Indian Economy News & Discussion - Nov 27 2017

[Rahulsidhu]

Is this just kite-flying or are we seriously tracking back on the plan to issue foreign currency bonds?

https://www.reuters.com/article/india-b ... SL4N24Q2W5

The proposal to raise funds via overseas bonds is likely to be withdrawn, and as an alternative, the government could raise funds through rupee-denominated bonds in the overseas market, he added.

I hope it's not kite flying and that the latter situation comes to pass. We already have a very successful recent history at offering Rupee denominated bonds, that have been fully subscribed despite multiple rounds of limit increases.

Note that I'm referring to bonds issued in India in Rupees, and NOT 'masala bonds' issued outside the country to foreign investors that are denominated in Rupees.

Agree with this sentiment. This urge to issue overseas is based on unsound economic arguments.

However, it is remarkable that such a relatively minor issue has taken center stage when the main issue of fiscal policy is not being discussed. Both the govt. and its critics seem to agree on that count!

[Peregrine]

X Posted on the P E S W Thread

Anshula Kant Appointed World Bank Group Managing Director and Chief Financial Officer

WASHINGTON, July 12, 2019—World Bank Group President David Malpass today announced the appointment of Anshula Kant as Managing Director and Chief Financial Officer of the World Bank Group. Ms. Kant, an Indian national, is currently a Managing Director of the State Bank of India (SBI), where she previously served as Chief Financial Officer.

“I am very pleased to appoint Anshula Kant as World Bank Group Managing Director and CFO. Anshula brings more than 35 years of expertise in finance, banking, and innovative use of technology through her work as CFO of the State Bank of India,” said Malpass. “She’s excelled at a diverse array of leadership challenges including risk, treasury, funding, regulatory compliance and operations. I look forward to welcoming her to our management team as we work to increase our effectiveness in supporting good development outcomes.”

As Managing Director and Chief Financial Officer, Kant will be responsible for financial and risk management of the World Bank Group, reporting to the President. Among other key management duties, her work will include oversight of financial reporting, risk management, and working closely with the World Bank CEO on mobilization of IDA and other financial resources.

As CFO of SBI, Kant managed $38 billion of revenues and total assets of $500 billion. Stewarding the organization, she greatly improved the capital base and focused on the long-term sustainability of SBI within her mandate. She has been a Managing Director and member of the Board since September 2018.

With direct responsibility for the SBI’s Risk, Compliance, and Stressed Asset Portfolio, Kant led the creation of investment opportunities while empowering risk management throughout the bank. She held several positions across the organization and helped navigate a diverse array of leadership challenges.

Kant, a native of India, is a graduate in Economic Honours from Lady Shri Ram College for Women and a Post-Graduate in Economics from Delhi School of Economics.

Kant’s start date will be announced shortly.

PRESS RELEASE NO: 2020/010/EXC

Cheers

[vijayk]

https://swarajyamag.com/economy/explain ... -good-idea

ECONOMY
Explained: Why Mobilising Funds Through Overseas Sovereign Bonds Is A Good Idea

Many of the arguments against the issue of the foreign currency denominated bonds are not based on economic theory or logic.

They are born out of the demons of fear. They have to be slayed.

India is the fastest growing large economy. To keep up growth and lift large sections of population out of poverty we need investments. Also, we have set out on building an ambitious social security architecture — Ayushman Bharat, Krishi Samman Nidhi, pension for the unorganised sector etc — over the last few years whose bills keep increasing.

A report by the Comptroller and Auditor General of India (CAG) posits the fiscal deficit at close to 6 per cent than the 3.4 per cent that the government has presented. So, basically the government needs money.

On top of this, we have the non-performing assets (NPA) saga plaguing our banks that will put many saas-bahu operas to shame. If the government borrows from local financial markets and banks, those monies won’t be available for the private sector, what economists call the “crowding out” effect.

Let’s look at the not so good bit. First reason can be explained in a single word — pusillanimity. We can send a rover to the moon, be the fifth largest economy, have our people running the largest companies in the world, but some people and organisations in India suffer from extreme inferiority complex. They think that our economists and bureaucrats would not have thought through the ramifications of what they are doing. Worse, they think of themselves as the knights in the shining armour saving India from educated people.

