Elephant in the Room-General Elections, reduce GDP(Gas,Diesel,Petrol)prices to boost GDP!!!

 Elections, particularly in India, can indeed have an impact on its economy, including liquidity and inflation. During election periods, State governments of India often increase spending to buttress their election campaign and implement populist measures to attract voters. However this GOI has eschewed its temptation to loosen its purse strings. However it has increased its Capex infra projects which can generate assets and have a trickle down effect in the income of the people. But this increased government spending at State levels can potentially lead to higher liquidity in the financial system.

If the increased liquidity is not matched by an increase in productivity or economic growth, it can potentially lead to inflationary pressures. In such situations, central banks like the Reserve Bank of India (RBI) might need to adopt tight liquidity management policies to rein in inflation. Tight liquidity management involves reducing the money supply in the economy by selling government securities, increasing interest rates, or implementing other measures to absorb excess liquidity.The Reserve Bank of India (RBI) is likely to face the challenge of managing liquidity in the run-up to the 2024 general elections.

This is the Elephant in the Room of both GOI and RBI for them to deftly handle!

The RBI will need to use a variety of tools to manage liquidity, such as open market operations, repo rates, and cash reserve ratio. It will also need to closely monitor inflation and financial market conditions. If inflation starts to rise too quickly, the RBI may need to tighten monetary policy. However, this could dampen economic growth.

The RBI will need to strike a delicate balance between managing liquidity and supporting economic growth. It will also need to be mindful of the political implications of its decisions. If the RBI is seen as being too hawkish, it could alienate the government, upset favourable business conditions and jeopardize its chances of re-election.

Here are some of the specific measures that the RBI could take to manage liquidity in the run-up to the 2024 general elections:

• Increase the repo rate: This is the rate at which the RBI lends money to commercial banks. By increasing the repo rate, the RBI makes it more expensive for banks to borrow money, which reduces the amount of liquidity in the system.
• Sell government bonds in the open market: This reduces the amount of money in the system by draining it from the banking system.
• Raise the cash reserve ratio: This is the percentage of deposits that banks have to keep with the RBI. By raising the cash reserve ratio, the RBI reduces the amount of money that banks can lend out, which reduces the amount of liquidity in the system.

The RBI will need to carefully monitor the situation and adjust its policies as needed. It is a challenging task, but the RBI has a good track record of managing liquidity in the past.

On 31st August India's Q1 FY24 GDP is expected to be announced which may come at 7.9% to 8%.This high percentage may be due to subdued Q1 of FY23 revealing low base effect.Even though GST and Income Tax collection have remained buoyant in Q1 FY 24, Corporate Tax collections have languished indicating a K shaped recovery in the economy.

Considering the Inflationary effects and the likely Q1 GDP nos. Govt is expected to face a dilemma shortly. It is also the question of Short term inflation versus Long term inflation. GOI must consolidate its limited available revenue resources without upsetting its Fiscal deficit calculations ,inorder to rein in short term Inflation immediately and for that to happen Govt must look at reducing a different GDP! Yes, this is a different GDP-Gas,Diesel and Petrol- taxes levied on them must be reduced to contain Inflation in the short run inorder to give a boost to real GDP in FY 24 before Lok Sabha elections!

Falling IIP, Rising CPI-double whammy for the Economy.

 India's latest IIP numbers for June 2023 are not encouraging. The Index of Industrial Production (IIP) rose by just 3.7 percent in June 2023, as compared to 5.2 percent in May 2023. This is the lowest IIP growth rate since February 2023. The slowdown in industrial production is being attributed to a number of factors, including:

1)The ongoing global chip shortage, which is affecting production in a number of sectors, including automobiles and electronics.

2)The rising cost of raw materials, which is making it more expensive for businesses to produce goods.

3)The slowdown in investment activity, as businesses become more cautious about spending in the face of rising inflation and interest rates.

The slowdown in industrial production is a worrying sign for the Indian economy. The

manufacturing sector is a major driver of economic growth, and a slowdown in this sector

will have a knock-on effect on other sectors, such as trade and services. The government will

need to take steps to address the factors that are causing the slowdown in industrial

production, if it wants to prevent the economy from slipping into a recession.

