new economy

　　

In the third quarter of 2018, India’s real GDP growth rate was 7.1%, exceeding 7% for four consecutive quarters. According to statistics from the Bureau of Statistics of India, from 2004 to 2013, India’s average economic growth rate was 6.7%. After 2014, the average economic growth rate of the Modi regime was 7.3%.

    PricewaterhouseCoopers predicts that India's GDP growth rate will be 7.6% in 2019, making India the fifth largest economy in the world. What is embarrassing is that despite the rapid growth of the economic aggregate for many years, India’s employment rate has been sluggish, and the profitability of enterprises is not optimistic.

Listed company profits as a percentage of GDP fell to the lowest in 15 years

    A report released by Indian research institute Motilal Oswal last week showed that the proportion of Indian corporate profits in GDP has fallen to a multi-year low.

    The report pointed out that there is evidence that between 2003 and 2008, the ratio of Indian corporate profits to GDP doubled from 2.8% to 5.5%. Among them, the "Beautiful 500" listed companies (the top 500 companies listed on the Indian Stock Exchange by market capitalization) The company's profit growth rate is as high as 31%, which is twice the potential GDP growth rate (14.5%). This surge is driven by export investment and capital-oriented sectors.

    In the past ten years, the profit dilemma of Indian companies has caused the profit-to-GDP ratio of the "Beautiful 500" to drop from 5.5% to 2.8%, the lowest level in 15 years.

    The proportion of all corporate profits, including private companies, in India’s GDP fell from 7.8% in 2008 to 3% in 2018.

    From 2013 to 2018, India's GDP compound annual growth rate was 11%, while the compound annual growth rate of corporate profits was only 3.8%.

    However, the agency expects that starting from fiscal year 2019, the downward trend in corporate profits as a percentage of GDP will improve. Prior to this, the poor performance of state-owned and private banks significantly dragged down corporate profits. With asset quality bottoming out, provisioning costs normalized, and loan growth recovering, it is expected that the banking industry’s recovery will drive economic expansion.

    Motilal Oswal believes that India’s corporate profit growth has bottomed out, and the ratio of corporate profit to GDP should expand in the future.

Unsupportable employment rate

    In 2016, the "Abandonment Order" severely hit the Indian job market, causing millions of people to be unemployed in India in a short period of time.

    In addition, according to an analysis by Azim Premji University, between 2011 and 2016, the unemployment rate in almost all states in India increased. The unemployment rate of young people and those with higher education has also risen sharply.

    At the same time, India’s young labor force with advanced degrees is increasing. The “Washington Post” predicts that by 2021, India’s population aged 15 to 34 is expected to reach 480 million. Their literacy level is higher, and their time in school is longer than that of the previous generation.

    This highlights the huge problem facing India: the economy may grow rapidly, but society has not created enough employment opportunities for educated young people.

    Data show that the growth of the Indian job market in 2018 was almost zero. According to the Indian Economic Monitoring Center (CMIE), the labor force participation rate in India in October was only 42.2%, the lowest level since January 2016.

Indian economy is a mirage

    After the 2008 financial crisis, along with the Fed’s unprecedented QE printing machine model, a steady stream of U.S. dollars flowed to the world. During this period, some economies also developed rapidly due to high U.S. dollar debts and achieved substantial economic index growth. India is such a relatively fresh economy. However, through a set of official Indian data, we can see that India’s economic index is very unstable.

    For example, India’s economic growth in the second quarter of 2018 was 8.2%, and by the end of 2018, India’s actual growth rate had dropped to 7.1%.

    In fact, the roller coaster-like ups and downs of the Indian economy have become a recognized special phenomenon in the global economy, and the fundamental reason for this phenomenon is that the country is highly dependent on US dollar foreign debt in the past few years, and it does not have a broad foreign exchange reserve moat. of.

    Although India's economy has achieved relatively bright exponential growth, the Indian economy is constantly facing the dilemma of capital withdrawal during the continuous expansion of U.S. dollar capital. Just like India's sudden currency abolition order in November 2016, the country fell into a money shortage. Beginning in the second quarter of 2018, the Indian economy once again fell into a money shortage. In other words, the Indian economy is caught in a vicious fiscal cycle of excessive reliance on US dollar capital.

    India’s total foreign debt is about US$1.4 trillion (including the total foreign debt announced by the central government, state governments, and the total external debt of enterprises), while India’s foreign exchange reserves are only about US$400 billion, plus India’s current holdings of 138.2 billion. U.S. dollar bonds, the country's total "bank silver" is about 550 billion U.S. dollars. Obviously, the Indian economy is showing a serious inverted triangle shape of debt and foreign exchange reserves.

    It is not difficult to understand that in the course of the four interest rate hikes in the U.S. dollar last year, even though the Central Bank of India followed the Fed's monetary measures to raise interest rates, the Indian rupee has fallen into the worst-performing currency considered by Reuters. Urjit Patel, the former governor of India’s central bank, has also publicly called for the Fed to slow down its balance sheet reduction, otherwise the Indian economy will not be able to cope.