Is Recession Round the corner?? - Part 2 (Slowdown)

This is in reference to my earlier article on recession. Now I am bit convinced that India is on edge of a slowdown at least for the moment

http://luckylehana.blogspot.com/2011/04/is-recession-round-corner.html

Consider these
1. Real Estate Slump – After a booming 2010, there is considerable overcapacity in Real Estate, which have been responsible for revival of downstream industries such as Steel and cement.

Cement have already shown that the overcapacity will push the margins downwards
http://www.moneycontrol.com/news/business/india-cement-sector-to-see-overcapacity-aheadfitch_437483.html

A very good note
http://www.thinkindia.net.in/2010/08/an-unreal-market-.html

I have myself taken note of the situation – The labor costs are cutting the margins of the small business owners

2. Governance Issues – I think (my personal opinion) Congress is responsible for many of the woes India has currently. I have lost the count of the scams and Congress leaders are still hiding around (including Manmohan, Sonia and PC). They are shedding their responsibilities by playing aloof.

Anyway, I think there are more 2G, CWG, Adarsh in the bag.

3. Outflow of Funds – India is the only BRIC country to have net outflow by FII in 2010-11. This indicates that the FII does not believe in the Indian story or they are scared away by the 2G, CWG etc

4. Inflation – I don’t buy the contention the inflation in India is only due to poor Supply Chains. Having seen the loosing of purse by the Government in 2008-09 for the cheap lending and popular schemes, I am convinced that wrong fiscal and monetary policies are responsible for this monster

I consider Inflation as the worst factor to derail the Indian growth story.
Inflation is nothing but redistribution of wealth. Inflation makes worth of the currency you hold to tumber but increases the worth of the land and the house you are building to increase. A real estate developer (assuming input prices takes time to increase) gains in real terms through inflation but the workers and the engineers working for him loses in real terms through inflation. So, inflation is equivalent to shifting of economic benefits from a lagging earner to a leading earner.

Unfortunately, increase in wages is a lagging indicator in economic recovery. Hence, wage earners will be the one, who will suffer the most in an inflation cycle.