Here are some of the steps that the government could take to boost industrial production:

• Provide financial assistance to businesses to help them with the rising cost of raw materials.
• Ease the import restrictions on raw materials to make them more affordable for businesses.
• Offer tax breaks and other incentives to businesses to encourage investment.
• Improve the infrastructure, such as roads and ports, to make it easier for businesses to transport goods.

The government will need to take a comprehensive approach to boosting industrial production. If it can do this, it will help to put the Indian economy back on track for growth.

There are a number of reasons why vegetable prices and cereals prices have been going up in recent months in India. These include:

• Unseasonal rains and floods: Unseasonal rains and floods have damaged crops in many parts of the country, reducing the supply of vegetables and cereals. This has pushed up prices.
• Rising fuel prices: The rising prices of fuel have made it more expensive to transport vegetables and cereals, which has also pushed up prices.
• Demand-supply mismatch: There is a mismatch between the demand and supply of vegetables and cereals in India. The demand for these commodities is increasing, but the supply is not keeping pace. This has led to higher prices.
• Speculation: There is also some speculation in the market, which is pushing up prices.

The government has taken some steps to control the rising prices of vegetables and cereals. These include:

• Importing vegetables and cereals: The government has imported some vegetables and cereals to increase the supply in the market.
• Providing subsidies to farmers: The government is providing subsidies to farmers to help them with the rising cost of inputs.
• Improving infrastructure: The government is improving the infrastructure for the transportation of vegetables and cereals. This will help to reduce the cost of transportation and make these commodities more affordable.

The government is also monitoring the prices of vegetables and cereals on a daily basis and taking necessary measures to control them. However, it is important to note that the rising prices of vegetables and cereals are a global phenomenon. Many countries around the world are facing the same problem..

The Consumer Price Index (CPI) inflation for July 2023 was 7.4%, according to the data released by the Ministry of Statistics and Programme Implementation. This is the highest CPI inflation rate since April 2022 when it touched 7.79%. The rise in inflation was mainly due to the increase in prices of food items, such as vegetables, cereals, and pulses. The retail food inflation was 11.51% in July 23.The prices of fuel and transportation also rose in July 2023, contributing to the overall inflation rate.

The government is concerned about the rising inflation rate, and has taken some steps to control it. These steps include:

• Raising interest rates to make it more expensive to borrow money, which will help to slow down economic growth and inflation.
• Increasing the supply of food items by importing more food grains and vegetables.
• Providing subsidies to farmers to help them with the rising cost of inputs.
• Improving infrastructure for the transportation of food items.

It is too early to say whether these steps will be effective in controlling inflation. The government will need to continue to monitor the situation and take further measures if necessary.

Here are some of the implications of the rising inflation rate in India:

• It will put a strain on household budgets, as people will have to pay more for essential goods and services.
• It will make it more difficult for businesses to plan their operations, as they will not be sure what prices they will have to pay for inputs.
• It could lead to social unrest, as people become frustrated with the rising cost of living.
• It could weaken the Indian rupee, as investors become more concerned about the country's economic outlook.

Since the El Nino effect upto now has not affected Monsoon rains the Kharif food production is expected to be normal.This positive outlook is expected to moderate food inflation in the coming days. Hoever,t he government will need to take steps to address easing the supply side through adequate cereal imports to tame the rising inflation rate, if it wants to prevent these negative consequences.

Two wheeler sales in July 2023 in India & Fuel price cut

 The total two-wheeler sales in India in July 2023 was 14,91,720 units, down 8.80 percent from the same month last year. Of these, the domestic sales stood at 12,05,662 units, down 7.76 percent year-on-year.

The top 5 selling two-wheeler brands in India in July 2023 were:

1. Hero MotoCorp - 3,91,310 units
2. Honda Motorcycle and Scooter India (HMSI) - 3,38,310 units
3. TVS Motor Company - 3,12,307 units
4. Bajaj Auto - 2,68,840 units
5. Suzuki Motorcycle India - 80,309 units

Hero MotoCorp was the clear leader in the two-wheeler market, with a market share of 26.2%. Honda Motorcycle and Scooter India was in second place, with a market share of 23.1%. TVS Motor Company was in third place, with a market share of 21.7%. Bajaj Auto was in fourth place, with a market share of 18.3%. Suzuki Motorcycle India was in fifth place, with a market share of 5.4%.

The two-wheeler market in India is expected to grow in the coming years, driven by factors such as rising income levels, increasing urbanization, and growing demand for personal transportation. The government's focus on developing the infrastructure for electric vehicles is also expected to boost the two-wheeler market in the coming years.

