Tags: India | Dark | economy | power

Has India Turned Dark for Good?

Wednesday, 01 Aug 2012 09:35 AM

By Ashish Advani

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The global stock markets have been on hold for the past few days awaiting news from the Federal Reserve, the Bank of England and the European Central Bank, which are all holding meetings this week.

Due to the desperate reliance of the trader begging the central bank to pump more liquidity in the market, real trading remains muted waiting for the results of those meetings. So, nothing much is happening in the world these days.

Today, I want to focus our attention on India.

India grabbed the headlines globally in the past couple of days for the wrong reasons. India suffered major power outages for two consecutive days now. On Monday, the northern power grid failed and left about 370 million people in the dark. To put it in perspective, 370 million is the more than the combined population of the United States and Canada.

Just as the local politicians and bureaucrats started blaming each other for the mess, on Tuesday, the northern grid failed again and this time it tripped the eastern grid, as well. Now there were 650 million people without power in the sweltering heat.

Not only is it embarrassing for the government, it has also led to tremendous losses of production and revenue in the country. India has ambitions of being included in the advanced economies of the world, yet they cannot even supply power to its citizens and businesses on a sustained basis.

The salt rubbed in the wound is the fact that Indians and Indian businesses are used to rolling power blackouts, and while this power outage was a very large one and two days in a row, it was not unusual for Indians. It is unfortunate that this sort of malfunction is not considered highly unusual.

The ruling congress party is appearing more and more out of touch with reality and seemingly unable to manage its affairs and the affairs of the country well. On Tuesday, when these massive outages hit such a large swath of people, the power minister of India was promoted to the home minister in charge of safety and security of the nation.

As if he did an exceptional job with his ability to keep power on in the country, he is now going to bumble around and mess up home security. People who hate India and want to hurt it must be rubbing their hands in glee.

In the same cabinet reshuffle, the home minister was appointed as the finance minister. While he has held this portfolio before and done a reasonably good job in the past, he has been accused of participating in some of the financial scandals that have dogged India recently. He may not have been proven guilty yet, but the image of a possibly tainted person as the finance minister is not a good image to have. And his accusers have pointed out financial misdeeds when he was finance minister last time.

Finally, the power shortage is also being blamed on the over usage by farmers, who are facing an acute drought.

The monsoon season has been weak and is about 40 percent deficient year to date. Agriculture is a large part of the Indian economy and contributes between 2.5 percent to 3.0 percent of gross domestic product growth in India. If the monsoon fails this year, there might be a dramatic decline in India’s GDP growth, and that will hammer the stock markets, as well as crush the already struggling Indian rupee.

It might be time to short India soon. I will be watching the events closely and peering into the darkening future of India, watching for telltale signs to short India. More to come on this in the next few weeks.

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