Little Known Ways To Forex Better

Food Comfort For Your Portfolio
For superior long-term performance, shop the market for food, drug, and beverage stocks

you can take it a step further by writing your goals down in a particular study further by telling someone about your goals and you know when they ask you all know how are you doing you are you you you can't have another motivation to go through the okay so you know the board has trade method for goal achievement. tr eighty and keeping target. what specifically do you want in what specific that you want to achieve how you know when you achieve this you write your goal and the positive what you want and not what you're trying to avoid are is for reasons why is achieving this goal important. you should think back to the questions we asked ourselves about why we want to become traders rights of those core motivations that we talked about at the beginning. also the concerns of young thoughtsPick your poison: Internet bubbles o r currency devaluations. An economy that’s growing too fast or headed for a sudden downturn. Though the bulls are still stampeding, the market is increasingly volatile. It’s enough to turn even daring investors into more conservative ones, forsaking Wall Street’s exotic fare for a diet of more consistently dependable stocks, venerable companies like Walgreen, the Deerfield, Illinois-based purveyor of food and drugs.

The 98-year-old retailer has seen its earnings increase in each of the past 24 years. In the past five years, the company’s earnings per share have nearly doubled. No wonder investors have flocked to Walgreen, sending its stock up 88 percent last year; during the past decade, shareholders have earned about 30 percent annually. Walgreen’s stock traded at 56 times earnings in early February, a multiple 66 percent higher than the average Standard & Poor’s 500 stock, which itself carries near-record price-to-earnings ratios.

What’s so special about a company that peddles cookies and aspirin? Regardless of whether the economy is booming, busting, or doing something in between, people get hungry and have headaches. At Walgreen stores, the product keeps moving off the shelves. Businesses that sell things people desire or need no matter how the economy is faring are known as stable-growth companies because they’re able to deliver steady profit increases year after year. Although examples exist within many areas of commerce, Wall Street has traditionally defined stable-growth companies as those producing beverages, food, pharmaceuticals, and tobacco-staples that consumers keep buying in good times and bad. And here’s another Wall Street tradition: Once a maker of one of these products starts showing dependable earnings growth, its stock often richly rewards investors who hold on for the long term.

To see just how much the market covets these stocks, look at two institutional indices of stable-growth companies. In early February, a Merrill Lynch portfolio of more than three dozen stable-growth stocks traded at 36 times earnings and about 11 times book value, or net worth. Morgan Stanley’s index of 30 consumer-oriented stocks was valued at 30 times earnings and 6 times book.

And there’s the rub. In today’s market, investors who seek stable-growth companies for their dependability and strong relative performance have to pay a premium for their shares. And when companies with high valuations fail to meet investors’ expectations, their share prices can fall fast and hard. Consider what happened to Campbell Soup earlier this year: On January 11 the world’s largest soupmaker announced that an unusually warm winter had slowed sales, sending Campbell shares down 13 percent in that day’s session.

Despite the risks that accompany high valuations, there are compelling reasons to include stable-growth stocks in a portfolio. These stocks have outperformed the market over long periods; they deliver better returns than any other type of stock during an economic slowdown; and since they’re companies worth holding on to, a portfolio of stable-growth stocks typically requires little trading activity, a distinct advantage for taxable accounts.

Steve Kim, an equity-derivatives analyst at Merrill Lynch, has closely studied the past performance of stable-growth stocks. Kim compared the returns of the 500 largest-capitalization companies with a portfolio of stocks with the lowest volatility in earnings in the food, drugs, and tobacco industries. His research showed that the stable-growth stocks outgained the 500 large caps by 2.25 percent a year from January 1970 to February 1996, with only slightly more risk.

Moreover, when Kim measured the return of stable-growth stocks and the broader market in different phases of the economic cycle (recession, recovery, and expansion) during the 26-year time frame of his study, the results were impressive. Stable-growth stocks had higher returns than the 500 largest stocks during periods of recession and expansion. In fact, the only time these stocks trailed the broader market was during times of recovery, when investors chased companies more likely to profit from an expanding economy.

What makes this group of stocks so interesting at this point in time is that they perform especially well when the economy is slowing. An economic downturn was precisely what many investors were betting on from 1995 through 1997. Consequently, Kim’s portfolio of stable-growth companies rose 44 percent in 1995, 26 percent in 1996, and 42 percent in 1997, outpacing the S&P 500 in all three years.

After three years of underestimating the economy’s strength, in 1998 investors stopped gambling on a slow-growth scenario. Instead of purchasing shares of companies with steady and dependable profits, many investors turned to fast-growth companies in the technology and retail sectors, groups that generally do well in a fast-growing economy.

Why the turnaround in investor attitude? Low unemployment, minimal inflation, solid wage growth, and a friendly stock market all combined last year to fuel consumer spending. Whether that trend will continue is a hotly debated point; indeed, many economists now view the consumer as a wild card. If the stock market fails to shower investors with double-digit gains, Americans might make fewer trips to the mall, dampening economic growth.

The U.S. economy may not have to nosedive for stable-growth stocks to come back in vogue. A slight change in investors’ perception could do the trick. The economy grew 3.8 percent in 1997 and 4.1 percent last year. Most Wall Street economists expect about 2.5 percent growth this year. Though this is a reasonable level by historical standards, it could be enough of a change to alarm investors. Chicago Fed president Michael Moskow refers to this possibility as the Sammy Sosa syndrome. “For years, Sammy Sosa hit 30 to 40 home runs, a good performance,” Moskow said in a speech this January. “Last year, he hit 66-an extraordinary performance. If he hits 40 this year, some will say he had a bad year. It’s a case of unrealistically high expectations.”
More…

For superior long-term performance, shop the market for food, drug, and beverage stocks

ick your poison: Internet bubbles o r currency devaluations. An economy that’s growing too fast or headed for a sudden downturn. Though the bulls are still stampeding, the market is increasingly volatile. It’s enough to turn even daring investors into more conservative ones, forsaking Wall Street’s exotic fare for a diet of more consistently dependable stocks, venerable companies like Walgreen, the Deerfield, Illinois-based purveyor of food and drugs.

The 98-year-old retailer has seen its earnings increase in each of the past 24 years. In the past five years, the company’s earnings per share have nearly doubled. No wonder investors have flocked to Walgreen, sending its stock up 88 percent last year; during the past decade, shareholders have earned about 30 percent annually. Walgreen’s stock traded at 56 times earnings in early February, a multiple 66 percent higher than the average Standard & Poor’s 500 stock, which itself carries near-record price-to-earnings ratios.

What’s so special about a company that peddles cookies and aspirin? Regardless of whether the economy is booming, busting, or doing something in between, people get hungry and have headaches. At Walgreen stores, the product keeps moving off the shelves. Businesses that sell things people desire or need no matter how the economy is faring are known as stable-growth companies because they’re able to deliver steady profit increases year after year. Although examples exist within many areas of commerce, Wall Street has traditionally defined stable-growth companies as those producing beverages, food, pharmaceuticals, and tobacco-staples that consumers keep buying in good times and bad. And here’s another Wall Street tradition: Once a maker of one of these products starts showing dependable earnings growth, its stock often richly rewards investors who hold on for the long term.

To see just how much the market covets these stocks, look at two institutional indices of stable-growth companies. In early February, a Merrill Lynch portfolio of more than three dozen stable-growth stocks traded at 36 times earnings and about 11 times book value, or net worth. Morgan Stanley’s index of 30 consumer-oriented stocks was valued at 30 times earnings and 6 times book.

And there’s the rub. In today’s market, investors who seek stable-growth companies for their dependability and strong relative performance have to pay a premium for their shares. And when companies with high valuations fail to meet investors’ expectations, their share prices can fall fast and hard. Consider what happened to Campbell Soup earlier this year: On January 11 the world’s largest soupmaker announced that an unusually warm winter had slowed sales, sending Campbell shares down 13 percent in that day’s session.

Despite the risks that accompany high valuations, there are compelling reasons to include stable-growth stocks in a portfolio. These stocks have outperformed the market over long periods; they deliver better returns than any other type of stock during an economic slowdown; and since they’re companies worth holding on to, a portfolio of stable-growth stocks typically requires little trading activity, a distinct advantage for taxable accounts.

Steve Kim, an equity-derivatives analyst at Merrill Lynch, has closely studied the past performance of stable-growth stocks. Kim compared the returns of the 500 largest-capitalization companies with a portfolio of stocks with the lowest volatility in earnings in the food, drugs, and tobacco industries. His research showed that the stable-growth stocks outgained the 500 large caps by 2.25 percent a year from January 1970 to February 1996, with only slightly more risk.

Moreover, when Kim measured the return of stable-growth stocks and the broader market in different phases of the economic cycle (recession, recovery, and expansion) during the 26-year time frame of his study, the results were impressive. Stable-growth stocks had higher returns than the 500 largest stocks during periods of recession and expansion. In fact, the only time these stocks trailed the broader market was during times of recovery, when investors chased companies more likely to profit from an expanding economy.

What makes this group of stocks so interesting at this point in time is that they perform especially well when the economy is slowing. An economic downturn was precisely what many investors were betting on from 1995 through 1997. Consequently, Kim’s portfolio of stable-growth companies rose 44 percent in 1995, 26 percent in 1996, and 42 percent in 1997, outpacing the S&P 500 in all three years.

After three years of underestimating the economy’s strength, in 1998 investors stopped gambling on a slow-growth scenario. Instead of purchasing shares of companies with steady and dependable profits, many investors turned to fast-growth companies in the technology and retail sectors, groups that generally do well in a fast-growing economy.

Why the turnaround in investor attitude? Low unemployment, minimal inflation, solid wage growth, and a friendly stock market all combined last year to fuel consumer spending. Whether that trend will continue is a hotly debated point; indeed, many economists now view the consumer as a wild card. If the stock market fails to shower investors with double-digit gains, Americans might make fewer trips to the mall, dampening economic growth.

The U.S. economy may not have to nosedive for stable-growth stocks to come back in vogue. A slight change in investors’ perception could do the trick. The economy grew 3.8 percent in 1997 and 4.1 percent last year. Most Wall Street economists expect about 2.5 percent growth this year. Though this is a reasonable level by historical standards, it could be enough of a change to alarm investors. Chicago Fed president Michael Moskow refers to this possibility as the Sammy Sosa syndrome. “For years, Sammy Sosa hit 30 to 40 home runs, a good performance,” Moskow said in a speech this January. “Last year, he hit 66-an extraordinary performance. If he hits 40 this year, some will say he had a bad year. It’s a case of unrealistically high expectations.”
More…

For superior long-term performance, shop the market for food, drug, and beverage stocks

ick your poison: Internet bubbles o r currency devaluations. An economy that’s growing too fast or headed for a sudden downturn. Though the bulls are still stampeding, the market is increasingly volatile. It’s enough to turn even daring investors into more conservative ones, forsaking Wall Street’s exotic fare for a diet of more consistently dependable stocks, venerable companies like Walgreen, the Deerfield, Illinois-based purveyor of food and drugs.

The 98-year-old retailer has seen its earnings increase in each of the past 24 years. In the past five years, the company’s earnings per share have nearly doubled. No wonder investors have flocked to Walgreen, sending its stock up 88 percent last year; during the past decade, shareholders have earned about 30 percent annually. Walgreen’s stock traded at 56 times earnings in early February, a multiple 66 percent higher than the average Standard & Poor’s 500 stock, which itself carries near-record price-to-earnings ratios.

What’s so special about a company that peddles cookies and aspirin? Regardless of whether the economy is booming, busting, or doing something in between, people get hungry and have headaches. At Walgreen stores, the product keeps moving off the shelves. Businesses that sell things people desire or need no matter how the economy is faring are known as stable-growth companies because they’re able to deliver steady profit increases year after year. Although examples exist within many areas of commerce, Wall Street has traditionally defined stable-growth companies as those producing beverages, food, pharmaceuticals, and tobacco-staples that consumers keep buying in good times and bad. And here’s another Wall Street tradition: Once a maker of one of these products starts showing dependable earnings growth, its stock often richly rewards investors who hold on for the long term.

To see just how much the market covets these stocks, look at two institutional indices of stable-growth companies. In early February, a Merrill Lynch portfolio of more than three dozen stable-growth stocks traded at 36 times earnings and about 11 times book value, or net worth. Morgan Stanley’s index of 30 consumer-oriented stocks was valued at 30 times earnings and 6 times book.

