On 4th June , 2013 , I analysed the data and concluded that the Indian economy would grow below 4 % when most of our economists were speaking of returning to 6-7 % growth in the second half 2013 . https://commonmansblog.com/2013/06/04/the-titanic-is-sinking-can-we-do-something/
Leading global organizations like IMF / OECD have given similar predictions about Indian economy after 4-5 months of my analysis about the Indian economy
The recent reports of IMF on October 9, 2013 cut the India’s growth to 3.8 % in 2013 http://articles.economictimes.indiatimes.com/2013-10-09/news/42864491_1_world-economic-outlook-growth-forecast-global-growth
Also , OECD stated on 19th November, 2013 that India would grow at 3.4 % http://www.bloomberg.com/news/2013-11-19/oecd-cuts-global-growth-forecasts-on-emerging-market-slowdown.html
On one side , we have European Union’s inflation rate declining to a four-year low ( Mint , 16th November, 2013) and UPA is still groping in the dark to figure out how to handle inflation , deficits and govern this nation
To me , the fate of truck operators & tractors companies and not the sensex, is directly related to the fate of the common man & is the right indicator of the nation’s economic health. Trucks are the means for transporting goods and thereby, the correct parameter to judge the movement of economy. Truck operators are exiting truck business ( Mint, 26th November, 2013)., which is an indicator of the negative economic indicators
Sales of trucks dropped 29% in the first seven months of 2013, and truck sales have been declining for 20 months in a row according to SIAM and the existing truck operators are operating at 40 % of their capacity. Mint dated 26th Nov.
In my view, this mirrors with the growth slowdown of the economy that was once growing more than 8 % and is now growing around 4.5 % ….. High octane speeches of returning to double-digit growth are fine , but when our markets and rupee move with the news of US quantitative easing , it is good enough of the proof, that the intrinsic strength of this country’s economy is weak and of a lesser weightage than just the good news of foreign markets ( tens of thousands miles away ) or the US quantitative easing !
Small truck operators which constitute 75 % of the market are worst hit ( Mint , 26th Nov), and this must be good enough to sum up where have these Oxford, World Bank, IMF famed economists taken this country to ? May be, good rains can shower some temporary good news , but in the short-term and middle term , India has more tears to worry for than merry for this years good rains
No wonder, S&P downgraded IDBI bank debt to junk status . (Nov 26, 2013). More banks are under strain, but I believe that they would not declare NPAs before the next financial year to avoid disclosures that could add to their and the country’s woes !
Please see the data below . If you carefully examine the data , a few things are apparent ;
1. Sales drop in tractors indicate poor state of affairs in agri- rural India ( decline in agricultural sector )
2. Sales drop in Medium and heavy ( M&H) segment indicate actual decline in industrial output
3. Sales drop in light commercial vehicles (LCV ) indicate that the ‘Public sentiment’ is negative .
In the tractor segment 3,44,911 units were produced as against 3,72,282 units in the same period of last FY, registering 7% decline according to the data of Tractor Manufacturers Association [TMA].
As per the data of the Society of Indian Automobile Manufacturers [SIAM], total production in M& H segment was 2,11,530 vehicles against 2,72,400 in the same period of last financial year.
Source : http://www.business-standard.com/article/companies/steep-fall-in-commercial-vehicle-production-in-apr-dec-113012500139_1.html
VE Commercial Vehicle sales down 20% in December
By PTI Jan 01 2013 , New Delhi
India presses the ‘Panic Button’
India needs USD 80 Billion of foreign capital to fund its current account gap. Imagine, finance minister Chidambaram doing a road show in Hong Kong to woo investors! Anand Sharma twisting the rules to get IKEA money & pushing for getting dollar funds via FDI in retail, Pranab shunted to Rashtrapati Bhawan & the Vodafone tax amendment being redone..Do all these not appear as desperate measures? I wrote a few weeks ago, on how the ministries are making plans without money, and this is happening for the first time in history…
If the country has strong fundamentals, why should the finance minster be doing a road show in the first place! The panic does not end here, the budget cuts in important sectors like defense and other social sectors does signal that all is not well within India, and the panic button has already been pressed! We are nearing a ‘Fiscal slide’ & the consequent ‘hard landing’ will be steeper than the ‘fiscal cliff’ of the US. We are back to the 90’s. That time also, on the pressure of IMF, we had to ‘open’ the economy. Now the countries that ‘forced’ India to open the economy are also in the same boat ….So now the veiled threat of down grades.
