Last week I wrote about the heavy imports from Switzerland and how gold forms the majority of it, and I went to look for the other countries that India imports its gold from.

Switzerland is by far the biggest exporter of gold and the next biggest exporter – UAE is just about a third of Switzerland.

South Africa, Australia and USA are the other big exporters but when compared with Switzerland – they are quite small.

Here is a chart that shows the top 5 countries that India imports its gold from, the figures are for 2010 – 11 and the numbers are in millions of dollars.

Which countries does India import its gold from

As you can see Switzerland exports more gold than the other 4 combined, and  the countries after that are even smaller.

Here is a list of the top 1o countries that India imports its gold from.

Now, here is a pie chart that shows the relative share of some of the biggest gold exporters to India.

Relative share of countries that export gold to India

India of course has very negligible gold production, but more than a year ago I wrote a post about gold mining in India and while researching that I was surprised to find that the Ministry of Mines estimates quite a high amount of gold ores in India. With soaring gold prices, it is perhaps time for some tax sops in this sector and allowing the private sector to try to develop gold mines in India.

Sovereign debt is the debt owed by the government of a country, and it is usually denominated in the national currency (domestic debt), and international currencies (external debt) like the USD, Euro, Yen, Pound Sterling or even the local currency.

The government needs to borrow money when its spending is more than its revenues (known as fiscal deficit) and for people who have read this blog long enough – you would probably remember India’s fiscal deficit target in the budget posts that I did last year, and how it clearly showed why the government needs to borrow money.

When the government borrows – it can borrow in its own currency or in a foreign currency. Since a country usually becomes vulnerable due to external sovereign debt and not domestic debt let’s focus on external debt in this post.

A government that needs to pay for foreign goods and one that doesn’t have enough foreign currency will have to borrow in a foreign currency.

This is a good time to easily understand this concept because of the context of Iranian sanctions and the oil we import from them. Very briefly, the background on this is that India imports a lot of oil from Iran, and Iran demands that India pays for it in US Dollars.

India uses a Turkish bank to facilitate this transaction and due to the recent sanctions by the US and EU – the Turkish bank is likely to refuse being the intermediary, and force India to look for another channel.

If Iran accepted Rupee payments for its oil then there will be no problem because India could settle with them directly, but since they don’t (at least yet, and not likely to accept in full in future either) – India will have to find a way to settle this transaction in dollars.

This is a good example to see why you need foreign exchange in the first place, which is a concept I’ve seen some people struggle with occasionally.

Now, the debt that a country owes others is usually referred to as external debt, and the external debt number is often published in the newspapers etc.

One important thing that is not highlighted when you read about India’s external debt is that it is not Indian government’s external debt – but rather the total of Indian government’s external debt and India’s private sector’s external debt.

In fact, the sovereign debt or Indian government’s share of external debt is as low as 25% of the total external debt, and is long term and concessional in nature. So, the total sovereign external debt is just about 25% of the total external debt that is reported.

This is markedly different from a country like Greece which has a lot of its debt going to mature soon and owes it to private borrowers.

India’s sovereign external debt is concessional, long term and borrowed from developmental agencies instead of private borrowers so you will never hear phrases like ‘bond vigilantes’ that you hear these days with reference to Greece’s debt.

Turning to domestic debt – that’s a lot easier to manage than external debt because a government can print its own currency, and pay back the debt or inflate away the debt. This doesn’t mean that it’s good to have domestic debt or that there are no harmful effects of domestic debt. They are certainly there – if the government borrows too much money then their future revenues are earmarked to pay interest on that debt, and money that could be used for building roads get diverted towards repaying interest. Since taxes form a major way of earning revenues for a government – they will have to raise taxes or broaden the tax base to meet the growing expense, and if the economy stops growing or the growth slows down then the government will see that a large part of its tax collection are simply used to pay the interest on its loans.

Finally, Dr. Paul Krugman had a good column on US government’s debt a few days ago and it gives you a good perspective on the difference between an individual’s debt and the government’s debt.

This post was from the Suggest a Topic page.

After looking at what constitutes India’s major exports, and India’s major imports – let’s now look at India’s major trading partners.