And there’s the rub. In today’s market, investors who seek stable-growth companies for their dependability and strong relative performance have to pay a premium for their shares. And when companies with high valuations fail to meet investors’ expectations, their share prices can fall fast and hard. Consider what happened to Campbell Soup earlier this year: On January 11 the world’s largest soupmaker announced that an unusually warm winter had slowed sales, sending Campbell shares down 13 percent in that day’s session.

Despite the risks that accompany high valuations, there are compelling reasons to include stable-growth stocks in a portfolio. These stocks have outperformed the market over long periods; they deliver better returns than any other type of stock during an economic slowdown; and since they’re companies worth holding on to, a portfolio of stable-growth stocks typically requires little trading activity, a distinct advantage for taxable accounts.

Steve Kim, an equity-derivatives analyst at Merrill Lynch, has closely studied the past performance of stable-growth stocks. Kim compared the returns of the 500 largest-capitalization companies with a portfolio of stocks with the lowest volatility in earnings in the food, drugs, and tobacco industries. His research showed that the stable-growth stocks outgained the 500 large caps by 2.25 percent a year from January 1970 to February 1996, with only slightly more risk.

Moreover, when Kim measured the return of stable-growth stocks and the broader market in different phases of the economic cycle (recession, recovery, and expansion) during the 26-year time frame of his study, the results were impressive. Stable-growth stocks had higher returns than the 500 largest stocks during periods of recession and expansion. In fact, the only time these stocks trailed the broader market was during times of recovery, when investors chased companies more likely to profit from an expanding economy.

What makes this group of stocks so interesting at this point in time is that they perform especially well when the economy is slowing. An economic downturn was precisely what many investors were betting on from 1995 through 1997. Consequently, Kim’s portfolio of stable-growth companies rose 44 percent in 1995, 26 percent in 1996, and 42 percent in 1997, outpacing the S&P 500 in all three years.

After three years of underestimating the economy’s strength, in 1998 investors stopped gambling on a slow-growth scenario. Instead of purchasing shares of companies with steady and dependable profits, many investors turned to fast-growth companies in the technology and retail sectors, groups that generally do well in a fast-growing economy.

Why the turnaround in investor attitude? Low unemployment, minimal inflation, solid wage growth, and a friendly stock market all combined last year to fuel consumer spending. Whether that trend will continue is a hotly debated point; indeed, many economists now view the consumer as a wild card. If the stock market fails to shower investors with double-digit gains, Americans might make fewer trips to the mall, dampening economic growth.

The U.S. economy may not have to nosedive for stable-growth stocks to come back in vogue. A slight change in investors’ perception could do the trick. The economy grew 3.8 percent in 1997 and 4.1 percent last year. Most Wall Street economists expect about 2.5 percent growth this year. Though this is a reasonable level by historical standards, it could be enough of a change to alarm investors. Chicago Fed president Michael Moskow refers to this possibility as the Sammy Sosa syndrome. “For years, Sammy Sosa hit 30 to 40 home runs, a good performance,” Moskow said in a speech this January. “Last year, he hit 66-an extraordinary performance. If he hits 40 this year, some will say he had a bad year. It’s a case of unrealistically high expectations.”
More…

For superior long-term performance, shop the market for food, drug, and beverage stocks

ick your poison: Internet bubbles o r currency devaluations. An economy that’s growing too fast or headed for a sudden downturn. Though the bulls are still stampeding, the market is increasingly volatile. It’s enough to turn even daring investors into more conservative ones, forsaking Wall Street’s exotic fare for a diet of more consistently dependable stocks, venerable companies like Walgreen, the Deerfield, Illinois-based purveyor of food and drugs.

The 98-year-old retailer has seen its earnings increase in each of the past 24 years. In the past five years, the company’s earnings per share have nearly doubled. No wonder investors have flocked to Walgreen, sending its stock up 88 percent last year; during the past decade, shareholders have earned about 30 percent annually. Walgreen’s stock traded at 56 times earnings in early February, a multiple 66 percent higher than the average Standard & Poor’s 500 stock, which itself carries near-record price-to-earnings ratios.

What’s so special about a company that peddles cookies and aspirin? Regardless of whether the economy is booming, busting, or doing something in between, people get hungry and have headaches. At Walgreen stores, the product keeps moving off the shelves. Businesses that sell things people desire or need no matter how the economy is faring are known as stable-growth companies because they’re able to deliver steady profit increases year after year. Although examples exist within many areas of commerce, Wall Street has traditionally defined stable-growth companies as those producing beverages, food, pharmaceuticals, and tobacco-staples that consumers keep buying in good times and bad. And here’s another Wall Street tradition: Once a maker of one of these products starts showing dependable earnings growth, its stock often richly rewards investors who hold on for the long term.

To see just how much the market covets these stocks, look at two institutional indices of stable-growth companies. In early February, a Merrill Lynch portfolio of more than three dozen stable-growth stocks traded at 36 times earnings and about 11 times book value, or net worth. Morgan Stanley’s index of 30 consumer-oriented stocks was valued at 30 times earnings and 6 times book.

And there’s the rub. In today’s market, investors who seek stable-growth companies for their dependability and strong relative performance have to pay a premium for their shares. And when companies with high valuations fail to meet investors’ expectations, their share prices can fall fast and hard. Consider what happened to Campbell Soup earlier this year: On January 11 the world’s largest soupmaker announced that an unusually warm winter had slowed sales, sending Campbell shares down 13 percent in that day’s session.

Despite the risks that accompany high valuations, there are compelling reasons to include stable-growth stocks in a portfolio. These stocks have outperformed the market over long periods; they deliver better returns than any other type of stock during an economic slowdown; and since they’re companies worth holding on to, a portfolio of stable-growth stocks typically requires little trading activity, a distinct advantage for taxable accounts.

Steve Kim, an equity-derivatives analyst at Merrill Lynch, has closely studied the past performance of stable-growth stocks. Kim compared the returns of the 500 largest-capitalization companies with a portfolio of stocks with the lowest volatility in earnings in the food, drugs, and tobacco industries. His research showed that the stable-growth stocks outgained the 500 large caps by 2.25 percent a year from January 1970 to February 1996, with only slightly more risk.

Moreover, when Kim measured the return of stable-growth stocks and the broader market in different phases of the economic cycle (recession, recovery, and expansion) during the 26-year time frame of his study, the results were impressive. Stable-growth stocks had higher returns than the 500 largest stocks during periods of recession and expansion. In fact, the only time these stocks trailed the broader market was during times of recovery, when investors chased companies more likely to profit from an expanding economy.

What makes this group of stocks so interesting at this point in time is that they perform especially well when the economy is slowing. An economic downturn was precisely what many investors were betting on from 1995 through 1997. Consequently, Kim’s portfolio of stable-growth companies rose 44 percent in 1995, 26 percent in 1996, and 42 percent in 1997, outpacing the S&P 500 in all three years.

After three years of underestimating the economy’s strength, in 1998 investors stopped gambling on a slow-growth scenario. Instead of purchasing shares of companies with steady and dependable profits, many investors turned to fast-growth companies in the technology and retail sectors, groups that generally do well in a fast-growing economy.

Why the turnaround in investor attitude? Low unemployment, minimal inflation, solid wage growth, and a friendly stock market all combined last year to fuel consumer spending. Whether that trend will continue is a hotly debated point; indeed, many economists now view the consumer as a wild card. If the stock market fails to shower investors with double-digit gains, Americans might make fewer trips to the mall, dampening economic growth.

The U.S. economy may not have to nosedive for stable-growth stocks to come back in vogue. A slight change in investors’ perception could do the trick. The economy grew 3.8 percent in 1997 and 4.1 percent last year. Most Wall Street economists expect about 2.5 percent growth this year. Though this is a reasonable level by historical standards, it could be enough of a change to alarm investors. Chicago Fed president Michael Moskow refers to this possibility as the Sammy Sosa syndrome. “For years, Sammy Sosa hit 30 to 40 home runs, a good performance,” Moskow said in a speech this January. “Last year, he hit 66-an extraordinary performance. If he hits 40 this year, some will say he had a bad year. It’s a case of unrealistically high expectations.”
More…

For superior long-term performance, shop the market for food, drug, and beverage stocks

ick your poison: Internet bubbles o r currency devaluations. An economy that’s growing too fast or headed for a sudden downturn. Though the bulls are still stampeding, the market is increasingly volatile. It’s enough to turn even daring investors into more conservative ones, forsaking Wall Street’s exotic fare for a diet of more consistently dependable stocks, venerable companies like Walgreen, the Deerfield, Illinois-based purveyor of food and drugs.

The 98-year-old retailer has seen its earnings increase in each of the past 24 years. In the past five years, the company’s earnings per share have nearly doubled. No wonder investors have flocked to Walgreen, sending its stock up 88 percent last year; during the past decade, shareholders have earned about 30 percent annually. Walgreen’s stock traded at 56 times earnings in early February, a multiple 66 percent higher than the average Standard & Poor’s 500 stock, which itself carries near-record price-to-earnings ratios.

What’s so special about a company that peddles cookies and aspirin? Regardless of whether the economy is booming, busting, or doing something in between, people get hungry and have headaches. At Walgreen stores, the product keeps moving off the shelves. Businesses that sell things people desire or need no matter how the economy is faring are known as stable-growth companies because they’re able to deliver steady profit increases year after year. Although examples exist within many areas of commerce, Wall Street has traditionally defined stable-growth companies as those producing beverages, food, pharmaceuticals, and tobacco-staples that consumers keep buying in good times and bad. And here’s another Wall Street tradition: Once a maker of one of these products starts showing dependable earnings growth, its stock often richly rewards investors who hold on for the long term.

To see just how much the market covets these stocks, look at two institutional indices of stable-growth companies. In early February, a Merrill Lynch portfolio of more than three dozen stable-growth stocks traded at 36 times earnings and about 11 times book value, or net worth. Morgan Stanley’s index of 30 consumer-oriented stocks was valued at 30 times earnings and 6 times book.

And there’s the rub. In today’s market, investors who seek stable-growth companies for their dependability and strong relative performance have to pay a premium for their shares. And when companies with high valuations fail to meet investors’ expectations, their share prices can fall fast and hard. Consider what happened to Campbell Soup earlier this year: On January 11 the world’s largest soupmaker announced that an unusually warm winter had slowed sales, sending Campbell shares down 13 percent in that day’s session.

Despite the risks that accompany high valuations, there are compelling reasons to include stable-growth stocks in a portfolio. These stocks have outperformed the market over long periods; they deliver better returns than any other type of stock during an economic slowdown; and since they’re companies worth holding on to, a portfolio of stable-growth stocks typically requires little trading activity, a distinct advantage for taxable accounts.

Steve Kim, an equity-derivatives analyst at Merrill Lynch, has closely studied the past performance of stable-growth stocks. Kim compared the returns of the 500 largest-capitalization companies with a portfolio of stocks with the lowest volatility in earnings in the food, drugs, and tobacco industries. His research showed that the stable-growth stocks outgained the 500 large caps by 2.25 percent a year from January 1970 to February 1996, with only slightly more risk.

Moreover, when Kim measured the return of stable-growth stocks and the broader market in different phases of the economic cycle (recession, recovery, and expansion) during the 26-year time frame of his study, the results were impressive. Stable-growth stocks had higher returns than the 500 largest stocks during periods of recession and expansion. In fact, the only time these stocks trailed the broader market was during times of recovery, when investors chased companies more likely to profit from an expanding economy.

What makes this group of stocks so interesting at this point in time is that they perform especially well when the economy is slowing. An economic downturn was precisely what many investors were betting on from 1995 through 1997. Consequently, Kim’s portfolio of stable-growth companies rose 44 percent in 1995, 26 percent in 1996, and 42 percent in 1997, outpacing the S&P 500 in all three years.

After three years of underestimating the economy’s strength, in 1998 investors stopped gambling on a slow-growth scenario. Instead of purchasing shares of companies with steady and dependable profits, many investors turned to fast-growth companies in the technology and retail sectors, groups that generally do well in a fast-growing economy.

Why the turnaround in investor attitude? Low unemployment, minimal inflation, solid wage growth, and a friendly stock market all combined last year to fuel consumer spending. Whether that trend will continue is a hotly debated point; indeed, many economists now view the consumer as a wild card. If the stock market fails to shower investors with double-digit gains, Americans might make fewer trips to the mall, dampening economic growth.

