India’s Mutated Mutual Suspicion
Indian stocks continued to languish after August’s $2 billion in net foreign investor outflows, as Finance Minister Jaitley prodded the central bank to lower rates in the continued debate over independence and the Mumbai exchange’s long-awaited demutualization step through a $1 billion IPO was on hold despite the securities commission’s promise to act. International equity and bond allocation remains positive for the year in contrast to China and the rest of Asia, and the rupee’s drop against the dollar at around 10 percent has been a fraction of other major emerging markets. Minister Jaitley asserted that he and Governor Rajan were in accord over new monetary policy board membership where the government could not swing the vote and that 3.5 percent range CPI was “under control” with near-term commodity prices likely to be subdued. Regardless of monsoon trends food supplies have been warehoused while keeping the fiscal deficit under 4 percent of GDP, he claimed. Growth is on track for 7-7.5 percent and the current account deficit should be negligible as FDI has jumped 50 percent due in part to industry openings from coal to insurance, the Minister pointed out in defending the early Modi record. He signaled a further push for a national goods and services tax and cited insolvency law overhaul as key for bank cleanup and confidence. In the World Bank’s Doing Business ranking resolution takes double the time of BRICS peers and recovery value is only 25 cents to the dollar. Recent big plant announcements came from Taiwan electronics assembler Foxconn and US automaker Ford, but domestic investors remain skittish with rule delays and outstanding debt. Big family groups are trying to restructure obligations in the real estate, energy and infrastructure sectors to state-owned lenders in line for $10 billion in recapitalization over the coming years. The financial system agenda has been partially diverted by a poor and rural” inclusion “campaign to open hundreds of thousands of new accounts. Micro-lenders have been upgraded to offer services to this customer base under a special licensing regime, and eight out of seventy applicants were initially chosen.
The government did not concede defeat on the land acquisition bill, as it argued that ruling BJP party leadership in many states could align better policies. Services continue to represent almost 60 percent of GDP, and e-commerce has set off fierce rivalries between well-known names like Flipkart and Snapdeal. The Prime Minister’s “Made in India” manufacturing drive has been off to a slow start but phased corporate tax reduction from 30 to 25 percent has been well-received. Tax-free infrastructure bonds could lure overseas buyers pinched by the quota for normal government paper and lack of private alternatives. Foreign exchange reserves are at a record $350 billion and the Commerce Ministry has adopted a plan to double exports by end-decade. The US is the leading destination and pharmaceuticals could be an indirect beneficiary if the Trans-Pacific Partnership free trade negotiations are completed and voted on soon in member legislatures. With half of the 1 billion population under age 25 smart phone demand continues to jump 30 percent annually, even if top official communications are often contradictory.
