The leash on animal spirits.

According to the National Statistics Office, "Real GDP has been estimated to grow by 6.5% in FY 2024-25." "As per the First Revised Estimates, Real GDP has grown by 9.2% in the financial year 2023-24." "As per the Final Estimates, Real GDP has observed a growth rate of 7.6% in the financial year 2022-23." pib. gov.in. The growth rate for FY23 was revised up by 60 basis points (bps), from 7% to 7.6%, while that of FY24 was upped by a full 100 bps, from 8.2% to 9.2%. BS. while  "For the full financial year (2024-25), growth is seen at 6.5%," which "implicitly assumes that economy will grow at 7.6% in the fourth quarter." "Large magnitude of revisions makes the assessment of economic conditions and formulation of policy responses a challenging task," wrote Prof Radhika Pandey & Pramod Sinha. "Smaller revisions in GDP numbers are a common practice, what baffles analysts and economists are the massive revisions." "Provisional GDP numbers usually rely on listed firm's data. The unlisted (unorganised) firms' data is usually available with a lag. It is likely that unlisted firms fared better," said economist Subhada Rao. According to the Annual Survey of Unincorporated Sector Enterprises (ASUSE) 2023-24, "the average informal sector firm operating in the market had just 1.64 workers (including working owners), of which just 0.42 were hired workers." The gross value added (GVA) of the firm "less emoluments paid to workers and rental paid on fixed assets - was just Rs 14,836 per month or Rs 178,036 per year," wrote Abhishek Jha & Roshan Kishore. "87% of informal sector firms in the 2023-24 ASUSE data are own account establishments which means they hire no workers and run with just the working owners and unpaid family members." "Even in manufacturing almost three-fourths of the workers are either owners or unpaid family members." "Growth in private consumption as well as investment remain at least two percentage points per annum lower than their pre-2019 rates." "Meanwhile, private-sector data broken up by industry groups also points to a drying up of pent-up demand," wrote Prof Himanshu. A report from Blume Ventures estimates that India's consuming class is only as big as that of Mexico at 130-140 million, while "around a billion lack money to spend on any discretionary goods or services." BBC. We need to remove "ambiguities in laws and regulations", cut the powers of bureaucrats and punish those who abuse the rules, wrote Pradeep S Mehta. In FY 2000, "household savings accounted for 84% of the total savings in the economy, but this share has now dropped to just 61% in FY23." Financial savings fell from 101% of GDP to just 5% of GDP while financial liabilities have risen from 2% to 5.8% over the same period." ET. The government has scrapped bilateral investment treaties to protect national interests but foreign companies will not invest because they have little faith in our justice system and our merchandise exports are less than 3% of global merchandise exports, and shrinking, wrote TCA Sharad Raghavan. GDP is just a number, the economy is the people. 'Animal spirits'  (Investopedia) cannot be unleashed unless the restraints are removed. Government is the leash. 

Low risk, low volatility.

"Six years ago, only one in 14 Indian households channeled their savings into the stock market - now it's one in five." But, "For six months, Indian markets have slid as foreign investors pulled out, valuations remained high, earnings weakened and global capital shifted to China - wiping out $900 billion in investor value since their September peak." "The number of Indians investing through SIPs (Systematic Investment Plans) has soared past 100 million, nearly trebling from 34 million five years ago." BBC. "So, is there blood on the streets?" asked Somnath Mukherjee. Nope. "Stretch that back three years, investors are up 11% p.a. on Nifty 50 and nearly 13% p.a. on Nifty 500." The real problem is the excessive "supply of new paper - via IPOs, QIPs, promoter and PE sales." So, this is only reversion to mean. The big red flag is that "Promoters of Nifty 50 firms are offloading their stakes at an unprecedented pace, with ownership sinking to a 22-year low of 41.1% in the December quarter, according to NSA data." "The timing is telling: promoters sold as stock valuations soared to record highs, cashing out before the market corrected." ET. They must have known their earnings were going to fall. "In India's case, much of the stock market rally between April 2021 and September 2024, when prices peaked was driven by retail investors, particularly those investing in equity mutual funds through the SIP route." "So, the individual rationality of investing in stocks through SIPs led to the aggregate irrationality of making Indian stocks overvalued." This is the 'fallacy of composition', wrote Vivek Kaul. "In the recent market decline, 1% of stocks have experienced catastrophic losses exceeding 80%, while another 59.7% have seen declines of 25-50%. Alarmingly, 8% are now trading below the March 2020 lows, signalling erosion of stock market confidence." However, "The Vix, measuring 30-day implied volatility, currently sits below 14, implying a period of reduced perceived risk." HT. Is this calm because promoters and large brokerage houses have booked their gains at the cost of retail investors? "RBI data showed outward foreign direct investment in equity from India in April-January at $11.3 billion, against $7.7 billion in the same period a year ago." The Chief Economic Advisor V Anantha Nageswaran called for more investments within India, saying, "the required growth rate of 7.6% in the March quarter for India's economy to achieve a growth of 6.5% for the full financial year was not unrealistic." man.com. On 1 January, "A bunch of top companies is hanging on to almost Rs 1 trillion of free cash that it has yet to find a use for, according to an analysis by a proxy advisory firm," wrote Nehal Chaliawala. Companies are not investing. Their owners are selling out. Individuals are left with dud investments. If this is 'reversion to mean' then India's mean is very low indeed. Hence, everything is calm. 

