India tanking: Why didn’t anyone tell me all this before?Trust The Economist to bring us ‘Happy Go Ignoring’ Indians back to ground. There a plenty of danger signs with our economy and the way we have been living on borrowed money.
For a while we have been getting punch drunk with media reports about how ‘great’ our country was becoming (?); how our GDP beat the U.S.; how everyone wants our ‘for cheap’ coders, our minerals, and our unlimited supply of all-aspiring, all-consuming middle class. Happy with our $1000 a month salaries and brand new shopping malls, we forgot all this is perhaps a mirage, or a wet dream of us Oasis Dwellers.
Mahatma Gandhi reportedly recommended reading The Economist.
I doubt any of our planners; politicians or PR people do that, except showing it off on the center table.
Detailing the problems with the Indian economy, The Economist says that the current boom is just cyclical, nothing extraordinary. The Magazine points out the following warning signs:
- Consumer-price inflation has risen to almost 7% well above Asia's average rate of 2.5%.
- In a survey of 600 firms by the National Council of Applied Economics Research … 96% of firms reported that they were operating close to or above their optimal levels of capacity utilisation—the highest number ever recorded.
- Indian companies are also experiencing a serious shortage of skilled labour.
- Wages are rocketing. Companies' total wage costs in the six months to September were 22% higher than a year earlier, compared with an average increase of around 12% in the previous four years.
- India's current account has shifted to a forecast deficit of 3% of GDP this year from a surplus of 1.5% in 2003—a classic sign of excess demand.
- Total bank lending has expanded by 30% over the past year, close to the fastest growth on record.
- Share prices are almost four times their level in early 2003. India's price/earnings ratio of 20 is well above the average of 14 for all Asian emerging markets.
- House prices have also gone through the roof: …prices in big cities have more than doubled in the past two years. Housing loans jumped by 54% in the year to June and loans for commercial property were up by 102%.
- India vs. China: In China, Inflation is only 1.4% and it has a widening current-account surplus, which implies excess supply rather than excess demand. Moreover, average house prices have risen by less than 6% in the past 12 months. And share prices have gained only 42% in the past four years. Even the expansion of bank credit has slowed to an annual pace of 15%, not much faster than nominal GDP growth.
All this is enough motivation for all of us with jobs to keep our bosses in good humor. Now, why didn’t I knew all this before. Blame it on the media and its celebrity and sensation-fixation, perhaps?