Second, related to the first in many ways, is another p-word, paranoia. They are afraid of what white people will do to us. The Manch is doing a Munch . They wonder about how by buying foreign bonds Western powers will dictate terms to us. Explain to them that it is just $10 billion or that it is not an International Monetary Fund (IMF) loan with conditionalities, they won’t listen. The same people that speak a lot about our ghulami never seem to shake off their colonial hangover.

Third is another p-word, perfidy. There are a few analysts and commentators that want the Modi government to fail. Their irrelevance is gnawing them. Their election predictions went for a toss. They are sly in expressing their solidarity with the paranoid only to see the house burn. If the government’s plan does not go through, we might be staring at an economic mess, which would suit their political ends.

Fourth, is the simple understanding (ok, the p-word is perception). Many fine commentaries have been written on how the foreign bonds are a good thing. You can find a couple here and here. They clearly argue how world’s saving excess can be directed to India for our development needs. But the critics don’t read or don’t understand. The counters are usually of the aforesaid paranoia or about historically the ‘foreign vultures’ have been hovering around India since the 1990s.

Now let’s look at some good faith arguments. First, there are people that worry if this would become a habit. Fair point. We got into this in the first place because we did not disinvest properly, we let the NPA crisis fester for too long and our tax structure is unattractive among Asian countries for investment. Thus foreign sovereign debt could just be a palliative when we embark on the hard stuff. It could also help in establishing yield curves for sub sovereign Indian bonds to borrow easily from outside.

Second, it is a nice escape route from sorting our internal fiscal mess. The obfuscation of our actual fiscal deficit is unacceptable. Over the last decades, many committees on financial sector reforms have been constituted. They have to be studied with seriousness again and the government should come forward with a bold plan. A $5 trillion economy won’t happen on top of archaic financial systems.

Third is the comparison with Latin American countries, the volatility issue and “the tail wagging the dog”. This debate between erudite former Reserve Bank of India governors, Messers Bimal Jalan and Raghuram Rajan, with the former backing and the latter opposing the move must be read. Both have concluded that the small amount of foreign borrowing can do no harm.

Jalan has gone on to say, “at the moment we are in a fortunate position. Our debt to GDP ratio is not very high, exchange rate is stable, and foreign exchange reserves are high. So foreign borrowing, if it’s long term, which it would be, is not a problem… Our growth rate is good, investment is good, technology is good. So I have a positive view.”

[disha]

Here is the way I look at borrowings:

Lets say government of India raises money by borrowing from the banks to fund its various projects. For the banks, it is better to lend to GOI because of sovereign credit which no business or individual would be able to give. Since "money" is a limited quantity, the net will be rise in interest rate for borrowings and fall in interest rates for saving. The way I see it is, if I were a bank I would charge you more for your car purchase or your machinery purchase given that I always have to option to lend it to GOI. And why pay you more in interest for your savings when I can get a long term assured interest from GOI.

The above logic breaks down only when I have too much savings and I have to lend everywhere to keep my bank business up. However if I am having NPAs on my book, I have to earmark some of my savings for NPAs so that I do not go completely under.

Currently several public banks and some private banks have lot of NPAs and the savings rate is slowly ticking upwards but is not enough to fund several projects envisaged by GOI.

Okay, lets print some money. It will show up as deficit. How much money shall I print over the current deficit? Let's say CAD is 3% of GDP and I print money upto 2% of GDP and borrow it back and put it for infrastructure funding thus putting the CAD at 5%.

This will lead to inflation. Since the money is given out to say a private contractor to build a bridge (L&T) which will generate additional cash for its employees. Some of it is good, it will lead to some employment. Some will be able to upgrade their life style. Already settled will be able to buy education for their kids in say US of A or OZ or some place and pay it with dollars by buying it from bank. I call paying for foreign education as import of education services, outgo is in USD.

As I as a bank give out dollars in lieu of rupees, I have to get those dollars from somewhere. Generally the source of dollars is either via exports (product/service incl. tourism) or via investments from overseas (UAE setting up a port to offload their oil).

In general import increases and the outgoing dollar is balanced by incoming investment and exports. As long as latter surpasses the former, it is good. Further as the infrastructure is built, productivity increases and GDP increases thus balancing out the CAD.

