Thursday, May 8, 2008

Are we sitting on a time bomb: The unseen chaos in Indian Economy

End of last year the focus was whether US was slowing down or not. Beginning of this year the focus was India's IIP numbers. All eyes are now on inflation numbers.

All these are important factors, but are me missing out some likely threats, far bigger in magnitude. Here're the likely top four:-

  • The world's largest economies (US, China, UK and Japan) are going into varying degrees of slowdown at the same time. Are we missing out on the impact this might have (direct and cascading ) on Corporate India?
  • Oil has gone from just $ 50 around Feb '07 to around $120 now. Fuel subsidies likely to result in under-recoveries to the tune of Rs 1,80, 000 Crore for 2008-09. Will the cost not flow down to Indian consumer, one way or the other, now or later. And what happens if oil goes up to $ 200 as predicted by Goldman Sachs.?
  • International coal prices have also more than doubled over the past one year ( and for some varieties, tripled). Coal is a key input for industries like Power, steel and cement and we are not self sufficient in coal. Can inflation really come down significantly in this scenario, and if so, at whose cost.?
  • Around one third of India's power stations are reported to have coal stocks at 'critical' levels I.e less than 7 days worth, instead of the usual stocks of around 21 days. What will happen if price of power starts going up the food / oil way.?

I am not even talking about worrying trends in food, real estate, gold and Indian financial sector. And the fact that we are going into elections at a time like this.

Are we sitting on a time bomb?