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Creating Perceptions: What is Really Happening with the Indian Economy?

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Narendra Modi India Economy 2019

In just a little over a year, Indians will take to the polling booths again to decide whether the Narendra Modi led BJP (Bharatiya Janata Party) government’s much anticipated second term as the ruling party will become a reality or not. Even though the present government has always been the favourite to retain its position, a heightened focus on the health of the Indian economy may or may not be in their best interest, and it all depends on which picture Indians choose to accept.

One picture, two different outlooks

IMF (International Monetary Fund) chief Christine Lagarde said earlier in October that “for the medium term, we see a very solid track ahead for the Indian economy”, assuaging some of the disconcertedness that has surrounded the Indian economy post two of the boldest moves ever attempted by any government since independence in the country: demonetisation and a massive rollout of the GST (goods and services tax) earlier in the year. The lingering effects of the disruption caused by these steps resulted in India’s GDP growth slowing down again in the latest quarter to 5.7%, with the country playing second fiddle to China, again. However, Lagarde has lauded the steps taken by the Indian government to digitise the economy and simplify the tax regime, dismissing any surprises in the drop in figures as “a little bit of short-term slowdown” which was to be expected following the government’s “monumental effort”.

Moreover, during his visit to the US to meet with investors and corporate leaders, Minister of finance Arun Jaitley reflected that there is a “positive mood” about India in the US, adding that Americans have a good understanding of the actions taken by the government and what they will lead to. That may very well be the case, but the picture of the economy within the borders is far less pronounced, and the division of its state among the citizens far more.

Soon after the figures for growth were in for the latest quarter, India’s former minister of finance Yashwant Sinha, who is also a member of BJP, singlehandedly contributed hugely to the already dwindling confidence of the public in the government’s approach when he wrote in a letter in his column on The Indian Express about “the mess the finance minister has made of the economy.” Citing issues ranging from the decline in private investment and distress in the agricultural sector to the loss of jobs across different sectors, he has blamed demonetisation and a poorly implemented GST for the poor state in which the economy finds itself. Consequently, the past month has seen a flurry of editorials and opinion pieces on what the true picture is of India’s economy, where it is headed, and whether the fears of the people are warranted or if these tiny setbacks will finally be followed by the promised prosperity.

The problems are real, but what are they?

Agriculture was one crucial sector of the economy hit badly. The agrarian crisis has worsened due to an unsatisfactory monsoon season after farm loan waivers were granted following massive protests across states. On the other hand, the GST rollout has hit hard the small and medium businesses which were vastly unprepared to cope with the government’s move. While the GST council meet earlier in October may have eased the tax burden on the SMEs, it is still some way to go before they can be pulled out of what Mr Sinha accurately describes an “existential crisis”. An improvement in growth would also require a timely recovery from the supply shock caused by the implementation of the GST, in the absence of which it would be more realistic to expect more quarters of slow growth. Another major problem is the dearth in the investment by the private sector with an increase in stalled projects for the fifth consecutive quarter. This, along with other engines of economic growth including private consumption has shown slowing signs as well. The government may argue that when they inherited the economy it wasn’t in its best shape either, but demonetisation and now GST, no matter how ambitious have created a scare among the people leading to alarms of low confidence ringing across all major sectors, which needs to be addressed.

The biggest concern perhaps for the government is the lack of jobs created. One of the promises made by the Modi government during the elections was the creation of millions of jobs. However, according to the Centre for Monitoring Indian Economy the workforce declined from 406.5 million at the end of last year to 405 million till April this year. Almost every indicator points out to a net loss of jobs for the year 2017. The telecom, construction, and textile industries among others have also laid off a large number of their workforce. A broken promise on this end is unlikely to be forgiven and forgotten that easy.