The U.S. economy may not have to nosedive for stable-growth stocks to come back in vogue. A slight change in investors’ perception could do the trick. The economy grew 3.8 percent in 1997 and 4.1 percent last year. Most Wall Street economists expect about 2.5 percent growth this year. Though this is a reasonable level by historical standards, it could be enough of a change to alarm investors. Chicago Fed president Michael Moskow refers to this possibility as the Sammy Sosa syndrome. “For years, Sammy Sosa hit 30 to 40 home runs, a good performance,” Moskow said in a speech this January. “Last year, he hit 66-an extraordinary performance. If he hits 40 this year, some will say he had a bad year. It’s a case of unrealistically high expectations.”
More…

Smart Questions to Ask Your Financial Advisers

Smart Questions to Ask Your Financial Advisers Smart Questions to Ask Your Financial Advisers

What’s my marginal tax rate?

This is important information for any investor-even someone who never ventures into the stock market.

If you and your spouse have $98,000 a year in combined income, you may think that you’re in the 31 percent federal tax bracket. The reality is more complex: you pay a 31 percent federal income tax only on the last $1,100 you earn. In fact, your marginal tax rate is 31 percent, but most of your income is taxed at 15 percent or 28 percent.

For a married couple filing jointly in 1996, the 28 percent federal rate kicked in for amounts over $40,100; the 31 percent tax rate applied to amounts over $96,900; the 36 percent rate applied to amounts over $147,700; and 39.6 percent was levied on amounts over $263,750. (Federal tax brackets are adjusted at the end of each year for inflation.)

Perhaps that last $1,100 of your $98,000 income is investment income that you don’t currently need. If so, you might reduce your marginal tax rate to 28 percent by switching from that income-paying investment into a growth investment that generates minimal dividend income, like an equity index fund. You wouldn’t owe taxes on the increase in the value of your index fund shares until you sold them-at which point, if you’d held the fund for a year or more, you’d owe a long-term capital gains tax, now capped at 20 percent.

Or if you want to stay invested for income, you might consider a tax-exempt municipal bond fund instead of a taxable corporate bond fund.

On the other hand, if your marginal tax rate is low, investing in tax-exempt municipal bonds doesn’t really make sense for you. If your marginal tax rate is 31 percent, earning 5 percent interest tax-free is like earning 7.25 percent in a taxable investment. If your marginal rate is only 15 percent, a tax-free 5 percent is worth only as much to you as 5.88 percent in a taxable investment. You might earn more in Treasuries, which are free of state and local taxes-and safer than municipal bonds.

Smart Questions to Ask Your Financial Advisers

Smart Questions to Ask Your Financial Advisers Smart Questions to Ask Your Financial Advisers

What’s my marginal tax rate?

This is important information for any investor-even someone who never ventures into the stock market.

If you and your spouse have $98,000 a year in combined income, you may think that you’re in the 31 percent federal tax bracket. The reality is more complex: you pay a 31 percent federal income tax only on the last $1,100 you earn. In fact, your marginal tax rate is 31 percent, but most of your income is taxed at 15 percent or 28 percent.

For a married couple filing jointly in 1996, the 28 percent federal rate kicked in for amounts over $40,100; the 31 percent tax rate applied to amounts over $96,900; the 36 percent rate applied to amounts over $147,700; and 39.6 percent was levied on amounts over $263,750. (Federal tax brackets are adjusted at the end of each year for inflation.)

Perhaps that last $1,100 of your $98,000 income is investment income that you don’t currently need. If so, you might reduce your marginal tax rate to 28 percent by switching from that income-paying investment into a growth investment that generates minimal dividend income, like an equity index fund. You wouldn’t owe taxes on the increase in the value of your index fund shares until you sold them-at which point, if you’d held the fund for a year or more, you’d owe a long-term capital gains tax, now capped at 20 percent.

Or if you want to stay invested for income, you might consider a tax-exempt municipal bond fund instead of a taxable corporate bond fund.

On the other hand, if your marginal tax rate is low, investing in tax-exempt municipal bonds doesn’t really make sense for you. If your marginal tax rate is 31 percent, earning 5 percent interest tax-free is like earning 7.25 percent in a taxable investment. If your marginal rate is only 15 percent, a tax-free 5 percent is worth only as much to you as 5.88 percent in a taxable investment. You might earn more in Treasuries, which are free of state and local taxes-and safer than municipal bonds.

Smart Questions to Ask Your Financial Advisers

Smart Questions to Ask Your Financial Advisers Smart Questions to Ask Your Financial Advisers

What’s my marginal tax rate?

This is important information for any investor-even someone who never ventures into the stock market.

If you and your spouse have $98,000 a year in combined income, you may think that you’re in the 31 percent federal tax bracket. The reality is more complex: you pay a 31 percent federal income tax only on the last $1,100 you earn. In fact, your marginal tax rate is 31 percent, but most of your income is taxed at 15 percent or 28 percent.

For a married couple filing jointly in 1996, the 28 percent federal rate kicked in for amounts over $40,100; the 31 percent tax rate applied to amounts over $96,900; the 36 percent rate applied to amounts over $147,700; and 39.6 percent was levied on amounts over $263,750. (Federal tax brackets are adjusted at the end of each year for inflation.)

Perhaps that last $1,100 of your $98,000 income is investment income that you don’t currently need. If so, you might reduce your marginal tax rate to 28 percent by switching from that income-paying investment into a growth investment that generates minimal dividend income, like an equity index fund. You wouldn’t owe taxes on the increase in the value of your index fund shares until you sold them-at which point, if you’d held the fund for a year or more, you’d owe a long-term capital gains tax, now capped at 20 percent.

Or if you want to stay invested for income, you might consider a tax-exempt municipal bond fund instead of a taxable corporate bond fund.

On the other hand, if your marginal tax rate is low, investing in tax-exempt municipal bonds doesn’t really make sense for you. If your marginal tax rate is 31 percent, earning 5 percent interest tax-free is like earning 7.25 percent in a taxable investment. If your marginal rate is only 15 percent, a tax-free 5 percent is worth only as much to you as 5.88 percent in a taxable investment. You might earn more in Treasuries, which are free of state and local taxes-and safer than municipal bonds.

Smart Questions to Ask Your Financial Advisers

Smart Questions to Ask Your Financial Advisers Smart Questions to Ask Your Financial Advisers

What’s my marginal tax rate?

This is important information for any investor-even someone who never ventures into the stock market.

If you and your spouse have $98,000 a year in combined income, you may think that you’re in the 31 percent federal tax bracket. The reality is more complex: you pay a 31 percent federal income tax only on the last $1,100 you earn. In fact, your marginal tax rate is 31 percent, but most of your income is taxed at 15 percent or 28 percent.

For a married couple filing jointly in 1996, the 28 percent federal rate kicked in for amounts over $40,100; the 31 percent tax rate applied to amounts over $96,900; the 36 percent rate applied to amounts over $147,700; and 39.6 percent was levied on amounts over $263,750. (Federal tax brackets are adjusted at the end of each year for inflation.)

Perhaps that last $1,100 of your $98,000 income is investment income that you don’t currently need. If so, you might reduce your marginal tax rate to 28 percent by switching from that income-paying investment into a growth investment that generates minimal dividend income, like an equity index fund. You wouldn’t owe taxes on the increase in the value of your index fund shares until you sold them-at which point, if you’d held the fund for a year or more, you’d owe a long-term capital gains tax, now capped at 20 percent.

Or if you want to stay invested for income, you might consider a tax-exempt municipal bond fund instead of a taxable corporate bond fund.

On the other hand, if your marginal tax rate is low, investing in tax-exempt municipal bonds doesn’t really make sense for you. If your marginal tax rate is 31 percent, earning 5 percent interest tax-free is like earning 7.25 percent in a taxable investment. If your marginal rate is only 15 percent, a tax-free 5 percent is worth only as much to you as 5.88 percent in a taxable investment. You might earn more in Treasuries, which are free of state and local taxes-and safer than municipal bonds.

Smart Questions to Ask Your Financial Advisers

Smart Questions to Ask Your Financial Advisers Smart Questions to Ask Your Financial Advisers

What’s my marginal tax rate?

This is important information for any investor-even someone who never ventures into the stock market.

If you and your spouse have $98,000 a year in combined income, you may think that you’re in the 31 percent federal tax bracket. The reality is more complex: you pay a 31 percent federal income tax only on the last $1,100 you earn. In fact, your marginal tax rate is 31 percent, but most of your income is taxed at 15 percent or 28 percent.

For a married couple filing jointly in 1996, the 28 percent federal rate kicked in for amounts over $40,100; the 31 percent tax rate applied to amounts over $96,900; the 36 percent rate applied to amounts over $147,700; and 39.6 percent was levied on amounts over $263,750. (Federal tax brackets are adjusted at the end of each year for inflation.)

Perhaps that last $1,100 of your $98,000 income is investment income that you don’t currently need. If so, you might reduce your marginal tax rate to 28 percent by switching from that income-paying investment into a growth investment that generates minimal dividend income, like an equity index fund. You wouldn’t owe taxes on the increase in the value of your index fund shares until you sold them-at which point, if you’d held the fund for a year or more, you’d owe a long-term capital gains tax, now capped at 20 percent.

Or if you want to stay invested for income, you might consider a tax-exempt municipal bond fund instead of a taxable corporate bond fund.

On the other hand, if your marginal tax rate is low, investing in tax-exempt municipal bonds doesn’t really make sense for you. If your marginal tax rate is 31 percent, earning 5 percent interest tax-free is like earning 7.25 percent in a taxable investment. If your marginal rate is only 15 percent, a tax-free 5 percent is worth only as much to you as 5.88 percent in a taxable investment. You might earn more in Treasuries, which are free of state and local taxes-and safer than municipal bonds.

Stability is not growth

February 24 2003

IN a few days, India’s finance minister Jaswant Singh will present his very first Budget to the country. The emphasis of this Budget will be on reducing the fiscal deficit both at the Centre and the states.

Various statements made by Vajpayee and President Abdul Kalam show that this will be done by lowering drastically the interest burden on the public debt by refinancing loans at lower rates of interest; by rationalising the tax system and introducing a nation-wide, uniform Value Added Tax and, regrettably, by making further drastic cuts in the central government’s Plan expenditure. He is also likely to signal profound structural reforms that will simplify bureaucratic procedures drastically at every level of government, lower and retarget subsidies better, and take up the so far utterly neglected areas of health care, education, shelter, sanitation unemployment insurance and old age insurance in partnership with the private sector.

Despite all this the Budget is likely to be less than satisfactory. The reason is that everything that our leaders and their pet economists have been saying in recent months smacks of more than a hint of complacency with the performance of the economy. If the economy is doing well, what is the need, let alone urgency, to take hard and unpopular decisions? Where particularly will the political will to make major changes come from when the country is only 12 to 18 months away from the next general election? The complacency is not entirely inappropriate. It is true that the economy has not exactly fared well in the past six years. But three years of having to survive in an economy in which demand is stagnant , competition from imports is increasing, and investment Р the prime mover of demand has been falling and falling, has made Indian industry leaner and meaner in a way that few could have envisaged five years ago. The performance of large and medium industry in the first three quarters of the current financial year gives ample proof of the change that has occurred. While overall industrial growth has been a paltry 5.3 per cent, corporate profits, especially for the larger companies have soared as perhaps never before. In a sample of 1,700 companies, 908 of them, accounting for 82 per cent of total production, have recorded a 66 per cent jump in their net profit over the same period of last year. What makes it especially creditworthy is that these profits have come at a time when, thanks to the flat consumer demand, companies have competed fiercely with each other through price cutting and have passed on most of the benefits of their greater efficiency to the consumer.

This transformation is to some extent reflected in the overall performance of the economy. Inflation has remained below 3 per cent during the past two years (the current 4.5 per cent reflects mainly the impact of the poor crop year and the severe frost of January on vegetable prices). Exports have grown by more than 20 per cent. The balance of payments is in surplus for the second year running. This is the reason why foreign exchange is flooding into India and our reserves are at an all-time high. The Indian economy is thus remarkably stable, but stability is not growth, and poor countries need growth far more than stability. China is the perfect example of a country that has systematically placed growth ahead of stability for the last twenty years. As a result it is faced today with monumental problems of over-capacity even in its modern industry, a dying public sector, rapidly growing unemployment in the cities, a slackness of demand and a slowdown of GDP growth. But it is well on the way to becoming the fourth economic superpower of the world. Once we begin to look at India’s performance from the perspective of growth, every shred of reason to feel complacent drops away. India’s 6 per cent growth rate of the nineties, which the government keeps trotting out as one of the fastest in the world, is made up of a period of explosive growth for four years followed by a mere 5 per cent growth after 1997.

