Wednesday, February 20, 2008

Dr. Rajiv Kumar speaks about the recession in the US economy

I have recently been emailed this article in the Hindustan Times written by Dr. Rajiv Kumar , currently a member of the NSAB.

The article succinctly states that the crisis in the US lending market is wider than expected and that the US economy's ability to support import-export deficits will decline sharply. As Indian exports to the US constitute a significant source of wealth, the decline in the US economy will affect India's exports.

Should a recession in the US slow down the global economy - then India's ability to sustain a high
growth rate will be adversely affected.

Dr. Kumar suggests infrastructure development to create demand inside India and opines that a rising domestic demand in India will compensate for falling consumption in the US.

Though Dr. Rajiv Kumar's writings have absolutely nothing to do with it - I wish to use this opportunity to provoke a discussion on our economic dependence on diesel.

Usually when you develop infrastructure you increase your dependence on diesel. All the machinery required to make and run infrastructure consumes more diesel. We already import an ungodly fraction of our oil and we only have one place in the country that can refine large enough quantities of it to secure us against an upstream market fluctuation.

I want to ask you all if you can come up with ways in which to develop infrastructure so that our national diesel usage efficiency is boosted?

I also welcome comments at this point about the wider implications of the fiscal meltdown in the US.

11 Comments:

At 8:52 PM, Anonymous kg said...

Hi M:

The situation in the US is quite strange. Besides the financial meltdown, the Obama phenomenon is . . . simply phenomenal. There's something momentous happening in the US with this Obama thing . . . coupling these two things together is something we need to keep an eye on.

They may have a greater influence than the financial aspect alone.

BTW: Continuing the conversation from the previous thread:

>>It looks right now like the BJP is wholeheartedly endorsing screwing the rural sector to promote the well being of the urban industrial class. Rural voters may find themselves disliking the BJP because of this.

There is an answer to this. See this article in Outlook: http://www.outlookindia.com/full.asp?fodname=20080225&fname=Delimitation+%28F%29&sid=1

The issue is that for the first time since 1972, the Lok Sabha constituency boundaries have been redrawn to reflect the changing demographics.

The boundaries were frozen in 1972 because the southern states didn't want to lose seats to the more populous northern ones.

This may be an explanantion for the BJP's focus on urban as opposed to rural.

I suggest folks here look at that article and google around it. We know that there are massive changes in desh these days. To many to make sense of really. But this is one which lends itself to a clear understanding, IMO.

kg.

 
At 6:27 AM, Blogger maverick said...

Hi Kg,

I am not faulting the BJP for targetting urban voters. They have done this in the past as urban India has generated a lot of the money required for campaigning but they have always avoided any appearance of bias.

This has been their key to a wider national appeal - the ability to communicate effectively across the rural urban divide.

Right now I am simply stunned by their inability to articulate an economic argument against the deal.

 
At 11:04 AM, Anonymous Anonymous said...

SS:

The diesel dynamics:
http://www.mapsofindia.com/maps/oilandgasmaps/refineries.htm
http://petroleum.nic.in/refi.htm

This clearly shows that refineries are located mostly on our shores and with petronet, we are able to supply POL to the major industrial centers in the heartland. The extension to major coal bearing in chota nagpur areas would be possible from Haldia and Paradip. And in chandrapur area via mumbia nagpur trunk. So logistically we can tide over some shortages, but difficult to estimate when our back will break. US however can hit us and it has demoed wrt Iran regarding refinery components etc. Jamnagar was built by Becthel and Carlyle is in bed with it. They know exactly how to screw us on diesel front, as you said. May be ambani will buy bectel if they make noises. However the easiest thing for him is to take US citizenship.

But that aside, people in Delhi are having fun with Biden et. al's ultimatums. I just would like to see the face of Perkovich for entertainment's sake. Jusht once.

The nuke thread is picking steam at DF.

