More on Infrastructure in India...

Next decade will be of infra: Nath
Union Road Transport & Highways Minister Kamal Nath has kick-started his campaign in Singapore to woo foreign players to invest in the road sector in India.

Addressing the investors at ‘Building India: India Infrastructure Summit’ today, Nath said India’s next decade would be of infrastructure. He said infrastructure would be the defining sector for India in the coming decade as was information technology in the 1990s and the present decade.
Source: Business Standard
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Exactly what should be happening. Glad to see the commitment of the govt towards encouraging PPP in Infrasture. This is going to be the most important phase which will decide the course of the economy in the next couple of decades.

IIP still not going the right way

Story in Business Standard-
Chief Economic Adviser Arvind Virmani today said India's growth projections by international financial institutions are too low and asserted that industrial growth of 2.7 per cent in May is in line with the estimate of seven per cent this fiscal.
Industrial growth figure of 2.7 per cent in May is in line with seven per cent growth (plus-minus 0.75 per cent) for the current fiscal, projected by the Economic Survey with some riders, Virmani, the principal author of the pre-Budget document, said.
"Overall IIP growth is very much consistent and supportive of our projections...international financial institutions like World Bank and IMF are still way too low," Virmani said.
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Here is the picture of growth rate of IIP in the last 6 months-







Source: Indicus Analytics

Thanks to indicus for collecting all the data.

Clearly, the consumer demand has been driving the growth. The 2.7% growth in May is better than 1.4% in April.
But the real question is whether this is good enough.
I don't think so. An annual average of 7% might sound fine in this econopmic environment. But I don't think that we will be able to reach a two digit growth even in a boom period. This is a concern. The primary reason behind this gap is that India does not have the right infrastructure for efficient manufacturing. This is a fact that everyone realises.

The boost will come only when the govt creates the right infrastructure. Hence, I feel the massive spending that the govt has announced in the budget is a step in the right direction. These are policies aimed at achieving long term objectives. Thumbs
up to the UPA

Debt crisis in USA

Yes, there is talk about how the large debt is having an impact on policymaking in America.The U.S. debt currently stands at US$ 11.5 trillion. No joke

Why is this bad?
1. Future spending programs would be curtailed-The U.S. govt will be very handicapped in passing future spending programs through the senate. The amount of spending (over US$1 trillion) announced in the last 10 months or so have not showed results (mainly because very small percentage of it has been actually been spent till now). Obviously, it takes time for money to enter the system through this channel. However, the impatience of people could mean more pressure on govt to spend. But, the problem will be to convince the senators to support more packages. Several of them are already crying foul.

2. No more bail-outs- If the economy dips again, the govt may not be in a position to bail out anyone. This is good for free market economists but not necessarily for the politicians.

3. Credit rating of USA will become low
4. The pressure on interest rates will not ease quickly

Add to that the fear of a falling U.S. dollar. Everyone is aware of the potential of China and Japan to trigger about a dollar crisis by mass selling of treasury bonds.

This is a real crisis. Govt needs to do much more to tackle it. However, I still support most of the spending programs that had been initiated to tackle the on-going crisis.