GDP Takeaways

It may be early days to make a full year projection…

The GDP for the quarter ended September 2017 came in slightly better at 6.3%. This surely looks flattering when compared to the 5.7% level touched in the June quarter. But GVA (excluding the impact of taxes and subsidies) was just 6.1%. The overall number may not really present the full picture. Look at the sub-plots…

 

Some hot, some cold…

 

The GDP growth at 6.3% was largely driven by the joint impact of the manufacturing and the services sector. Both grew closer to the 7% mark. However, farm output left a lot to be desired. Agricultural growth at 1.7% is indicative that the government’s top-down approach is really not working. Firstly, the huge spending that the government has done in rural roads and rural infrastructure is hardly enhancing rural incomes and rural output. That means the government’s dream of doubling farm incomes by 2022 is likely to remain just that. Secondly, the lag effect of demonetization appears to be continuing for the agricultural sector. While other consumer-driven sectors appear to have benefited from the remonetization exercise, the agriculture sector is hardly showing signs of growing. Lastly, the prices of farm products in the Mandis falling below the MSP have done little to improve farm output. Farmers are not seeing any added benefit of increasing output and a lot will depend on next monsoons.

Impact of GST missing…

 

The GDP number for the quarter ended September does not capture the impact of GST. The data collection of the GST impact would have been at a very preliminary stage and the real impact will be more visible in the December quarter. If the core sector and IIP numbers are to be believed, the negative impact of GST is quite pronounced. That means the impact on manufacturing may actually be severe in the coming quarters. Let us not forget the SME sector. If early statistics are any indication then the real hit of the GST appears to be on the SME sector. That impact will also show up in the manufacturing and services output in the December quarter.

 

Will India lag China?

 

The big story last year was that India would get the better of China in terms of GDP growth and sustain the advantage. The truth may not be too encouraging. The government could struggle to even reach 6.4% GDP growth for the full year which means India’s GDP growth is likely to lag that of China. That can be partially attributed to demonetization and partly to GST. The moral of the story is that China is seeing a sharp revival and may even widen the output gap with India in the coming years. At a time when EU, China and Japan are recovering, India cannot afford to lag in GDP growth!

Net Neutrality

Are we missing the real debate on the internet?

The Telecom Regulatory Authority of India (TRAI) passed a significant order upholding the sanctity of net neutrality. That has been one of the keenly debated topics the world over and the TRAI has made its stand clear. The internet will remain neutral and any discrimination by the service provider based on content is not permitted…

 

Why net neutrality matters?

 

The debate over net neutrality first arose when Airtel launched its Airtel Zero followed by Facebook Free Basics launched jointly with RCOM. Both were essentially meant to expand the internet base but also took upon itself the job of regulating the content that people will have access to. That is where the problem arose. The internet, by default, is a democratic medium and cannot be monopolized by a few content and service providers. That is like you have access to the net at a very cheap rate but then your service provider literally decides what you will be able to access on the internet. This opens up a huge opportunity for the service providers where they will be able to better monetize their properties by virtually deciding who accesses what and at what time. Both the Airtel Zero plan and the Facebook Free Basics had to be dropped precisely for this reason. With the TRAI ruling, any such discrimination based on content is out. Also the penalties are stringent enough to literally dissuade any defaulters.

Reading the fine print…

 

The telecom industry has been broadly negative on this ruling and that is hardly surprising. The telecom sector, which is severely stressed, was looking to monopolize net access to create new revenue streams and this order rules out such actions. However, there are loopholes if you read the fine print. The net neutrality order only pertains to discrimination based on access to content. So if the entire plan can be packaged in such a way as to appear as a discrimination on another parameter, it can still sail through. There will be a great element of discretion and one can even look forward to a spate of legal rulings and counter-rulings in this light!

 

What about content plans?

 

India still does not have the breadth and sophistication that it can really offer any meaningful discrimination based on content. For now the focus is more on offering as much of data free as possible just to stay in business. The TRAI has already ruled that any across-the-board reduction in prices for a short period of time will not attract net neutrality considerations. But what could happen is that the convergence of data, content and access is likely to take longer than originally anticipated. Content can no longer be used to discriminate customers and the focus will now be more on price than user experience. That is a step backward!

Bitcoin Mania

Is there a method behind the Bitcoin madness?

Which is the asset that has returned 55% in the last 1 month, 111% in the last 3 months, 335% in the last 6 months and 1,260% in the last 1 year? Hold your breath, over the last 5 years the return on this asset is 79,500%. The answer to the question is Bitcoin…

 

A bubble is not a bubble…

 

The rapid appreciation in the price of Bitcoin has obviously drawn parallels with previous such bubbles like the South Sea Bubble and the Tulip Mania. Both these past bubbles were based on an asset that did not have any intrinsic value but continued to rise in price. Bubbles are dangerous because you are not sure when it will burst. Historically, all bubbles have left a trail of destruction when they unraveled. The kind of returns given by Bitcoin is absolutely stupendous. What is ironic is that just a year ago, most experts were writing off Bitcoin as a crypto currency experiment gone wrong. There are 3 things to remember in the bubble story. Unlike the South Sea Bubble and the Tulip Mania, the Bitcoin has been moving up the midst of acute doubt and cynicism. That is one of reasons the rally has continued. Secondly, Bitcoin does offer the benefits of a non-fiat currency like gold without the related hassles of gold. Lastly, Bitcoin is still a peripheral currency and global central banking regulation is yet to come to terms with Bitcoins. Till it is regulated, it could continue to stay buoyant!

Bitcoin as currency…

 

Over that last 10 years since the sub-prime crisis unraveled in the US and the rest of the world, there has been aggressive infusion of liquidity by central banks. That was possible because there was no restriction on note printing by central banks. Since regular currencies are fiat currencies, it just requires a fiat to print more currency. That is the problem. Currencies get substantially debased but these currencies do not depreciate as they have an exorbitant privilege. Since currencies like Dollar and Euro are trading benchmarks, they will be in demand even if they get debased. That is not possible in Bitcoins as the supply can be limited by the network. Thus it plays the same role that gold played in the old days!

 

Actually a vote for Blockchain…

 

What many investors are seeing as a vote for Bitcoin could actually be a vote for the future of Blockchain technology. The Bitcoin is based on Blockchain technology, which is a decentralized and shared database approach. Not just for currencies, Blockchain has huge applications in digital identity, data protection, data sharing, shared output, de-risking global operations etc. Blockchain is likely to revolutionalize business in the next 5-10 years and Bitcoin may just be seen as an eloquent representation of the Blockchain potential. Now sample that!