Kg:

Is BJP relevant? They are bumbling fools who don't know how to govern. Now with collective IQ reduced by 90% due to Vajpayee's retirement, look at the fools who are looking expectedly at 2009. By that time, the current commodity bubble is going to burst and it will be repeat of the late 1990s, when the world economy tanked. Its fun. Whichever fool gets elected, will no longer have the current global liquidity slush to cushion their economic policies, and all this talk of breaking the trend like from 6% to 9% will stop. They would have to tighten the belt, which means hurting lots of electrate. The 2009 government will be one of most unpopular. They have to do the hard work and who knows by 2014 we will have again a decent economic picture. Man, people say it is foolish to time the markets. Here political parties will time when they are going to get elected.

DFer

 
At 11:40 AM, Blogger maverick said...

Hi DFer,

As the maps clearly tell you - even if diesel prices go up its okay because from the perspective of my kind of people in the BJP - the biggest refinery is in Modiji's yard.

On the face of it this is like the "haath mey bhi laddu aur jeb mey bhi laddu" strategies that ABV was famous for.

So I can understand that the BJP is comfortable with spending all the dollars buying crude oil at the end of the day every boat carrying crude will end up in Kandla and from the money generated BJP will probably win many elections. If DCH learn a lesson in the bargain - well God is Great!!

What I am worried about is the BJPs inability to articulate its opposition to the deal in economic terms. This is completely unlike the BJP I have known for decades now.

The only thing I have heard the BJP say about economics is that GQ projects started by ABV will be expedited, but from the perspective of a scum like me - this is not good enough. Those projects were started by ABV with a specific economic vision of India in mind. There is a lot more economic data available now and the political-economic realities have changed. Knowing the BJP I can be certain there is an internal consensus on these changes but why is there no public acknowledgement of it? Why is it that I only hear bullshit about soverignity?

I fear that my cunning hindu bania brothers in the BJP are being silenced by random idiots that the party is collecting at an unhealthy pace.

By contrast see the left front - see how efficiently my cunning hindu bania comrades have done things there! Why are my Hindu brothers lagging my bania comrades?

 
At 1:56 PM, Anonymous Anonymous said...

Hi folks, long post warning onlee.

REFINERIES:
We are moving towards greater efficiency and optimization at the refineries' side of the equation. For political (and financial) reasons most of the old petrochemical crackers used were the Catalytic type which yielded less volumes of diesel and lighter diesel fractions (as against Gasoline). Since the mid 90s we have been moving towards Hydrocrackers which yield more volumes of Diesel... I believe Jamnagar has this new tech. There were also the problem of inability to efficiently handle sour crude and heavy crude and the residue which runs upto 20%-25% wgt. RFCCs and new configurations are planned for the upcoming refineries to overcome these problems.
Anyway, I was surprised to find out that despite the low tech refining industry we had, we are a NET EXPORTER in light products such as gasoline, naphtha and diesel. This came at a heavy price and the Govt had to gerrymander the crude import-light export customs regime so as to keep everyone happy, but still.....

Looking at the Rupaiya side of things, we could have been a light products exporting hub and the Asian marker crude (instead of Singapore) and consequently offset some of our resource drain importing the crudes if we had dismantled the APM in 1991 and rationalised prices (of LPG and Kerosene at least). But then there's the "aam admi" factor and political fallout. Still, it's not too late to build ourselves a much larger and better refining capacity.


FUEL TRANSPORTATION:
This is the kicker, eh? Where pipelines don't go we need railways. And we all know the railways are pretty stretched already.... I know of coal plants that have been running at 60%-80% of (normal, not rated) capacity for long periods due to unavailability of coal. On that note, you need a lot of fuel oil to run Coal plants too... 0.75kg coal plus 3.6ml of oil per KWh generated! And there are HUGE Diesel Generator sets too.....
BTW, a lot of the Thermal plants are in Eastern MP and Chattisgarh... there are big plants in AP too. Big, juicy targets for our Naxal biraders, eh? Why suffer those gargantuan polluters with their huge ash lakes, especially when most of the power flows to substations that feed the urban population or industries?

Road Transport of fuel. Hmmmmm.... I feel this doesn't make much of an impact in the larger scheme of things. Anyway, unless better roads or projects such as the GQ and EW-NS links come up we will ultimately stretch this one too.