Printing money will be all good only if there is rapid growth in goods and services so that inflation is under control. Otherwise inflation will rise and it will put a dent to savings and it will be back to square one.

Now here is the external situation. All developed countries are awashed in cash and their cash is looking for returns since their own growth has plateaued. They are ready to lend money. For example Japan lending for bullet train at sweet heart rates as long as we import the technology from Japan. Hence to raise $50 Billion from US/Eur/Jap will be a drop in bucket for their economy and a 1-2% relative to GDP flush of funds.

Hence I think GOI can have its cake and eat it too. That is, given the low rates prevailing outside India, GOI can raise funds from outside and also keep the powder dry to selectively ease NPAs of better behaving banks.

It is better than NHAI issuing masala bonds, since the sovereign backing of India matters more than the backing of entities behind masala bonds and hence chance to get a better interest rate.

[Suraj]

Here's a rundown of bond related stories:
RBI allows foreign investors to buy municipal bonds

The Reserve Bank of India (RBI) on Thursday further eased norms for foreign portfolio investors (FPIs) by allowing them to invest in municipal bonds under prescribed limits to broaden access of non–resident investors to debt instruments in India, the central bank said in a statement.
The limits for investing in these municipal bonds are to be set within the limits for FPI investment in state development loans (SDLs). The limits set for SDLs amount to 2% of outstanding securities. “Investing in municipal bonds in India is not a popular opinion as majority municipalities are not cash rich, but if FPIs start investing in these bonds, the domestic players also might find interest and also could prove to be a good income source for municipalities,” said Ashutosh Khajuria, V-P, Federal Bank.

The central bank had earlier in March eased norms by introducing the voluntary retention route (VRR), allowing FPI investments through the route free of regulatory norms provided they maintain a share of their investments for a fixed period. The RBI on February also withdrew its April 2018 regulation where no FPI was allowed an exposure of more than 20% of its corporate bond portfolio to a single corporate.

Why FPIs may find debt market more attractive after easing of norms by RBI

The Indian debt market could attract higher interest from foreign portfolio investors (FPIs), with the Reserve Bank of India (RBI) on Friday easing investment norms through the voluntary retention route (VRR), rolled out since March 2019.

The RBI waived off the requirement for FPIs to invest a minimum 25% of the committed portfolio size (CPS) within one month of allotment. It introduced an additional category, VRR combined, which allows investors to invest in both corporate and sovereign bonds. “The VRR route has collected close to `11,000 crore of the corporate bond limit till April, 2019,” said Dhawal Dalal, CIO, fixed-income, Edelweiss Asset Management.

Investments through the VRR-combined route are capped at Rs 54,606.55 crore, while the VRR-corporate and the VRR-government are capped at Rs35,000 crore and Rs 40,000 crore, respectively. Foreign portfolio investors (FPIs) have pulled out nearly $230 million worth of bonds in May so far on the back of an outflow of $1.5 billion in April. Dealers believe with the sovereign bond yield being the lowest in the past one year and the rupee strengthening, emerging markets like India might see bigger inflows.

2018 article: Bond investors get access to $16 billion of extra debt in India

The Reserve Bank of India raised limits for overseas investors that could lure $16 billion of additional funds into the nation’s sovereign as well as corporate debt.

Foreign investors will be allowed to increase holdings of sovereign, state and corporate bonds by Rs1.04 trillion ($16 billion) in the fiscal year to March 2019. Overseas investors can boost holding of central government securities by 0.5 percentage points a year, taking the limit to 5.5% in fiscal year to March 2019 and to 6% in the following 12 month period, the Reserve Bank of India said in a statement Friday. The central bank set 9% as the limit for foreign investors to own in debt sold by Indian companies.

Nirmala Sitharaman Bats For 'Significant' Rate Cuts, Rules Out Review of Overseas Debt Plan

Finance minister Nirmala Sitharaman called for a “significant” reduction in RBI’s policy rate and said the government did not intend to review the budget proposal for overseas borrowing, the Economic Times reported on Monday.

India’s benchmark 10-year bond yield was down 10 basis points at 6.43% after falling to 6.42% immediately after market opened on the back of her comments.