Where the government is right

As is always the case, the analysis here as well is a two-way street. To the credit of the government, some positive signs have shown with the first tax collection under GST exceeding government’s expectations of Rs. 91,000 crore. Other sources also show a bit of a revival in consumer spending. Moreover, irrespective of the expected duration of the slowdown, PM Modi has recognised the need to tackle some of the most prominent issues that plague the economy in order to get it back on track. It is for that purpose that the Economic Advisory Council to Prime Minister has been set up consisting of experts chosen by Mr Modi himself. “There is a consensus amongst us that there are various reasons that have contributed to a slowdown of growth rate. Our entire thrust would be on implementable decisions”, said the Council’s chairman Bibek Debroy. The EAC or EAC-PM has identified 10 issues to tackle in order to launch the economy towards a higher trajectory of growth. These are inclusive of but not limited to the areas of agriculture, the informal sector in the country, job creation, public expenditure, and monetary policy among others. The need for instituting an Economy Track Monitor has also been realised by the Council to suggest correct courses of actions based on heavy and informed assessments.

Making it right: which path to follow

What can the government do? What should be done? Division exists on the suggested courses of actions as well. One of the solutions to the problem would be an increase in the government spending, a suggestion that has found the support of many policymakers throughout the country. That, however, is not without its problems. The central bank has warned that such a fiscal stimulus may come at the cost of macroeconomic stability and even the EAC seems not to be in favour of it. The government also wants to stick to its fiscal deficit target of 3.2% of the GDP and is unlikely to trade off some of this stability for growth. In the event that it should achieve neither, it would be further behind the starting line, not making for a flattering image before the next general elections.

If not a fiscal stimulus, then what is the alternative? The answer is policy reforms in those sectors of the economy that have been plagued with poor performance in terms of both employment and growth – textiles, real estate and construction, and leather among others. A report from JP Morgan suggests that the government should focus on fixing the supply chains that were disrupted first due to demonetisation and then the GST by improving the regulatory framework for SMEs. Resolving the problem of non performing assets in banks is another area that the government needs to set its sights on. The EAC, in its next meeting may look at the sale of government stakes for the recapitalisation of banks as the right step to take.

Time prevails over all

“It is a mistake to think that there is some magical, perfect way to run a large-scale complex system like an economy”, says Jitendra Singh, emeritus professor of management at Wharton, on the subject of the growth of the Indian economy. Yashwant Sinha expressed the same sentiment while concluding his letter when he mentioned: “nobody has a magic wand to revive the economy overnight.” The problems that the Indian economy is facing did not start with demonetisation and GST, they were already headed this way. These steps may have accentuated some of the many problems that have slowed growth but it is also true that an excessive and undue amount of attention is being placed on them. The real problems of the economy are the ones that the EAC to PM Modi hope to tackle and only time will tell what the government is able to do. Unfortunately, time is what is most scarce for the government.

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A student of economics with a keen eye for developments in the geopolitical sphere, Manak is a curious individual with a penchant for writing about anything that makes him ponder long enough.

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China

Ridiculous Tariffs on Wines – China Australia Trade War Explicated

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China Australia Trade War
Scott Morrison (right) has not yet been able to secure a bilateral meeting with Chinese President Xi Jinping (left).(ABC News)

Earlier in November 2020, Communist China slapped Ridiculously high tariffs up to 212.1% on Australian wines. These tariffs were in the response of ongoing trade war between Communist Party of China and Australia. China is the biggest importer of Australian wines making up a whopping 39% of Australia’s total wine export. Australia has already raised concerns at a WTO meeting about China taking measures against its barley, wine, meat, dairy, live seafood, logs, timber, coal and cotton, according to a reuters report.

How did China – Australia trade war begin?

China and Australia shared one of the best times in their relationship after Kevin Rudd from the centre-left Labour party came to the power in Dec 2007. During his leadership Australia decided to pursue appease China policy which included steps such as:

  1. Chastising Taiwan for its renewed push for independence and reiterating support for a one-China policy in favor of People’s Republic of China. (Source: The Age)
  2. Signing a A$50 billion deal with PetroChina in 2009 (largest contract ever signed between the two countries) that ensures China a steady supply of LPG fuel until 2029.
  3. Unilaterally announcing departure from Quadrilateral Security Dialogue to appease China.

