Tag: economist

Sunder’s List: The Economist Edition

German Logo of the ECB.


India went through its own version of socialist hell post-independence. We are still bearing the consequences spawned by our embrace of a misguided ideology. The young don’t remember it. But now, thanks to the French Socialists, they can get a run-by-run on what happens when socialism afflicts a country. “Mr Hollande seems to want to put a break on the Schumpeterian forces of creative destruction in order to conserve the country’s business landscape in aspic. Michel Sapin, the labour minister, has promised to make it so expensive for companies to lay off workers that it will no longer be worth their while. Among the party’s most popular campaign promises was to tax incomes of more than €1m at a marginal rate of 75%. The Socialists are unlikely to be terribly successful at preventing the destruction of jobs, but they may be all too effective, however unintentionally, at stifling job creation. Already, top foreign executives no longer want to join French firms. Why would anyone want to start a business, invest and succeed in the most taxed country in the world?” (Economist)

The Euro crisis explained by a simple question: What stands behind the euro? Germany, the European Central Bank (ECB), or nothing at all? The euro is a single currency without a single government, and the ECB cannot lend to sovereigns. European countries must surrender much economic sovereignty before Germans will trust them to share their bank account. The Germans are already debating the future of the European project, including how to make it more democratically accountable. Others would be wise to think beyond just begging them for more unconditional support. (Economist)

On why the US Fed did not launch QE3: The pessimistic answer is that it cannot do more. In theory, QE allows unlimited purchases of debt, of many different flavours but risks a bigger balance-sheet that is harder to shrink later; impaired markets; and financial instability, a euphemism for bubbles. (Economist)

Is Philippines the new back-office of the world? Last year the Philippines even overtook India, long the biggest call-centre operator in the world, in “voice-related services”. The country now employs about 400,000 people at call centres, India only 350,000. Infosys and Wipro, as well as scores of other Indian firms, now have substantial operations there. And they aren’t drawn to Manila by cheap labour. Wages in the Philippines are slightly higher than in India since the Filipino accent commands a premium. (Economist)

Reliance Industries – Too big for India

NEW DELHI, INDIA - NOVEMBER 08: Indian Industr...

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Over the following four and a half decades Ambani took plenty more chances, making bets on vast projects and using brawn and guile to deal with officials and politicians. Today RIL is a conglomerate active in energy, refining and petrochemicals, with a market value of $55 billion, or a tenth of the worth of India’s stockmarket.

At the most recent AGM in June some attendees grouched about the stock price and low dividends; today, with the shares at 770 rupees, they might be grumpier still. Though RIL’s motto is “growth is life”, its valuation implies that the years of plenty are over. Of RIL’s main business lines, refining is chugging along, and the firm is investing to double the size of its petrochemicals unit.

An important factor may be that the pool of potential outside investors has shifted from Indian individuals to institutions and foreigners, who are typically sceptical about the long-term prospects of the refining and petrochemical industries, which have a lousy track record in most countries.



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Godrej goes global its own way

If a Western firm did this, it might be clobbered by fund managers for being too thinly spread.
Indian investors have been more open-minded: Godrej Consumer’s shares have more than tripled since the end of 2007, valuing the firm at $3.2 billion. Mr Godrej says the key is to pick niche products with sizeable local market shares which pass under the radar of big global rivals.
Aware of its limited pool of managers and knowledge of new countries, Godrej grants the acquired firms autonomy.


The unreformed parts of the economy are becoming a drag on growth

Taj Mahal, Agra, India.

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In June a deputy governor of the central bank predicted that the country’s economy would grow at a double-digit rate during the next 20-30 years. But in the past six months the private sector, which is supposed to do the heavy lifting that turns India from the world’s tenth-largest economy (measured at market exchange rates) into its third-largest by around 2030, has become fed up.
What happens in India is not because of the government but in spite of the government,” says the head of a pharmaceutical company. Corruption has “paralysed the government,” reckons the chief executive of one of India’s most prestigious firms.
The economy may still be slowing naturally, as the low interest rates and public spending that got India through the global crisis are belatedly withdrawn. To raise the economy’s growth potential, India could do with another dose of reform, aimed at markets for inputs, from electricity to labour and land, that are still choked. Foreign direct investment into India has been subdued for a year (though it did pick up in May). For India to grow at 8-10% a year, supply must at least double in a decade.
The central bank, which has raised interest rates ten times since the start of 2010, insists that the costs of getting richer-such as diets with more protein-are partly to blame. But India looks like an economy operating at full capacity.
A recent improvement in the current-account deficit, thanks to surging exports, suggests that India could be less reliant on foreign funds than in the past. Fundamentally the reason why bad debts haven’t built up is because the economy is doing so well,” says the boss of one lender.
Compared with a fragile world economy, an India on autopilot could chug along quite happily, growing faster than most other countries.


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The risks posed by high-frequency trading

HFT, which accounts for two-thirds to three-quarters of all Wall Street volume, seems to have led to smaller spreads (the gap between bid and offer prices).
But as Andrew Haldane of the Bank of England pointed out in a speech last month, HFT firms may be benefiting at the expense of other investors.
Instead of being better informed about a company, HFT outfits are simply seeing and acting on market prices sooner than competitors. ”
The problem may be that, unlike market-makers, HFT investors have no obligation to trade in difficult conditions. ”
Although the market righted itself quickly, regulators are debating ways to step in when prices go haywire.


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