This Government has not addressed the problems of India, as they have not diagnosed the problem rightly …….Our finance ‘doctors’ are just ‘suppressing the symptoms’ and not trying to ‘address the cause’, & So, the disease will never get cured. More pain in store for the Indian Economy
I hope we do not go the Kingfisher way………….
Rajendra Pratap Gupta
On 22nd March 2012, i had written that we have ‘Oversold the India story’ ( https://commonmansblog.com/2012/03/ ) , and what i had predicted for the economy in the April , May and June quarter, happened !
Again , on 11th October 2012, i wrote on my blog ‘How India was fast turning from a ‘Emerging economy’ to a ‘Submerging Economy’ ( web link : https://commonmansblog.com/2012/10/11/india-from-emerging-to-a-submerging-economy/ ) . Now , read the fact about our Central Bank . As i said earlier , i am not worried on the 2014 for elections , but for the economic scene that will unfold in 2013 for the average Indian middle class , we are building a disaster & fooling ourselves ! It is a call to action !
On November 5th ,2012 , The Economic Times carried the report that , the country’s central bank , Reserve Bank of India ( RBI ) would run into losses if asked to pay interest on mandatory percentage of deposits banks have to park with the centre bank , called the Cash Reserve Ratio ( CRR). The RBI has stopped paying interest on such mandatory reserves since 2007. Finance ministry had suggested the bank to pay 7 % interest on these deposits .
Does it mean that the country’s central bank has collapsed ? If yes , why have we not discussed this in parliament, and are looking at FDI and other ways like stake sales in PSU’s and auctions of the sovereign assets to hide this news and infuse money in the system .
NEW DELHI: The finance ministry has decided to review the expenditure and reserves position of the Reserve Bank of India (RBI) after the central bank indicated that it is not in position to pay interest on the reserves banks maintain with it.
A government official downplayed it as a routine review of the reporting structure and disclosure requirements of the RBI, but it comes at a time when there is already obvious tension between the finance ministry and the central bank over the conduct of monetary policy.
“It is the government which tables the annual report of RBI in Parliament, so there is nothing wrong if it (government) wants to know how RBI prepares its balance sheet. We are not questioning them or raising objections,” a ministry official said.
However, another finance ministry official admitted that the review started after the RBI had indicated that it would run into losses if asked to pay interest on mandatory percentage of deposits banks have to park with the central bank, called the cash reserve ratio (CRR). The RBI had stopped paying interest on such mandatory reserves since 2007.
The finance ministry had suggested that the RBI should pay 7% interest on these deposits, pitching it as a measure that will help lower rates even if the central bank does not ease monetary policy. It had argued that all major central banks either do not mandate a reserve ratio or pay an interest on the mandatory reserves they ask banks to set aside.
“RBI had made certain arguments. Now, we want to understand their expenditure sub heads, format of disclosures so that we both are on the same page,” the official said.
The government is studying RBI’s expenditure, revenue, contingency reserves and investments, he added. On Tuesday, the RBI dashed hopes of a rate cut, but lowered the cash reserve ratio (CRR) by 25 basis points to 4.25%.
Please check more eye-opening statistics on Indian Economy on my blog .
From January , 2013, i will be working full-time to figure out the economic model for India , that will take the country out of the current crisis
Last week you made a statement that , ‘ 50 grams of potato chip are sold for Rs. 10 , and that this is made from just half potato’ ! Correct ! But again , Rahul don’t forget that the foreign companies no lesser than Wal-Mart ( likes of Pepsico ) are selling these expensive potato chips made from half a potato . So, does it not make more sense to check the growth of MNC retail chains / companies in India, who are buying cheap potato but ‘profiteering’ by selling chips at Rs. 10 per packet and the poor farmer is losing his produce at a throw away price ?
Also, I wish to draw your attention towards the fact that currently the farmers are paid Rs. 1 per KG. I cannot understand why will ‘Profit & balance sheet obsessed’ Retail chains pay more to these poor farmers !
Simply stating that the middlemen would be removed and so farmers will get more, is a fallacious statement and conveys a lack of your ignorance about the realities. I think your party and Maya ji are fighting in the ‘aerial warfare’ with no touch of realities on the ground
I read another news that Rae Bareilly will get a commercial airport
Let me enlighten you about the Awadh region where your dad , mom & yourself have fought & won elections for decades
The Awadh region once ruled by nawabs and taluqdars and known as granary of India because of its fertile Gangetic plain. The area has given prime ministers to the country – Indira Gandhi, Rajiv Gandhi, and Atal Bihari Vajpayee. But most districts are still backward.
