October 02, 2013

The perfect storm

To those who refused to see the writing on the wall, the perfect storm that has hit the Indian economy seems to have come from nowhere. To others it was inevitable- high inflation, slowing GDP growth, an out of control fiscal deficit, expensive populist government schemes and an almost complete paralysis of governance were all thunderous clouds clearly seen for long on the horizon. The rising US dollar today is a symptom of the disease that is probably going to get worse before it gets any better.

The maritime sector in India will continue to struggle for some time more, I think. Shipowners are in the doldrums already; the biggest, SCI, has been losing increasing amounts of taxpayer money, with numbers plummeting over the last four quarters. The company has reportedly generated a negative return of 44.45% on a YTD basis and may lose its ‘Navratna’ status, if media reports are to be believed. The offshore sector has been doing better than mainstream shipping in recent times; it may well continue to do so, but if it does, it will be the exception, not the rule.

Trade will slow down further, at least until the general elections are over. The numbers are worrisome already: the Indian Ports Association says that total cargo traffic at major ports in India rose by just 4.8% YOY and that too mainly because of a 6.7% rise in imports. Transhipment cargo is falling, and export of iron ore has plummeted, thanks to the ban on mining- it is down a whopping 70%. Increased export taxes are a smaller reason for this. To add to the misery of the mining companies and the ports that were set up to service them, ore production has inevitably fallen too.

Obviously coal and oil will continue to be imported in an energy starved country, but any further skewing of the import-export imbalance will have even greater repercussions on the Indian economy and its currency- and on inflation. I see the government doing more knee jerk or populist stuff in an election year to keep this under control. There are already stories going around about measures to ‘curb imports’; oil marketing companies with their mounting losses are screaming for a hefty rise in diesel and petroleum products. Ministers are busy telling everyone that there is no need to panic, and the blinkered are happy that the new central bank governor’s utterances after his appointment have seen stock markets shooting up in the last week or so. But one man, like one swallow, cannot make a summer.

I tend to agree- with one gigantic caveat- with those optimists who think that clarity will emerge after the general elections, when we hopefully get a functioning government that takes the decisions that need to be taken.

My caveat is this: provided the big C- corruption- is miraculously minimised.

Corruption has eaten away everything in India; the cancer ensures that the majority of Indians remain poor- and worse, without hope. It ensures that all our best laid plans come to naught. It has compromised the majority of Indians, including most of those of us who scream obscenely at it but who are secretly envious that somebody else has the opportunity to put his hand in the till. Many of us would do the exact same thing if we were in his place.

And so I cannot, for the life of me, see this country on a sustained economic growth path unless corruption is massively reduced from Indian public life. It is a herculean ask, sure, but, if this is not done, then we are doomed. We can have a few years of lopsided growth once in a while, but the chickens will come home to roost soon enough, as they have done today.

Unless corruption reduces, my only call on India- warts, ports, shipping and all- would be a sell.


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