A chat on the Indian Economy :-)

Ok, now considering that I have realized I am not a good writer, have decided to paste a gtalk chat that I had wid a friend today. His name is Vamsee, and he is a IIM L my batch passout, currently working in UAE with a consulting company.

To put things in reference: My gtalk status msg said “Dow down 4%, and Sensex in Green…Now THAT’S Decoupling :P” (frankly, this was more of an aberration, & hence the intention of the msg was more to mock on all the economists who wasted hours on proving the decoupling theory before the Indian markets finally gave in to the US-led slowdown).

vamsee: hmm nice status
full decoupling tab hi hoga jab indian consumers r the main customers for companies

me: too diffcultt

vamsee: ya...but poss
1 billion
population ka faida uthana chahiye

vamsee: :)

me: jus chkd....exports is only close to 15% of gdp

vamsee: hmm
dats good
in china it is >30
yaar am telling u
these politican idiots
r interested in eating money
instead they shd put money in infra, defence, etc
so much employment, so much gdp, development too

me: so with figures, we wud b better off than china in the global mess

vamsee: ya
dats true

y do u think ppl flocked to usa frm the 50s?

me: but rmmbr we discussed on this earlier
its not only on 15% yaar
guess global mess shd affect the remaining 85% too

vamsee: ya dats true

me: demand reductions due to lower incomes etccccc

vamsee: dats y govt shd take steps to stimulate the economy
instead of just pumping in money
and not knowing whr it ends up (i suspect corporate honchos, politicans, bureaucracy to eat a good chunk of it)

me: hmm

vamsee: hey
do u think the crisis will worsen
as in another lehman type incident is pending?
http://www.mayin.org/ajayshah/MEDIA/2008/infrastructure_spending.html
nice article
talks abt fiscal deficit too

me: hehe..i dont knw abt any incidents pending etc
but wid job-cuts, companies shutting -down, it isnt a gr88 picture rite
all this even if it recovers will tk time to build up

vamsee: yaar ppl flocked to us coz of 3 main reasons:
1. excellent infra
2. very good security and defence
3. Favorable business environ, laws, policies, etc
think for ne country to develop, these 3 are essential
and i feel india shd start wid all these 3 now, it is high time

me: The time to fix the roof is when the sun is shining.

vamsee: well said na

me: haa...too gud :-)

vamsee: yaar fiscal deficit or no deficit
spending karna tho padega infra par

me: haa par wat tht article says also makes sense
mayb thr r other areas whr money can flow currently rather than infra spending
short term is a focus
long term mite be handled wen the sun's up again :-)

vamsee: yaar the way i see it
real estate is a vital sector for any economy
so spending on infra (atleast real estate related prjs) would be beneficial to prop up this sector, provide employment, improve gdp
whr else shd the money flow?

me: nt sure i agree to tht totally
yaar infra spending i agree is definitely needed
but as frm tht article, it most probably would not reap benefits quickly
(other than just creating jobs)

vamsee: yup not for short term

me: Plus tht wud be a Growth oriented outlook (more of a proacitve approach)
but i think nw its hig time to focus on being reactive
try to save companies frm shutting down

vamsee: hmm
dats true...but how?
how can u save, say a motor company?
will it not be very micro level

instead thr shd be a key macro variable which shd be tackled...put money in that macro variable

me: isnt tht y u c a lot of stimulus packages

vamsee: which wud trickle down to all the reqd sectors

me: pumping money
to spur demand
ok..a lil confused ....do u think any difference between making cars now and constructing a road
a lil lame i agree, but thts wat we mean rite
both wud create jobs, demand fr raw matls, which wud trickle donw

vamsee: yaar lots of other things matter here...cars hav always been luxury in india...so ppl even if they hav money, wont spend on cars
but roads is sth which will generate employment and create income for ppl
which they can further use for other products

me: 2 things:
one: construcing tht road will take quite sme time
two: in the current fiscal deficit situation, do we hv enuf money fr creating the road....OR is saving the motor company more easy money-wise

vamsee: yes construction will take time, but wont it create employment? wont it boost the construction companies, steel manufacturers, and other raw material related companies? and money keeps going into roads for a few yrs
unlike a motor co, which 1. might not use the money properly 2. wont create new jobs (let alone save those which hav to go) 3. one time investment

me: to the first point, any industry has a supporting grp of vendor industries
fr example, even a motor company growth has to affect steel manufacturers
otherwise, not use the money properly
dont hv much of a comment here, except, its the govt, the politicians...who do u think cn better emplye money...govt or private sector
create jobs: its all a cycle...if u can save the loss of jobs, u mite nt nd to craete as many jobs..as i said, a cycle
one time investment: i didnt get :-)

vamsee: last point...put money once
in rds...put money continuously

me: my take: roads are reqd now, but maybe nt xactly a priority with the liquidity etcc constraints

vamsee: ok...so basically we agree on one thing
govt has to spend :P

me: hahahaha

vamsee: whr shd the govt money go is debatable

me: yup
:-)

vamsee: yes, investing in infra is not a one time thing...so it can wait for sometime
but start tho ho na chahiye

me: also, guess govt is doin gud on tht (spending) front, luking at the fiscal deficitv :P
ha start toh hona chahiye...BUT
fix the roof when the sun shines :)

vamsee: know wot

vamsee: in many developed countries, they hav a very good source of revenue from fines

me: ohh
hmm makes sense

vamsee: like traffic fines, fines for corporate offences, etc etc

me: & we cum to the root: corruption
:)

vamsee: yeah exactly
that is basically reforms and policies (point 3 i mentioned)
i believe that even before putting money, some policy issues shd be addressed

me: yaa agree
hmm
more of an idealistic thing :)

vamsee: yaar india mein biz friendliness is very low
unlike us, which is in the top 3
india is arnd 80 i think

me: ohh...tht includes wat...getting credit, no bribes etccc ???

vamsee: no no...ease of starting a biz types

me: ohhh
vamsee: indicator of bureaucracy, in a way

me: hmm ok