The minister also said the increase in surcharge on foreign portfolio investments (FPI) was not intended to hurt investors, according to an interview published by the paper.

RBI lifts cap on FPI investments in corp bonds

The Reserve Bank of India (RBI) Friday withdrew the 20 per cent limit on investments by FPIs in corporate bonds of an entity with a view to encourage more foreign investments. As part of the review of the FPI investment in corporate debt undertaken in April 2018, it was stipulated that no FPI should have an exposure of more than 20 per cent of its corporate bond portfolio to a single corporate (including exposure to entities related to the corporate).

[Suraj]

RBI is trying to solve a problem it hasn't been able to solve with a broadening market for government, corporate and municipal bonds among registered FPIs in India - lower cost of capital. The 10 year government bond yield remains stubbornly range bound, despite the FPI purchases of Rupee denominated bonds in the Indian bond market increasing dramatically each year.

This is different from the masala bond market, where Rupee-denominated bonds issued by individual entities (companies, states or even a sovereign masala bond) are sold on foreign bond exchanges - primarily London and Singapore, but I may be wrong/not up to date.

The problem with the Indian bond market is that FPIs have to be SEBI accredited entities, and there are specific limits and rules associated with foreign holdings of Indian debt, some of which are mentioned in the articles above. Not every major bond buyer has a presence in the Indian market. also, yields are significantly higher than that of a dollar bond issued by a corporate entity - 250-300 bps difference, though the latter may lose its attractiveness if the Rupee declines.

The problem with the masala bond market is that it is not very liquid. It probably cannot absorb the supply of a $10 billion sovereign masala bond offering. However it has become increasingly attractive because foreign investors are more comfortable with holding Rupee denominated debt, but also want the cake of buying and selling in an established exchange like the LSE, which has a vastly bigger bond market. Here's a good recent summary of the Indian bond market from FTSE Russell.

[Rahulsidhu]

Here is the way I look at borrowings:
... Since "money" is a limited quantity, the net will be rise in interest rate for borrowings and fall in interest rates for saving...

Incorrect. Money is not a limited quantity. Neither is wealth, which is a distinct concept.

I am not trying to be snarky here. In fact, this line of thinking matches with most economists including inside the govt. and outside it. But it's wrong.

[vijayk]

Anshul Saxena
@AskAnshul
·
13h
In 2018:
India beats China in FDI (Foreign Direct Investment) for the first time in 20 years.
India: $38 billion
China: $32 billion

Now in 2019:
India received the highest-ever FDI inflow of $64.37 billion during fiscal ended March 2019. It's highest-ever FDI received in India.

https://www.businesstoday.in/current/ec ... 69313.html
India has received highest-ever FDI of $64.37 billion
According to the Annual Report 2018-19 of the DPIIT, FDI worth $286 billion were received in the country in past five years

FDI - Is it just in stock market or is it investment into all: stocks, company bonds etc.

Can we find the distribution of FDI? which sectors? how much into infra or stocks or corporate bonds etc.?

[Suraj]

FDI isn't the same thing as portfolio investment in stocks and bonds. Those are separate things and come under the foreign portfolio investment (FPI) umbrella separate from FDI.

Foreign direct investment is a direct investment in some entity in India, via acquisition, merger, construction of local manufacturing or other facilities, and otherwise constitutes more than a monetary stake in tradeable paper assets like stocks and bonds.

Further, FDI figures are further complicated by their breakdown into fresh investment and reinvested earnings. RBI reports fresh investment flows in its annual report. DIPP also reports such data, also describing a breakdown between fresh inflows and reinvested earnings along with total figures, the last of which is what made the news.

There are separate RBI statistics on overseas portfolio investments but their site seems down right now and I can't access it. Usually portfolio investment data is broken down into equity and debt inflows separately.

[Katare]

Here is the way I look at borrowings:
... Since "money" is a limited quantity, the net will be rise in interest rate for borrowings and fall in interest rates for saving...

Incorrect. Money is not a limited quantity. Neither is wealth, which is a distinct concept.

I am not trying to be snarky here. In fact, this line of thinking matches with most economists including inside the govt. and outside it. But it's wrong.