ENERGY USAGE EFFICIENCY:
M has already made some points in the previous post like restricting carbon fuels to transportation etc. I would like to point out some more (oft quoted) suggestions like Negawatt Power through Demand Response Tools and consumers themselves supplying ancillary services (like spinning reserves) and maybe Green Buildings/Smart Societies. But in all these cases; low voltage appliances and grids/solar power/wind power/biofuel/demand response/green building-smart society etc we are talking technologies that take decades to develop let alone popularize and MAJOR shift in consumer behavior. The latter is important given the extremely high levels of power theft in India.... where fr1ggin' communal riots break out when electricians go to godown premises to pull the plug.

IMO it will take a LONG time before we get our act together in the electricity sector, we may have better luck with carbon fuels with advent of efficient automobile engines, more (and better) refineries and hopefully new finds. There are attempts to extract trapped gases in coal mines and squeeze out gas from coal mine refuse... effectively scraping the bottom of the barrel. Reliance is actively pursuing this path... lets see.

And the nuke sector? We need that 3rd stage Nuke Plants (and Fusion Power, why not? ;) )... like, NOW! Are we going to crawl with that meager 180-200GW installed capacity into 2nd quarter of the century?

Not a pretty picture, methinks.


-Anand K

 
At 7:28 PM, Anonymous Anonymous said...

Hi M,
Look at DF'ers comments
""Is BJP relevant? They are bumbling fools who don't know how to govern. Now with collective IQ reduced by 90% due to Vajpayee's retirement, look at the fools who are looking expectedly at 2009.""

Some of us are of this opinion, what the author above has expressed. But isn't the fact that you are dead against expression of such opinions in your blogs. You would have fried me if that above was me!
My concern is not with LKA. He has vast experience inside & outside the parliament. Also he has won elections in the past! The problem with BJP is
1)Lack of a able finance minister in the mould of Shri MMS
2) NSA BM ! What a mess he has made! Some of us have very strong opinions vis-a-vis ex-NSA BM.
3)When BJP is opposing this deal, is it not acceptance of the fact that US's diplomacy/intelligence is one cut above the rest inclding India. That is why oppose the hug.
with best wishes,
mukunda

 
At 7:54 AM, Blogger maverick said...

Hello Mukunda,

I have seen people come here and abuse the PM and I have seen people come here and say terrible things about the left front.

I would be accused of being a BJP lifafa if I did not allow equal opportunity to people that want to abuse the BJP.

And Allah Kasam - as you know I am a completely apolitical person.

I do not think the BJP is opposing this deal for anything other than "political considerations". There appears to be no consideration of the economic consequences in the BJP and just like the "Hindu Right" was aggressively courted with the "Ram Mandir" issue and then left high and dry when the party came to power - the "Soverignity" wallahs are going to be left to drown in a "chullu bhar" of diesel.

I strongly endorse this kind of political strategy by the BJP. Politics is inherently exploitative - as gangsters in mumbai would say "chutiyon ko chutiya banana chahiye".

I am only concerned by the lack of economic commentary on the deal from the BJP. I think it is important for the BJP to voice economic arguments for its political positions if it is to remain in consideration for a serious national leadership role.

For the longest amount of time the BJP spoke strongly against constraining the growth of India's domestic industries. This spirited opposition to the license quota raj marked them as a party with national level economic vision.

Today I am unable to see any economic vision from the BJP on pressing national issues - the rural urban economic divide and the gradual collapse of the rural agroeconomy.

I grow concerned about this apparent lack of economic vision in the BJP.

It is one thing for the urban "soverignity" types to be obsessed with the BJP and to secure its vote bank, BJP must do whatever it takes. But it is unwise for the BJP to lose sight of national economic priorities in an obsession with electoral strategies.

During the "ram mandir" business, everyone inside the government from the sipahi with the .303 at the gates to the complex to the chief negotiator expressed considerable reservations with what they percieved to be an excessively provocative strategy that the BJP was using. While none of them thought it was their place to tell the BJP what to do politically, but it is rumoured that the servants of the government documented events of 1992 in considerable detail and such documentation shows matters in a very different light.

