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  Elections, particularly in India, can indeed have an impact on its economy, including liquidity and inflation. During election periods, State governments of India often increase spending to buttress their election campaign and implement populist measures to attract voters. However this GOI has eschewed its temptation to loosen its purse strings. However it has increased its Capex infra projects which can generate assets and have a trickle down effect in the income of the people. But this increased government spending at State levels can potentially lead to higher liquidity in the financial system. If the increased liquidity is not matched by an increase in productivity or economic growth, it can potentially lead to inflationary pressures. In such situations, central banks like the Reserve Bank of India (RBI) might need to adopt tight liquidity management policies to rein in inflation. Tight liquidity management involves reducing the money supply in the economy by selling governme...

  The July PMI was slightly lower than the June PMI, but both readings were above the 50-mark, indicating expansion in the manufacturing sector. The decline in the July PMI was likely due to a number of factors, including rising input costs, supply chain disruptions, and a slowdown in demand. However, the overall picture for the Indian manufacturing sector remains positive, with the PMI remaining above the 50-mark for the 25th consecutive month. Here is a table comparing the July and June PMIs: Indicator July June Manufacturing PMI 57.7 57.8 Output 57.5 57.8 New orders 58.3 58.7 Input prices 62.7 62.5 Employment 51.0 50.7 Business confidence 63.3 63.4 As you can see, July PMI w as lower than the June PMI in all but one indicator. However, the overall picture for the Indian manufacturing sector remains positive, with the PMI remaining above the 50-mark for the 25th consecutive month. The July 2023 PMI report for India did not include any specific figures on corporate profits. Howeve...

 "Negotiations over a shrinking pie are especially difficult, because they require an allocation of losses" The above is from Daniel Kahnemann's magnum opus "Thinking, Fast and Slow". India is facing a shrinking pie situation with steep GDP contraction. Fiscal stimulus is imperative and it is expected on a yesterday war footing. Early birds and head-starts enhance hope and confidence which feed favourably into demand and investment.They also act as countercyclical to shrinking pie despondency. Credit boost is a temporary remedy to manufacturing machinery to kick start and keep up the production capacity. But it can work only up to a point, where the productivity and earnings should become sufficient to keep up with the plan of repayment of loans and borrowings. If the people in general do not foresee sufficient future income and employment, they may not turn out to buy things and assets.They cannot evergreen their loans like some corporates feeding only on liqui...

  Central Govt has brought three PLI (Production Linked Incentives)schemes so far- for Electronics Manufacturing, Pharma APIs and Medical devices- in order to give a big push for Make in India as part of PM Modi's aspirational theme "Atmanirbhar India". Under PLI scheme for Electronics mfg. 4% to 6% is the incentive on incremental sales over the base year and the scheme has three sub-categories-Mobile phone (International Cos), Mobile Phones(Domestic cos) and Specified Electronic Components Mfg. The govt recently announced 16 companies under these categories which included the likes of Samsung, Apple's Contract manufacturers Foxconn Hon Hai, Wistron, Pegatron and also Rising Star. Under the Domestic companies, Lava, Micromax etc. and under Specified Electronics components, 6 companies have been approved.Over the next 5 years, this policy initiative is expected to lead to the production of over Rs.10.5 lac cr with a likely export of over Rs.6.5 lac cr out of this, as p...

 India's agriculture has hit a new high when the entire country is under lockdown and the industry has hit the rock bottom.Kharif sowing as on 5th Sep20 has reached 1095 lakh hectares which is 6% more than what was the sown area in kharif season 19-20.The acreage of paddy has grown by 8% to 396 lac hec.over previous year.The acreage under Oilseeds has grown by 12% to 195 LH; Pulses by 5%  to 137 LH; Cotton by 3% to 129 LH and Coarse cereals by 2% to 179 LH.This has been facilitated by 9% increase in rainfall during June-Sep 20 to 795mm. All five summer grown Oilseeds has seen higher than anticipated increase in their respective MSPs  and better procurement during the initial months of Covid pandemic phase.The increase in Minimum Support Prices including that of Paddy announced at the beginning of Kharif season in june 20 has really helped in increasing the sowing area and in augmenting the revenue of the farmer. That apart, India has witnessed a 23% increase in farm expor...

