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Using a new methodology India's statistics agency revises growth for 2013 to 5.1%, for 2014 fiscal year to 6.9%. Growth for 2015 is forecast at 7.4%. For the 3 months Oct-Dec. 2014 the growth in GDP was at 7.5%. Changes in methodology include computing it at market price, not at factor cost. This adds up consumer and firm spending instead of producer costs.

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The Indian economy is expected to grow by 8.5% this year compared to 6.5% in 2009. But a major problem looms in the high inflation facing India. The poor monsoon in 2009 led to higher prices for foodgrains, lentils, and sugar. And the government's cut in the fuel subsidies will lead to more efficient use of energy, but will lead to one additional percentage point in wholesale price inflation according to the Reserve Bank of India, India's central bank. The whoesale price index in India went up by 10.5% in June from the prior year, and this after a 10.1% increase in May. Bloomberg's tracking of consumer prices in the Asia-Pacific region shows India at the top of 17 countries in inflation, and consumer prices paid by industrial and farm workers in India are shown to be increasing at 14% annually. The government is coming under criticism for not releasing more grains from its stocks to soften the impact of last year's monsoon. The Manmohan Singh government finds inflation at above 10% unacceptable and is looking for further action from the central bank. Reserve Bank of India governor Subbarao has raised rates 3 times since March 2010 to 5.5%, and a further increase is expected at its next meeting on July 27. A better harvest in September, from a better monsoon season, could help lower food prices. If this does not happen, more tightening by the central bank could hurt economic growth, putting the government in a quandary....

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The huge risks the misallocated stimulus capital from real estate speculation poses for the Chinese economy. China's government rapidly expanded lending after the 2008 global financial crisis. One estimate is that about 10 trillion yuan in new loans were made in 2009, over twice the amount of 2008, expanding the loan portfolio and money supply by one third. A major problem is vacant homes as Chinese put their money in second homes as an investment. Chinese are not investing in the stock market because of the volatility, and with the low yields in bonds and banks money is going into real estate. According to a Morgan Stanley economist, about 25-30% of private commercial and housing space is vacant. This happens just as middle class Chinese are being priced out of the housing market. Prices went up by 12% in the housing market this year according to the China National Bureau of Statistics. Couples wanting to leave their parent's homes find it difficult to do so. It was the topic for a Chinese TV series "Dwelling Narrowness." ...

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Huge losses sustained by sovereign wealth funds. Estimated $350 billion for Gulf foreign reserve funds and SWF's, according to RGE Monitor's Rachel Ziemba, or 27% of assets. Sovereign Wealth funds are either using their funds for supporting their local banks as in the Gulf areas, or buying back stakes of cash strapped western banks like RBS in the case of China. Russia, China and other countries are using their SWF's for stimulus spending. And Russia, Gulf economies that are dependent on oil prices, are looking at possible sale of foreign assets at oil prices between $50 and a deterioration to $25. Only China has a surplus that is sustained through the last quarter of 2008, but this is changing quickly as imports pick up after the stimulus kicks in, and exports drop precipitiously in 2010. South Korea and Russia have also learned of the need to have liquid safe investments preferably in dollars in the current crisis, as they have learned how large capital outflows can get in a short time. And the US is not looking at these large capital inflows from overseas as a benevolent thing, because it overvalues American assets, and leads to all sorts of distortions in liquidity and pricing of risk that contributed to the current crisis. In short the whole situation with SWF's has a suprising ending, as with everything in the current crisis, nothing worked out as expected or planned....