There are people who understand economic inside the BJP. It seems their voices are being drowned out by people trying win some kind of succession struggle inside the BJP. I do not wish to comment on an internal affair of the party but it is important for everyone to understand that without a national vision to deal with important economic issues - the BJP will simply stand for Bharatiya Joke Party.

It is impossible for a cunning hindu bania like me to forget that despite intensely courting urban votaries the BJP was not able to swing the 2004 election to its favour. It is possible that unlike rural voters, urban voters use more complicated choice models that reflect their more complicated needs. There has not been a discussion of what exactly happened in 2004.

 
At 4:03 PM, Anonymous Faizi said...

Maverick,
It may even be that due to their previous electoral defeat, they are resorting to shortsighted brinkmanship to make what they think maybe populist arguments. It is very disappointing to see them torpedo things that they initiated and begun when in power, and does not instil any confidence in their ability to maintain a consistent and believable policy orientation. One expects the left parties to be opposed to any sort of economic progress given their history and their general corruption, but one does not expect such abandonment of economic consideration from the BJP which is supposed to be a party for business people.

Personally, I think the honorable Prime Minister has performed above expectations,(which at least for me were admittedly quite low)and has instituted policy shifts which are going to have an effect for a while, well beyond his term in office. However, both the "loyal" and open opposition have been a severe disappointment.

 
At 7:03 AM, Blogger maverick said...

Hi Faizi,

It could be that the terrible situation with the former prime minister is creating a shall we say an "awkward pause" in the "normal" flow of the BJPs thinking.

One hopes this phase will pass and the BJP will articulate a coherent economic argument against the deal.

Right now all the allegations that are being made by BJP wallahs against the PM - i.e all the "American Agent", "constable",
"paid employee" etc... talk can be used to demean their PM if and when he gets into power.

The BJPs current platform appears to be that they are "in favour" of the deal but the "Congress is not making the deal properly" i.e. it is making too many "compromises" which can "harm the strategic program".

This is an absurdly thin political position. It has absolutely no foundation in facts and it can easily be flipped on the BJP itself. It seems exceedingly unwise to me personally to have such a political position, but if the BJP chooses to do so I think it is their choice.

What is really upsetting me is the fact that the BJP is unable to publicly articulate an economic reason for not wanting this deal. This is making the BJP seem like a mob of trishul weilding slogan chanters - a far cry from the bania party that I used to know. I deeply fear this more than a simple miscalculation.

The BJP that I knew was comprised of people who kept the nation silently in their hearts and their eye extremely close to the finances. I know they are still in there - so why have they stepped aside to let these fools out in front.

Perhaps I am at fault for expecting that the nuanced and erudite leadership of the BJP that I saw over the last two decades will endure under pressures from the DCH in the ranks.

 
At 7:22 AM, Blogger maverick said...

Faizi,

Have you noticed that despite all the "good" balance sheets of "major corporations" - overall economic growth is slowing rapidly in the US. After a stall this bad, they are going to go down for at least a few months.

I am expecting the worst at this point. There is no quick recovery from a stall like this.

It is going to take more than a few "good" balance sheets to deal with this.

This is simply too big.

I await kg's comments on this since I think he has a more holistic perspective, but I honestly suspect that the "what me worry" culture that Alokji refers to in his posts - is going to take big hit.

I am also now watching out for public signals from the American Amir-al-Umara to the Wazir-al-Harb that the costs of continued deployment in Iraq are outweighing percieved benifits.

 
At 9:30 AM, Blogger maverick said...

Hi,

I very strongly suspect that a Potnavis and the Khaas of the Wazir ul Harb are in a sitdown to discuss options.

Apparently the Amir al Umara are reading a panchang that was freshly drawn up and as we speak all manner of jyotshis are being consulted. Fears have reached new heights after the manner in which the visit of the leader of the clan of Kuroush has turned out. Apparently Venus is strong in the tenth place in the panchang of the heir of Daroush while the Amir al Umara are plagued by a Saturn that refuses to budge.

Once the Amir al Umara, the Potnavis, and the Wazir ul Harb speak in unison, the Khan of Khans will speak publicly about the matter - until then there will be silence among the waqia navis.

I strongly suspect a pronouncement is about two weeks away.

 

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