Macroeconomic & Fiscal miscalculations

India is an emerging economy in the emerging economies slated to post immense growth rate by the 2150 AD as part of the BRIC. It may be jubilation or euphoria, but it is no better than PIGS (Portuguese, Ireland, Greece, and Spain) which are considered as Crisis economies. There is currently an economic view that throwing good money after bad is only going to make the matters worst. This holds well, some European economists feel about Greece which had seen no turnaround in its economy even though European Union has been helping the troubled Euro nation of Greece. Unless something miracle happens, European Union may see Greece exiting. So also, the after shocks of the indiscriminate fuel hike in India. Kingfisher is its first victim, even though it suffers from many diseases overtly. Should lifeline be given? Banks are mum, RBI is mum, and Government is mum. It took the Herculean effort in the Government to provide impetus to Air India or Indian airlines. Kingfisher has been declared as a “Non Performing Asset”. There was all-round skepticism about the appetite for raking more risks. Banks have refused to open the liquidity until they (banks) receive some dues. But, with more and more fights grounded, the account under operation under Garnishee Law- for Income Tax dept has attached the account; the survival of Kingfisher looks very unclear. Passenger Cars also have been affected by the petroleum product hike. This has affected the IIP output which was 5.7% in Oct 2011, 6.6% in November 2011 and 1.8% in December 2011. There has been a marked decline in the capital goods manufacturing though power sector with 8.3% growth and Services sector with 9.6%, with overall food inflation touching negative from the 16% almost six months ago, core and general inflation too, in the vicinity of 6.5%, making it clear that India is not out of the woods. The growth rate has been projected as 7%, but it is likely to be 6.8-6.9%. The foreign direct investment and foreign institutional investment has come down, and gross fixed capital formation as a proportion to GDP has come down by 4 percentage points to 29.3% from 32.9 %( 2007-8). Large scale liquidity injection by European Central Bank since Dec 2011 has lowered yields on the Government bonds. 20% of the foreign currency convertible bonds due for conversion are likely to default. Gold import has been a component which has increased the Current a/c deficit which was around 3.6% of the GDP in the first, second quarter of 2011-12. This import had to reduce merchandise imports. Primary food inflation saw acceleration of need for money wage rates, cash prices, behaviour of manufactured goods, cascading to increased subsidy bill, and higher government finances. Fiscal consolidation, which is a pillar of macroeconomic stability, budgeted at 4.6% may touch 6%. The uncertainty in the forex rates(if the exposure is unhedged), has made ECCBs which were a cheaper financing option has become costlier, making the benefit of the debt completely wiped off leaving the company on the verge of default in testing times. Come XII Plan (2012-17). The mandarins in the North and South Block in Delhi have predicted a growth of 9% in 2012-13on the conditionality that the grim world economic scenario improves. It is Monte Carlo method!