Nosediving of China – Australia Relationship

The course of this partnership changed when Julia Gillard from the centre-left Labour Party took over the leadership and initiated closer partnership with United States. This included revival of interest in Joining Quadrilateral Security Dialogue and stationing of US troops near Darwin, Australia.

In 2013, Tony Abbott from centre-right Liberal Party took over the leadership. During his term Australia saw some confusion in its China Policy. His Defence Minister Senator David Johnston told in a statement that Australia is seeking to balance their relationship between China and the United States. It was during his term when Australia and China established a Free Trade Agreement.

However, the relationship between Australia and China took a downturn in 2015 when Malcolm Bligh Turnbull from the centre-right Liberal Party came into power. This is the point in history which has led to current trade war situation between Australia and China.

  1. Australia became the strongest opponent of China’s territorial claim in South China Sea.
  2. Banned foreign donations to Australian political parties and activist groups in a move to target Chinese interference in Australian democracy.
  3. Revived Quadrilateral Security Dialogue with United States (Donald Trump), India (Narendra Modi) and Japan (Shinzo Abe). This was the time when Quadrilateral Security Dialogue saw hope of becoming something bigger as all four countries had centre-right governments who had a clear China Policy.

2019 Onwards: China – Australia Trade War

In 2019, relationship between the two countries further took a dip with Scott Morison from centre-right Liberal party becoming the Prime Minister. During his leadership:

  1. Australia signed a letter condemning China’s mistreatment of Uyghurs and other minorities.
  2. Suggested investigating the cause of Covid 19 in April 2020, which resulted into an angry response from China threatening to reduce Tourism and Trade.
  3. Opposed the Hong Kong National Security Law in June 2020.
  4. Reiterated its support for ethnic minorities in China and freedom in Hong Kong in October 2020
  5. Demanded a formal apology from China for posting a fake image of an Australian soldier holding a bloodied knife against the throat of an Afghan child

In conclusion, these continuous attack on China made China so angry that they deliberately leaked a list of 14 points suggesting why China is angry at Australia

China’s attempt at “buying” left wing politicians around the world

Recent trend is suggesting China’s attempt at “buying” influential left-wing politician around the world. In November, 2017 Australia’s Labour Party’s MP Sam Dastyari went against his own party on South China Sea. He later quit his party after he was found of taking financial favours from China.

In 2008, India’s Centre-left party – Indian National Congress signed a Memorandum of Understanding with Communist Party of China. Its contents are still hidden from the Government of India and the people of India.

Recent US Report has shown concern on President Elect Joe Biden not clearing doubts on his China policy.

How Can we Help Australia Post Ridiculous Tariffs on Australian Wines?

In 2020 China has directly or indirectly impacted many of our lives. Some of us have lost our jobs, some of us are taking a reduced salary. In fact, some of us are sitting at home instead of travelling; while some of us have lost our loved ones only because of communist party was incapable of controlling a virus outbreak.

As the entire world is struggling with this virus, Chinese economy continues to be on path of surpassing the US. Therefore, we should pledge to minimize buying Chinese products. It might be impossible to completely boycott Chinese products, but we can at least minimize it.

Install Cultivate Chrome Extension (non sponsored/affiliate link – We are not getting paid to post this). This plugin works on both Google Chrome and the new Microsoft Edge. It helps you understand the origin and seller location of a product on Amazon. It is a great tool to minimize your dependence on Chinese products. If you are lucky, this extension will also suggest some Made in USA alternatives

Buy Australian Wines – Australia desperately needs a new market for its wine and other products. This New Year and Christmas season, we should pledge to celebrate with at least one Australian wine!

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Economy

Seasif’s Franco Favilla discusses the post-Covid economy and the price of gold

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Although the Covid-19 pandemic isn’t over yet, there has been much discussion on the idea of a “post-Covid” economy, especially with the beginning of vaccination efforts in some countries. With markets throughout the world suffering the economic effects of the virus, experts have been looking towards the future –– and one of the topics that often comes up is the price of gold.

