India's GDP $ 40 Trillion in year 2020?

Can you believe it? India's GDP will be $ 40 Trillion in the year 2020, that is 40 times what it is today!. You do not believe it? But that is what the stock market tells us.

From the lows of March 2009, Nifty has gone up by about 2500 points in about 6 and a half months (roughly 160 trading days). The rate is about 19 points per day. During the period 2003 to Sept 2007, in a period of four years, Nifty gained only about 3500 points at an average of 3.5 points a day. This was when there was no apparent problem with the economy and the GDP growth rate was touching 9%. Considering the rate at which stock market is growing, i.e. 16 points a day, which is about 4.5 times the rate of the previous bull run, it points to a 40% GDP growth rate. Over eleven years, this should translate into a GDP of $ 40 Trillion. WOW! And what about the market? At this rate of growth we shall see Sensex close to 2,00,000 by the year 2020..

Obviously, the above is most unlikely. This points to an absolutely irrational market today, which should see a correction sooner or later. We need to be patient.

Fiscal Deficit - April-July 2009

The Period of April-July 2009 saw a fiscal deficit of Rs. 1.55 Lakh crores. This is about 39.5% of the target for the full year. At this rate we will comfortably burst the full year target. Considering the monsoon failure, it is more than likely we will indeed go past the target. However, there is a silver lining, though one should not react to one data point very quickly. The addition to fiscal deficit in July was about 0.31 Lakh crores. This does show that the deficit was controlled better in July. Why was it so? We need more data to be able to see how this happened and whether this is sustainable. The detailed data is yet to be released by the govt.

More details on release of detailed data

Fiscal Deficit - Now it is Pranabda who speaks

Pranabda has said that high fiscal deficit is unsustainable. Well, what does that mean? An end to further stimulus? If so, the govt. sponsored improvement in economy is likely to die out soon. Watch out for green shoots withering and turning brown.

Agriculture - An area of concern

India may be a long term growth story, but we do have our areas of concern. One such is agriculture. No, i am not going to write on the failure of monsoon, but what is evident if we do some data analysis.

India, with about 160 million hectares under agriculture has the second largest land under agriculture, just behind the United States. This area is larger than the area in Europe or the area in China devoted to this activity. So what is the problem?

Consider the following.
1. Agricultural growth in India has been much slower than our population growth in recent years.
2. Despite being the second largest producer of wheat and rice in the world, our productivity is way behind many countries.
3. With increasing industrialization and urbanization, the land under agriculture will reduce in the coming years.
4. Population in our country is likely to grow by about 30-40 crores in the next 40 years.
5. Population of the world may grow by about 150 crores in the world during the same period.
6. In view of 5 above, do not expect availability of much food through imports.
7. With better standards of living in the country, per capita consumption of food is bound to go up.

Should we worry? I think yes. If we do not improve our yields soon, we may see food problems in the years to come, monsoon or no monsoon.

Where does the money come from?

Keynesian economists conveniently ignore this question when they preach govt spending/stimulus to revive economies out of downturns. Now Warren Buffet has raised this question. Not necessarily always right (nobody can be always right), nevertheless, when Warren Buffet speaks, one must listen.

The link is
http://www.fortunewatch.com/warren-buffet-america-has-hit-the-panic-button/

We must also stop and take stock. Should India be on the path of high deficit? Mind you Krugman suggested just a few days back that in an interview suggested that the plan to balance the budget can wait till the next year. Do we want to follow his advise and reach a stage where somebody like Warren Buffet reminds us that things are no longer good?

Excerpt of Krugman's interview published in Economic Times dated 11th Aug 2009 is pasted below

What will be your advice to India as our budget balance is fairly scary, but the FM has said: I’ll worry about it later and play for the growth now?
I think that’s right. You do have to have a plan in place to restore a healthy budget but not this year. Not with the world economy still so fragile, not with so much excess capacity still out there.

Real Estate

The Times of India on date carries a huge supplement on real estate. I do not remember having seen anything like it before. I think it is a desperate bid to sell real estate. Does not look good to me. The real estate sector in India has some time to go before it can recover.

It also means that the Indian economy is not yet out of the woods.

Monetary Policy Review

Writing after a fairly long time.

The Monetary Policy Review released a couple of days ago by the RBI makes interesting reading. I will make no comments. The figures speak for themselves. Just go through all the tables. The link is

http://rbi.org.in/scripts/NotificationUser.aspx?Id=5190&Mode=0