Thursday, November 23, 2006

The Economist and premium confusion





Thanks to my father and my schooling, I grew up respecting and trusting media products like The Statesman, BBC Radio and The Economist implicitly.
I still trust BBC (not only radio) and The Economist implicitly.
I always understand what BBC tells me.
I am sometimes confused by what The Economist tells me, mostly because I don’t have a great understanding of the economy, the stock market and money markets.
I logged on to economist.com this evening to have a dekko at the non-premium content, and was pleasantly surprised to be offered a day pass to the premium content, courtesy Deutsche Bank. Thanks, DB.
I thanked the sponsor by watching his ad, and carried on to the rare treat.
And I read two pieces relevant to India, parts of both reproduced below.

Forecast
Nov 21st 2006 From the Economist Intelligence UnitSource: Country Forecast
Excerpts from the article
The booming economy is likely to enable the Indian National Congress-led United Progressive Alliance (UPA) coalition government not only to remain in power until 2009, but also to relaunch its stalled programme of economic reforms. The government's greatest opportunity to do this will be in 2007, as much of its agenda in 2008 will be given over to preparations for the next general election, which is scheduled to take place by May 2009. Monetary policy will continue to be tightened in the first half of 2007, but will be eased gradually thereafter. Real GDP growth is forecast to remain strong in fiscal year 2006/07 (April-March) and then to moderate slightly in 2007/08 and 2008/09. Strong domestic demand will lead to a significant widening of the merchandise trade deficit over the forecast period, but surpluses on the services and transfers accounts will limit the current-account deficit to around 3% of GDP in 2007-08. Inflationary pressures will be difficult to control.
India's economy
Too hot to handle

Nov 23rd 2006 DELHI, HONG KONG AND MUMBAIFrom The Economist print edition
Why the sizzling Indian economy is more at risk than China's
Excerpts from the article
In contrast, India's economy displays an alarming number of signs that things have gone too far. Consumer-price inflation has risen to almost 7% (see chart), well above Asia's average rate of 2.5%. A recent report by Robert Prior-Wandesforde at HSBC finds many other signs of excess. For example, in a survey of 600 firms by the National Council of Applied Economics Research, an astonishing 96% of firms reported that they were operating close to or above their optimal levels of capacity utilisation—the highest number ever recorded. Firms are also experiencing a serious shortage of skilled labour and wages are rocketing. Companies' total wage costs in the six months to September were 22% higher than a year earlier, compared with an average increase of around 12% in the previous four years.

India's current account has shifted to a forecast deficit of 3% of GDP this year from a surplus of 1.5% in 2003—a classic sign of excess demand. Total bank lending has expanded by 30% over the past year, close to the fastest growth on record.
India's share and housing markets also look bubbly. Draft proposals by the central bank on November 17th to cap banks' exposure to stockmarkets and curb reckless lending only mildly dampened the optimism. Share prices are almost four times their level in early 2003. India's price/earnings ratio of 20 is well above the average of 14 for all Asian emerging markets. House prices have also gone through the roof: Chetan Ahya of Morgan Stanley reckons that prices in big cities have more than doubled in the past two years. Housing loans jumped by 54% in the year to June (the latest figures available) and loans for commercial property were up by 102%.
Indian policymakers seem reluctant to admit that economic growth has exceeded its speed limit over the past three years, let alone slow it.

And now for the dumbest pigsandwings question yet (watch this space, I’ll ask a dumber one not too far in the future).

Can someone please, please tell me: Is the Indian Economy doing well? Or, not?

4 comments:

S Ramachander said...

The EIU is entirely independent of the paper. Only the name is common. The EIU is a source of statistical and opinion surveys, respected by most professionals, but it is written I think more with a Western audience in mind.
Ram.

Anant Rangaswami said...

I am aware. However, here's where the confusion arises:
I trust both the entities.
They speak in forked tongues.
Who is right? Who is wrong?

sri said...

Ah! it is an age old investment tactic called diversification.

Now no matter what happens, whether the economy goes up or down, they can now say, "See, I told you so!" :)

Anant Rangaswami said...

Sri and Ram,
Çan you help me?
Is the Indian economy doing well or not?