Unlimited money is only available in lalaland not in the real world. By definition if unlimited money is available it’ll be worthless and won’t be money anymore.

How come you regularly say economists (and other people) don’t understand the basic concepts? Try being a bit more modest and think may be you don’t understand some of it?

Unless of course if you are an authority in these matters.

[Rahulsidhu]

I never claimed to be an authority. If you had the intellectual capacity to engage with my arguments, I would have happily explained or changed my own views. This personal attack is rather tasteless, so will not respond to you in the future.

My only purpose in posting here is to challenge some commonly accepted axioms of economics, which are causing a lot of needless economic suffering to all Indians. We are all better off with higher and better quality economic growth. Hopefully at least a few people will start asking questions to the economic policy and opinion makers.

To elaborate on my point about money, the point on there not being a limit was in the context of competition between public and private debt for the existing stock of money. This is indeed a very common economic belief. What I am pointing out is that there is no such competition -- sovereign debt is not really much different from M0.

For those curious to dig deeper, here is a accessible intro to modern monetary systems:
http://www.levyinstitute.org/pubs/Wray_ ... Modern.pdf

[Rahulsidhu]

In the last few days, have seen or been a part of several conversations that inevitably go roughly like this:

"oh no, economy going down the drain"
"yeah, consumption falling and no one ready to invest"
"there is no way out. what can anyone do"
"maybe the govt. could boost spending?"
"how? savings have fallen off a cliff, paisa kahan se aayega"

This line of reasoning is fallacious. govt. can and should 1) cut taxes 2) boost infra spend. This will put money in the hands of the private sector and actually boost private savings and consumption. The big problem right now is that money supply growth has slowed sharply.

https://tradingeconomics.com/india/money-supply-m3

worse, some people are arguing for the govt to curtail spending. by all means, govt. should sell off PSUs and re-look at spending better. But overall spending should not be curtailed. that would be doubling down on a bad strategy. On a realistic note however, this is indeed the most likely outcome. tax revenue growth will likely be even less than NGDP growth, and the govt will curtail spending.

[chaitanya]

Rahulsidhuji in the M3 supply curve above the current values seem to be well within the long term trend... the 5-year trend is quite linear. I don't know if there is enough of a signal to declare that 'money supply growth has slowed sharply'

[Suraj]

Rahulsidhuji in the M3 supply curve above the current values seem to be well within the long term trend... the 5-year trend is quite linear. I don't know if there is enough of a signal to declare that 'money supply growth has slowed sharply'

I'm not sure how you interpret the M3 long term trend as linear. The 'max' view of the data shows that the graph is parabolic.

GoI is also trying to fix this figure - falling gross domestic savings and especially private corporate savings has been a major reason for lack of growth. Most of the bad loans are concentrated in a few industries, e.g. infrastructure and construction, steel, cement and telecom.

However, as the Budget also emphasized, the stressed loan problem has more or less topped out in fiscal 2018-19. As this article indicates, the worst may be behind us in terms of the bad loan crisis. However, to quote:

Billed as the panacea for Indian banking, the Insolvency and Bankruptcy Code (IBC) failed to live up to expectations. The resolution process remained slow with 50% of the cases admitted in the National Company Law Tribunal exceeding the 180-day deadline, while 30% of cases crossed even the 270-day deadline — the maximum allowed for resolution under law. Merely 4 out of the initial 12 biggest defaulters from the RBI list were resolved, while cases involving over Rs 1 lakh crore are yet to see the light of the day.

This is one reason for the latest amendment to IBC 2019, which passed in Parliament mere hours ago.

[chaitanya]

I'm not sure how you interpret the M3 long term trend as linear. The 'max' view of the data shows that the graph is parabolic.

Sorry, should have been more clear - the 1-year and 5-year trends are quite linear. There is an option of adding a trend line and the 1 year and 5 year match it - there is only one bump around the time of demo. Anyway, the point I was trying to make was that it does not seem like the M3 supply is tapering off that rapidly.

[hanumadu]

What is the difference between NET GST collections and GROSS GST collections? Is there a website where I can find information for them for the last year and half or two?