Win the peace.

"Iran's stock of uranium close to weapons grade has jumped since it announced a dramatic acceleration in enrichment in December," and "The stock of uranium refined up to 60% in the form of uranium hexafluoride grew by 92.5 kg in the past quarter to 274.8 kg, one of two confidential IAEA reports said." Reuters. This has happened because of previous President Joe Biden. In February 2021, "The Biden administration rescinded former President Donald Trump's restoration of UN sanctions on Iran, an announcement that could help Washington move toward rejoining the 2015 nuclear agreement aimed at reining in the Islamic Republic's nuclear program." AP. "Several senior Russian missile specialists have visited Iran over the past year," and "A senior Iranian defence ministry official said Russian missile experts had made multiple trips to Iranian missile production sites last year, including two underground facilities." Reuters. On 28, February, "Ukrainian President Volodymyr Zelensky was suddenly asked to leave the White House after he had a heated standoff with US President Donald Trump." "The meeting, which was aimed at signing a joint US-Ukraine deal, went into shambles after a shouting match involving Trump, Zelensky and Vice President JD Vance." ET. "A report by New York Post suggests that Democratic lawmakers may have played a role in Zelensky's decision to reject a crucial mineral deal with the US," as according to Sen Chris Murphy (D-Conn), "during their discussion, Zelensky confirmed that Ukraine would not support a peace agreement with Russia if it didn't include real security arrangements for Ukraine." "The meeting took place just hours before Zelensky was due to meet with Trump, and it seems that Democratic leaders in Washington were advising Zelensky to reject Trump's proposed deal." ET. Democrat duplicity could increase Ukrainian casualties as, "President Donald Trump is ordering a pause on shipments of US military aid to Ukraine," which "could have dire effect on Ukraine's war-fighting abilities, officials and analysts said." CNN. Further, "The future of US support for Ukraine is being pushed further into doubt, with National Security Adviser Mike Waltz confirming yesterday that the US has stopped intelligence sharing with Ukraine." BBC. Before his meeting with Zelensky, Trump "underscored his administration's position that Ukraine's aspiration to join NATO, the Western military alliance is not tenable." ET. That is all Russian President Vladimir Putin wants. This is Zelensky's chance to show his patriotism and diplomacy. He should negotiate a security guarantee, not with Europe or the US, but with Russia, by committing to staying out of NATO. Security guarantees for both sides. See through Democratic trickery. And Europe's perfidy (CSIS). Win the peace.  

We need to shield ourselves.

"US President Donald Trump in his joint address to the Congress today vowed to kick-in reciprocal tariffs against India and China from April 2, 2025." FE. "India charges us 100% tariffs, the system is not fair to the US, it never was. Whatever they tax us, we will tax them. If they use non-monetary barriers to keep us out of their market, then we will use non-monetary barriers to keep them out of our market," Trump stated. India has instituted strict Quality Control Order (QCO) for imports and exports (Tax Management India) but "The USA, Canada and 17 other members have raised 35 specific trade concerns (STCs) about India's quality control orders over the years. Members criticize India's responses as not entirely responsive to their concerns." Ply Insight. "India's import duties are in compliance with the global trade and the government should convey this to the US administration, economic think tank Global Trade Research Initiative (GTRI) said." ET. That is naive. On his first day in office, Trump issued an Executive Order withdrawing the US from the World Health Organisation (WHO) (The White House), so he is not likely to respect the WTO. In addition, "All Indian commerce ministers from Kamal Nath onwards sought to keep India as closed as possible, and would return from WTO meetings claiming triumphantly that they had protected Indian interests." "In recent years, many analysts have declared that WTO is dying or dead. India cannot escape responsibility for this," wrote Swaminathan SA Aiyar. Indians could be affected by other policies of the Trump administration. Automatic renewal of H1B visas to be cut from 540 days to 180 days. BS. In 2024, Indians "made up 72.3% of the 386,000 H-1B visas issued". Also, "Trump signed an executive order...to combat antisemitism and pledged to deport non-citizen college students and others who took part in pro-Palestinian protests." Reuters. Indian students identified taking part in such protests could be sent back without completing their degrees wasting all the money spent. In addition, "Canada's tightening stance on immigration is also affecting the number of study permits granted to Indian students." "Moreover, the Fall 2025 applicants face the new C$20,635 GIC (guaranteed investment certificate) requirement." NDTV. "Estimates suggest that around 427,000 Indian students are currently enrolled in Canadian institutions." But, "nearly 20,000 Indian students have not joined their respective colleges or universities after arriving in Canada, and the government has no record of their whereabouts." TOI. Indians, who had entered the US illegally, were sent back in handcuffs and shackles. NDTV. The Narendra Modi government "genuinely believes that India's position as the fastest-growing major economy will automatically ensure continued investments and fast growth," and seems completely delusional about "India's export competitiveness - and whether Indian companies even want to export." The Print. The biggest weakness for India may be that Mr Modi would like to remain prime minister forever, while Trump is in his last term and will go in four years and Canada Prime Minister Justin Trudeau has announced his resignation (CNN). They have nothing to lose. India has to shield itself while maintaining diplomatic decorum. Will the arrows pierce through?         