Coconut Industry in the 12th PLAN

I had written a blog on CDB plea to provide an outlay of Rs 2,400 Cr to the Coconut industry in the 12th Five Year Plan. I am an ardent supporter of Kerala and I had a thumb in bringing National Institute of Fashion Technology to set up a facility in Kerala, and many towns were declared as “Town of Export Excellence” due to representation of mine before the concerned at Delhi. I was largely responsible for creating a no of Textile Clusters and providing consultancy to the Government and entrepreneurs to set shop here. Coir and coconut industries have been able to get lot of central patronage, and became eligible for Schemes of the FTP. Therefore, when I received a number of calls I thought I should explain. CDB received Rs 395 Cr in the XI Five Year Plan, 200% improvement on its outlay of Rs 145 Cr in the X Five Year Plan. The component of existing Schemes (Rs 150 Cr) and new Scheme namely Replantation and Rejuvenation of the Coconut industry (Rs 250 Cr) , 200% over and above the existing Plan outlay of X Plan was sanctioned due to the fact that the Plantation industry and the Kerala’s principal crops all got Special outlay sanctioned- Spices, Rubber, Cashew, Coir, Coconut, Tea, Coffee, marine/fisheries due to special initiatives of Hon’ble Shri Jairam Ramesh, who had extensively argued the same before the Hon’ble Prime Minister. The economy was also in full bloom, liquidity was plenty, and so making additional allocation was not a problem. If one were to look at the allocation made for different sectors, they would see that only a feeble percentage of increment was sanctioned as additional allotment, Plan after Plan at quin quinneal interval. Presently, the economic condition in India is rather weak. Global markets are fragile. India’s fiscal deficit is far beyond the target. The GDP growth is expected to crumble to 6.9 %( target 9%). Though food, general inflation has been tamed, it may bout at any juncture. Hence caution is the economic policy of expedience. The XI Five Year Plan Schemes, if they are to be continued, then evaluation status would need to be filed. Here quantitative analysis of cost: benefit analysis would have to be progressive. However, the new major Coconut scheme was a pilot Scheme, and it was just introduced and it would take gestation before the results bear fruit. Secondly, the conversion of logs to Particle boards, setting up of a manufacturing facility is yet to materialize. A huge growth is visualized in this stream. Coconut industry’s dominance is on Coconut Oil and Copra. It is highly saturated. High dominance is given to this segment in the Coconut sector. The Government in order to protect the farmers announces a Minimum Support Price for Coconut as well as Copra. The MSP of milling Copra was fixed at Rs 5,100 per quintal and Rs 5,350 per qtl for ball copra. De-husked Coconut has a MSP of Rs 1,400 a quintal. Presently, the market price is less than that of the MSP (Rs 4,500 -Copra). It is further expected to decline. The demand is expected to be in the region of 10.5 lakh tones (for Copra). The price of Coconut Oil (Copra) is Rs 6,700 per quintal. The total manufactured quantity of Coconut Copra oil is 4.5 lakh tones, which is equivalent to 1% of India’s total demand of edible oil in India. Rightly recognizing the trends, the Board has decided to focus on other sub sectors of the Coconut segment along with enough weightage of Coconut, Copra, and Coconut Oil. One major step envisaged by them is to increase the productivity in coconut nuts production. Presently it is 8303 nuts per hectre meaning 48 per palm. If productivity is increased to produce 100 nuts per tree, 17,500 nuts will be available from 1 hectre land used by palms. This would definitely scale down the costs of products. There are two issues here. The number of palms per hectre should also be simultaneously increased along with increase in nut growth per tree to maximize output. Law of diminishing Returns, non availability of labour has already strained the sector. Then the supply chain. It is not direct farmer-market linkage, but farmer-middleman-market linkage. The (middle man) buys Coconut at cheap prices, and waits for the price upheaval to dispose off his stocks. This is one of the manifest reasons Coconut prices are mid-dip. With the proportional growth of livestock and animals, the oil meal which is a by-product of Crushing of Copra which gets 65% oil, 28% oil meal, 6-7% moisture, is having an uppish demand. Recently, Tata Global beverages signed a MoU with PepsiCo (India) to distribute their Himalayan water and Tata Glucose Plus thro’ the distribution arm of PepsiCo. The Pepsi holding Company is distributing tender Coconut water in America in 330 ml and 500 ml packs. If this JV takes interest, then tender coconut water can be produced and marketed by this MNC in India. The Unique selling Preposition can be “Sports drink from Coconut water”. The one missing link in the Coconut industry is the new entrepreneur setting shop to produce value added products. The CDB should address entrepreneurs and draw them to the Coconut industry. Other countries have an upper hand in this sphere. Coconut shell has amazing properties. Its fibre is natural filler. Coconut filler can be used in broad range of applications to overcome the poor crack resistance of epoxy resin polymer used in aerospace, bridges, automobiles, sale boats. Epoxy is a copolymer polyepoxide thermosetting polymer formed from reaction of an epoxies resin with polyamine hardener. It gets tensile and flavoured property by using coconut shell filler particles. It is estimated that the world would require 3.03 million tones against present production of 1.46 billion tones. Its present value is around $ 150 billion. 3 M, Aditya Birla (India), Sumitomo (Japan), UPPC GmbH (Germany), and Companies in China are producing Epoxy Polymer. This would open up new opportunities for Coconut shell sellers. Handicraft is another area where the Board has given a feeble attention. It can contribute huge business opportunities to the handicraft manufacturers. By way of conclusion, what I had stated in my earlier blog was just drawing the attention of the authorities to the huge outlay proposed which may not augur well in the current situation. Any new proposal need to be vetted by a Group of Ministries, Planning Commission after being recommended by the administrative Ministry. While the proposal to trim the allocation of the XII Plan is in the air, with the economy downcast with low growth, hopeful assessment of expectations is very low. Hence focus on holistic growth with a higher outlay may not find favour at the present juncture with the Govt of India. That was the point I was trying to make. The very low turnout of Coconut’s value in the GDP of the Country is a negative factor which will weigh against the Industry.