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Date
2024-09-29
Asia Giant's GDP Surpasses UK Amid $2T Capital Flight and Falling Forex Reserves
01 Economic Miracle
Over the years, India's GDP figures have been enviable, with astonishing growth rates that have far surpassed many European and American countries. On the other hand, the total economic output has also been steadily increasing, with GDP surpassing that of the United Kingdom to rank 5th globally. Currently, India's total population ranks second in the world after China and is now enjoying a demographic dividend period. The combination of population and the development of manufacturing has led both the Indian government and its citizens to be very optimistic about the future, with expectations to further surpass Germany and Japan. Goldman Sachs boldly predicts that by the 2070s of this century, India will become the second-largest economy in terms of GDP.
02 American Harvest
Today, the Indian economic market is no longer optimistic, primarily due to the impact of the United States' interest rate hikes and balance sheet reduction. Since the continuous interest rate hikes by the United States began in March of last year, there have been a total of 425 basis points of hikes in nearly a year, which is actually quite terrifying. While focusing on the continuous interest rate hikes by the United States, many people have overlooked the balance sheet reduction. In June last year, the United States quietly began to reduce its balance sheet, and by November of the same year, the United States completed a balance sheet reduction of 92.294 billion, approaching the monthly limit of 95 billion.India's development in the past has been heavily reliant on the excessive issuance of US dollars, but now the United States is continuously tightening the spigot, leading to a noticeable capital flight from India. It is reported that by the end of November last year, the Indian stock market had already experienced a massive sell-off by foreign investors, with the amount sold exceeding two trillion rupees. In a short period, a large amount of foreign capital has flowed out of India's financial market. This is the second time India has experienced a large-scale withdrawal of funds since the 2008 subprime crisis, but this time it is far more terrifying than the crisis India faced in 2008. The United States' harvesting is still ongoing.
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03, Foreign Exchange Reserves and Foreign Debt
India's foreign exchange reserves have also plummeted. At the end of 2021, India's foreign exchange reserves reached $569.89 billion, but for most of this year, the reserves have been on a downward trend, with only a slight rebound recently. As of mid-November, the foreign exchange reserves were only $547.25 billion, a reduction of $20 billion compared to the end of last year. India has been extremely dependent on the US currency for development in the past, and the more dependent it is on something, the more it is constrained by it. Now, foreign capital is flowing out at a sprinter's pace, and the depreciation of the Indian rupee is increasing, further increasing the consumption of foreign exchange reserves. In recent years, affected by the pandemic, the Russia-Ukraine war, and the continuous interest rate hikes by the Federal Reserve, the debt India bears is almost suffocating, and these crises will severely impact the Indian economy.
04, Hidden Worries for "Make in India"
In recent years, the development of India's manufacturing industry seems to be going smoothly, but India's own actions are very likely to plant hidden worries for the sustainable development of the manufacturing industry.Recently, the Society of Indian Automobile Manufacturers (SIAM) released a set of data showing that in 2022, the sales of new vehicles in India reached 4.72 million units, marking a significant increase of over 25% compared to 2021. The annual sales have successfully surpassed Japan, ranking third globally, just behind China and the United States.
On one hand, Japan's sales are increasing, but on the other hand, coincidentally, Japan's sales shrank in 2021, decreasing by 5.6% compared to the previous year, allowing India to smoothly overtake.
However, India often harvests foreign enterprises investing in the country for various reasons, gradually forming an extremely bad reputation.
In recent years, perhaps India believes that its mobile phone manufacturing has become relatively mature, so it has started to restrict Chinese brands for various reasons, even imposing heavy fines.
Recently, India has also turned its blade towards South Korean Samsung. India's tax department believes that Samsung's Indian subsidiary has evaded taxes of 17.28 billion rupees, and therefore, this company needs to be heavily penalized.
Similar reasons have been applied to Chinese mobile phone brands in the past.
Does India really have the confidence to deal with the continuous interest rate hikes and balance sheet reduction actions of the US dollar?