Ray Dalio's model of economy applied to India

The much publicized, celebrated and sometime criticized model (basic and not an exact/advanced/expansive as per Dalio himself) when applied in the Indian context reveals a few pointers. Though it appears to be  a simplistic model but i feel that it does encompass a good macro level summation of the overall economic scenario. Especially the cyclic nature of the business cycle.

As per the model 3 factors diagnose/assess the economy :

• Productivity growth 
• Short term debt 
• Long term debt

The below graph represents the Indian scenario:
  

Below is the break up of the short term and long term debt of India

 Below is how the productivity and its growth rates (YoY and 5 year MAT) pan out

Quick observations :

• The short term debt situation does not look very promising. If we believe in the previous 2 short term debt cycles, then a correction is imminent and near. This might be either good( India increases productivity, reduces deficits and pays off the debt) or bad( Defaults or keep restructuring short term debt). More analysis is in order here. A cursory look of economic literature led to a paper which concluded that increase in short term debt is an indication of a weak economy and not its cause. India is, at least in the short term not too healthy, although the last quarter numbers have given some hope.
• The second graph is indicative since the data (from IDS World bank retrieved Dec 2013 ) is not really matching up and needs to be verified/validated by other sources. But what is definitely true is that the proportion of India's short term debt  to its total debt has gone up significantly since 2006. Not a good sign since this can mean mostly refinancing/debt servicing/import obligations. 
• The last is an interesting graph. While it shows that from the end of 1980's and specially the beginning of 1991(When the 2nd markedly distinct short term debt cycle started) the growth has really picked up. We all know the reasons why. But when we look at the Productivity growth rates we see that there are huge variations year on year but a 5 year moving average reveals that from an average of 0.9% in 1965-1980 it inched to 2.6% in 1981 to 1991(deliberately included here) , to 4.1% in 1992 to 2001 and now to an average of 5.3% from 2002-2012. It peaked at 8.5%(Somehow) in 1988 and then at 6.9% in 2005/06. It has although come down to an average of 3.9% in 2001/12 and I think it would be marginally lower in 2013. 

As usual to be continued :)

Update # 1 (2 Jan 14) : An article on moneycontrol lists exactly what has been happening. The huge blow up in the short term debt is attributed to the low appetite for long term bonds, hence the need and urgency to raise money though short term notes which will pinch hard in the next few years as per the graph in the article. Not only this, with over 90% of fiscal budget already exhausted I think either the Government will breach the promised 2.8% level , thus making a case for downgrade or at least sending the markets down or postponing payments to the next fiscal & the next government will bear the brunt. With the projected Debt servicing cost next year and the carry forward cost from this year it will not be an easy proposition for the next government.   

Productivity data from: The Conference Board Total Economy Database™ Jan 2013, Retrieved in Dec 2013