During the last six years, about 8.4 million persons have come of employable age every year, but less than three million have found jobs of any kind, anywhere. None, repeat none have found jobs in the organised sector of the economy. Here the total employment has been falling steadily since 1999 and if the latest estimates are anything to go by the rat of decline may be accelerating as industry downsizes in the face of competition. This is a tragedy on an epic scale, and on which if not prevented will soon end whatever little law and order is left and plunge the country into a bloodbath of insurgencies. The reason why there are no jobs is that there is no industrial growth.

Throughout the history of capitalism employment generation has been powered by rapid growth in Industry. The reason is that ever since 1820, from when adequate data became available, productivity in industry has grown at three times the pace of productivity in the services sector. As a result one has needed three additional workers in the services sector to clear away and sell the product of one additional worker in industry.

Between 1993 and 1997 growth was led by industry which scaled a peak of 16.2 per cent in January to March 1996. This created millions of jobs in the services sector, so much so that private employment in the organised sector grew in 1996 by 5.6 per cent. This industrial development was fuelled by an explosion of private investment, which grew by five times in just four years. Today private investment has virtually disappeared because of the ever mounting fiscal deficit. Government borrowing has crowded it out by pushing the real rate of interest (interest minus inflation) from 3.5 per cent in 1996 to almost eight per cent earlier this year. Whatever employment growth is taking place today is in service industries such as Information Technology, which do not have the multiplier effect described above. The drought of private investment has been compounded by an even greater decline in public investment. Not only has gross developmental expenditure of the Centre and states fallen from 21 per cent of the GDP in 1989-90 to around ten per cent today, but gross fixed investment – the core of the central and state Plans – has fallen from 8 per cent to below 3 per cent. These two sets of figures tell the entire story of India’s failure to shift from the command economy to one guided by the market. In effect the public sector vacated the infrastructure in the hope that the private sector would fill the gap and do so more efficiently. But that has not happened.

Today there is not a single private sector project in power, not a single major project in highway building. There are, on the other hand, more than 600 public sector infrastructure projects lying incomplete for want of funds. To restart growth the government needs to cut the fiscal deficit, and increase public investment simultaneously till the revival of demand re-ignites private investment. It is in fact possible to cut the fiscal deficit by up to Rs80,000 crores without imposing any severe strain on the people. Will Jaswnt Singh do it? It is possible to revive public investment by using deficit financing, as China has been doing since 1998, without igniting inflation. Will he at least do that? Alas, from everything that is being said and written, neither seems likely.

Half measures will not do

April 7 2003

LAST week’s decision by the central government to impose IMF and World Bank-type conditionalities upon state governments when they approach it for permission to apply for structural adjustment loans from the World Bank, is the final milepost on the long and contentious road that the centre and states have travelled in their financial relations over the last three decades.

In the late seventies when fiscal constraints first emerged, they indulged in a spate of mutual recrimination with the Centre accusing the states of profligacy and the states accusing the Centre of monopolising all the elastic taxes and palming off all the inelastic ones on them.

In the eighties and early nineties, the Centre tightened the financial purse strings by enforcing the statutory ceiling upon overdrafts to the states. The states responded by ignoring the Constitution and raising sovereign loans on their own from the market. Only after they were forced to implement the salary increases for civil servants awarded by the Fifth Pay commission, in 1997, did the states finally come to the Centre on bended knee asking it for short-term financial assistance to pay their employees’ wage bills and keep government running.

Since then the Centre has tried a number of ways to tie this assistance to a reform of state finances, but not one of these has worked because the states have merrily broken the promises they made to it. Many of them have also diverted project assistance obtained from the World Bank and the Asian Development Bank to meet their current consumption expenditure. Thus, when six states approached New Delhi for permission to ask for structural adjustment loans from the World Bank and ADB, it rang the alarm bells in the Ministry of Finance.

However, instead of simply saying no, the ministry has decided to turn crisis into opportunity: It has made its endorsement of their request conditional upon their accepting severe conditions for financial reform. These are to lower their fiscal deficit to 3 per cent of the state GDP in at most five years; chalk out a programme to eliminate subsidies, especially in the power sector; reform the civil service, mainly by reducing its size, and sell off their public enterprises, nearly all of which are incurring a loss. Where these agreements differ from their predecessors, is that like the IMF and World Bank, they will set up six-monthly performance targets for the states to meet. If a state falls more than six months behind, its loan will be suspended. This is the first time that the disbursement of a loan has been made conditional upon performance. The Central government has sugared the pill by promising the states a handsome carrot if they carry out the reforms. In the power sector where state government losses exceed Rs.25,000 crore a year, the centre has promised a grant of half a rupee for every rupee by which they reduce their deficit. The state governments know that the structural adjustment loans are their last opportunity to stave off bankruptcy and gain the time to carry out fiscal reform. But there is no guarantee that, even with the best will in the world, they will succeed. One needs to remember that more than half of the countries that took Structural Adjustment Loans from the World Bank and Extended Fund Facility Loans from the IMF in the eighties failed to meet their commitments and had their loans suspended.

Thus, simply setting targets will not suffice. The Centre will have to help the states to take their decisions by chalking out the reforms that states can make. This will require it to spell out jointly with them not only the goals of their fiscal reforms, but also the reforms themselves. This is particularly necessary because a close look at the reforms that the Centre and the states have already discussed, for instance at the Centre-state meet on the fiscal deficit that was held last October, shows that fiscal and administrative reforms at the Centre are a prerequisite for reform in the states. A few examples will suffice to show how closely the two are interrelated.

Today, every central or state civil servant who retires takes with himself a package of separation benefits that includes not only his provident fund, but half his pension commuted at the very generous discount rate of 4.5 per cent per annum, and up to two years of encashed leave. The three add up to many years of gross salary. The Centre and the states have agreed in principle that these rules need to be revised specially in relation to the encashment of leave and the terms on which pensions should be commuted, but for obvious reasons, the states cannot change the rules without the Centre doing so at the same time. A more important interdependence relates to the way in which the center exercises its taxation powers. In the petroleum sector for example, the current subsidies on kerosene, diesel and cooking gas, are more or less offset by the customs and excise duties levied on petroleum products. This is a great improvement on the situation that had existed till just a few years ago, when the entire sector was subsidised. But any sense of satisfaction on this account gets dissipated when one remembers that petroleum is one of the very few zero tax sectors in an economy where the rest of the products pay an average duty of 35 per cent or more, and that all in all the European economies, taxes on oil products are by far the most important source of government revenues.

By not taxing the petroleum sector, the central government denies the states the 45 per cent of the revenue from such indirect taxes that is rightfully theirs. The conclusion is inescapable: the states will not be able to meet their commitments under the adjustment programmes they take up, if the Centre does not reform its finances and related laws at the same time.

Crisis in the countryside

June 16 2003

ON JUNE 13, the Indian Express published a small graphic chart on one of its inner pages, that attracted almost no attention among the readers. It was a depiction of the data on suicides in India that is compiled periodically by the Ministry of Home Affairs, New Delhi.

The data showed that in 1999, in eight large states, Madhya Pradesh, Andhra Pradesh, Maharashtra, Karnataka, Kerala, West Bengal, Uttar Pradesh and Tamil Nadu, 2208 persons had committed suicide because of poverty and another 1473 did so because they could not find employment. These figures are a damning indictment of the political leadership of India. But they pale into insignificance before the number of suicides caused by setbacks in “farming/agriculture.” The number of persons belonging to this category who took their own lives in 1999 was 13, 750. That farmers have been committing suicide in various states has been known for several years.

But most people, both inside and outside the governments of the concerned states, believed that these were isolated cases brought on by financial miscalculation or unforeseen misfortune. No one, literally no one, realised that the suicides had become an epidemic. The media in India now have such a pronounced urban bias, that there have been very few in-depth enquiries into why farmers are committing suicide. But the few stories that have appeared over the years show very clearly that it is not the poorest, most traditional farmers who are taking their lives, but the most progressive, entrepreneurial ones. The distribution of the suicides among the eight states in 1999, strongly reinforces this hypothesis. When adjusted for the rural population, the incidence of suicide is about six times higher in Maharashtra, Karnataka, Andhra Pradesh and Kerala than it is in Uttar Pradesh and more than twice as high as in West Bengal.

All the four states are among the better of and better governed states of the country, with per capita GDPs considerably above the national mean. Uttar Pradesh, by contrast, is one of the poorest, slowest growing states in the country. West Bengal’s per capita GDP looks much better by contrast, but once Calcutta is taken away from the equation it too descends rapidly to join Uttar Pradesh and Bihar at the bottom of the table. Why is the suicide rate lowest in the poorest states and highest in the better off ones? Why are the highest farm suicide rates to be found in southern or western India, and the lowest rates to be found in states that fall in the Indo-Gangetic plain. The explanation for these apparent anomalies is to be found in the cropping pattern that has developed in them. A far higher proportion of the land in Maharashtra, Karnataka, Andhra Pradesh and Kerala is devoted to the cultivation of cash crops for the market, than is the case in the states of the Indo-Gangetic plain, Punjab, Haryana, Uttar Pradesh, Bihar and West Bengal. The most important among these are cotton, sugar cane, oilseeds, onions and potatoes. It is the shift from cereals to cash crops that lies at the root of the high suicide rate among farmers.

These require more initial investment on inputs such as seeds, irrigation, fertilisers and pesticides and hired labour than even irrigated cereal crops. To provide these farmers take loans. But most cash crops are far more perishable than cereals. So farmers need to be able to sell their produce quickly and at a profit, if they are to repay their loans and not be crushed by the burden of interest payments. The shift from cereal to cash crop farming therefore involves a far higher level of risk and vulnerability. The epidemic of suicides indicates that these risks are way too high.

For any of a dozen reasons, farmers who have made their investments in inputs are unable to sell their produce profitably or having done so, to get the money that is owed to them by the buyers promptly. In extreme cases they prefer death to bankruptcy. All the reasons why their calculations go wrong can be traced back, ultimately, to the state governments’ lack of sustained attention to the development of a post-harvest agricultural infrastructure for non-cereal crops in the past several decades. Today the entire state support system for agriculture remains concentrated on cereals. Rice and wheat farmers face few marketing problems for they produce a non-perishable product and have a guaranteed buyer in the state – a buyer, moreover, who pays his bills reasonably promptly. By contrast, farmers who have ventured into growing perishable and other cash crops have no crop insurance, have to pay higher and higher input prices as subsidies are withdrawn, and exorbitant interest rates on their loans. All this at a time when the market price of their produce is stagnant.

In marketing their produce they are at the mercy of middlemen who know that they have next to no power to withhold supplies. Those, like the cotton and sugar cane farmers, who sell directly to the mills, have to wait for months to receive payment. The worst off are the producers of perishable products like fruits and vegetables. The shortage of power and its uneven supply has stymied the development of cold storages. As a result they are completely at the mercy of middlemen. In the past decade or more as liberalisation has become the government’s watchword, and state governments have vied with each other to attract investment in their states agriculture has slipped lower and lower down on their radar screen. Protests are occasionally heard that agriculture is being neglected and its share of planned investment is falling. But the knee-jerk panacea that is suggested is to increase investment in irrigation and power, i.e in the supply of pre-harvest inputs. Almost no one bothers to draw attention to the absence of post-harvest marketing facilities and infrastructure. Suicide is the farmers’ final protest against this neglect. It is going unheard.

A timely warning

August 4 2003

THE World Bank’s warning in its country report that the Indian economy is a great deal more fragile than it looks, because of the mounting fiscal deficit, and the manifest inability of the central and state governments to muster up the political will to tackle it, has come just in time to puncture the balloon of complacency that has been building up in the government ever since the turnaround in the economy began at the beginning of this year.

It is therefore no surprise that North Block greeted its underlying pessimism with vociferous rebuttals, and trenchant reminders about how, with over $80 billion in foreign exchange reserves, the economy had never had it so good.

There is, admittedly a good deal to feel pleased about. The stagnation of consumer demand after 1999 has forced manufacturers to become efficient. Quite suddenly Indian enterprises have found themselves not only making excellent profits at home, but able to compete with foreign firms in the world market. The superb monsoon this year promises to raise aggregate demand for tractors, motorcycles, colour TVs and other fast moving consumer goods by five to ten percent over what industry had anticipated earlier. The re-emergence of a sellers’ market in old economy products like steel, chemicals and cement has permitted manufacturers to raise their prices. Combined with the sharp drop in interest rates on bank deposits over the last two years, this has set the stage for the long sought revival in private investment.