The three charts we will look at in this post are the top 15 countries that India exports to, the top 15 countries that import from India and the trade balance that India has with its top 15 trading partners. This data is for 2010 – 11 and taken from the Commerce Ministry website.

Let’s start with exports, and here are the top 15 countries that India exports to along with their percentage share in total exports for 2010 – 11.

India Top 15 Export Partners

One of the more interesting things in this chart is that if you were to combine China and Hong Kong they will take second place displacing USA. The thing that you don’t see in this chart is the growth rates, and while the US growth rate was 30.78%, UAE was 43.3% – that of China was 68.8%. In a few years time – these two combined could easily become India’s biggest export market.

Now, let’s take a look at the top 15 countries that India imports from.

India Top 15 Import Partners

China’s presence at the top probably doesn’t surprise anyone, and that a lot of oil producing countries are littered in the list is also expected.

To me, the most interesting one there was Iran. With the recent embargoes by US and EU, and no clarity on how India will pay Iran for their oil – expect to read about this a lot more in the coming days.

Now, let’s take a look at the total trade balance data. A positive number shows that India exports more than it imports to the country (trade surplus), and a negative number shows that India imports more than it exports (trade deficit).

India Trade Balance

The big thing in this chart is that India runs the biggest deficit with Switzerland and not with China! I don’t know what these imports constitute and if it’s because of an inordinate amount of gold imports from Switzerland. I will have a future post on that.

Other than that – the one thing that occurred to me was that China seems to have a lot of exports to all the oil producing countries and they seem to have strategically developed export markets in countries that they know they will have to import from because of oil, and that seems to be something unique to them; certainly not something that you see with India.

The rupee has fallen quite a bit in the past few months, and the question on a lot of people’s mind is how can RBI stop the rupee from falling more?

Before we get to what they can do to stop the rupee fall – let’s get one big thing out of the way. The RBI cannot stop the rupee decline by selling dollars and buying rupees snf manipulating the market.

At a little over $300 billion – India’s forex reserves just cover 95% of the country’s external debt and more importantly – the market for the Rupee is estimated to be $70 billion a day, and RBI simply doesn’t have enough firepower to manipulate this market by trading in it.

As Ajay Shah writes in his Rupee FAQs – if RBI tries to manipulate this market they will run out of dollars very quickly. He further details what else can go wrong, and I think anyone interested in this topic should definitely read his full post. Probably, the best proof that Ajay Shah is right is the fact that RBI hasn’t tried to meddle in the market so far.

So, if RBI can’t trade in the market – what else can they do?

Anything, that makes it easier to bring in USD into the country will help ease the stress on the exchange rate, and stop the rupee from falling.

The impact of one step will not be immediate, and it may not even be very big, but these small steps are what will help arrest the slide, and these small steps also happen to be the only practical thing to do right now.

The most recent example of such a step is to allow foreigners to all investing in Indian shares directly – they could earlier invest only through participatory notes, and this makes it easier for them to invest directly, and will help bring more dollars in the country.

The other such move was to liberalize the NRE interest rates, and allow banks to set their own NRE rates. As soon as they did that – some banks increased the rates from as low as 3.8% to 9.5%! Since the interest income from this account is tax free for NRIs – this is a great incentive to open NRE accounts and deposit money in these accounts.

If they allow FDI in multi brand retail – that will also get companies to invest money in India and bring in some dollars in the country and that will ultimately help the exchange rate as well.

If you see these measures – none of them will bring down the high dollar rate overnight or even in a few weeks – even if foreign investors can invest directly in India they aren’t exactly queuing up to do that right now, and even if NRIs can open these accounts, it takes about 3 – 4 weeks to open an account and even then it’s a question mark on how much money they will actually transfer?

If there were quick and easy solutions, they would’ve been already implemented, but like all other things – the way to have a stronger rupee is to make fundamental improvements in the system that attracts foreign inflows, and boosts exports, and things like these can only be done over the long term with sustained efforts.

This post is from the Suggest a Topic page.