Tried department of revenue website but could not find the data.
https://dor.gov.in/

[ramana]

How much CSR is collected now? In crores?
And where does it go?
How much to anti-national NGOs?

Thanks.

[vijayk]

There is no doubt that they are focused on resolving crony capitalism thru IBC. They have been very very dogged in their approach to fix this in a good way.

But what is saddening is their socialist mindset. We will squeeze the rich and companies like lemons. They have to ease burden on corrupt mechanisms like CST which have no place in fair society. You are collecting taxes and why do we need this CSR. Don't they get it? This is babu infested crony mechanism to harass businesses.

https://swarajyamag.com/politics/blunde ... he-economy
Blunder After Blunder — And Yet We Wonder What’s Wrong With The Economy!

We’ve tried socialism for decades only to have failed. The government must realize that welfare without growth is likely to be unsustainable.

Getting rid of the CSR provisions is going to be a start of the process of dismantling our bad economic policies. Here’s hoping that a mandate of 303 is enough to enable this process.

In many ways, one genuinely misses the days of former prime minister, Atal Bihari Vajpayee, as the economy experienced many deep reforms in terms of a new disinvestment policy, taxation reforms, trade reforms and a sharp reduction in interest rates. All of this was undone during the UPA terms as we aggressively moved towards socialism and entitlements while focussing less on growth.

Forget the macroeconomics for a second or a laundry list of bad policies that are yet to be revisited or scrapped. Documenting such a list would require an entire book and months of study as to why they were implemented in the first place.

Instead let us explore the critical issue of one provision that was introduced by the UPA government, and which has been only strengthened by NDA 2. No, I am not taking about the PDS (Public Distribution Scheme) or the MSP (Minimum Support Price) — although, they both are bad policies and yet they continue. I’m talking about the issue of Corporate Social Responsibility (CSR).

At the outset, it must be stated that there is a global debate regarding whether one should have CSR norms in place or not. Despite that, we in India have ignored this debate and have moved on to the Gandhian philosophy of ‘giving back to society’.

Well, it is important to give it back to the society and that is the motivation behind taxation, so why have CSR and taxation at the same time? If corporate social welfare can solve most of our social issues, then why has the government collected corporate tax to redistribute?

An important issue worth highlighting is that it is the job of the government to ensure wealth redistribution and social welfare while the job of the company is to be in business. As Dr Arvind Virmani rightly highlighted in a tweet, in India we have the government interested in business while it mandates corporates to work towards welfare. No wonder we’ve never really sustained a high growth rate of around 8 per cent!

While the CSR norms were introduced by the UPA, further strengthening of these norms by the NDA have raised concerns regarding the direction of economic policies of the current government. The issue is not regarding the amendments at present, but it is more about the CSR provision and why it must be removed.

https://swarajyamag.com/business/sendin ... ternatives
Sending CSR Delinquents To Jail Is A Bad Idea: There Are Better Alternatives

Threatening the promoters of a company with jail when they may not have the bandwidth to do CSR is foolish.

We need private social entrepreneurship and money from the wealthy going towards the fulfilment of social goals, and incentivising it through tax rebates may be better than both CSR or taxation.

The Narendra Modi government’s latest mistake is to threaten those managers whose companies do not spend 2 per cent of their net profits in CSR (corporate social responsibility) with a jail term. This is daft and counter-productive.

Which government in the world asks its corporate citizens to “Do charity, or else…”.

CSR is not the primary job of corporations, even if social responsibility of some kind is. It was bad enough imposing an additional charge on net profits through changes in the Companies Act in 2013, but it is worse to now threaten jail for failure to comply. Some 40 per cent of companies are said to be delinquents on this score.

Clearly, the government is operating on the principle that if the UPA can do bad things, it can make them worse. The problem with having an active and reasonably efficient government is that good ideas deliver more than expected, but bad ideas lead faster to disaster. If you are headed in the wrong direction, a bumbling and directionless government (even one as venal as UPA) will actually outperform a government that works faster towards nemesis.

Even assuming the government thinks CSR is a worthwhile deduction from net profits, it does not follow that companies are best placed to deliver on those social goals. Having the money to spend on CSR is not the same as having the ability to deliver on social metrics where outcomes are difficult to measure. Not all companies are built to deliver social service; most aren’t even good enough to create profitable operations, or else we would not have had such a massive bad loans problem with banks.