Population | 3.654 Cr
Per Capita Income | Rs 13,150.81
Faizabad division | Faizabad, Ambedkar Nagar, Sultanpur, Chhatrapati Shahuji Maharaj Nagar, Barabanki
Devipatan division | Gonda, Balrampur, Shravasti, Bahraich
Kanpur division | Kanpur, Ramabai Nagar, Auraiya, Farrukkhabad, Kannauj, Etawah
Lucknow division | Lakhimpur, Lucknow, Sitapur, Hardoi, Unnao, Rae Bareli
Now here is an interesting fact : Purulia is better off than Rae Bareli and Amethi and this was quoted in this article of Business Standard & Mid-Day. http://www.mid-day.com/poll2009/2009/apr/270409-Purulia-is-better-than-Amethi-Left-tells-Rahul.htm
Let me walk you through a planning commission report on the per capita domestic product , and the NDP per capita in your family’s constituency.
Net domestic product (total and per capita) 2006-7 as per planning commission, Government of India
|At Current Prices||At Constant Prices 1999-2000|
|Domestic Product (Total) Rs. in CR.||Per Capita Domestic Product (Rs.)||Domestic Product (Total) (Rs. in Cr.)||Per Capita
Domestic Product (Rs.)
So clearly, getting an airport in Rae Barielly is a stupidity of the highest order, and that too, when it is clear that the region is back ward and people can barely survive a year without good rains leave alone travelling by air ! Please read the per capita income and check out if the poor people of that district can even afford the air port taxes leave along the airfare !
I have visited Amethi and met up with dozens of self-help groups that you have formed in Amethi, and let me tell you that, you are just ‘Using’ the emotions of these poor people for becoming a member of Lok Sabha from Amethi
While I was travelling to Amethi, none else than your own people (close associates) have informed me that the worst road in India is between Rae Bareilly and Sultanpur. Do I write more!
Learn from Mr. Vajpayee , who started the Golden Quadrilateral project for the Aam Aaadmi and your government is more interested in airports, so that you can fly directly to Amethi rather than taking the 2 hour road drive to Amethi via Lucknow . You are wasting the hard earned money of common men like myself , who earn by hard work and pay 1/3rd of our income as taxes to the government , and people like you go and throw it for things like building an airport at Rae Barielly !
Gandhi Dynasty has taken India back ward by at least 30 years , and we need to stop it soon.
I also don’t understand what is your intent for the so-called ‘Food Security Bill’ and ‘Job Guarantee Bill’. You will give fixed income to people so that they do not have to work and then you guarantee them food ? So it means that people will not have to work and earn the food , and will get it free ? Where will the Rs. 5 lac crore come from for these schemes ? Will these things take India forward or your party men who will get the ration shops to distribute ( read divert ) grains and sell them to the open market, and finally , the poor Aam Aadmi will be left stranded on the road !
Wake up Rahul ! Time will never forgive your people, and the elections will decide your fate not this ‘aerial warfare’ .
Rajendra Pratap Gupta
Healthcare I Retail I Rural Economy I Public Policy
Government’s arguments for FDI in retail are a proof of the fact, that this government does not understand India, and looks at Indians from USA’s businessmen’s perspective. Congress government has become the biggest lobbyist for pursuing the business interest of nuclear & retail corporations from USA & Europe at the cost of India’s middle class
Today’s Economic Times (26th November 2011) headline ‘ Govt Sells Multi-Brand FDI with best bargains’ gives a list of reasons why the government is supporting, (rather pushing FDI ) in retail. Let me put the Common Man’s view and take on each of these arguments
1. It will create 10 million jobs in the next 3 years
A) According to the CII report in 2007, ‘India will need 10 to 12 million skilled workers every year for the next five years to meet the growing demand from the support services and there is a need for strong intervention to ensure the availability of the workforce’. So is the government trying to say that it is only the retail chains that will create 10 million jobs in the next three years?
B) Let us examine how many jobs Wal-Mart created in America & how many jobs did Wal-Mart create in India for the past 3 years of operations both as a wholesaler and as a retailer ? How many jobs our Indian retailers like Future group, Aditya Birla retail and Reliance retail created in the past 3 years? We will clearly see that they did not even create a million jobs!
C) Also, government does not talk how many Kirana stores will shut down in the next 5 years and how many homes will be denied of a source of income ?
D) Wal-Mart or for that matter any retailer works on the least number of workers per square feet (lean management structures ) ,and so it will kill the 50 Kirana stores thereby get at least 250 people out of jobs and then create 50 jobs per super market. Is this factored in the statement? I am willing to prove this in the current retail scenario leave alone the scenario when the foreign retailers come in?