After the post on what India exports – I got a few emails on the import composition and here is a post on what India imports. This composition will probably not surprise many as most of the imports are oil and gold which have been written about quite extensively over the past few months.

The data for this comes from the Department of Commerce website, which has a great tool that can help you slice and dice this data in many different ways.

I took a list of the top 50 commodities that were imported in the April to September 2011 time period, but the chart is restricted to just the top 10 commodities because that’s the bulk of it and is a lot more readable.

Here is a chart that shows the break – up of the top 10 commodities that India imported in the April – September 2011 time period.

What does India Import?

Here is the complete list of the top fifty imports.

Dated: 27/12/2011
Values in US$ Millions
(P) Provisional

About one year ago I did a post on the countries from where India and US import their oil and that might be of interest to you as well.

As far as I know – India has never had a trade surplus, which means that it has never exported more than it has imported, and I got curious to see what comprises of the exports of the many East Asian countries that have consistently run trade surpluses for years.

But in order to make any comparison, you need to know what India’s exports constitute of first, and I wasn’t sure of what the numbers looked like, so I went to the RBI website to look at some data.

RBI has the latest provisional foreign trade data for the 2011 April – September six month period, which shows that India’s exports were $160 billion in that time period. It is important to note that this includes only merchandise exports, and doesn’t include Services exports which are also a big foreign exchange earner for India.

I couldn’t locate the six month number that included Services, and had to fall back upon the first quarter April – June 2011 – 12 Balance of Payment data to get the proportion between goods and services.

This data shows that the goods exported were worth $80.58 billion, and services exported were worth $30.95 billion.

India Merchandise and Services Exports

Now, that we see what the split between the goods and services look like, let’s take the smaller piece first, and see what contributes to the Services.

Breakup of Services

As expected, software exports dominate services and a large part of the services exports are what we commonly refer to as BPO and IT Enabled Services.

Now, let’s take a look at merchandising, which is the bigger chunk of the exports. Here is a chart that breaks out merchandise.

Breakup of Exports

To make this chart easily readable – I didn’t label some smaller categories – the 4% there is Ores and Minerals, 2% is Others and 1% is Leather and Manufacturers.

The biggest category of exports is engineering exports which must be the kind of thing that a L&T, BHEL or Tata Motors exports, and petroleum products is the second largest exports which is what Reliance Industries exports which also happens to the biggest exporter out of India.

I don’t think I would have been able to guess any of these numbers correctly if I hadn’t looked at the RBI data first, and I’d like to see data for a full year to see whether this quarter represents the whole year well or if anything here is affected by seasonality of some sort.

However, by and large it looks like for all the attention that services gets – exports of engineering goods and refined petroleum products may just hold the key to run an export surplus.

The Q2 2011 GDP estimates came out yesterday, and I thought it will be a good time to do a post on how the GDP numbers are calculated in India.

GDP is calculated by the Central Statistics Office and the first set of numbers that come out are the quarterly estimates, which are later revised to show the final numbers.

This information is released on the Ministry of Statistics and Programme Implementation website, and you can access it there on the right side in the “Latest News” section.

GDP can be calculated in several ways, and in India the GDP is calculated in two different ways, and then one number at market prices and the other one at inflation adjusted prices.

So, effectively, every time the GDP is released, there are 4 different numbers for GDP that are released. If you see the latest release, you will find the following four GDP estimates in the report.

GDP AT FACTOR COST

If you see the table above, you will see that the first row contains what’s called the GDP at Factor Cost at 2004 – 05 prices, and from the growth rate of 6.9% – you can see that this is the number that is reported in the media.

This number is derived from using the Production approach and this method breaks down the economy into different sectors and then computes the value that has been added in each sector.

For the latest year, this is the table that shows this value.

Looking at the data this way is useful to see which sectors of the economy are growing, and which are lagging.

These numbers are at 2004 – 05 base prices which means they have been adjusted for inflation and the same numbers are calculated at current market prices as well, and that’s what’s shown in the second row of the first table.

