India Economy: Short term pain..Long Term?

The articles below outline issues which will determine future prospects...

1. Global economic conditions are not getting better
2. No industry is immune
3. The Government is under a microscope as it deals with the Economic and Security crises.

India's growth has largely been a result of Government getting out of the way of Private enterprise...progressive dismantling of the license-raj has removed barriers for new businesses.  How is a government that has been told to get out of the way for the sake of progress going to tackle problems where it is the "DOER".  The only area that Government has been allowed to be the "initiator" is Defence and Security.  The record is woeful.

India can do little about 1) and 2) above; but to hear an influential voice like Jack Welch put the Government of India on notice is ominous.  Can an administration which has been sleeping for four and a half years respond to this challenge?  My skepticism of this administration is tempered by my belief in the strength of the people and their will to succeed.

Outlook-for-India-gets-worse

“What will be the growth rate next year will largely depend on how the economy performs in the second half of the current fiscal.”

In the first half of this financial year (April-September), India’s economy expanded by 7.8%.The bank expects India to grow by 6.3% in 2008. The government has said India will grow by between 7% and 8% in 2008-09.

The bank’s Global Economic Prospects 2009 report estimated India’s growth next year at 5.8%, and said the world is on the brink of a rare recession

Yahoo to lay-off three percent in India

Small number, but the psychological impact is huge.

Mumbai terror strike may benefit China

“... all foreign companies can do right now is boost security for their people and wait. Meanwhile, many investors will be thinking about tilting the balance to China,” they wrote in a recent column for American publication BusinessWeek.

Noting that the possible slant towards China is understandable, the column said, “Despite persistent worker protests, the Olympics this summer left little doubt of the country’s ability to manage itself.”

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Global News: And the Hits just keep on comin'

Do not get suckered by rallies in the equity markets...the anchor is away, but not moored.  Below is a sampling of news globally, with my comments, noted.  Please tell me when you see a glimmer..and I don't mean technical indicators...which industry is finding its feet...it still looks like a vast wasteland out there.

Airline crisis

Global airlines are heading into their worst business crisis for 50 years with carriers facing possible collapse, revenues tumbling and hundreds of thousands of jobs at risk, the industry body IATA said on Tuesday.

This forecast comes after a 60% reduction in fuel prices...there is something very wrong with this business model...they go bankrupt when their major cost component rises and they get killed when their major cost component falls dramatically - Lee

World Bank:  Developing economies to slow sharply

The World Bank's 2009 Global Economic Prospects report projected that world growth will shrink to 0.9 percent next year from 2.5 percent in 2008 and warned that a long and deep global recession cannot be ruled out.

I would appreciate if the guys at the World Bank, IMF, BIS could send a copy of their economic forecasts to the Indian Government...our Ministry of Finance believes there will not be much impact on India and has provided a .6% of GDP stimulus package to weather this "Global ex-India" crisis - Lee

Sony Layoffs could portend wave of cuts in Asia

"It's only really getting underway right now," said Credit Suisse economist Joseph Lau. "It's not likely to bottom out anytime within the next two to three quarters, so we'll probably look at at least that much time in terms of further corporations restructuring their workforce and overall financial health."

The problem with buying market share is:  you do not make profits when the going is good and you get killed when the market tanks.  Sony and Samsung are two incredibly hard working and innovative companies cursed with the stupidest financial managers on the planet - Lee

Asian Trade in "Free-Fall"

A blizzard of grim data this week points to a full-blown trade slump across Asia, confirming fears that the region's strategy of export-led growth would backfire once the West buckled.

The saving grace for Asia is the foreign currency reserve kitty that countries have built up over the past few years.  When the slump ends (not if), these countries will recover faster...but they have to keep the savings intact and not blow them on currency defense in the short term - Lee

Diplomats reject Doha summit

Trade diplomats rejected proposals for a summit later this month, saying it was doomed to fail, in a rebuff to calls from world leaders to revive the stalled Doha Round of trade talks.

I thought these guys reported to the G-20 leaders...tail wagging the dog...or something else altogether? - Lee

Ex Bear Stearns chief says rumours killed Wall Street

"There's no more Wall Street," said 81-year-old Greenberg, who has worked on the 'Street for the last 61 years. "That model just doesn't work because it's at the mercy of rumors."

A great man, Ace Greenberg.  I grew up admiring his work habits and reading his short memos to subordinates, staff and colleagues.  Ace, please go enjoy your retirement; ...this is embarrassing.  One more reason India should not allow an 81 year old man to become Prime Minister in 2009...Mr Advani, I implore you to make way - Lee

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More losses from Banks...Rewrite Bretton Woods

Merrill Lynch and Citibank reported multi-billion dollar losses for the third quarter. First, I wonder if Merrill is done with these losses? Citi is just getting started on the consumer credit side of the losses so the bad news will probably get much worse.

I am exhausted by these losses..they are not nicks but gunshots in the middle of a nuclear explosion. All the senses are now dulled.

So on to something completely different.

The developed world wrote the 'Bretton Woods agreement' in the wake of its destructive two wars with itself. Most of the world was silent during these wars. They did not know what the conflict was about and did not really care as it was a family dispute between a bunch of Europeans. But the 'Bretton Woods agreement' affected all of these people.

The US dollar was made pre-eminent and a number of institutions rose up such as the World Bank, IMF etc...These institutions, for the most part, have been successfully used to get at the resources in the 'third world' for a pittance and of course created in some measure the incredible wealth of the developed world.

Now, out of the 'third world', nations have risen up, namely China and India, that demand a seat at every negotiating table. Besides having the workforce and skill sets for the 21st century, these countries have learned to use the 'Bretton woods institutions' to their advantage. The developed world is having to treat as equals those it had thought subservient and those it did not understand.

So out of this economic conflict we get a bolt out of the blue. A new 'Bretton Woods' is required..of course a full seat and vote will not be available to China and India at this negotiating table. I mean, more than token representation to hear what the group has decided about the 'global financial system'.

Here is the excerpt:

EU leaders called for a global summit as soon as next month to rewrite the 1944 Bretton Woods accord that paved the way for Europe's post-World War II reconstruction and set up the institutions that oversee the world economy today.


Bankers make ridiclous credit decisions; these are magnified through the lens of credit derivatives and securitization. Again a conflict between a bunch of Europeans (including Americans) is giving rise to something which may affect the whole world. Instead of dealing with the specific causes of the problems, they now want to rewrite the mandate of the World Bank and IMF amongst others.

I cannot begin to imagine what these countries have in mind to maintain their unsustainable standard of living; US is 5% of the world population and consumes over 50% of the planets energy. This is not sustainable; China and India are stirring and rumbling. Something has to give; I think someone has to be robbed in order for the 'developed world' to maintain its standard of living. A new 'Bretton Woods' sounds like a good place to start.

I live in the developing world and " Methinks something is rotten in the state of Denmark".

And now for the 'Joke of the Day' and its a real quote:

Italian Prime Minister Silvio Berlusconi said that political leaders are discussing the idea of closing the world's finanical markets while they "Rewrite the rules of international finance... The idea of suspending the markets for the time it takes to rewrite the rules is being dicussed."

I laughed so hard and for so long I had tears in my eyes; until I realized this guy has a seat at the table and I do not...then I was scared.

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