So, if the purpose, however misguided, is to make sure companies spend their CSR sums every year, the simplest way to ensure that is to identify specific government programmes, or above-board private charitable trusts, where this money can be simply donated. Threatening the promoters or managers of a company with jail when they may not have the bandwidth to do CSR is foolish.

The Reserve Bank of India already does this kind of fund redirection with priority sector lending; banks with narrow geographical footprints are not exempt from meeting priority lending targets, but they can comply by parking their money with lenders who do the job by proxy (eg, Nabard). Foreign bankers are not threatened with jail for not lending to the priority sector. The same formula could have been adopted with CSR spends.

[ramana]

How much CSR is collected now? In crores?
And where does it go?
How much to anti-national NGOs?

Thanks.

The collection was about 27,900 crores for three years.


https://www.sattva.co.in/insight/how-cs ... hin-india/

[Rahulsidhu]

I'm not sure how you interpret the M3 long term trend as linear. The 'max' view of the data shows that the graph is parabolic.

Sorry, should have been more clear - the 1-year and 5-year trends are quite linear. There is an option of adding a trend line and the 1 year and 5 year match it - there is only one bump around the time of demo. Anyway, the point I was trying to make was that it does not seem like the M3 supply is tapering off that rapidly.

by slowing down sharply i meant latest data since April.

Also worthwhile checking the longer term charts. the M3 growth rates in the last 5 years have been lowest since the 60s.

Anyway let's not get fixated on money supply stats. Tis the symptom, not the disease.

[Rahulsidhu]

GoI is also trying to fix this figure - falling gross domestic savings and especially private corporate savings has been a major reason for lack of growth.

I would argue that the causation is the other way around. Will explain in a later post hopefully.

[Suraj]

I’ve no disagreement with that argument Being thingas as they are, GoI now has to prime the pump to generate growth again, and that’s how I framed my words .

[a_bharat]

Finance Ministry needs to move away from Socialist policies: Surcharge on rich was wonky enough, new CSR norms are beyond ridiculous

But the budget made a catastrophic blunder by the imposition of the surcharge on the rich. When it became apparent that the surcharge would also apply to trusts, that’s when things started to go south and then came a statement that the surcharge would be applicable on FPIs registered as trusts.

It is appalling that the Finance Ministry was not aware of the consequences of the decisions that were being taken by them during the budget process. Economic policymaking is not about trial and error and it requires one to meticulously understand and appreciate the complex economic structure

The problem is not just with this decision but with the genuine belief within the Ministry on the need to tax the rich more and this misguided morality is likely to cause migration of high skilled workers and of high skilled jobs to countries such as Singapore etc which are much more tax-friendly. A consequence of this is that India would lose out on even the pre-surcharge tax rates.

But forget about taxes for a second and let’s just look at this year’s economic survey which argued for a revival of private investments and to rekindle animal spirits. Since the budget, we’ve seen repeated measures that have only worsened investor sentiment, and this is visible as FPIs have started to pull out their money from India. At a time when the global supply chains are shifting, rather than improving domestic policies to facilitate their shift to India we’re making them worse.

The impact of these CSR norms on development objectives, companies, their growth and their size is an issue that needs to be adequately explored but one has to question the rationale behind the imposition of CSR norms on companies that are already paying one of the highest corporate tax rates in the world.

The recent amendments made by the Hon’ble Finance Minister to the company’s act has only reignited the debate on CSR provisions under the act. One must question the move as companies are already paying a corporate income tax, they must pay an additional dividend distribution tax and individuals have to pay an additional 10 per cent the moment their dividend income exceeds 10 lakh rupees. The same income is tax thrice and this happens perhaps only in India.

Despite this, if the government mandates companies which should be guided by the motivation of profits to undertake social responsibility then we should question the efficacy of public expenditure. More so when public resources are being utilized to keep PSUs alive that should have long been closed or downsized, one completely understands why people are outraged at such decisions.

At a time when we want to upscale our firms, boost private investment, promote entrepreneurship and attract foreign firms we should be having business-friendly policies instead of the Nehru-Indira style socialist policies. We tried the socialist policies and it only gave us scarcity, widespread poverty and a sluggish growth rate.