Tax cuts of Rs 8.7 trillion.

"Gross GST (goods and services tax) collections grew 9.1% to about Rs 1.84 trillion in February." GST collections in January increased 12.3% year-on-year to Rs 1.96 trillion and 7.3% in December to Rs 1.77 trillion. ET. Collections increased from Rs 215.72 billion in July 2017 to an all-time high of Rs 2.10 trillion in April 2024. wikipedia. This is due to more efficient collections, bringing more companies into GST net and a doubling of average annual inflation from 3.3% in 2017 to 6.7% in 2022 (RI) and, though the average annual rise of inflation fell to 5.7% in 2023 and 4.9% in 2024, GST continues to hit record numbers because inflation  compounds year to year. However, the government has  reduced income tax rates for individuals. "Individuals and HUFs (Hindu undivided families) got cumulative rebates worth Rs 8.7 trillion, compared with Rs 4.5 trillion of corporate tax incentives," over the past five years to 2024. ET. As ever, information about the government is never complete in India. Because even as the government was reducing income tax rates by tiny increments (incometax.gov.in), it was clawing back massive amounts from capital gains. Tax on long term capital gains (LTCG) has been increased from 10%-12.5% but the real damage comes from the removal of inflation indexation (Bajaj) because India always runs a very high rate of inflation. Tax rate for short term capital gains (STCG) has been increased from 15%-20%. Bajaj. But, sleight of hand has consequences, however cunning it may be. Foreign investors (FIIs) have been dumping Indian stocks because "In USD terms, foreigners have made virtually ZERO returns in the last 3 years and a paltry 7.8% in the last 5. Their stance to sell is not wrong from their perspective," said Alok Jain, founder of Weekend Investing. In 2020, one US dollar bought Rs 74.31. The rupee had fallen to 83.28 by May of 2024. worldtradescanner. com. The dollar is trading at Rs 87.36 this morning. xe.com. That is a fall of 17.56% in just five years. So, after paying STCG at 12.5% and losing 17.56% in converting rupees to dollars, FIIs have gained nothing in 5 years. After hitting an all-time high of 85,978.35 in September 2024 (FE), the S&P BSE Sensex is down to around 72,950 this morning. As FIIs buy dollars for repatriation the rupee falls. India's foreign exchange reserves "declined from an all-time high of nearly $705 billion in late September to $640 billion." In addition, "The RBI's net short dollar position in forwards and futures hit a record high of $77.5 billion in January 2025." "The data is released with a one-month lag." Reuters. The dollar short sales will have to be deducted from RBI's reserves in the future. The RBI has been indulging in gymnastics to defend the rupee. A weaker rupee increases prices of imports and adds to inflation. Higher inflation compared to the US depreciates the rupee. Tax cuts should be genuine. Fake cuts get fake results.   

All about credit.