Expenditures of GDP at Market Prices

The second way of calculating GDP is called the Expenditure Approach and this method aggregates the following things:

1. Household final consumption expenditure (C): This is the expenditure incurred by Indians on consuming goods and services.
2. Government expenditure (G): This is the money spent by the government on its activities.
3. Gross Capital Formation (I): This is the investment that’s taking place in the economy.
4. Exports Less Imports(X): The value of exports minus imports in that time period.

You will see this denoted as: GDP (Y) = C + I + G + X

This is how the latest numbers looked like:

Since GDP is calculated using two different methods – both the numbers are different, and this is true for every time period.

Looking at the data this way shows you which parts of the economy contribute the most.

So, from this table you can see that consumption forms the major part of the Indian economy and that’s the reason we remain relatively insulated when there is a global slowdown. If you saw the numbers for an economy that had a lot more exports than imports then that would be impacted a lot more than India got impacted during the last recession and even now.

That’s what happened in China, and to overcome the slowdown they had from exports they boosted government spending which in turn boosted the GDP growth.

Conclusion

Both sets of numbers are useful to look at, and which number you look at depends on what you are trying to identify. To look at how various industries are doing – GDP at factor cost is useful, and to look at the impact of macro policies – the second table is useful since it shows if investments have slowed down, or the government spending has increased and those type of things.

More significantly, people are looking for trends in these numbers, and the trend has been terrible of late.

I tweeted this out earlier in the day, which I think sums up the situation quite clearly.

“6.9%, 7.7%, 7.8%, 8.3%, 8.9%, 9.3%, 9.4% –> India GDP growth each qtr, last 7 qtrs. Serious downwards slide.”

The slowing growth is not getting enough attention and I hope this slide is halted before it comes close to a point where you’re actually looking at a contraction in the economy.

This post is from the Suggest a Topic page. 

Cabinet has cleared the FDI policy that allows multi brand retail in India, and companies like Walmart and Carrefour can now partner with an Indian company and sell to consumers .

The persistently high inflation and the current Euro mess must have a lot to do with the timing of this decision but the decision itself was a long time pending.

Everyone knows stories of the food grain that rots in India’s warehouses and though India is the second largest producer of fruits and vegetables in the world with a production of 180 million tons - it has only 5,386 stand alone cold storage units with a capacity of 23.6 million tons – 80% of which are used just for potatoes!

Back to the policy, it stipulates the following key things:

• The foreign equity player will own up to 51% of the stake through the government approval route.
• The policy will be rolled out to only cities with a population of more than 1 million people and there are currently only 53 such cities in India – out of a total of 7935 cities.
• A minimum investment of a $100 million is required and half of that should be in backend infrastructure like cold chains, transportation etc.
• They have to source a minimum of 30% from Indian micro and small industry having capital investment of less than a million dollars.

India is not the first one to do this, and what it has done is not unique either. Many developing countries have much more liberal policies than India. These countries include China, Brazil, Mexico, Thailand, Russia, Singapore, Argentina and Indonesia among others.

In fact China started out in much the same way as India allowing 51% foreign equity and confining them to large cities. They only removed these restrictions in 2005 after having them in place for more than 10 years. They gave the domestic players enough to time to get up to speed with the western model and then allowed free competition.

It has turned out quite well for them as most of the top 10 retail companies in China are local and not foreign. These were the top 10 Chinese retailers in 2010.

1. Suning Appliance Group
2. Gome Electrical Appliances Co., Ltd.
3. Bailian Group Co., Ltd.
4. Dashang Group Co., Ltd.
5. Vanguard Co., Ltd.
6. RT-MART International Co., Ltd.
7. Carrefour S.A. (China)
8. Anhui Huishang Group Co., Ltd.
9. Wal-Mart Stores, Inc.  (China)
10. Chongqing General Trading (Group) Co., Ltd

This clearly shows that Chinese companies didn’t let much bigger foreign players compete them out of the market, and the Indian experience shows the same thing in areas like telecom where foreign and local players co-exist.

What’s even more fascinating is that the number of Chinese equivalent of kirana stores rose from 1.9 million to 2.5 million after the liberalization of its retail sector!

