Falling exports-Re rise is not to be blamed!

Falling exports-Re rise is not to be blamed!
By. Er Rohit Pandita

One Chinese Yuan is equal to Rs. 5.68. If appreciating rupee is the cause for recent decline in India’s export growth- except the negative impact on I.T. software exports sector- ( as the so called economic experts are saying), then by that measure Chinese Yuan being 5.68 times stronger then rupee, Chinese exports should have collapsed. But that is not the case as shown by following figures : Merchandise exports ( 2007, $ billion)-China 969,India 126. Textile exports to U.S.A. ( $ billion)-China20,India 4.

This data indicates there is no negative impact of China having a far far stronger currency than India, on its exports. It is remarkable that even at 1$=Rs39.5, we have a far far favorable exchange ratio than China but still we are far far behind China not only in exports but most other competitive economic parameters also, as the following data shows :Electricity production (billion KW,2002) China 1641, India 597. F.D.I ($billion,2004) China 61, India 5.5.Tourist arrival (million,2003) China 33, India 2.4.Foreign exchange reserves ($,ending 2007 ) China 1.612 trillion, India 276 billion. Medals in Olympics (2004) China 120 gold, India 1 bronze.
One figure to note very seriously from this data is that China’s forex reserves of $1.6 trillion = India’s G.D.P. (2007)!

So how does China do this ?
a) Infrastructure development = rapid economic growth is the key to China’s stupendous economic success.
In Jan., 2007 , Industrial & Commerce Bank of China (I.C.B.C. ) came out with the largest ever I.P.O. of $ 22 billion ( Rs 88,000 Crores !). Post listing , I.C.B.C. market capitalization is double the market capitalization of entire Indian banking. The success of such mega I.P.O.’’s at Honk Kong stock exchanges is the reason for the premier stock exchange of New York being unhappy with the policies( read success) of Honk Kong stock exchange . But that topic is for another time . And in year 2002, Chinese banking industry was in trouble with estimated 30-40% assets as N.P.A.’s!
China is a major equity market in the world. The market capitalization of Shanghai & Shenzhen exchanges is close to $6 trillion ( Indian equity market valuation -$1.6 trillion ).
Whereas we cannot stop patting our back for having built the Delhi Metro
( at an astronomical cost of Rs 175 Crore /km i.e. Rs 10,500 for 60 odd kms. – to put this in perspective -enough to purchase 10 full bodied Boeing 747 aero planes !) , China was the first country in the world to commercially operate M.A.G.L.E.V- Magnetically levitated train.
On the contrary, the rupee appreciation is good for some sectors as well as the ‘aam admi’ as the imports become cheaper –main benefit being cheaper crude oil prices. ( India being net importer of crude oil).Remember in 1993, $1=Rs15-17. Cheaper gold. Cheaper international travel.( Imagine paying for a round trip airfare to Australia Rs 1400 only with $1= Re 1 ) . Less brain drain. In fact as per rumor mills, only section losing out on Re appreciation are the people who have money stashed away abroad in Swiss banks. And no prizes for guessing who these people are- the politici….

b) Emphasis on F.D.I.
: As the data above shows ,F.D.I. into China is 11 time the F.D.I. coming into India. It is better to allow foreign capital coming in to build assets rather than the money coming in as F.I.I. inflows. F.I.I.’s can always take their money out of Indian equity markets –that is the reason why Indian equity markets fall drastically with F.I.I. selling- but it is very difficult to do so if foreign money has been used to build assets like power plant, manufacturing units etc.

c) Focus on agriculture and increasing output
China produces 400 million tones of food grain from just 100 million hectares whereas India produces 108 million tones of food grain from its 146 million hectares. China rice and wheat productivity (kg per hectare) 6233 and 4155, respectively. India 3034 and 2688 respectively.


d) China –Global Impact
“China’s huge appetite for natural resources has led it t cultivate deeper relationship in Africa, Central Asia and Latin America. Last yea, it hosted a summit in Beijing attended at least by 45 African Head of states. The Shanghai Co-operation Organization founded with Russia & other Central Asian countries has become a crucial instrument of China’s energy security policy. The Chinese education Ministry approximates that there will be 100 million people worldwide learning Chinese as foreign language by 2010. Two decades ago Chinese universities attracted about 8000 overseas students : by 2008 that number would have leapt exponentially to 1,20,000”-source Rishabh Bhandari. It is also expected to emerge as the No1 tourist destination in the world with the beginning of Beijing 2008 Olympics proving to be the shot in arm for Chinese tourism.

Hence poor infrastructure and inept policies might be blamed for India’s lower growth and progress vis-à-vis China & the recent decline in exports but not the appreciation in rupee. This is the lesson, one hopes our P.M. has learnt well from his recent visit to China. The inept - one step forward and two backward –policies of Indian Central and State governments explains thought the Centre and state (govt. of J&K) are about to complete their tenures in power, the situation on ground in terms of roads, electricity etc. is as bad as ever. The situation is laughable if it were not tragic.
pandita.errohit@gmail.com

Cinderella story-indian equity market story

Cinderella story



In the South East Asian crisis of 1997-98, when the so called tiger economies of Malaysia, Thailand, and Indonesia meet financial trouble, they fell from grace. They were shunned by the international investment community as pariahs. India self congratulated itself from escaping unscarred from this crisis. But India was never part of the high growth story of these countries. It was like when guests to a party fell sick because of overeating and a person uninvited to a party is saying, see how strong I am. I have not fallen sick, unmindful of the fact that he was never part of this party. But in the present global equity boom, India is a lead player as part of the B.R.I.C. countries (Brazil, India, Russia, and India). And as in the Cinderella story , when the party ends and everything beautiful and shining turns into rats and pumpkins, similarly Indian equity will have to fall drastically AND THEY HAVE, if there is a collapse of global equity markets. Danger signal are there –U.S. sub prime crisis, crude at $100/bareel, over speculation all across the asset classes, declining commercial vehicle & two wheeler sales in India, stagnant four wheeler sales –ignoring new model launches. I.P.O.’s are massively oversubscribed of cos. which do not have any running- leave aside profitable –operations! No body in his wildest dreams would have thought a few years before that Sensex would cross 20,000 !- not even the biggest fan of India But that is why Einstein had rightly said that imagination is more powerful than knowledge. Even after huge gains and massive wealth creation, people were not willing to call it a day and book their profits and sell overvalued equities till the crash of Jan2008. Like a drunk intent on finishing the bottle irrespective of the consequences. As the Oracle of Omaha –Warren Buffett- the third richest person in the world- says, be fearful when others are greedy and greedy only when others are fearful.

pandita.errohit@gmail.com