflows. This puts upward pressure on interest rates. If inflows are not sterilised, there could be inflationary pressures . A few countries such as Thailand and Brazil have imposed controls on capital flows, but this has only stoked fears about more funds being diverted to Indian markets.

Subbarao said RBI has to manage the impossible trinity, which alludes to the fact that a central bank cannot manage its exchange rate, an open or liberal capital account and an independent monetary policy simultaneously.

An IMF analysis indicates that emerging Asian economies have done relatively well in sterilising the impact of reserves growth on their domestic financial systems, a Fitch Ratings report said. The report warns that there could be an adverse implication of the second round of quantitative easing, or QE2, on China and India.


China and Quantitative Easing

Dollar issuance by the United States is "out of control," leading to an inflation assault on China, the Chinese commerce minister said in comments reported on Tuesday.

Chen Deming, speaking at a trade fair in southern China, said that exporters had done a good job of preparing themselves for exchange rate changes as well as rising labor costs, but were suddenly confronted with new challenges.

"Because the United States' issuance of dollars is out of control and international commodity prices are continuing to rise, China is being attacked by imported inflation. The uncertainties of this are causing firms big problems," Chen was quoted as saying by the official Xinhua news agency.

Chinese officials have criticized U.S. monetary policy as being too loose before, but rarely in such explicit language.

Thursday, October 21, 2010

Trade Wars will collapse World Economy - Jim Rogers

Investment icon Jim Rogers says the trade wars looming on the economic horizon could spell disaster for the global economy.

"The word is on a very dangerous precipice, and if we do continue with trade wars, that's going to be the end of the world economy … we’ve seen many countries putting on capital controls already," Rogers, chairman of Rogers Holdings, told CNBC.

"If we don't solve this problem, it's finished, it’s all over.”

Saturday, October 16, 2010

Benoit Mandelbrot - The non-economist

Benoit Mandelbrot was the first guy who told that the models of Wall Street, which are based on the assumption of Normal Distribution of returns, are fundamentally wrong and would one day lead of collapse. He is the archetypal Ayn Rand Hero. He has passed away on October 10, 2010. This is a tribute (link from wired)





Carry Trade and India's Dilemma

Times of India reports:

As Carry Trade (Foreign Direct Investments)  enter the markets, they are required to be converted into rupee to invest in India. The huge inflow of dollar makes US currency cheaper in the market, resulting in appreciation of rupee. But, in the process no extra rupee gets infused in the system. To avoid such appreciation of rupee, RBI buys the large forexes . But in this case, the rupee gets infused in system, leading to increase in liquidity. Increased liquidity leads to softening of interest rates, which, in turn, become inflationary.

The RBI may intervene in the foreign exchange market to stem the appreciation of rupee against dollar. But such an intervention will lead to infusion of liquidity in the system, forcing softening of interest rates, which will frustrate central bank's efforts to contain inflation. Annual inflation in September has inched up marginally to the uncomfortably high level of 8.63%.

RBI governor D Subbarao said on Friday said that the central bank will intervene if the inflows are lumpy and volatile. "We are watching the situation and our policy is clear. We will intervene if (FII) inflows are lumpy and volatile or they disrupt macro economic conditions.


Will India too impose controls on FDI like Brazil?

Friday, October 15, 2010

Indian SoftPower



The anticlimax of the Commonwealth Games 2010 : Indian Sportspeople  make India proud. But Indian sport bureaucrats are not even apologetic. Hats off to the Indian Sports team.


Saturday, October 9, 2010

Wealth of the Nations


Despite all the bad economic news coming out of the developed world, the fact remains that they are way ahead of the emerging nations. The chart of the day shows the wealthiest nations in terms of a share in world wealth. As expected, the US and Western European nations lead the pack. However, the rate of growth in wealth is much higher in emerging nations, especially China. Ten years ago, the dragon nation was on the seventh place on the list. Today, it occupies the third spot. By 2015, it is expected to dislodge Japan at the second spot. India's wealth has also grown fast. It has tripled over the last decade and is expected to grow another 80% by 2015. But it still pales in comparison to the dragon nation. China is nearly five times as wealthy as India.

from : equitymaster