Yet none of this justifies the complacency that the government’s economists and spokesmen are displaying. The most that a good monsoon and a sharp decline in the real rate of interest can give the economy is a cyclical upswing. What the World Bank has reminded us of is that so long as the fiscal imbalance grows worse, this upswing will be superimposed upon an underlying downward trend in investment. Over a period of time these will tend to offset each other and yield stagnation or at best a second ‘Hindu’ rate of growth. This is in fact what the economy has experienced ever since 1997. In that year, following a very sharp drop in both public and private investment between 1995 and 1997, the trend rate of growth dropped from 7.2 per cent (since 1993) to 5 per cent per annum.

The government’s awareness of the need to cut the fiscal deficit was reflected by the former Finance Minister Yashwant Sinha’s introduction of a Fiscal Responsibility and Budget Management Bill in parliament 20 months ago and its passage last month. The goal of this bill is to make it statutorily binding upon the central departments to reduce the Centre’s fiscal deficit from the present 6 per cent to at most 2 per cent over the next five years.

But the mere fact that reduction of the deficit has been made a statutory requirement does not mean that it will actually be done. For today’s deficits are caused almost entirely by mounting subsidies, and these subsidies are political in their origin. The food subsidy, for example, is caused by the Centre’s inability to prevent the surplus states from buying up all of the farmers’ surplus at prices above those of the free market, and forcing the Centre to purchase it from them for sale in the deficit states at vastly subsidised prices.

The fertiliser subsidy, by the same token, is designed not so much to subsidise farmers as to ensure profits for grossly inefficient domestic manufacturers, most of whom are in the public sector.

As for the subsidies on kerosene, diesel and cooking gas, their ability to survive the most stentorian declarations of termination by the Finance minister shows what the fate of the Fiscal Responsibility Bill is likely to be.

As if this were not a sufficiently gloomy outlook, one needs to remember that the state governments are now responsible for almost half of the 11-per cent-of-GDP fiscal deficit, and that in an era of annual state elections and coalition governments at the Centre, New Delhi has little effective control over them. Taking all this into account, one is forced to conclude that while the World Bank’s warning was timely it may have been too mild.

Forex inflow – boon or bane?

October 6 2003

INDIA’S fledgling financial services community is in seventh heaven. Share prices are rising on an express elevator, foreign portfolio investment is pouring into the country. The rupee has appreciated by 1.1 per cent against the dollar in a single week. Ever myopic, the money market managers are describing the appreciation as a sign of India’s economic strength. They could not be more wrong.

The forex inflow is indeed stunning. India’s foreign exchange reserves crossed the $88 billion mark at the end of September. Well over half of the accumulation has taken place in the past three years. What is more, the pace of growth has increased steadily till it has become a millrace. Between 1997 and 2001, India’s reserves grew by $4 billion a year. In 2001-2002 they grew by $11.8 billion. In 2002-2003 they grew by $20.7 billion. In the first six months of this year they have grown by another $13.2 billion.

But this is not an altogether welcome development. Whereas the rise in 2001-2002 and 2002 -2003 reflected a genuine strengthening in the external account of the country, a good part of the increase during the last six months is being propelled mainly by speculation and is creating some of the same problems that Thailand had experienced before the crash of 1997.

The trigger for the rapid accumulation that began in 2001 was almost without doubt the onset of recession in the US. All through 2001, even before 9/11, the US experienced falling interest rates and share prices at the same time. Investors therefore began to look for other places in which to invest some of their funds. India’s vital statistics for the previous year made it a prime candidate. In November 2000 its inflation rate had fallen to 3 per cent, which was very low for a developing country. Its current account balance of payments deficit in 2000-2001 was a paltry $2.5 billion, or half a per cent of GDP. Best of all, the economy was growing at a healthy five per cent per annum, and both the economy and the polity were stable.

In the next year (2001-2002), foreign portfolio investment and non-resident investment both increased by more than $2 billion each, but a good third of the rise in reserves occurred because of the turnaround in the country’s current account. In 2001-2002 India recorded its first current account surplus on the balance of payments in 23 years, of $1.35 billion.

The trade balance improved further in 2002-2003 and the current account balance of payments surplus rose to $2.5 billion. Sometime in 200-2001 the Reserve Bank of India had also begun to shift its reserves out of dollars and into euros, yen and pounds. As a result in 2002, as the dollar began to sink, India’s reserves (measured in dollars) grew through revaluation. All in all, almost two-thirds of the $20 billion rise in 2002-2003 was in the form of non-debt creating funds.

Even the funds that came into the country in the form of loans and short term investment were not speculative in nature. For although Indian interest rates were 3 to 4 per cent higher in 2002-03 than the average interest rates in the developing countries, the rupee had depreciated by 4 per cent against the dollar in 2001-2002, and 2.1 per cent in 2002-2003. This rate of depreciation fully neutralised the higher rate of interest.

All this has changed quite abruptly in 2003. The change began when the Reserve bank announced further sharp cuts in interest rates at the beginning of May. The RBI had been cutting interest rates for two years. The last cut brought the rate of interest on time deposits of three years down to 6 per cent, half of what it had been four years earlier. Investors began to look for other ways to save their money.

The interest cut virtually coincided with the government’s sale of 17 per cent of the shares of Maruti Udyog, the nation’s premier car maker in a public offering. The issue was oversubscribed by 13 times and galvanised the secondary share market. The rise in share prices that began then has taken the BSE sensex from 2,900 to 4,500 in six months. As if that were not enough good news, exports grew by 19.1 per cent in 2002-2003, and the balance of payments surplus rose correspondingly. Not surprisingly, as the dollar depreciated, the rupee failed to keep it company.

Once the rupee stopped depreciating against the dollar, the four per cent interest rate differential between India and the main money markets of the world became a magnet for foreign investors. The more money came in the more the rupee appreciated against the dollar. By August it had appreciated by 5.6 per cent. By the end of last week it had risen by almost 7 per cent. To the high interest rates were added the appreciation of the rupee. Given the revival of the share market, it was inevitable that much of the money would go into the share market. This has pushed up share prices still further.

The appreciation of the rupee is, however beginning to have its effect on the current account of the country. Export growth has slowed down from 17.8 per cent in 2002-2003 to 9 per cent in the first five months of the current year. Even within this period it has registered a further slowdown from 13.5 per cent in May to 4.1 per cent in August. This is happening just when the decline in interest rates and the consequent revival of industry has sent imports shooting up by 22.4 per cent. As a result India has recorded a balance of payments deficit of $1.2 billion in the first quarter of 2003-2004 after recording surpluses for six successive quarters.

This is a re-run of the Thai predicament of 1996-97. Exports are slowing down, imports continue to surge, the current account is going into the red, but the only natural corrective – a depreciation of the rupee – is being prevented by a surge in the inflow of foreign exchange on the capital account. India is a long way from an exchange crisis, but there is no room for complacency either.

This is because unlike China and Hong Kong, whose foreign exchange reserves are mostly built up out of trade surpluses, approximately $45 billion – more than half – of India’s reserves consist of borrowings or short term deposits and investments in the country which can pull out at relatively short notice. It is therefore important for India to maintain sound economic parameters at all times.

Is India shining?

January 26 2004

IN THE past two weeks the Vajpayee government has spared no effort to persuade the people that the Indian economy is doing extremely well, and that the NDA government deserves the credit. To hammer this home it has coined two phrases, the ‘feel-good’ factor’ and ‘India is shining.’ Predictably, Sonia Gandhi has rebutted this claim strongly. In Jammu last week, she accused the Vajpayee government of catering only to the urban rich.

All the economic sops that Finance Minister Jaswant Singh announced two weeks ago, she pointed out, benefited only those who were rich enough to buy cars, television sets, and computers, and to travel by air. For the rest of the country there were only grandiose promises which, like the hundreds that this and previous governments had made, would soon be forgotten.

The battle has thus been joined. And for the first time in the country’s history, it will be fought mainly, if not entirely, on economic grounds. Even that old conflict, pluralism versus Hindu monolithism, seems to have faded, at least temporarily, into the background. Why has economics suddenly become so important? If one were to go by what the BJP’s pundits are telling us, it is because a decade of economic liberalisation has awakened a thirst in people for economic growth. A dazzling array of new products has arrived in the market, and year by year their prices have become more affordable. TV has begun to change values and take the country towards consumerism. More and more people are defining well being as a widening of the choices they face and options they enjoy. They are thus becoming impatient with governments that seems to stand in the way of progress in the name of the poor.

The phrase, India is Shining, exactly captures this new mood. It conjures up glittering malls, multiplex cinema theatres, new cars and new clothes, discotheques and holidays abroad. It conjures up a world in which consumption and not investment drives economic growth and being spendthrift equals being virtuous. This is the perception that is driving the BJP’s election strategy. It is one in which the new middle class, which now solidly supports the BJP, will drive the country to prosperity by indulging its appetites to the hilt. Suddenly therefore, the conflict between serving one’s constituency and serving the nation has been magically solved for the BJP. Students of philosophy will easily recognise shades of 18th century British utilitarianism in this emerging doctrine.

But is India really shining, or is the BJP being swept away on a rising ideological tide of neo-liberalism? Even a casual look at the state of the economy shows that India is not so shining and that the BJP is in danger of falling a victim to its own propaganda. The high growth rate of 7 to 8 per cent this year, that the Reserve bank of India and the National Council of Applied Research have predicted for this year is nothing more than a rebound from a year of drought to one of a truly exceptional monsoon. Not surprisingly therefore the NCAER expects agriculture to grow by 10.7 per cent this year. That accounts for the feel good factor as well as for the high growth.

Take a longer view and one finds that since 1997 the rate of growth has barely averaged five per cent. This is more than two per cent below the 7.2 per cent growth rate that the Congress delivered from 1993 to 1997. The main impact of this slow growth has been on employment. Between 1992 and 1996 nearly everyone new entrant to the job market was able to find a job. Proof of this was to be found in the live register of the unemployed, who were looking for jobs. This remained unchanged at 36.8 million for four years from 1992 to 1996. Before that the number had been growing by more than a million a year.

In the last five years, by contrast, employment in the organised sector has actually been declining. In all there are about 600,000 fewer jobs in this sector now than there were in 1998. But every year some 750,000 young people have left schools and colleges looking for jobs. All but a handful have been forced to lower their expectations and accept jobs for which they are overqualified. The entire pressure of joblessness has therefore been felt by the least educated strata of the job seekers. Those from poor families, who studied in rural schools and have no relatives who can help them to find jobs.

The future presents a very mixed picture, one in which hope and fear war with each other for supremacy. On the one hand, the slow growth of the economy during the past six years and the near-stagnation of demand has forced industry and many services to become efficient in order to survive. Industry, in particular has emerged leaner and meaner and a lot more self confident. Now that interest rates have fallen and the share market has come back to life, there are plans afoot to invest in new machinery both for modernisation and expansion. This will boost industrial growth in the immediate future and perhaps even create a few jobs.

But on the other hand, unemployment is likely to reach crisis proportions even while the rich grow richer. In the past ten years rural families have withdrawn eight million children from the fields and sent them to school. The first of the graduates have just begun to come on the job market and they do not want to be farm labourers. The ressurgence of demand for jobs is pushing down real wages across the board. This is most apparent in the unorganised sector. Worst of all, the slow growth and rising unemployment is concentrated in Bihar, Uttar Pradesh, Rajasthan , Madhya Pradesh and Orissa.

The bulk of the jobs are being created in the west and the South. Internal migration is soon likely to turn into a threat to the unity of the nation.

The BJP can point as much as it likes to a rosy future.

But it cannot erase the fact that for six years as the employment crisis developed it did nothing to avert it. It remains to be seen whether the electorate will choose to swallow its promises for the future or penalise its sins of the past.

The good and the bad

April 19 2004

THERE are a lot of bits of news on the economy floating around in the pages of the newspapers. Most of them seem good, and therefore feed the ‘feel-good factor’ permeating the urban middle class.

But few people understand how they connect with each other, and therefore have no clear idea of why they are feeling good. Still less do they grasp the downside of the good things that are happening. Feeling good therefore also means feeling confused.