However Two wheeler sales have hit a temporary bump mainly due to lack of adequate disposable income in rural areas.

Two-wheeler sales in Indian rural areas were affected in July 2023. According to the Society of Indian Automobile Manufacturers (SIAM), two-wheeler sales in rural areas declined by 14% in July 2023, compared to the same month last year. This was due to a number of factors, including:

• The impact of the monsoon rains, which caused flooding and crop damage in many rural areas.
• The high cost of fuel, which made it more expensive for people to travel on two-wheelers.
• The slowdown in the rural economy, which led to a decline in demand for discretionary items such as two-wheelers.

The decline in two-wheeler sales in rural areas is a concern for the Indian automotive industry, as rural markets account for a significant share of two-wheeler sales in India. The industry is hoping that the festive season, which starts in September, will help to boost sales in rural areas.

In addition to the factors mentioned above, the following factors also contributed to the decline in two-wheeler sales in rural areas in July 2023:

• The rising prices of raw materials, such as steel and aluminum, which led to an increase in the cost of manufacturing two-wheelers.
• The shortage of semiconductors, which affected the production of two-wheelers.
• The ongoing COVID-19 pandemic, which has slowed down economic activity in rural areas.

The decline in two-wheeler sales in rural areas is a temporary setback for the Indian automotive industry. The industry is confident that sales will recover in the coming months, as the economy improves and the festive season gets underway.

We will wait with our fingers crossed. GOI would do well with both demand stimulus as well as taming inflation if Fuel prices are reduced by say Rs.5 per litre for Petrol and Diesel.Since Oil Marketing Companies have earned remarkable profits in the Q1 of FY 24 , they can afford to reduce the pump prices by atleast Rs.5 per litre if not more, inorder to pump prime the economy's demand & growth in the second half of FY24.

India's PMI and growth prospects

 The July PMI was slightly lower than the June PMI, but both readings were above the 50-mark, indicating expansion in the manufacturing sector. The decline in the July PMI was likely due to a number of factors, including rising input costs, supply chain disruptions, and a slowdown in demand. However, the overall picture for the Indian manufacturing sector remains positive, with the PMI remaining above the 50-mark for the 25th consecutive month.

Here is a table comparing the July and June PMIs:

Indicator	July	June
Manufacturing PMI	57.7	57.8
Output	57.5	57.8
New orders	58.3	58.7
Input prices	62.7	62.5
Employment	51.0	50.7
Business confidence	63.3	63.4

As you can see, July PMI was lower than the June PMI in all but one indicator. However, the overall picture for the Indian manufacturing sector remains positive, with the PMI remaining above the 50-mark for the 25th consecutive month.

The July 2023 PMI report for India did not include any specific figures on corporate profits. However, the report did state that input costs rose at the fastest pace in over two years, driven by higher prices for raw materials and energy. This suggests that corporate profits may have been squeezed in July, as firms were forced to pass on higher costs to their customers.

The report also stated that business confidence remained strong, with firms optimistic about the outlook for the next 12 months.Even though GST collections are robust and Income tax collections are rising, Corporate Tax collections have not grown to that extent which also indicates some strain in Corporate profit levels till June quarter end.

Added to that are many Global headwinds hitting Indian economy like fall in Exports especially in Services after June quarter, higher crude prices, higher inflation triggered by hardened food & commodity prices, higher interest costs coupled with tight liquidity conditions, lower disposable income in rural areas affecting demand, tardy monsoon rains likely to be affected by looming El Nino threat, may all dampen the growth prospects in the remaining 8 months of this fiscal.

Only after the end of second quarter of this fiscal in Sep23, we can make realistic assessment of growth prospects for the rest of the fiscal. In all likelihood hitting 6% GDP growth or thereabout this fiscal looks more probable.

Weekend Musings!

My humble learnings: Maths- every problem has a solution and basically can be solved mentally,

Music - relaxes and soothens your nerves and learning it improves your innovativeness in problem solving and 

English - gives you lot of confidence to face your bros and bosses, gets you respect when you articulate clearly in English with little bit of humour sprinkled! it's literature is a gateway to know the world at large!மூச்சு வாங்குது!

