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Manika Premsingh
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Manika Premsingh is the promoter of Orbis Economics. She has worked for the last number of years as an Economist, largely looking at the Indian economy, across industries like the government, equities broking, investment banking, outsourcing and financial media, bringing with her a well-rounded... More
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  • Investments Into India Improve, Real Activity A Mixed Bag

    For the week ended August 23, 2014:

    • Incoming data on the Indian economy showed mixed trends as investment activity, area under Kharif production and railway freight earnings showed positive developments, while indirect tax collection remained lack lustre and oil production continued to lag.
    • The centre announced details for the 'Digital India' programme first announced during the budget, which, as the name suggests, aims to digitize the entire country starting from the present year, and going up to 2018.
    • The Reserve Bank of India (RBI) released its annual report, which points to downside risks to growth and upside risks to inflation on account of a deficient monsoon condition and the emerging geo-political situation in the Middle East. Further, it called for implementation of micro-economic policies to improve activity levels sustainable, besides focus on the macro-economic framework.

    Read this and more in the executive summary of the India Macro Weekly atwww.oeresearch.in

    You can also write in to me at manika.premsingh@orbiseconomics.com

    Sep 02 4:06 PM | Link | Comment!
  • India's industrial production continues to lose ground. Here's why..
    Another month, another dismal industrial production number. A slowing down to 1.9 percent of production will probably come as no surprise to anyone who has been observing the growth patterns overtime.

    Why? It is a combination of domestic and international factors. Three, to be precise.

    #1. Rising interest rates – Industrial production responds to cost of capital, which has been rising incessantly in India over the past months. Plagued by the sceptre of rising inflation, the RBI has been doing its bit in increasing policy rates. Commercial banks have duly followed, increasing lending rates in the economy. As a result, manufacturing production, which accounts for majority of the Index of Industrial Production (IIP) has come tumbling down as a lagged response to interest rate tightening. For the month of September, manufacturing has grown by a poor 2.1 percent (in comparison with a comparatively robust 6.9 percent in September 2010). Even comparing with the previous quarter (Q1 2011-12), the performance this quarter has been very below average at 2.9 percent from 7.7 percent.

    #2. Rising inflation – Inflation in India has remained quite high, suggesting the limited role that monetary policy can play in reducing inflation at the present point in time. Not only does rising inflation hit the costs of companies, via increases in price of inputs, it also limits the pass on of prices to consumers who are already spending less on discretionary products. Rising prices of essential commodities like food and fuel means that consumers have less to spend on other goods. As a result, consumer non-durable goods’ production has actually shrunk by 1.3 percent in September. Though, in this case it needs to be noted that there is no difference in the April-September 2010 and 2011 growth rate (3.8 percent), indicative of consumer response to inflation. While consumer durables have shown robust performance in September (8.7 percent), and is one category showing improved performance over the quarter, a seasonal (read, festive) trend is possibly at play.

    #3. Uncertain global environment – The latest trade press release shows the now widely expected decline in exports growth to just about double digits. No points for guessing then, which industries will be impacted most. Capital goods, which is becoming one of India’s significant exports, has shrunk this month by almost 7 percent. This trend is also visible in other export oriented sectors such as textiles and apparel.
    Given each of the segments’ linkages with others, it is only expected that the entire IIP basket has softened. With the situation not looking particularly different in November, it is likely that a decline in IIP will continue to get worse before it gets better
    Tags: economy, india
    Nov 14 7:30 AM | Link | Comment!
  • Eye on the World Special: The Unrest Economies - Reasons and Implications
     
    Introduction

    It has been a tumultuous 2011 so far for the Middle East and parts of North Africa as the region witnesses a revolution contagion. It started with Tunisia, where successful mass protests started in December 2010, in a bid to oust the President after 23 years in power. The region came further in focus as another North African country – Egypt – saw a sparking off of similar protests, leading to yet another revolution ending with the ouster of President Mubarak after 30 years in power. The protests have now spread to Algeria, Bahrain, Libya, Yemen and a revival of the protests in Iran.
     
    In this Eye on the World Special, Orbis Economics takes a closer look at the events in these Unrest Economies (henceforth referred to as UEs). We start by unravelling the potential political, economic and social reasons for the recent uprisings. We then try to understand the implications of the uprisings for the rest of the region and finally we explore the possible impact on India.

    Analysing the reasons: Oppression, unemployment and poverty

    One of the key common factors among all the Unrest Economies is the existence of authoritarian regimes. Oppression and a clamp down on 'freedom of speech' has widely been pointed as a reason for the protests. According to the Economist Intelligence Unit, which has created a Democracy Index across countries based on various facets of political functioning, all the countries currently facing unrest have a low democracy ranking. Of a total of 178 countries ranked, these countries rank between 122 and 146 in number, where 1 is the most democratic and 178 the least democratic country.

    We at Orbis Economics looked at other socio-economic indicators as well to understand more underlying reasons for the protests in the UEs. Another common key factor across these economies is high unemployment, where the unemployment rate is the proportion of unemployed labour force in the total labour force. Though we have to add here, that the latest, and even consistent data for the indicator was a challenge to find across these countries. Nevertheless, a broad picture does emerge. The World’s average unemployment rate is 8.8%, but the figure for some of the UEs like Yemen and Libya is as high as 35% and 30%. That these countries have a high concentration of population in the working age group only adds to the significance of this indicator.