Take a few examples: In the third quarter of 2003-2004, GDP jumped by 10.4 per cent. There was a paean of triumph. At last, India was growing faster than China! Never mind that it was only for three months whereas China had been growing extremely fast for twenty years. Never mind also that this was only caused by market arrivals of a bumper crop, being compared to market arrivals last year from a crop devastated by drought.

Then there is the ‘good news’ that last week the inflow of foreign exchange rose to an all-time high of $3.47 billion. This came on top of $1.4 billion the week before. Every Indian who reads the newspapers but does not understand economics saw this as fresh evidence of the NDA government’s good management of the economy. Only the Reserve Bank of India saw it as the storm signal it actually is. For the first time, it candidly admitted that this was hot money in search of arbitrage profits, and needed to be discouraged. It has done so by bringing the interest rates on foreign deposits all the way down to the current LIBOR and SWAP rates prevailing in the international market. Economists are therefore heaving a sigh of relief.

There is , however, more solid good news. For the first time in more than a decade, direct tax receipts in 2003-2004 exceeded the budget estimates. This would have been unremarkable in a well managed fiscal system but for the fact that the government had long ago begun to treat these estimates as targets and not as forecasts. Missing them by five and even seven per cent had therefore become the norm. As a result, no one was more surprised when these ‘estimates’ were exceeded, than the government itself.

Again, the latest corporate balance sheets show profits soaring as never before. These estimates do need to be treated with caution because they pertain to the larger companies in the country. There is other data which shows that only the largest companies are doing well, and that even medium sized companies are facing a decline in market share and a squeeze in profits if not outright losses. But it is still good news, because past booms have shown that where the bigger companies go, the smaller ones usually follow.

Exports too are doing well. Having shown indifferent growth during the first ten months of the year, they have grown by 30 per cent in February and a whopping 40 per cent in March. This has brought the overall growth rate up to 17 per cent, not far short of last year’s 19.9 per cent.

Finally, just as there is some good news which is really not so good, there is some bad news which is actually good.

Non-oil imports shot up last year by 39 per cent. In the previous six years this had seldom gone into double figures. The sudden jump has prompted one highly respected economist to warn the government that a large trade deficit is on the way and that this, when combined with the heavy inflow of dollars into the country on the capital account, is a sign of serious imbalances in the economy (a point made in these columns last week). But in actual fact the surge in non-oil imports is a good sign. Since 80 per cent of these imports are made up of industrial raw materials, it has in the past always presaged a sharp rise in the rate of industrial growth. It is thus one more sign that although an industrial revival has not yet got under way, it is around the corner.

The only caveat is that a sizable portion of the additional production made possible by the rise in imports should go into exports. In the mid nineties, when non-oil imports were also rising by 30 per cent a year, this was happening, because the rupee was, if anything, slightly undervalued. Today, at Rs43.6 to the dollar, it is rapidly becoming overvalued, and if current predictions hold good will become even more overvalued in the next three to four months. Thus the surge in exports needed to balance the rise in non-oil imports may not come.

But isn’t this being too pessimistic? Haven’t exports soared in February and March even while the rupee was appreciating? They have, but the orders against which they were made were placed at least three months earlier. The effect on exports of the 5 per cent rise in the rupee since late March will therefore be felt after June.

That is why the Reserve Banks lowering of the interest rate on foreign deposits is so timely. But it too is only a palliative measure – a band aid applied to a cut. There is only one way to stabilise the external capital account on a sustainable basis: it is to reduce the fiscal deficit. That is what the NDA has shown itself incapable of doing. Till it happens India’s future will remain somewhat precarious.

The spectre of drought

August 2 2004

LUCK does not always favour the virtuous. The Manmohan Singh government has no sooner unveiled a delicate and sophisticated programme for trying to reconcile the need to step up the rate of growth with the equally urgent need to create social security nets for the poor, than it is faced with a crisis that is not of its making, but which threatens all of its carefully laid plans.

Drought has struck nine states in a huge swathe across central, western and northern India. These contain two thirds of the country’s population.

Although the Indian Meteorological office had been stoutly predicting a normal monsoon till as the end of June, it had been apparent to farmers and other weather watchers that this year was going to be anything but normal. For instance Delhi received its first heavy downpours of rain in the middle of May, six weeks before the monsoons were due in the northern part of the country. All through late May and early June, it received sporadic, heavy rains. The meteorological office said that one stream of the monsoon, the northernmost of the three that usually hit the country, had arrived weeks early, pulled in by a depression that had formed over the Arabian Sea. That is the stream that has now failed completely.

As a consequence, all through July the whole of northern India has received virtually no rain. The central stream has also been unusually weak. As if to compensate the southern stream that waters Kerala, Tamil Nadu, Karnataka and then swings out over the Bay of Bengal, picking up moisture to inundate Bangladesh, West Bengal and Bihar, has been truly ferocious. Bangladesh is suffering from the worst floods in years. Bihar, which often finds itself in a rain shadow when the rest of the country is rejoicing, has also been pummelled with heavy rains and, consequently, floods. Whether too much or too little, the effect of this freakish monsoon on agriculture has been devastating.

As of now there is no precise estimate of the extent to which agricultural production will be reduced. If the drought of 2002-2003 is taken as a yardstick it could be by as much as fifteen per cent in terms of output and five per cent in terms of value added. The reason it will not be more is that today nine tenths of the wheat and seven tenths of the rice grown in the country comes from irrigated land. Some cash crops, such as groundnuts and other oilseeds, suffer heavily because they are mostly grown on rain-fed land, but overall their output, in value terms, is also unlikely to go down by more than ten per cent. Since agriculture accounts for less than a quarter of the GDP, the impact of the drought on growth will not be to pull it down by more than 1.2 per cent.

The fear being expressed in several quarters that it will reduce rural consumer demand and slow down industrial growth could also prove exaggerated.

The impact of drought on agricultural production is complex. For instance, poor families tend to sell some of their hoarded gold and silver in drought years, to tide over them. This offsets the decline in purchasing power caused by the fall in the harvest. The more severe impact of drought is on the distribution of income. At one extreme drought causes a sharp decline in demand for agricultural labour. Landless labourers then begin to starve. That is why, ever since a spate of droughts in the 1890s, for more than century, Indian governments have routinely started public works programmes, called food-for-work programmes to employ the landless, and the marginal farmers.

The other victims of drought are less easy to identify and help. These are progressive farmers in dry land areas who invest huge sums (for them) of borrowed money in digging tube-wells that run dry, or in expensive seeds and fertilisers for cash crops that would make them rich if all went well, but which end by rendering them destitute instead.

An increasing number of such farmers have been driven by a spate of monsoon failures in the last six years, into committing suicide. Unfortunately, three of the four states, which have seen the most suicides, Andhra Pradesh, Madhya Pradesh and Maharashtra, have been struck once again by drought.

The solution to their problems is crop insurance. Although a national programme was started on an experimental scale in 1999 and has since been spreading rapidly, it has still benefited only a small fringe of the affected farmers. Dr. Manmohan Singh has promised to give it the highest priority, but the crisis has come upon his government before it has had time even to settle in.

Starting at the top

October 4 2004

THREE months after Finance Minister Chidambaram presented the UPA government’s first budget, the outlines of a strategy for accelerating economic growth and restarting the growth of employment, is slowly beginning to emerge from the consultations that began soon afterwards.

In his budget Chidambaram had made it clear that he intended bringing down the central government’s revenue ( i.e current account ) deficit but not the overall fiscal deficit. The savings on the current account would be used to increase planned investment by the State. This, he had further made clear, would be used mostly to step up investment in the infrastructure, notably in power generation and the transport sector.

The ink had hardly dried on the budget proposals when this strategy ran into trouble. Inflation, which had stayed below four per cent for almost four years, suddenly spiked sharply, touching 8.2 per cent in the second week of August.

The causes, a poor, freakish monsoon, and a huge surge in oil prices to almost $50 a barrel, were entirely beyond the government’s control. But they put it’s neck in a stockade. It could either cut import duties on oil and oil products, to cushion the surge in international prices, or sit back and ride the inflation out.

The former would limit inflation but reduce the government’s revenues and widen the current deficit. The latter would push up prices, and cause offsetting increases in government salaries. This too would raise the current account deficit. The government chose the former option, but that left it with the task of filling the unforeseen gap in the current account.

The government’s response has developed gradually and in a somewhat haphazard manner. In the Ministry of Finance, officials have focussed on reducing government expenditure and increasing revenues. The Planning Commission has been looking for alternative ways to increase public investment in the infrastructure.

Their deliberations have produced an austerity drive in government and a daring plan to provide $5 billion for infrastructure projects out of deficit financing. To prevent this from increasing the money supply and fuelling inflation, the Planning Commission has proposed the sale of $5 billion worth of foreign exchange reserves. This will suck the equivalent amount of rupees out of the economy and keep prices from rising.

The austerity drive has two components: a stipulated minimum of dividend from profit making public sector enterprises, notably the oil companies, and a ten per cent cut in the non-salary expenses of government departments.

This will be effected by a near ban on foreign travel by government officials and state and central ministers, a cut in foreign allowances of those who do travel, and a sharp reduction in petrol and other vehicle allowances for those with government cars. The Rs30 billion ($660 million) that these measures are expected to yield during the rest of this year is not a great deal. But the incidence of the cuts I significant. Most of them will fall on senior civil servants and ministers, i.e the most privileged sections of the state apparatus.

The purpose seems to be to pave the way for more revenue raising measures and cuts in subsidies in the next budget by demonstrating that no one is exempt from the austerity drive. Faced with unexpected inflation Chidambaram seems therefore to have moved from simply allowing the present acceleration in industrial growth to close the revenue deficit, to helping it with judicious cuts in government expenditure.
The Planning Commission’s scheme seems to be modelled on what China did when it faced its great deflation in 1998. Faced with collapsing demand and huge excesses in production capacity in almost every industry during the second half of 1998, the Jiang Zemin — Zhu Rongji government began to invest $18 billion a year through deficit financing, in infrastructure projects. This boosted demand, sharply increased the off-take of steel, cement, and machinery, thereby sharply reducing the losses of the state enterprises that produced these goods, and transformed the face of China. It continued this practice till last year, when the Chinese economy began to overheat. It met the resulting surge in demand for imports from its ample foreign exchange earnings, backed by its huge reserves. India could, and should have, followed China’s example in 1999 or 2000 when industry went into a huge slump and private sector investment almost stalled. But the BJP-led government either had too many politically correct economists among its advisers or did not have the courage to take their advice. That stratagem is likely to be tried at last. Still, better late than never!

Booming economy, industrial strength… India prospers

December 13 2004

In the last few months the Indian share markets have been inundated with foreign portfolio investment. Some $7 billion has flowed in since the beginning of the year; despite the long hiatus that occurred when there was a surprise change of government in May.

In the month of November the inflow topped 1.5 billion dollars. Is this only a product of the growing worldwide shift away from the dollar, now exacerbated by the second Bush victory? Or are there domestic reasons why India is proving such a magnet for foreign investment?

The first is a part of the answer. Money has in fact been moving into emerging markets all over the world since last July, in what is clearly a global readjustment of asset holding by the major international players. But in India’s case the main cause is probably the accumulating evidence of the strength of the economy and the industrial boom that is surely but surely gathering pace.

First, a quick contrast: while the US economy is running twin, half-trillion dollar deficits on both its domestic and international accounts, the Indian economy has an enduring surplus on the external account, and is moving steadily towards a surplus on the current. The contrast could hardly have passed unnoticed.

The first seven months’ budget figures show that finance minister Chidambaram has worked a minor miracle.. The primary deficit, which is the excess of the portion of government expenditure that enters into the consumption stream of the economy over revenues, has disappeared and been replaced by a small surplus of 9.6 billion rupees ($210 million). Last year when the NDA government had begun to tackle the deficit in a purposeful way, and was also doing a fairly good job of it, the primary deficit was still Rs. 250 billion.

The full implication of Chidambaram’ achievement become clear only when one understands the way that the Indian government writes its accounts. Unlike the US and most other industrialised countries our budgets are not confined to the current account. The ‘consolidated’ budget has both a current account – the normal definition of the budget, and a capital account. The latter records capital receipts, such as repayments of loans by the state governments or new loans taken, or other capital transfers, in adition to the current account. The gross or consolidated fiscal deficit is the sum of the deficits on both the current and the capital accounts. So it is perfectly possible to show a balanced budget, when in fact one has a large current account deficit, by offsetting it against capital receipts. This was a common practice in the seventies and eighties.