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China's new foreign policy team under the Jinping-Keqiang administration. Foreign minister Yang Jiechi, becomes state councilor, and senior official on the team. The new foreign minister Wang Yi, was China's ambassador to Japan 2004-2007. The new ambassador to the U.S. is Cui Tiankai, a diplomat who graduated from the Johns Hopkins School of Advanced International Studies in the U.S. Cui was ambassador to Japan 2007-2009. Managing the China-Japan and China-U.S. relationships is critical for China because China depends on U.S. and Japanese companies for investment and new technology, for continued economic progress. The relationship has been affected by the territorial disputes with Japan in the East China Sea. Germany as an advanced technology manufacturer and commodity exporters Australia, Canada, Argentina and Brazil depend on the Chinese market for exports, creating an interwoven economic dynamic that is likely to be the dominant factor in relations. This is also the perception of Li Keqiang who told a press conference in Beijing that the competition with the U.S. has been overemphasized, that he "does not believe conflicts between great powers are inevitable." Foreign affairs remains subordinate to domestic policy and priorities in China, as China tackles the problem of reorienting its economy to give an important place to the private sector and consumers. Itself not an easy task, as prime minister Keqiang pointed out at his first press conference: "Talking the talk is not as good as walking the walk." One of Keqiang's main allies in this effort is Robert Zoellick, former president of the World Bank, who helped put together with China's DRC, the report "China: 2030," outlining these priorities....

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Prof. Calomiris of Columbia University, says the U.S. Federal Reserve should increase the cash reserve requirement for U.S. banks to prevent a surge in inflation. He points out that excesss reserves at banks stand at about $1.5 trillion. He suggests the Fed should take early action to prevent a jump in lending and credit creation- a pattern seen in the past after several years of dampened credit and lending.

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Research firm Dragonomics says real estate prices fell 4.9% in April from the prior year for nine cities in China. In 2010 prices in these nine cities went up by 21.5%, the increase in 2009 was 10%. Standard Chartered estimates China's second tier cities, such as Dalian and Tianjin, could have 20 months of housing inventory by the end of 2011. Standard Chartered says price declines of 10-20% can be expected. Government data understates the extent of the bubble and the drop in prices say analysts. Beijing real estate consultant, Soufun, confirms the slowdown in price increases, saying its data show average property prices went up by 5.1% in May over the prior year, compared to the jump in prices in 2009 and 2010. Prices of copper and steel are coming down after rapid increases. The price increases in the Chinese real estate market have put housing out of the reach of ordinary couples. In 2006 an average price of a new apartment in Beijing cost $100,000, by 2011 this had gone up to $250,000. It woud take 57 years of saving for an average person to buy the apartment at todays cost. The government's response has been to boost down payments on mortgages for second homes to 60% from 40%, prohibiting state owned enterprises outside the real estate sector from investing in real estate, and raising the reserve requirements of banks....

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Equity markets in Europe and the U.S. are likely to see some of the 62 trillion yen, or $630 billion, which the Bank of Japan plans to add to holdings of banks and households in two years 2013-2014. A senior advisor to Deutsche Bank, Thomas Mayer, says equities of Germany, France and Britain are likey to see interest from Japanese investors, as are bonds and equities of the U.S. Japanese companies such as Toyota and consumer product companies such as Sony and Panasonic will now be able to better compete on price against their S. Korean, American and European competitors.

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Fears that another crisis like that of 2008 could emerge with asset bubbles in China and other countries. Also fears that policies of austerity in southern Europe and the UK, combined with Germany's tight control on spending, could lead Europe to years of slow growth or stagnation. It is a tricky situation especially in Europe, trying to avoid a Greece type situation, and at the same time not cutting spending to the point where it would lead to stagnation. Criticism of the German government's policy to cut spending and fears that the European Central Bank might follow Germany's policy to focus purely on the deficit. Lower US bond yields give the US some room for dealing with the deficit. The need for swift action in China to move the economy towards domestic consumption, and let the yuan strengthen so that China can absorb more of the world's exports.

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India's central bank chief, Raghuram Rajan, points to the risks for developing economies from changes in monetary policy of the U.S. Federal Reserve. The Indian rupee lost about a fourth of its value in 2013 as the U.S. Fed announced plans to withdraw from its quantitative easing policies. Large depreciations in other developing economies, Indonesia, Turkey and Brazil, happened at the same time. Rajan and India's Reserve Bank increased the interest rate by half a percentage point in 2013 to deal with the impact on inflation as a result of the large depreciation of the rupee. The volatility of capital flows and sudden reversal in inflows of capital to developing economies leaves these countries exposed to sharp declines in economic growth. India's growth has slowed to 5%, larger than expected from the slower growth in the global economy in 2013, largely as a result of decreases in direct foreign investment and capital outflows.