This is because of economic growth of course and also because big players don’t have a magic wand that they can use to ouster other smaller players as soon as they enter any market. Many of their strengths in their home countries are based on factors that are totally absent in other countries. Wal-Mart is able to drive costs down because of its incredible logistics and supply chains which are absent in India as they were absent in China.

Then there is the question of physical infrastructure like roads and ports that are not to the same level as they are in the US and they simply won’t have the kind of scale that they have in the US to negotiate and bargain with the suppliers and drive down the cost.

There are 27 countries in the European Union and out of those only 17 countries use the Euro. All these countries have to approve the new Euro bailout fund, and Slovakia which was the last country to ratify the measure rejected it today. They are going to vote on it again this week, and are expected to approve it with some changes.

Sometime last week I had Tweeted out how strange it was that countries that are poorer than Greece will pass a bailout that will help a richer country, and I casually started looking at the various countries that use the Euro and their per capita GDP. There’s quite a big range there with Luxembourg which is the richest country having a per capita GDP of $108,952 (highest in the world) and Estonia with a per capita GDP of only $ 14,405.

Chartsbin allows you to see this data on a nice interactive Europe map, and here is how that visualization looks like.

via chartsbin.com

Looking at this map brings several things to mind – the first of which being – where the heck is Malta?

I took a really long time to locate Malta, and that’s a tiny dot in the Mediterranean just south of Italy, you will have to hover your cursor a few times there before identifying it if you don’t already know where to look for it.

Switzerland makes a nice little colorless space surrounded by France, Germany and Italy, and its only a couple of months ago that I learned that Switzerland is not part of the European Union at all. You keep hearing about Swiss Francs so you think that they aren’t part of the Eurozone, but they aren’t part of EU either.

CNN ran a map of the debt level of several European countries some time ago, and that also showed quite a range, and a lot of countries with debt level of over 60%.

Here is the data used to create this chart in a tabular form.

This is another post from the Suggest a Topic page, and today we are going to look at why the Indian Rupee has fallen in recent times in terms of the US Dollar.

The Rupee has depreciated or fallen by about 10% in the last three months, and while it may seem like a lot – you’ll be surprised to know that it has actually done quite well when compared with currencies of other emerging countries.

The currency that’s done the worst in the last three months is the Brazilian Real which has fallen about 21% against the USD.

Here is a chart that shows the currencies of some of the main emerging economies and a few developed ones and how they moved in the last quarter.

3 Month Dollar Fall Against Various Currencies

The INR is the Indian Rupee, MXN is Mexican Peso, RUB is Russian Rouble, BRL is Brazilian Real, ZAR is South African Rand, JPY is the Japanese Yen, and EUR is the Euro.

As you can see – except for the Japanese Yen, the US Dollar has risen up against every other currency in this chart, and that too by some significant percentages.

Even the Canadian Dollar has had quite a fall in the last quarter dropping by as much as 9%.

This is what happened during the 2008 crisis as well, but the fall that time was a lot more ferocious than it has been until now, and in general that has been true for the stock market as well.

Here is how these currencies fared against the US Dollar during the 2008 crash.

Dollar Movement Sep 2008 - Dec 2008

The above chart is for four months so it’s not strictly comparable, but it does illustrate how badly currencies fall against the USD in times of crisis.

So, what’s going on in here? What can you make out of it, and what’s the reason for the fall of the Rupee?

As you can see from the two charts above – it’s not so much that the Rupee has fallen as it is that the US Dollar has appreciated.

Dollar is a safe haven asset and global investors with billions in assets move their money in the USD in the form of US Treasuries and bonds when times become rough, and the return of capital becomes more important than return on capital.

The US may have its problems but there is no one quite like the US to park your funds with. In the last recession – the Swiss Franc and Japanese Yen did quite well as investors moved their money to those assets but Japan has been intervening in the forex markets quite regularly, and when recently the Swiss Central Bank capped the Swiss Franc to Euro rate – the market got quite a shock and a lot of traders must have lost quite a bit of money then.

In conclusion – in times of crisis the USD tends to rise against all other currencies, especially emerging market currencies, and this is not so much the Indian Rupee falling but the USD rising against most currencies it trades against.