The Revenue deficit, on the other hand, measures only the deficit in the current account. This has two major components. The first is the primary deficit, which is the excess of what the government spends on purchases of various sorts over its revenues, and the interest on past debt, which is also an expense, but mostly goes back into the banking system because it is the banks that buy most of the government securities. Most of it does not therefore enter the income stream of the economy directly. Banks have to lend the money out to borrowers first, before it can do so. As a result, while the primary deficit directly converts the public’s savings into consumption and lowers the aggregate saving rate in the economy, except in times of industrial boom, the second component of the revenue deficit, the interest on past debt s does not do so. In the last six years, for example, banks have simply ploughed back this money into fresh government securities. This is just a circular flow of saving to saving.

The primary surplus we have recorded means that the government is not, for the first time in more than a decade, being a source of inflationary pressure. Since it will not be borrowing to cover the deficit, there will be more money left for investment in industry by the banks. The government will not therefore be ‘crowding out’ private investors with its borrowing. This change could not have come at a better time because a very big wave of private investment is building up in the economy. The greater availability of bank funds just now will mean that interest rate increases will be delayed and less marked. The boom will therefore last longer and be bigger.

Some of the effects of the fiscal discipline are already visible. In October the rate of growth of industrial production rose to 10.1 per cent, the first time it has gone over 10 per cent since 1996. The growth of manufacturing was even higher at 11.3 per cent. Both figures are 4 percent above the same month last year. Overall in the first seven months of the year industry has grown by 8.4 per cent (6.2 last year) and manufacturing by 8.8 (6.8). Remember that by October last year the industrial recovery was already well under way. So this growth is not taking place over an unusually small base.
The composition of growth also portends more growth. The greatest increase has been in capital goods — 19.2 per cent in October and 15.1 for April to October. Last year the figures were 4.9 per cent iin october and 9.2 per cent for April to October. This is in line with the 22 per cent overall increase in investment in the pipeline that i had written about, some two months ago. Consumer durables have grown by 15. 5 per cent in October and non-durables by 13.4 pc. Against this the output of basic and intermediate goods has grown by 6.8 and 6.7pc respectively. The pattern suggests a sharp movement towards higher value added goods in the production basket. This is the ‘real’ economy that underlies the rising share market prices. And all the portents are good.

Booming economy, industrial strength… India prospers

December 13 2004

In the last few months the Indian share markets have been inundated with foreign portfolio investment. Some $7 billion has flowed in since the beginning of the year; despite the long hiatus that occurred when there was a surprise change of government in May.

In the month of November the inflow topped 1.5 billion dollars. Is this only a product of the growing worldwide shift away from the dollar, now exacerbated by the second Bush victory? Or are there domestic reasons why India is proving such a magnet for foreign investment?

The first is a part of the answer. Money has in fact been moving into emerging markets all over the world since last July, in what is clearly a global readjustment of asset holding by the major international players. But in India’s case the main cause is probably the accumulating evidence of the strength of the economy and the industrial boom that is surely but surely gathering pace.

First, a quick contrast: while the US economy is running twin, half-trillion dollar deficits on both its domestic and international accounts, the Indian economy has an enduring surplus on the external account, and is moving steadily towards a surplus on the current. The contrast could hardly have passed unnoticed.

The first seven months’ budget figures show that finance minister Chidambaram has worked a minor miracle.. The primary deficit, which is the excess of the portion of government expenditure that enters into the consumption stream of the economy over revenues, has disappeared and been replaced by a small surplus of 9.6 billion rupees ($210 million). Last year when the NDA government had begun to tackle the deficit in a purposeful way, and was also doing a fairly good job of it, the primary deficit was still Rs. 250 billion.

The full implication of Chidambaram’ achievement become clear only when one understands the way that the Indian government writes its accounts. Unlike the US and most other industrialised countries our budgets are not confined to the current account. The ‘consolidated’ budget has both a current account – the normal definition of the budget, and a capital account. The latter records capital receipts, such as repayments of loans by the state governments or new loans taken, or other capital transfers, in adition to the current account. The gross or consolidated fiscal deficit is the sum of the deficits on both the current and the capital accounts. So it is perfectly possible to show a balanced budget, when in fact one has a large current account deficit, by offsetting it against capital receipts. This was a common practice in the seventies and eighties.

The Revenue deficit, on the other hand, measures only the deficit in the current account. This has two major components. The first is the primary deficit, which is the excess of what the government spends on purchases of various sorts over its revenues, and the interest on past debt, which is also an expense, but mostly goes back into the banking system because it is the banks that buy most of the government securities. Most of it does not therefore enter the income stream of the economy directly. Banks have to lend the money out to borrowers first, before it can do so. As a result, while the primary deficit directly converts the public’s savings into consumption and lowers the aggregate saving rate in the economy, except in times of industrial boom, the second component of the revenue deficit, the interest on past debt s does not do so. In the last six years, for example, banks have simply ploughed back this money into fresh government securities. This is just a circular flow of saving to saving.

The primary surplus we have recorded means that the government is not, for the first time in more than a decade, being a source of inflationary pressure. Since it will not be borrowing to cover the deficit, there will be more money left for investment in industry by the banks. The government will not therefore be ‘crowding out’ private investors with its borrowing. This change could not have come at a better time because a very big wave of private investment is building up in the economy. The greater availability of bank funds just now will mean that interest rate increases will be delayed and less marked. The boom will therefore last longer and be bigger.

Some of the effects of the fiscal discipline are already visible. In October the rate of growth of industrial production rose to 10.1 per cent, the first time it has gone over 10 per cent since 1996. The growth of manufacturing was even higher at 11.3 per cent. Both figures are 4 percent above the same month last year. Overall in the first seven months of the year industry has grown by 8.4 per cent (6.2 last year) and manufacturing by 8.8 (6.8). Remember that by October last year the industrial recovery was already well under way. So this growth is not taking place over an unusually small base.
The composition of growth also portends more growth. The greatest increase has been in capital goods — 19.2 per cent in October and 15.1 for April to October. Last year the figures were 4.9 per cent iin october and 9.2 per cent for April to October. This is in line with the 22 per cent overall increase in investment in the pipeline that i had written about, some two months ago. Consumer durables have grown by 15. 5 per cent in October and non-durables by 13.4 pc. Against this the output of basic and intermediate goods has grown by 6.8 and 6.7pc respectively. The pattern suggests a sharp movement towards higher value added goods in the production basket. This is the ‘real’ economy that underlies the rising share market prices. And all the portents are good.

Booming economy, industrial strength… India prospers

December 13 2004

In the last few months the Indian share markets have been inundated with foreign portfolio investment. Some $7 billion has flowed in since the beginning of the year; despite the long hiatus that occurred when there was a surprise change of government in May.

In the month of November the inflow topped 1.5 billion dollars. Is this only a product of the growing worldwide shift away from the dollar, now exacerbated by the second Bush victory? Or are there domestic reasons why India is proving such a magnet for foreign investment?

The first is a part of the answer. Money has in fact been moving into emerging markets all over the world since last July, in what is clearly a global readjustment of asset holding by the major international players. But in India’s case the main cause is probably the accumulating evidence of the strength of the economy and the industrial boom that is surely but surely gathering pace.

First, a quick contrast: while the US economy is running twin, half-trillion dollar deficits on both its domestic and international accounts, the Indian economy has an enduring surplus on the external account, and is moving steadily towards a surplus on the current. The contrast could hardly have passed unnoticed.

The first seven months’ budget figures show that finance minister Chidambaram has worked a minor miracle.. The primary deficit, which is the excess of the portion of government expenditure that enters into the consumption stream of the economy over revenues, has disappeared and been replaced by a small surplus of 9.6 billion rupees ($210 million). Last year when the NDA government had begun to tackle the deficit in a purposeful way, and was also doing a fairly good job of it, the primary deficit was still Rs. 250 billion.

The full implication of Chidambaram’ achievement become clear only when one understands the way that the Indian government writes its accounts. Unlike the US and most other industrialised countries our budgets are not confined to the current account. The ‘consolidated’ budget has both a current account – the normal definition of the budget, and a capital account. The latter records capital receipts, such as repayments of loans by the state governments or new loans taken, or other capital transfers, in adition to the current account. The gross or consolidated fiscal deficit is the sum of the deficits on both the current and the capital accounts. So it is perfectly possible to show a balanced budget, when in fact one has a large current account deficit, by offsetting it against capital receipts. This was a common practice in the seventies and eighties.

The Revenue deficit, on the other hand, measures only the deficit in the current account. This has two major components. The first is the primary deficit, which is the excess of what the government spends on purchases of various sorts over its revenues, and the interest on past debt, which is also an expense, but mostly goes back into the banking system because it is the banks that buy most of the government securities. Most of it does not therefore enter the income stream of the economy directly. Banks have to lend the money out to borrowers first, before it can do so. As a result, while the primary deficit directly converts the public’s savings into consumption and lowers the aggregate saving rate in the economy, except in times of industrial boom, the second component of the revenue deficit, the interest on past debt s does not do so. In the last six years, for example, banks have simply ploughed back this money into fresh government securities. This is just a circular flow of saving to saving.

The primary surplus we have recorded means that the government is not, for the first time in more than a decade, being a source of inflationary pressure. Since it will not be borrowing to cover the deficit, there will be more money left for investment in industry by the banks. The government will not therefore be ‘crowding out’ private investors with its borrowing. This change could not have come at a better time because a very big wave of private investment is building up in the economy. The greater availability of bank funds just now will mean that interest rate increases will be delayed and less marked. The boom will therefore last longer and be bigger.

Some of the effects of the fiscal discipline are already visible. In October the rate of growth of industrial production rose to 10.1 per cent, the first time it has gone over 10 per cent since 1996. The growth of manufacturing was even higher at 11.3 per cent. Both figures are 4 percent above the same month last year. Overall in the first seven months of the year industry has grown by 8.4 per cent (6.2 last year) and manufacturing by 8.8 (6.8). Remember that by October last year the industrial recovery was already well under way. So this growth is not taking place over an unusually small base.
The composition of growth also portends more growth. The greatest increase has been in capital goods — 19.2 per cent in October and 15.1 for April to October. Last year the figures were 4.9 per cent iin october and 9.2 per cent for April to October. This is in line with the 22 per cent overall increase in investment in the pipeline that i had written about, some two months ago. Consumer durables have grown by 15. 5 per cent in October and non-durables by 13.4 pc. Against this the output of basic and intermediate goods has grown by 6.8 and 6.7pc respectively. The pattern suggests a sharp movement towards higher value added goods in the production basket. This is the ‘real’ economy that underlies the rising share market prices. And all the portents are good.