    The third significant underlying factor is the low per capita incomes. The average per capita income for the UEs put together is at US $ 3,534 for 2009, which is less than half the world average of US $ 8,506. This is despite the fact that the average figure takes Bahrain into consideration with a much higher than world average per capita income of US $ 19,817. Libya, too, is an exception in that it has a high GDP per capita.

    Even in Bahraina and Libya, it is likely that the GDP figures for Bahrain and Libya mask the latent inequality in these economies, official figures for which are not available. For instance, a survey conducted by Bahrain Monetary Agency in 2004 had found that poverty rate was rising on the one hand, and the average wealth of the richest 5,200 Bahraini individuals was higher than the world average. That said, however, the income inequality levels across these countries, is not among the highest in the world.

    The inequality coefficient ranges between 0 and 100, with 100 showing highest inequality and 0 the least inequality. The income inequality in the UEs is equal to or lower than those seen in the largest emerging markets today – Brazil, Russia, India and China. In fact, some of the most developed countries like US and UK also have a higher level of income inequality. It can be argued that this measure of income inequality is but one measure, looking at other measures like the ratio of the richest 20% to the poorest 20% might yield somewhat different results. However, it does indicate that it is not the most significant underlying factor.

    The same is true for corruption. While four of the seven UEs analysed are at the bottom end of the corruption scale, it is interesting to note that Tunisia and Egypt that have successfully overthrown the existing regimes are actually better off on the corruption metric. Much like in the case of income inequality then, corruption is a likely contributing factor, maybe even a significant contributor but clearly not the stand-out cause.

    While the existence of both corruption and inequality cannot be denied looking at the figures, in our analysis of poltical, social and economic indicators, they are not statistically the most overwhelming ones. It is more likely that a combination of inability to voice dissent, poverty, unemployment and added to that the existence of inequality and corruption would have created discontent as a whole.

     
    Implications of the UEs for the region: The risk of contagion

     
    While there is no denying that the countries are creating a new chapter in the history of the region as we speak, the key question that arises is - what is the implication of the current uprisings on the rest of the world? These seven countries put together are small even as a group in terms of population and size of the economy. They accounted for a population of 0.2 bn as of 2009, with Egypt being the largest in population followed by Iran. This compares with a world population of 6.8 bn as of 2009 or an over 1 bn population of India. In terms of the size of the economy, together they accounted for less than 1.5% of world GDP in 2009 in nominal terms.
     

     
    Their key significance is therefore not in the size of the countries per se, but their geographical location. In our analysis, the most significant factors for the protests are then the lack of democracy, large number of poor and a lack of jobs. That these very factors are observable in other Middle East and African economies as well suggests the risk of contagion. The Economist has compiled a ‘Shoe-Thrower’s Index’ as a means to gauge which countries could next see uprisings.

    The index considers factors like GDP per capita, democracy, corruption, demographic profile, years for the government in power, as well as censorship. On a scale of 1 to 100 measuring stability or its lack, an index of 100 reflects the least stable country. Other potential countries with an over 50% instability potential are Syria, Iraq, Oman, Mauritiana and Saudi Arabia. While the index covers the Arab world, it is important to note that much of Central Africa is also under authoritarian regimes all of which have the common problems of poverty and high unemployment rates.

    The significiance of the Middle East for the rest of the world lies in the fact that 56% of the world’s oil reserves are in this region, and taking Africa into account the proportion rises to 65%. Besides the other countries, that Saudi Arabia is at a risk of revolution contagion has deep implications indeed. It has the largest known oil reserves in the world today and at a time when the world already feels a need for greater energy security, it is indeed worrisome. Already, geo-political strife in the middle east and rising demand from emerging markets has placed stress on crude prices. After the latest unrests, crude prices are already hovering above US $ 100.


    Implications for India: Trade and diplomacy

     
    A country like India which has high energy dependence on the rest of the world, the first impact will be on the oil import bill which accounts for a third of the country's merchandise imports. At least in part because of its energy dependence on the oil rich middle east countries, India has strong trade ties with these countries. The UAE, Saudi Arabia and Iran are among India’s top 10 trading partners and account for approximately 16% of the country’s merchandise trade. Among India’s top 25 trading partners are 3 more middle-east countries – Kuwait, Qatar, and Iraq, which take the share of the region up to almost 20%.

     
    Of the UE, evidently then, the strongest ties are with Iran, with which India had a trade of US $ 13.3 bn in 2009-10. That said, however, India and Iran have had their differences on strategic geo-political issues. Egypt is the other UE with which India has had strong historical ties. India is one of the large investors in Egypt and a number of Indian companies like the Tata group, Asian Paints, Ashok Leyland, HDFC and Dabur have a presence in the country. Relationships have been cordial with the other UEs too and diplomatic relations go back decades.  

     
     
    It is too soon to say how the political structures in the UEs will evolve overtime. But it is likely that in the even that the countries transform into genuine democracies there is higher probability of stronger strategic and commercial ties with India based on a common political philosophy.
    Feb 19 3:41 PM | Link | Comment!
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