'Indo-Pak trade links for peace'
News that India and Pakistan may sign SAFTA in January is heartening, says Dr Bhaskar Dasgupta.india Updated: Jan 13, 2004 16:05 IST
The India Babble
The Sensex moved smartly upwards through the week and was trading at one point at 5250 on Friday, but collapsed after profit taking and worries about additional margin on derivative trades on Friday itself to close at 5131, hardly 30 points above the week open. There was plenty of good news around for the week, the Indo-Pakistan peace talks and confidence building measures and increased inflows by the Foreign Financial Institutions.
Global banking giant HSBC took a stake in the UTI bank and this created a flurry in the private banking sector in anticipation that other private banks will also see similar foreign interest. Lord only knows that the private banking sector will benefit from a strong dose of foreign capital and know-how. The foreign exchange reserves show no sign of slowing down with them touching
$96 billion for the week ending November 28. The inflow for that period was even adjusted for the government pre-paying $1.4 billion foreign loans.
The victory of the nationalist and reformist BJP in the 4 state elections also gave a fillip to the markets. The BJP is considered to be the party for economic reforms and the view that this will provide continuity to privatisation, liberalisation and economic reforms gave the markets a good feeling. To give an example, the incoming Chief Minister of Rajasthan, Vasundhara Raje, said that development of infrastructure would be one of her priorities. Quite a change, eh? The finance minister, Jaswant Singh, alluded to this fact and even promised that the next budget will not be driven by electoral machinations.
While I am a bit cynical about that promise, this government has promised and has delivered considerably more than any other party. We will just have to wait and see. He mentioned paying more attention to the farm sector, labour reforms, infrastructure development and the continued disinvestment programme. All very worthy causes and Mr. Singh, if you can keep on hammering away at the thicket of regulations and subsidies, the country will thank you tremendously.
News that the South Asian Free Trade Agreement may be signed in January 4 is a good step as well. Pakistan and India have further agreed to include 500 tariff lines within the ambit of the South Asian Preferential Trade Agreement basket of the tariff concessions which range from 10 to 25 per cent. What we do not realise is that trade is one of the biggest bringers of peace and prosperity, especially in such a tense environment like South Asia. India's markets are big enough to handle duty free trade, at least within South Asia if not the world. These import duties are slowly strangulating our economy, even though they are coming down. In certain sectors, for a certain period of time, they make sense, but that is what we have been hearing for the past 50 years. The solution is not to keep the tariffs up but to help the sectors with better financing, infrastructure and removing the sweaty grasping hands of the babu's.
The privatisation of Mumbai and Delhi airports seems to have run into the sand, with the government now asking for new bids as the financial advisor was not acceptable on technical grounds. Another illustrious episode in our charming disinvestment plans. Why didn't the mandarins think of this before?
As I mentioned before, it is a rather sad state of affairs that Hong Kong and Singapore can advertise in the Economist and show off their airports as the gateway to their countries and we can't. Their airports are gleaming, monuments to their engineering and societies. Anybody who has walked through these airports knows that they are entering into a society which knows how
to put their best foot forward. We? We have "paan" streaks, fat corrupt customs officers, broken chairs and dull dingy corridors illuminated with sad flickering fluorescent lights with surly staff. Yes, very realistic, but does it have to be like this? Come on, guys, get a move on.
The World Babble
The Dow finished the week at 9,862, up 80 points over the week, while NASDAQ dropped 23 points to close at 1937. Intel's projections which slightly changed upwards did not make much of a difference to NASDAQ. The US job reports was better than expected, the employment rate dipped to 5.9 per cent while it was expected to be 6 per cent, but the weaker than expected non-farm payroll numbers spread a damper on the entire market. The expected number was 150,000 while the actual was a miserly 57,000. This number was not good enough to provide support to the markets and so they swung downwards. This
had an impact on the dollar. The dollar is still plummeting down with the Euro hitting an all time high's against it, trading at $1.2170 at one point but falling back to close at $1.2165. Inspite of good results on the economic front on consumers, factory output and business spending, the dollar is diving like a dingo down its hole. The yawning trade deficit is hurting overseas investors and the overseas investors are drying up with the recent inflows hardly being 1/10th of what they were before, just a year back.
The oil producers are playing a rather strange game ostensibly. The OPEC ministers got together to discuss ways to cut output to boost prices. Ummm, why? The oil price is trading in and around $30 per barrel and we all know that the accepted range is $23-28. In other words, if the oil price drops below $23, then the OPEC ministers will cut output and if the price is more than $28, then the output will be increased. So how come the ministers are talking about CUTTING output? Well, it seems like the ministers are blaming the dollar drop. As the dollar is dropping, the OPEC countries are unable to purchase as much as they were able to as the purchasing power of the dollar is reduced, all this means that their favourite horses, flats and wheat is more expensive now. So the tired, poor, huddled masses of the OPEC countries need to get some more dollars, and what better way to do that than to jack up the price.
US President George Bush was having none of this and waggled a finger at the collective and they dutifully cringed and said meekly, we will think again about this. HA!
The European Markets were virtually unchanged over the week, with the FT Eurotop 300 closing at 938. The European markets are still taking their major direction from how the American markets are performing and for example, the US non-farm payroll figures had an impact in Europe. Intel's forecast cast a pall of gloom over the chip makers. London wasn't that hot either, with the FT 100 closing at 4367, almost flat over the week. US productivity is turning into this miracle of this age and it may well be the explanatory factor behind the fact that payrolls are not increasing fast enough. Non-farm productivity rose at 9.4 per cent in the 3rd quarter with the unit labour costs falling at the fastest rate in 20 years. This will allow firms to keep prices low, increase profitability AND wages at the same time. Are you listening, Europe?
The big story was about the US President scrapping the US steel tariffs this week, with the President announcing that the 2 year old punitive tariffs on imported steel will go. These were originally imposed to fight a flood of cheap imports into the US markets. It was a blatantly protectionist measure and frankly, it didn't help much, in fact, it mucked up most of the other sectors. The steel users were hurting badly, the reputation of the US president as a defender of free trade was shattered and most of the trading partners were really upset. In a small but significant way, this decision to impose tariffs did cause the WTO talks to fail. Still, the European complaint was upheld at the WTO and Europe was planning to impose retaliatory duties on other American exports in politically sensitive states.
It was poetic justice and if the US President had not removed the steel duties, it would have hurt him politically in the next election. It's ironic that the rise in steel prices is mostly due to the demand coming from China, the same country that USA is complaining about for its foreign exchange policy. Ah! What a tangled web we weave when we try to mix politics
The final point. The Financial Times reported on how the big clearing banks in UK are getting quite upset with the money laundering rules. Royal Bank of Scotland chief executive, Fred Goodwin, said that the rules were so draconian that banks are now feeling they should report almost every transaction. Look at the results, the National Criminal Investigation Service is inundated with cases, with the latest figures showing that the number of cases under investigation is now 63,000. Given that the number of qualified forensic accountants within the service is in the low 100's, it will take up to 630 years to just look at the current cases, forget about the new ones which are coming up. This is not the way to handle financial crime, sirs, one has to adopt technology, streamline procedures and walk a fine line between regulation and gridlock. It seems like we have achieved gridlock now!
(Dr Bhaskar Dasgupta writes a weekly Monday round-up on markets and indicators. He holds a Doctorate in Finance and Artificial Intelligence from Manchester Business School and works in London in diverse capacities in the banking sector.)