him him him in the past four decades. Craig Lewis is pulled a few theatrical rabbits out of his hat, but Kenny successfully transform a story about addiction lies denial degradation pain and remorse into play worthy of being called ode to Joy well. his latest rattlesnake production currently at the Drury Lane theater until April nineteenth is about an alcoholic pill popping painter who meets with turns out to be the love of her life while they were drinking shots at a bar

that the play moves back and forth in time, following the course of this new relationship and revisiting her previous one which broke up over her addictions and join in our playwright Craig Lewis act is Captain Kirby, who plays a Delta painter and I was Howard who plays Bill, welcome to our show, King and the Catherine, an analyst of when you read this to it appealed to you about these characters were you at all worried that you might not be a will to make them likable. I know that that ever really young costly minds because of we read the play out loud for the first time for a packed audience is at the Cherry Lane, and they howled with laughter and and really enjoyed them it is. it’s a is a you know a fine line to walk a do crazy stuff laundry. how important is it for the play that we like these people. well, I don’t know if it is so important that you like them as much as

it is that you be entertained by the money you don’t have to really care for Richard the third, but he’s damn funny is that they had a pentameter, you know, so it’s fun to listen to him Brown and Shakespeare did write up these people to do some pretty awful things to each other and to themselves that he will go like casting these roles. I didn’t cast David Van assault the artistic director at the rattlesnake said you should cast Katie Irby and Arliss Howard was sizable. not that I went okay and we did reading and it is true. everybody just fell on the ground screaming with laughter. I thought well to do everything this man tells me, although you directed, well, they they helped me direct wireless one of the most frightening elements of the play for me is that bill. your character is a surgeon on a Dell as a painter. it’s one thing to paint my here and created but to operate on a patient drunk while that’s a bit scary to have this and I’m not sure if that ever happened to me. I now have my leg, set one time by a guy who is drunk other digital daisies have you drink before the day they operate on you, but is it possible for a second person– you do in operation after night of drinking the way that builds as when he first meets a Dell most sanity is at issue. I think that that is the play is largely about humans and and I think that this particular where is your God dysfunction, or an error in judgment or whatever is fairly widespread

in terms of people thinking they can do things that they probably should not do in the conditioner out of Shillington EIC limping when he runs out. I mean I I probably could stitched it better than he do the actual setting of the bone. he did a really great job at Craig Anderson display comes out of your personal experience shows many drunks Mike will be writing play when you’re inebriated, not a fair number. please been written in that condition. I guess it can be fixed up when I hear of how I was reading that I pass illusions, letters, and he was up in Provincetown, writing streetcar named desire. he was drinking red wine all day every day and that’s it turn out so that I certainly can’t write when I’ve been drinking or taking pills I have to be sober to be able to put together to make the nouns agree with over the victim. any people believe that there’s a relationship between alcohol and creativity. I don’t know if they believe that I think what is true is that a lot of writers find it difficult to turn off their minds at the end of the day as a lot of artists doing a lot of of people who are excited by their work and their lives, and that it takes a lot of energy to turn those those voices off axis reading somewhere quoted moves which are butchered, but he said nobody realizes that for some people it takes an enormous amount of energy just to be normal, and I hydrated in the original French intransigence. okay is at camera when you look at this part will suck about being normal and all of that would hike in the said that that one of the hardest things about playing a drunk is dead. there’s a tendency to slur your words but she said of people who are drunk. do everything possible to articulate even more clearly. so is that something that you take a hard and playing this role. oh yeah, we are fearless sweeter here did not want us to slur words and I felt in the beginning that I kind of needed to at least were hers. that way to begin to really help me to get a just pull it into my body somehow buys a lot of physicality to us as well. while that scene. I personally never thought we’d get it on our feet on its feet. it’s pretty an amazing scene and it’s it’s one of my favorites in the play and you come out of it alive. every night every night and miraculously, but it said it sounded like one thing on paper and then to do all the vomiting and following and all that stuff seems really scary houses. I choreographed all very specifically and and and and very slow speed. originally, you know, like anything like a magic trick. it’s sort of like a sleight-of-hand you have to go very slowly so you confirm the good and speed were once the play mall was amazed at the delight that fills back and forth between us ever doing it. you have an fun at the same time just about how associative learning Academy, and when you look at this park Kathryn did you think this is pretty far from Detective Alexandra Eames of the character you play in Law and order criminal intent for ten years. did she have a drink after work to think of how it seems. yet she drank scotch straight up from many fingers and I guess is what you would take up. I don’t know that I was thinking about Detective Eames, but I I was really grateful to redisplay and that David

introduced me to Cragin, and I admit our lesson that we have Roxanne and it’s such a gift. have any of you counted how many him registering at the scene when they meet at the bar high. I can really, I think Bill has these been drinking before she shows up and I think Bill has drunk about a leader of single malt scotch. by the time the scene is over and he’s a great drinker. why see their

heat. he lives upstairs, which is convenient and not, but he’s also slow decline but upstairs, JE, he has a wife. it’s been dead for a few years and on this particular evening, he’s celebrating or morning her passing and I’m not sure actually if there is all a line between those two celebrating in morning that as we do the play more and more I realize I is absurd to think that this ritual we have a morning celebrating whatever it is, as the years: that the whole idea of mourning and celebrating seem to come, emerge but I often involved to drinking alcohol. yes, absolutely gathering people together telling stories. it is a point when Bill just such pouring them to drinks at a time. you now and kept them what your wife, your character. there that she has been painting all day, which is can be a very solitary, lonely experience and she has a we came up with the whole idea that she’s got this way friend was texting her who she doesn’t really like, but he’s that you know Mister right now and she’s gone out to maybe get ice cream. she said she’s going to run an errand, but she’s going to the are down there for both of their relationships before involved alcohol, Bill ‘s wife committed suicide because she was an alcoholic with the data prevent him from seriously dating anyone. he needs it a bar for drinks like a Dell now I think if you just look at the baseline. no indicator of human behavior. people who believe that if they go to work one more day at that same job. go kill themselves and continue to show up years after they’ve made the decision with sort of prove out that we kind of habitually behave until it becomes you know, for whatever reason, who can say with that is a moment of reckoning were certainly hasn’t happened for him to be any a and Kathryn in your characters of previous great love broke up because she was an alcoholic, as it tells you and I and so on. finally somebody who also drinks is heavily. she does probably would be reassuring. yeah, there is a moment when he says he one another, whether I think it goes like all yes yes yes rate my guests are two of the three actors and ode to Joy Kevin Irby and Arliss Howard also Brooks and hope in Lewis ‘s Lucas is new play called ode to Joy. I don’t know what Beethoven comes into this, but he wrote and directed in an crake on the things that you do and I’m not sure it’s fair is to give these characters incredibly witty, literate dialogue while they’re totally blitzed. I aren’t most drums borers, they can be at a certain point. if you’re not drinking with them, but that first see you are falling in love with someone while you’re drinking, and so I hope to create that lovely pardon were intoxicating feeling of being in the glow of someone’s intelligence, and someone who is speaking to you as if you will understand there are allusions and it. I think it’s been a long time since Dell has met someone who was even interested in the things he’s interested in conversation is more interesting. the conversations) philosophy class and cleverer as well. I was wondering whether people can talk intelligently and quickly about Kierkegaard activate down ten shots or does it only sound that way to another equally impaired person, well-built talks very lately, so, yes, they can I read this wonderful book by Jonathan Lear called case for irony and it turned my attention to Kierkegaard, who I always assumed this is way over my head and into the writing was solely an accessible and delightful discursive and your car love to go for long, long walks, and I suspect was white, elliptic, but that’s just my supposition. you say that when you started writing this play you thought it might be your longest-running tonight. yes, but it turned into something altogether different. it turned into a comedy. and that probably is what I’m best suited for. there’s a funny Charles Ludlum quote that if you’re going to tell people the truth, it had better be funny or they’ll kill you and I subscribe to that idea of a site about Adele ‘s paintings and do you think of yourself because in it. we don’t really have paintings, but he ended a opening your character, Catherine, do you think this is a good printer. so yes, yes I do think she’s very good one in the scene when Amal who will just become adults first profound love enters a student looking at pennies. Melissa ‘s event, this isn’t for slaughterhouses and frightening refugees from crossing the border, so she just really powerful perhaps gruesome work. yes, I think she the juxtaposition of beauty and an horror ugliness, sir. you know, so now that the play was already in development. when Philip Seymour Hoffman died, but I suspected that that was something also thought about when you’re pursing this

note. okay, no, but good when the big day that happen wherever her soul and advocating in my daughter left a message. I went to school in the absolute, so it will certainly something that no positive or her ‘s will, i.e. he was on the show of a number of times. I don’t know whether it was during one of the dry periods of time and if would’ve suspected witches to some degree what Doug. these people would also look at characters in this play would also rely on a window, not a bar that people might not suspect that they have a serious problem with with alcohol. yet I think I think the notion of alcoholism and drug abuse is. and in this particular case is the framework of the story is is built on the architecture work, but I think that Craig has bigger fish to fry and I think as regards. alcoholics and drug arts. they are often incredibly strong him

people who who, if not impaired by it or not slow down is only running until the April nineteenth at the deteriorating them, but something else coming in at the time. yes, there is another play. following this, but I’m assuming we’re moving to Broadway will you take it you have a memorable title here and why did I do apply one of Beethoven’s most famous titles you apply. I used to think that two boys was a form of elation and as I got older and quieter and more comfortable with myself and with life. I began to suspect that it was a calmer and deeper way of embracing things as they are that had not occurred to me, and it seems like maybe I are on our characters were after a tour joy is Craig Lucas is playing ode to Joy is currently turning theater stars Kevin Hervey Arliss Howard Henriksen, a hope my great thanks to Kathryn Harless and Craig fleeing and I should think your happiness ishim itself on having plenty and ninety three. nine seven zero. NYC is that Lori Moore has been punishing short story since she won seventeen magazines, fiction, awarded nineteen in the years since she’s become one of our most accomplished and beloved short story writers, and now fifteen years after the publication of her seminal collection birds of America. she is introducing a new stories collected in a volume called bark her protagonists, like most of us have gotten older and if they haven’t gotten especially wiser. neither have they become less witty, original or great company bark is published by helping enough and I’m very pleased that it brings learn more about ratio will come back home think you know, we don’t want to suggest that you have been busy. you also publish the novel. in the interim, which brought you here some years ago two thousand nine, but they still are few and far between. is it to just take a lot of time writing, or I I’m just very slow in an time flies when you’re not having fun as we know you’re not having fun. whenever any missionaries not always know because six seven of a rather dark, so this does that affect your mood while you are working on the you know I’m always engaged in a fearing changed year. you know me, that’s half the battle, but and my affected emotionally sure I can involve the characters and I I feel their ups and downs and I talked to some other writers about the similarities between this and being an actor in the sense that you know your type. you are become the person a you are playing or writing any also creating back story. even if you don’t use it very much. so I think I think writers have a lot to learn from actors and actors really inhabit a character I bring all kinds of things to that character that perhaps the scriptwriter hasn’t brought me may bring their own childhoods. they bring a great steps of of memory and scale, and a sense of life to to their roles and in and authors at their desk or I’m doing that, you know, but they have to be off to care for scripts, PLM, but even if it’s not autobiographical. on some level it’s all you when you’re drawing your drawing from gaps of knowledge that can come either from life or from imagination. I mean, you know you’re always inventing, but you’re also as you invent your drawing from you. your knowledge of the world, twelve assists of the scenery and the plot and as a refund that demonstrate how many different word plays are hidden in this title, this book bark AAD mean bark of the roof cover that we find in the outside trees. the warning noises that dogs make it the probably a few other scientists letters that are definitely those two there is in the very first story bark and is used to mean kind of like the kind of criticism account of yelping sound that one of the character tends to make when he talks to people. there’s also there is a word fark that means margins older raff that takes you across the river Styx and there is a ghost story that would connect with that idea, but she that first story isn’t called bark is called debarking anywhere that I really am unfamiliar with well I had no disembarking right and debarking just means that it’s it just means and the diversion of disembarking, but it could also mean to are we so could mean in the way you partitioned the skin in old leaves your and their skin. this character sketches, leaves, but then ring finger of his left hand. at one point because has has status trying to get his what is great. it’s interesting that you mentioned crossing the river Styx, cause I was thinking a bit about Dante and in reading this you know. abandon all hope ye who enter here and in connection with one of the stories well this is a much list of entitlement. self-help burdensome permit for you. warning your readers about the contents of this book with bark. I don’t know why I I just I noticed the word showing up every in every story and I thought it’s just such a great Anglo-Saxon word poets love that line art and fiction minister to in your last collection. your characters had all arrived at some semblance of maturity. they were parents and job holders and basically adults have different is the next step that you are dealing with in this collection. I don’t know what I I think in every collection life and relationships was coming together and falling apart in this and this collection. there may be. I think they were two couples that are divorcing and but there are couples that are together/ quality couples is divorcing once kill each other. yes, they do it. somebody pointed out that in your previous stories. they may have try to work things happen here. there’s no chance. I don’t think in my very first collection is a wife who actually stabs her husband. so I said, I think there are no actual weapons on the table and this one really characters him as a group got many savvier when a number of modems heard choice of partner but admits that the men she fell in love with basically came with a sign that said caveat and poor here County guitar rack employees and enter them tonight and count it. I admire very where right and while I think I think all they and she goes from fearing that he sells drugs for a living, to wishing that you were sharing custody. he’s at his available low fiber is a bit of a lot of first oceans, seas, wondering how they’re going to get by, and she worries that his soul, strength, and suddenly things, you know, maybe does sell drugs and then she’d come of this, hoping, and soon she’s praying that he does as it discussed asking him to sell drugs of status is called wings and I wonder about all your titles and is that a reference to wings of the Dove to the ham to the Henry James story because a character of energy instead. suddenly, I think, of Edith Wharton, because a character finds her mom ‘s marked up old copy of the house of mirth in the same well yeah it is. it is a reference in the way to two rings of the government and its iconic Gilded Age story. it’s about two people trying to make it in the two musicians trying to make it in an economy that’s going down and something they target an old man in a very much like that character ‘s doing wings of the Dove with the young American era and has a different ou

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