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WWW- We all know it is World Wide Web. Mundaka upanishad says Brahmam is like a Spider designing its web and generates the raw material itself to create the universe! So the Universe is a WWW-Wisvam,Wishnur,Washatkaro-Web!He also strides and measures the Universe-Wishwam, in 3 (www) steps!Even Bhagavatam extols the all pervading Bhagawan as "As the spider very easily creates the network of its cobweb and manifests its power of creation without being vanquished by others, so also you yourself, by employment of your omnipotent energy, create without any other's help "

Is He a Super Spider-man!!!

That is why- my blog Tagline has three "Ws" "We are What We are" as a mark of respect!!

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High time India taxed Agri income of our Ministers, ex-Ministers,MPs,MLAs and PEP(Politically Exposed Persons),HNIs,at the maximum individual tax rates and that of their connected entities/Beneficial ownership entities must also be taxed forthwith.

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Heady concoction of India's Higher Inflation, Higher Growth and Higher Unemployment rate!

Indian Inflation no. in June 23 

India's June CPI increased slightly to 4.81%, from 4.25% in May. This is still within the Reserve Bank of India's (RBI) tolerance band of 2-6%, but it is the highest level since March 2023. The increase in inflation was driven by a rise in vegetable prices, which rose by 19.19% in June. Other food items that saw a rise in prices include cereals (12.7%), pulses (10.5%), and meat and fish (6.9%).

Based on the June inflation number, the RBI may do the following:

• Keep interest rates unchanged in August. The RBI is likely to keep interest rates unchanged in its next monetary policy review in August, as it will want to assess the impact of the recent rate hikes before taking any further action. However, if inflation continues to rise, the RBI may be forced to raise rates again in September or October.
• Signal a rate hike in August. The RBI may signal a rate hike in August, even if it does not actually raise rates at that time. This would send a signal to markets that the RBI is serious about containing inflation.
• Start to tighten monetary policy in the coming months. If inflation continues to rise, the RBI may start to tighten monetary policy in the coming months. This could involve raising interest rates, selling government bonds, or increasing the cash reserve ratio (CRR).

The RBI's decision on what to do will depend on a number of factors, including the pace of inflation, the strength of the economy, and the global economic environment. However, the June inflation number suggests that the RBI may be forced to take action to tighten monetary policy in the coming months.

Here are some additional factors that the RBI will consider when making its decision:

• The outlook for global inflation.
• The pace of economic growth in India and unemployment rate in the country.
• The impact of the fiscal policy of the GOI and the Govt borrowing programme.
• The reaction of markets and the real economy to any rate hikes.

The RBI will carefully weigh all of these factors before making a decision on what to do. However, the June inflation number suggests that the RBI may be forced to take action to tighten monetary policy in the coming months.

What do May IIP nos. indicate

The Quick Estimates of Index of Industrial Production (IIP) for the month of May 2023 were released on July 12, 2023. The IIP for May 2023 stood at 145.0, an increase of 5.2% from the same month a year ago. This is the highest growth in the IIP since March 2023.

The growth in the IIP was broad-based, with all three major sectors -- mining, manufacturing, and electricity -- registering growth. Mining grew by 6.4%, manufacturing grew by 5.7%, and electricity grew by 0.9%.

The growth in the IIP was driven by a number of factors, including strong domestic demand, rising exports, and increased investment. The government's policies to boost the economy, such as the Production Linked Incentive (PLI) scheme, are also having a positive impact on industrial production.

The IIP data is positive for the Indian economy. It suggests that the economy is on a recovery path and that growth is picking up. However, it is important to note that the IIP is a lagging indicator, so it may take some time for the full impact of the recent economic reforms to be felt.

Unemployment rate :

The unemployment rate in India in June 2023 was 8.45%, according to the Centre for Monitoring Indian Economy (CMIE). This is the highest unemployment rate in India since April 2020. The unemployment rate in urban areas was 7.87%, while the unemployment rate in rural areas was 8.73%.

The high unemployment rate in India is due to a number of factors, including the slowdown in economic growth, the decline in manufacturing jobs, and the seasonal unemployment in rural areas. The government has taken some steps to address the unemployment problem, such as the Pradhan Mantri Kaushal Vikas Yojana (PMKVY), but more needs to be done to create jobs and boost economic growth.

We have a classic case of Growth and Inflation going up and Unemployment rate also going up in Tandem. Does Philips Curve work in Indian Economy?!!