In August, the price of gold exceeded US$ 2,000 an ounce for the first time, driven by multiple factors. However, in November, advancements in Covid-19 vaccines led to a decrease in this trend, a result of the turbulent period we are going through.

“Regardless of the market volatility and the price changes that could occur over a given period of time, the fundamental fact is that the price of gold over the course of 2020 has reached an all-time high, and this, in my opinion, is very good news for the world economy,” explains Franco Favilla, founder and CEO of Seasif, a multinational company active in the extraction and trading of gold and oil.

According to Mr. Favilla, the main problem of the pre-Covid economy was the completely arbitrary nature of international finance. At one time, a ton of gold corresponded to a ton of currency, but since the 1980s, and at an impressive rate since 2000, the gap has widened enormously, so much so that today the relationship between the world’s currencies and gold is enormously unbalanced.

Total gold reserves around the world cover only 30% of currencies. This means there is nothing to cover and guarantee the value of money. In short, money has turned into a pure convention, a pure agreement between parties acting outside the market. Gold, on the contrary, guarantees democracy, because it protects savers and the market, offering an objective value for parameterizing every transaction. 

“My hope, therefore, is that the crisis caused by Covid-19 will help to change finance, making it less ‘phantom’ and more linked to an objective dimension, based on gold, with obvious advantages for the real economy. Gold protects consumers, the most important component in any economic system: if you don’t have a market made up of consumers with a certain level of wealth, how can you sell? To whom? Consumer protection must come first, and gold is one of the main ways of protecting them,” states the CEO of Seasif.

Sustainability has also been at the forefront in discussions about the post-Covid world, as countries look towards establishing a more resilient global economy, one able to better withstand such events in the future –– and “green gold” may well be a part of that future. Green gold, in a sense, can be considered the “gold of the future” due to its ethical and sustainable extraction process. Seasif produces green gold, with a department entirely dedicated to green, and has allocated economic incentives to its continued production.

Even as 2020 draws to a close, the future may still look uncertain. But for those searching for greater security, gold may be one of the few certainties left.

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Economy

How to Trade Shares for Beginners

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stock trading

Although expectations had been modest for 2019, the stock markets around the world had been active in 2019 and the positive returns seen so far have exceeded even the most optimistic expectations. Supported by easy monetary policies around the world, as well as by positive economic expectations for 2020, stocks continue to move, which makes a significant number of people deciding to start investing. Since stock trading is much harder than most of them think, let’s see some of the most important things beginners must consider in order to accelerate their learning curve.

Stick with the most liquid shares

Finding “the next big thing” is one of the illusions that seduces most of the beginners. They spend a significant amount of time looking for those companies that will have huge returns over the next months of years. Not even the most-skilled stock traders are able to do that, so why do you think you will?

Instead of looking for those shares, stick with the companies that already have a leading position in the industry. Google, Facebook, Microsoft, Apple, and Boeing are just some of the names that are popular at the time of writing, and looking at their performance in the long run, so far, they’ve managed to impress.

Study educational materials

Beginners fail to understand that share trading is a skill-based endeavor and study is one of the most important parts of the process. Study as many educational materials as you can and gain as much knowledge as possible because you’ll definitely need it. This guide and other similar ones will introduce you to share trading and help you understand the basic concepts. Remember this axiom: “Around 90% of the traders lose 90% of their capital in their first 90 days of trading”. Education is one of the main factors why beginners stumble into the same mistakes over and over again. You don’t want to be in the same position as most of the people who don’t learn and spend time to sharpen their skills.

Build a portfolio

Closely linked to our first tip, building a portfolio of uncorrelated assets is one of the most important things to consider, if you want to limit the damages of your mistakes. No matter how good you are, in trading, you won’t make money all the time. Diversification will help you minimize the effects of some losing trades. Don’t concentrate all the risk in a single stock and instead pick at least three or four names that might perform positively in the near-term.

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