Tuesday, November 24, 2009

Outsized capital inflows?

A lot of people are getting anxious about a scenario with outsized capital inflows hitting India. The historical time-series is illuminating:



Quarter
Billion USD
Percent to GDP
12/2004
12.6
7.4
03/2005
8.2
4.6
06/2005
5.8
3.4
09/2005
10.5
6.2
12/2005
0.8
0.4
03/2006
8.4
4.2
06/2006
10.7
5.7
09/2006
7.9
4.2
12/2006
10.8
4.8
03/2007
15.8
6.7
06/2007
17.8
7.4
09/2007
33.2
13.6
12/2007
31.0
10.7
03/2008
26.0
8.7
06/2008
11.1
4.0
09/2008
7.6
2.8
12/2008
-4.3
-1.6
03/2009
-5.3
-2.0
06/2009
6.7
2.7



In the latest quarterly data (Apr/May/June 2009), net capital inflows worked out to $6.7 billion or 2.7% of GDP. These are not big numbers.

What are big numbers? 10% of GDP is a big number, which was breached for six months in this history. At the time, this corresponded to above $30 billion a quarter of net capital inflow. In future quarters, the physical magnitude will depend on how big GDP is at the time. My rough sense of 10% of GDP in the Oct-Nov-Dec 2009 quarter is that it will be $30 billion. To get to these numbers, we'd need to get back to an environment like Jul-Dec 2007 in terms of optimism about emerging markets in general and India in particular. So far, this doesn't seem to be what is in place.
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8 comments:

  1. RoshanWednesday, 25 November 2009 at 11:00:00 GMT+5:30

    Dear Ajay
    Good point. I guess, maybe, that could also serve as a determiner of overstretched rallies!

    Regards
    Roshan

    ReplyDelete
  2. AnonymousWednesday, 25 November 2009 at 11:02:00 GMT+5:30

    man, you are confusing. Am I the only one wondering 10% of GDP is not 30 billion USD?

    ReplyDelete
  3. AnonymousWednesday, 25 November 2009 at 11:04:00 GMT+5:30

    It does not make sense to annualize percentage numbers when you have the true numbers for all quarters in the series.

    ReplyDelete
  4. Ajay ShahWednesday, 25 November 2009 at 13:23:00 GMT+5:30

    Here's how to think about it.

    India's GDP is roughly a trillion dollars a year.

    This is roughly $250 billion a quarter.

    So 10% of GDP of a quarter is roughly $25 billion.

    This is all "roughly". The more careful calculations, discussed in the blog post, yield numbers like $30 billion.

    GDP is a flow, not a stock, so when you think a quarter at a time, you have to divide by 4.

    ReplyDelete
  5. AnonymousSaturday, 28 November 2009 at 21:33:00 GMT+5:30

    I think we should look at the optimism in relative terms, and India does look comparatively more promising than most of the developed and developing countries. And that probably is the reason for inflows and thats why there are concerns about these inflows increasing in the near future.

    ReplyDelete
  6. AnonymousFriday, 4 December 2009 at 17:51:00 GMT+5:30

    Dear Ajay

    Thank you for an interesting article. I know nothing about economics or finance and have to frequently google financial terminology to understand it in plain english. Doing that on your article lead me to this one.

    http://www.ilo.org/wcmsp5/groups/public/---ed_emp/---emp_elm/documents/publication/wcms_114304.pdf

    As usual FUD-speculation and ground reality are always different.

    warm regards
    George

    ReplyDelete
  7. investment solutionsThursday, 6 May 2010 at 15:48:00 GMT+5:30

    I think on the basis of past quarter performance we can in India.

    ReplyDelete
  8. online stock tradingThursday, 6 May 2010 at 15:49:00 GMT+5:30

    i think you have done the good work regarding the investment in India.

    ReplyDelete

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