Data released by the Ministry of Statistics and Programme Implementation (MoSPI) show that India's economy grew at 6.2% in the December quarter of 2024 and the growth rate for 2024-25 is expected to be 6.5%, which implies a growth rate 7.6% in the fourth quarter. Astonishingly, "MoSPI revised growth estimates for FY23 to 7.6% from 7% and for FY24 to 9.2% from 8.2%." BS. "Small revisions in GDP estimate numbers are common practice, what baffles analysts and economists are the massive revisions." "If accuracy of government data becomes suspect, the effectiveness of policy making comes under scrutiny as well." TNIE. This government is known to create data convenient to it. "India has officially recorded 414,000 Covid-19 deaths so far," but researchers from "the US based Center for Global Development used three different data sources" and "found that excess deaths were estimated to be in the range of 3.4 million to 4.7 million - about ten times higher." BBC. Since June 2024, the government discontinued releasing the goods and services (GST) data. "This data was not shared in a formal press release, but provided to reporters informally." Only the gross total collections were released but not the details. BT. The Reserve Bank of India (RBI) "estimates that from the end of 2018-19 up to the end of 2023-24, close to 151 million jobs were created," and "more than 31 million jobs were created even during the pandemic year of 2020-21." Former Prime Minister of China LiKeqiang "liked looking at indicators like railway cargo volume, electricity consumption and loans disbursed by banks in order to get an indication of which way the Chinese economy was headed." Similarly, "we could do with our own version of the LiKeqiang index," wrote Vivek Kaul. "Given the weaknesses in India's statistical system, annual data on many sectors are unavailable. India's national accountants use outdated data, heroic assumptions and rough proxies to fill these gaps in the national accounting database," wrote Pramit Bhattacharya. PC Mahalanobis and Pitambar Pant established the Planning Commission, created by Jawaharlal Nehru, as a knowledge powerhouse. "The major databases economists and analysts use today to track the economy such as the National Accounts series and the National Sample Survey (NSS). were shaped by Mahalanobis and his colleagues in the early years after Independence." Niti Aayog is the successor of the Planning Commission. "Several officials view the Aayog as the Union government's public relations and event management wing rather than a serious policy think tank," wrote Bhattacharya. All the credit rating agencies have assigned a rating at the lowest investment grade for India. TE. The government and economists in India believe that these foreign agencies are biased because India is the fastest growing major economy in the world. Forbes. However, these growth rates are seen as suspicious by those not working for the government. Foreigners use their own analysis. If data have no credit, neither will ratings. Nor the country.

India facing Trump plus.

"India's economy is on the verge of crossing the $4 trillion mark in FY25, with the latest nominal GDP estimate standing at Rs 331 trillion, or approximately $3.942 trillion, Chief Economic Adviser (CEA) V Anantha Nageswaran said." "The final figure will depend on the exchange rate." CNBC. "The World Bank has estimated that India will need to grow 7.8% on an average over the next 22 years to become a high-income economy by 2047 and underlined the need for a series of reforms to achieve the goal." The key is to increase productivity which needs a more open economy. TOI. "Future growth trajectory of the country will be led by revival in private investment, according to the State Bank of India (SBI)." SBI said that "gross capital formation - which represents overall investment in the economy - dropped from 32.6% of GDP in FY23 to 31.4% in FY24." Government and public sector investment reached an all-time high of 8% of GDP in FY24, but private sector investment fell to 24% from a 10-year high of 25.8% of GDP in FY23. ET. Mr Nageswaran also asked the private sector to increase investment in India so that capital formation rises from  30% to mid-30s of GDP. "RBI data showed outward foreign direct investment in equity from India in April-January at $11.3 billion, against $7.7 billion in the same period a year ago." Mint. The private sector is scared to invest because, since 2022, "'predatorily priced' Chinese imports - where the landed cost of imports is either lower than the cost of production or locally sold price - started flooding the Indian market. Prices tanked." If President Donald Trump imposes 60% tariff on China, "Chinese exports to the US are expected to fall by 85%. This output will find its way into other markets, including India." India's anti-dumping measures, at 15%, are far higher than the global rate of 2.4% but still it cannot compete. Mint. "US average MFN (most favored nation status) tariff on agriculture goods is 5%. But India's average applied MFN tariff is 39%." "All Indian commerce ministers from Kamal Nath onwards sought to keep India as closed as possible, and would return from WTO meetings claiming triumphantly that they had protected Indian interests." This has made the WTO irrelevant," wrote Swaminathan SA Aiyar. "To get our economy to top speed, we have gone from encouraging vocational training, to handholding MSMEs, to export promotional policies to Production Linked Incentive (PLI) schemes," following the Korean model of encouraging chaebols, but we forget that "Korea spends 5% of its GDP on R&D, whereas India only 0.7%. Of this small sum, the Indian private sector contributes a niggardly 41% against Korea's 79%. Tellingly, Samsung invests 8-11% on R&D, but Reliance a paltry 0.6%," wrote Prof Dipankar Gupta. "India is home to 1.4 billion people but around a billion lack money to spend on any discretionary goods or services," and "The country's consuming class, effectively the potential market for startups or business owners, is only about as big as Mexico, 130-140 million people, according to the report from Blume Ventures." BBC. That is one-and-a-half times the entire population of Germany at 82.23 million (worldometer). Why bother with R&D when there is a huge market at home, shielded by protection from the government? By forcing India to reduce tariffs Trump is doing us a favor, says Aiyar. But, how will our companies cope with a flood of Chinese goods? Some companies might fail. That will be devastating for the children of tycoons. "Modern scions believe in passive income, active vacations and aggressive networking at yacht parties," wrote Harsh Goenka. Must protect children.