2. Several billion dollars of investment in retail
A) If retail is a great business, the government banks should give loans from domestic financial institutions and let the homegrown retailers grow and build scale and size and let the profits remain in India. Why should we give 51 % of the ownership to foreign players, as these people will sell to Indians and take the profits out of our country. USA / Europe will solve their income and earnings problems and India will get into problems of high inflation and more volatile stock market. Also, Indian retailer being less than 50 % of their share in the retail will become servants to these MNC chains under the current 51 % FDI norms.
B) Why did the government not start with 26 % FDI in multi brand retail for the first five years? Why suddenly start with 51 %. Please justify?
C) Often it has been quoted that the foreign retailers will bring technical know how to Indian retail market and boost the economies of scale and productivity? Which technical know how is the government talking, it needs to explain? I have been a COO / Board member of a major fortune 20 company’s retail operations in India, and I can tell you that these foreign retailers only bring money and no other expertise! They work on high profits, highly automated environment and lean man power structures. So government’s reason of the technical know how is fallacious and is showing that we Indians do not understand retail. Let us look inward and see our home-grown retailers like Future group and Aditya Birla retail .They are certainly growing . Government must bring out a detailed white paper on the so-called ‘Technical Know how’ these foreign retailers bring to Indian retail market?
D) With these billions of dollars coming in India, India’s real estate will become expensive thereby, contributing to keep the inflations levels high for the medium class not just for real estate but for all the sectors
E) Also, these billions of dollars are not charities to India or Indians . These are investments by retailers which follow a ROI ( return on investment concept ) for every dollar spent. So for sure , they people will invest in retail one dollar and take out 10 dollars from India over the next couple of years . Retail is mostly done on inventory management which is on credit from vendors . These retailers follow a credit cycle which ranges from 15 days to over month . So with a double-digit profit margin , these retailers will only be investing one time into infrastructure and then make money without investing at all ,as all the inventory is on a credit cycle . ‘Sell and pay’ is the mantra for these FMCG retailers ! Even the space which is rented by these retailers is leased to product companies for hefty display charges. These retailers charge a heavy fee for listing products in its store before selling .Our policy makers , wake up and understand the real dangerous game of FDI in retail and don’t get carried away by the billions of dollars of investment . It is not true . One time investment by these retailers will be a life long profit for their parent company’s home country
3) Farmers will get more than 12-15 % of the consumer price they get for fruits and vegetables
A) In reality, farmers will never get a higher price but will be exploited by these MNC Chains .In fact, these MNC retailers will push in for stringent quality checks and other prohibitively expensive conditions for these farmers thereby, forcing the poor Indian farmer out of his livelihood. Most of the retailers will take to contract farming, and thus the farmers will be reduced to being laborers in the hands of these MNC chains.
B) The History of these MNC chains has shown the these chains are out to squeeze blood out of their vendors and farmers will certainly be vendors for these MNC chains and nothing else . Wal-Mart and other retailers are facing dozens of cases of exploitation and gender bias in developed country where the legal system is strong . Imagine what will happen in our country ?
4) Consumers will get producers at Cheaper Prices, as competition will bring down the prices
A) Even without competition the prices will come down by a few paisas or may be a few rupees, but, all these chains will increase the MRP (Maximum retail prices) of the products, and so the consumer will end up paying more than what s/he pays today. Take an example of the MNC pharma companies. Since there is a ceiling of price increase by 10 %, so every year the pharma companies increase the prices by 9-9.5 % and thereby, circumventing the price increase regulations.
B) It is clear that the consumer is not a winner, no one pay’s from its pocket OR profits to the consumer. If there is a price increase on the input costs, the same is passed on to the as an increased MRP or the quantity is reduced for the same price. So the consumer’s pocket is always ripped apart by these retailers
5) 30 % mandatory sourcing from small-scale sector will help small industry
A) This has not been a convincing argument, so we are trying to tell that a small company out of Varanasi will compete with HUL and win? Come on Dr.Manmohan Singh, are you trying to fool Indians? I understand that you studied at Oxford, doesn’t mean that rest of the Indians are going to get carried away with these statements
B) Also, these MNC chains will put conditions that are either too stringent to be complied to or prohibitively expensive to be implemented by these SME’s, and so finally, these chains will find a reason to evade buying from these SME’s. Also, that the SME’s are not just limited to India, but across the world, so probably, Chinese SME’s would benefit more than Indian SME’s
C) These retailers charge a heavy fee for listing products in its store before selling. How will SME’s afford that ? The fee currently for Indian retailers varies from few thousand to over a lac for products for companies . SME’s will never be able to benefit from these chains even if they are able sell to them, as they will pay for listing and then cry for the payment – which will depend on the vendor payment cycle varying for weeks to months and small vendors (SME’s ) cannot survive this big box retail game
6) 70 % of retail is in food items and these are mostly sourced locally
A) If 70 % of the retail is in food items and this is sourced locally, why allow 51 % of the profits to go out of India? So FDI should not have crossed more than 30 %!
