By Anil K Gupta and Haiyan Wang
Chinese president Xi Jinping’s visit to India this week will likely be the most significant meeting between the leaders of China and India since Rajiv Gandhi’s visit to Beijing in 1988. Indeed, India’s leading business daily has gone so far as to suggest that Xi will bring along with him commitments to invest $100bn over the next five years. But while ties between India and China are growing quickly, such estimates remain highly unrealistic and risk saddling this burgeoning relationship with unrealistic expectations.
An article in the Economic Times newspaper quotes China’s consul-general in Mumbai: “On a conservative estimate, I can say that we will commit investments of over $100bn or thrice the investments committed by Japan during our President Xi Jinping’s visit next week. These will be made in setting up of industrial parks, modernization of railways, highways, ports, power generation, distribution and transmission, automobiles, manufacturing, food processing and textile industries.”
Until about a decade ago India was barely producing enough cotton to meet its own needs, let alone export the stuff. But this year Asia’s third largest economy will overtake China to become the world’s biggest producer of cotton.
Data from the US Department of Agriculture released on Thursday suggests that India will produce 30m bales of cotton in the season that began August 1 while China will produce just 29.5m bales.
Investors gave new Infosys chief executive Vishal Sikka a show of confidence on Monday, as shares in the IT outsourcer closed up nearly 4 per cent. Rupee weakness was part of the reason — software exporters prosper as India’s currency drops — but a large chunk seems to stem from optimism about Mr Sikka himself.
Is that optimism justified?
beyondbrics took a trip to Bangalore to meet him last week, as reported here last Friday. Sikka then met with various Indian journalists the following day, prompting various stories over the weekend. The combination of these appears to have soothed investor worries.
Recent optimism in financial markets about India’s prospects isn’t all driven by pre-election elation. Investors have been cheered by headline improvements to economic fundamentals and at the heart of that positive sentiment is the balance of payments.
It’s something the incumbent government is keen to flaunt. But take a closer look and India’s external balances don’t look quite as good as the headline figures suggests.
On Monday, India’s gold industry went on strike, a symbolic protest against government efforts to curb official imports and limit smuggling of the yellow metal.
The strike has added to pressure on New Delhi to roll back recent hikes in duties and quantitative restrictions on gold imports, which are crippling the trade. But what will happen when a new government comes into power following this year’s general election?
Restrictions on India’s gold imports will be reviewed by the end of March if concerns over the country’s external balances ease up, India’s finance minister, Palaniappan Chidambaram, said on Monday.
As the second largest gold importer after China, any shift in India’s import policies could have an influence on world markets. However, much depends on how policymakers judge their progress in bringing down the current account deficit.
The recent devastation in Syria has had one less expected outcome far away on the shores of India.
Exports of cumin, a popular spice used in curry powder and medicines, have shot up to compensate for the disruption to supplies in the Middle East. But prices aren’t spiking as you might expect.
As India’s current account deficit ballooned to unsustainable levels last year, the government slammed the breaks on gold imports with duty hikes and new rules on re-export of the yellow metal. The result was that the jewellery industry hit a standstill.
However, according to Pakistani authorities, India’s official inflows of gold have simply shifted to unofficial channels. Time for action.
India’s trade data for the month of December was published on Friday, showing the trade deficit narrowed to $10bn from $18bn in the same month a year earlier.
That sounds like good news – but it’s not as good as a deficit of just $9bn in November – and it is possible that the gap will soon balloon as the government loosens its grip on gold imports.
India’s external balances have been a focal point this year as the country’s economic woes have centred around the depreciation of the rupee.
So policy makers will be pleased to see India’s trade deficit narrowing yet again. The gap was squeezed to $9.2bn in November from $17.2bn in the same period a year earlier, according to new data from the Ministry of Commerce and Industry. Good news?
When the Reserve Bank of India put out its latest statement on the nation’s current account deficit on Monday it looked like good news.
The gap narrowed to $5.2bn, or 1.2 per cent of GDP, in the three months to September from $21.0bn, or 5 per cent of GDP, in the same period a year earlier. But are these numbers simply a mirage?
In the second part of a beyondbrics series on India and gold, we look at the surge in gold loans – a market that highlights the country’s obession with the metal, and serves to reinforce demand.
See part one: India’s jewellers in a desperate spot. Coming on Friday: India and gold in charts.
India’s mandarins aren’t quite done tinkering with the gold market.
This week, the government hiked customs duty on gold and jewellery from 10 per cent to 15 per cent, a move aimed both at reducing imports and protecting domestic goldsmiths ahead of the festival season.
India’s economic woes and the sharp decline in the value of the rupee are well known. But, the theory goes, as a currency depreciates, exporters stand to benefit.
Or do they? Is a fall in the rupee that much of a positive for India’s exporters?
That'll be 20% please
The Reserve Bank of India (RBI) has put new restrictions in place to limit gold imports, in an attempt to control the country’s unsustainable current account deficit and ease pressures on the depreciating rupee.
The central bank announced late on Monday that 20 per cent of imported gold must be set aside for export with the remainder going to the jewellery industry.