 India's FM is an unenviable position. Given the penchant for two steps forward and one step backward in all economic decisions, FM is in the eye of the storm unendingly ever since the pandemic struck India. In fact, even before that, India's GDP was sliding YOY from 2016-17 onwards. It hit a high of 8.26% in 16-17 and hit the lowest so far in Fiscal 19-20 at 4.2%. GST collections have also ebbed along with the GDP since even Nominal GDP has grown only by 7.2% in Fy 19-20.It was growing at 11.76% in Fiscal 16-17. So, this skidding of the nominal growth rate coupled with a reduction in GST rates in 2018 led to a shortfall in GST collections even though the tax base widened. The good thing about the One Nation, One tax has been the acceptance of this Taxation in lieu of VAT at the individual state level and Excise duty at the Central level. The consensus behind GST has been bought by Arun Jaitley with the commitment for providing Central funds at the growth rate of 14% YOY to the...

 The minutes of the recent meeting of Monetary Policy Committee  of RBi which were released this week, contain some interesting mentions. One of the news columns said that RBI minutes mention 'uncertainty' 12 times, 'growth' 43 times and 'inflation' 147 times It has expressed concern over inflation and it seems to be valid as CPI has remained above 6% which is more than the tolerance limit of RBI. Alongside, India is experiencing severe GDP growth pangs as its IIP has remained in the negative territory in the first quarter and in July also. Services sector is in a deeper mess except of course ITES, SAAS etc. which have been affected to a lesser extent. It looks like only Agri sector has not been impacted adversely so far ,as the progress of monsoon has been satisfactory and the spatial dispersion also fairly good. The RBI Deputy Governor Mr.Michael Patra had said : "If inflation persists above the upper tolerance band for one more quarter, monetary policy w...

 RBI's recent Monetary Policy announcement after MPC considered the latest economic factors, CPI etc , came out with no repo rate cut. Primarily because CPI is elevated and at an uncomfortable level as far as RBI is concerned.since the mandated and stated objective of RBI is now inflation control, RBI has decided to hold the rate this time despite the economic slowdown calling for a steep rate cut.RBI also mentioned that this year would see real GDP contraction after more than four decades, but still decided to save the powder for a more rainy day or for a day when the bang will be worth its buck. India is facing rising prices also esp. food prices, fuel prices and therefore is experiencing a cost push inflation. There is a school of economists who say the inflation is fueled by easy liquidity floating in the economy and the stock exchange boom , gold price rise all indicate to easy money into areas where some quick money can be made.Even RBI is predicting a rise in inflation level...

Policy prescriptions are flying thick and fast and on my part, I am adding one more . All Economists including me are prescribing deficit monetisation, pump priming etc. taking a leaf out of Modern Monetary Theory. As against this,Central Govt. has an alternative which is called Asset monetisation, according to me.Govt calls it Disinvestment/Divestment of PSUs. When the whole world is reeling under Covid pandemic , will there be a suitor for Air India? Even if there is a good buyer will he be willing to pay the right price for Air India.What will be the benchmark for its valuation when the whole industry is bogged down by this pandemic and its repercussions on the travel industry. In such unprecedented situations , it is best advised not to go in for outright sale transactions of Government stake in PSUs including Air India, BPCL,etc. Similarly, other intangible but real assets are Spectrum waves ( link ), Mining/Abiotic  ,Biotic Resources which are hidden inside the Ear...

Sri. Krishnamurthy Subramanian, Chief Economic Advisor to Central Govt,yesterday, has gone on record saying that further demand stimulus measures will be announced after vaccine becomes available. Why should we link stimulus to vaccine availability is not clear. What kind of vaccine he is expecting and if the vaccine falls short of his expectations whether he would not allow roll out of stimulus? I t may become too late to wait till then.Why because, the common man has started saving his meagre earnings due to his fear about his future earnings and not due to Covid pandemic per se.In order to allay his fear about his employment and future earnings, Govt must sacrifice some near term revenue and announce some economic incentives  for kick starting the economy.What better place to start than with Indirect Tax cuts. Auto sector is the biggest in manufacturing in terms of GDP and reducing GST on it from 28% and converge it with Revenue Neutral Rate(RNR) of 18% will give a huge ...

RBI consumer confidence survey was done in May 2020, which came out a few days back paints a dark picture of consumer confidence. It has hit rock bottom so far. link . Whether it will hit another bottom is a moot point. According to RBI Consumer confidence collapsed in May with the Current Situation Index (CSI) touching a historic low of 63.7 dipping from 85.6 in March 20. One year ahead Future Expectations Index entered the zone of pessimism at 97.9 for the first time after Modi govt. took charge, falling from 115.2 just two months ago. These are all negative news, but as expected. However these are lag news and therefore markets looking for lead indicators ignored this. We all now know that Covid 19 has wreaked havoc on our economic health more than what it could do to people health. But there are several silver linings like not many people do not expect price levels to go up. If we discount the "recency bias" in their opinions and perceptions,I still find 14.4 % peo...