B) Local Indian retailers (existing Kirana stores ) must be trained to deal in these food items and deliver better value for the country and its economy.
C) This argument of the government goes against its own policy. So whereas, 70 % of the products would be food items, 51 % profits from these categories would go out of our country, thereby, clearing pushing the inflation higher perpetually for the next couple of decades. As there will be less money in our country chasing more goods ( as money would have found its way to parent MNC) – Simple economics Mr. Kaushik Basu!
7) Ikea already sourcing 30 % of inputs from India
A) So if Ikea is already sourcing 30 % inputs from India, let other chains also do the same before starting their shop in India.
B) If these MNC chains buy from India and sell in India and take 51% of the profits abroad, what is India’s gain? The government must come out clean on this?
8) Approval only after investors meet all conditions, including 50 % investment in back end
A) This statement of investment in backend is a foolish statement. Already 100 % FDI is allowed in wholesale, why justify it for retail and link it up? Let these retailers first invest in back-end for the first five years and next five years invest in front end
B) Government has FCI (Food corporation of India) godowns and what is the government doing for enhancing the efficiency of this biggest warehousing corporation – Can this FCI not become the Cash and Carry for small retailers ? A drastic improvement in supply chain of FCI godowns can bring down the wastage of food grains by hundreds of tons if not thousands of tons. Please pursue the project of Mr.Atal Behari Vajpayee of Golden Quadrilateral and link up all the FCI godowns, and start a national Agriculture produce transport corporation to start weekly transport during the harvesting season from the farms to FCI and nearest towns. The farmers co-operative and IFFCO should manage this. With this, farmers will not only get good prices but the wastage will be reduced substantially. Why are you looking at FDI to solve this simple problem of inflation . This can not only solve the inflation problem but also improve productivity at all levels , create more jobs ( may be , millions of low & middle-income but high productivity jobs ) and reduce inflation .
C) Learn from ‘operation flood’ by AMUL and how it solved the shortage of milk problem of our country and created a world-class brand. See what M.S.Swaminathan did with ‘Green Revolution’ to increase the production of grains in our country. Please do not justify that foreign retailers will help you bring down inflation. Remember that ‘Inflation is reversible but FDI is not’ and do not sell our country to foreigners for a short-term gain of a few billion dollars to our economy. This is anyway not the dollars to our economy, but the investment of dollars to take back dollars. I am sure that all these MNC chains a ROI (return of investment) method of calculating the investment returns. So I wish to ask our government that what does the ‘retail FDI dollar’ bring to India, which Indian government cannot do with its own money?
9) Government will have the first right over procurement of farm produce
A) This statement has no value. Government has shown no concern for farmers except considering them as voters and leaving them at the mercy of rain gods.
Questions that the government must answer
- What has the government spent to train local Kirana stores in the past five years? When yesterday only the government asked for Rs.56000 crore of the tax payers money despite a huge budget deficit, why did it not ask for even a Rs. 1000 crore for retailers training and up gradation?
- Why did the government not start with FDI in retail at 26 %? Why suddenly at 51 %? Has the government become a lobbyist for MNC chains?
- Has the government done its own independent studies for the impact of retail chains on Kirana stores?
- The biggest plank of allowing the FDI is that inflation will come down. So despite allowing FDI, if the inflation does not come down, will the government revoke FDI in retail? Does that rider appear in the CP (Condition Precedents) for allowing FDI in retail?
- Government needs to prove that FDI in retail can create million jobs every year. How and why, and which retailer will do that. All this must be put in the business case for allowing FDI? Why is government becoming the spokesperson for these MNC retail chains? What is the deal?
- Where and how much wills the retailers invest in back-end? This has not been specified?
- Why has the government not capped the retail margins of foreign retailers in India?
- See point 5 B, why have women self-help groups / handicrafts been excluded from being the beneficiaries of the retail entry
- Why are retailers not mandated to invest in retail training ?
- More questions to follow
Rajendra Pratap Gupta
Healthcare I Retail I Public Policy