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Martin Feldstein says China is gaining control of three problems it faces of shrinking export markets, the effects from a large stimulus in response to the 2008 financial crisis, and inflation especially high real estate prices. The economy is shifting to higher role for services and less dependence on exports under the new five year plan. The real estate prices are levelling off after steep increases. And inflation is under control. New investment will go into infrastucture needs such as power development and low income housing. As the economic problems are being tackled, the political problems remain. China faces an aging population under its one child policy, and it will have to support an increasing number of retired people in the future. Inequality and corruption are two problems that continue to grow and present challenges to the new leadership taking over in 2013.

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Macroprudential policies of central banks in S. Korea, Indonesia, China, Canada, and other countries, as concerns grow about a housing and credit bubble.

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Gao Xiqing, vice chairman, president of China Investment Corporation, told a panel discussion during meetings of the International Monetary Fund, on September 24, 2011, China cannot be expected to provide solutions to the eurozone debt crisis. Xiqing said: "We're not saviors. We have to save ourselves." He added that CIC would consider buying bonds of troubled eurozone countries -"if it has a risk profile that fits into our allocation, but don't expect us to buy more than our risk appetite would take." And the head of China's central bank, Zhou Xiaochuan, told the panel that China cannot raise its growth rate because of inflation and other problems from unsustainable growth.

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Denning provides a reminder of the growth but also real risk in emerging markets. The weighted average score in Transparency International's 2010 Corruption Perceptions Index for BRICs countries is 3.3 out of 10, compared to 6.7 for the Eurozone, and 7.1 for the U.S. Russia needs an oil price of $120 in 2012 to balance its finances, and the consensus is for oil price to be $103. China has a bad loan problem at its banks. Brazil and India have inflation problems and growth constraints from poor infrastructure. There is aneed to be grounded in realities when it comes to emerging markets. The IMF underscored this weakness in its recent report. Sudden capital outflows could reveal serious weakness in some countries.

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Amol Sharma and Paul Beckett of the WSJ interview Finance Minister Chidambaram about the Indian government's decisions to open up the insurance, retail and airline sectors to foreign investment, and bring the deficit down to close to 5.3% in 2013. Faced with slowing growth and the risk of credit ratings agencies lowering India's credit ratings the government of prime minister Manmohan Singh has decided to take some decisive steps, including a shift in coalition partners to maintain parliamentary support for these steps. When asked about what influenced the government's resolve to take these decisions, Chidambaram says credit ratings was one factor, another was the difficulty Indian companies were having raising capital inside the Indian market and overseas. In addition he says growth could not be sustained at earlier levels without new capital, and new foreign investment was needed for sustained growth. The Kelkar committee report provided a sense of urgency to the government by providing an independent view and showing the worst case scenario if the government maintained the status quo. Chidambaram says subsidies will now be transferred in the form of cash directly to beneficiaries and reduce costs by cutting leakage in the system.The government will use the list of LPG cooking gas households to transfer the subsidy for 6 gas cylinders directly to beneficiary accounts. The plan is to do the same for the Rural Employment Guarantee Program and subsidized foodgrains to cut the leakage that stems from duplication and falsification. The Indian government's ongoing program to use information technology to have computerized records of the the entire population and linking to the financial system, incuding a large rural population, now makes it possible to take these steps. On the Kelkar committee's recommendation to increase prices of basic commodities cooking gas, kerosene and food to reduce government subsidies, Chidambaram says this is ambitious and the government has to consider the political context even though it agrees that this has to be done over time....

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Risks to stable long term growth of too much liquidity in the global financial system.

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Simms looks at the Plaza Accord of 1985 and the 60% appreciation of the yen, the lowering of interest rates and the real estate bubble that followed, and what this tells China's economic planners about managing the renminbi. A academic member of the People's Bank of China, Yu Yongding, sees one of the lessons as how Japan mismanaged the aftermath and creation of the asset bubble. There may be different complexities in China's situation with the increase in local government debt and loans in the shadow banking system, so that China cannot become complacent.