[Rahulsidhu]

A window into the govt's thinking. It's not a pretty picture

[Haresh]

Innovation lessons from Israel

https://www.thehindubusinessline.com/op ... 786937.ece

[Rahulsidhu]

This chart mixes yearly and quarterly numbers but shows the trend well. (sorry i don't know the source, or would have credited)


Q1 GDP growth is likely to be quite weak as well, probably below 6%. Projections for the full year are generally around 7% but a lot of people are now beginning to suspect even 6.5% would be tough.

To raise taxes in the face of slowing growth and expect it to go higher is delusional. I am referring to the "must make sacrifices", "rich must contribute" rhetoric from the govt. It just doesn't work this way.

[wig]

rahulsidhu ji the chart used by you are from the article linked hereunder. there are a few other illustrative charts also included in the article

https://timesofindia.indiatimes.com/bus ... 497728.cms


the article is quite informative and instructive with the authors analysis of reasons for the economic downturn currently being witnessed

[Rahulsidhu]

rahulsidhu ji the chart used by you are from the article linked hereunder. there are a few other illustrative charts also included in the article

https://timesofindia.indiatimes.com/bus ... 497728.cms


the article is quite informative and instructive with the authors analysis of reasons for the economic downturn currently being witnessed

thanks!

[khatvaanga]

a good article on liquidity crunch in india

https://www.financialexpress.com/indust ... e/1665601/

Preliminary data indicates passenger vehicle sales may have plunged as much as 30 percent in July. The slump in India, along with a simultaneous slide in Chinese auto sales, is a blow for automakers wrestling with higher costs driven by more stringent emission norms and a push to develop electric cars.

coming to the crux of the issue

Non-banking finance companies (NBFCs), or shadow banks, have dramatically slashed lending following the collapse of one of the biggest, IL&FS, in late 2018.

IL&FS, or Infrastructure Leasing & Financial Services Ltd, was a behemoth in shadow banking and its defaults and unravelling, amid fraud allegations, have dried up funding for rivals and led to a surge in their borrowing costs.

so hawala and shadow banking dried up. hence the slow down .

Non-bank or shadow banking firms generate credit outside traditional lenders, by means such as collective investment vehicles, broker-dealers or funds that invest in bonds and money markets.

In India, NBFCs have in recent years helped fund nearly 55-60% of commercial vehicles both new and used, 30% of passenger cars and nearly 65% of the two-wheelers in the country, according to rating agency ICRA.

banks are not so keen on piling on NPAs

Moreover, as many NBFCs typically lent to less creditworthy clients, banks are reticent to rush in to fill the void, as they themselves struggle to cope with an existing pile of about $150 billion in bad loans.

[Anujan]

Shadow banking and NBFC are not hawala

[vijayk]

https://swarajyamag.com/economy/what-wo ... e-reversed
What Won Modi 2019 Will Not Win Him 2024: Nine Economic Follies That Need To Be Reversed

First, taxation. The emphasis on compliance is good, but only if tax rates are reasonable for individuals and corporates. The Modi government has compounded its blunders not only by raising tax rates for the better off in the recent budget, but by adding surcharges and cesses.

In 2019-24, Modi has to cut taxes – and fast.

Second, banks and the public sector.

Barring four or five large banks that can always remain in the public sector, the rest must be privatised.

The same applies to other white elephants like Air India or Bharat Sanchar Nigam. If they are not sold for a song, we will be perpetually hearing a dirge as they continue losing money hand over fist. Privatisation, in these cases, is not about earning money for the exchequer, but to avoid future liabilities of a permanent nature.

One cannot also forget the non-banking financial companies (NBFCs). The sector is teetering on the brink, and even though the stronger ones will survive, the weaker ones are afflicted not by just a liquidity problem, but a solvency one. NBFCs need to be capitalised and or merged with stronger banks, apart from being given better liquidity support.

Third, real disinvestment and strategic sales. Selling IDBI Bank to LIC or Hindustan Petroleum to ONGC or REC to Power Finance Corporation are not strategic sales. They are mere transfers from one pocket of the government to another.

Fourth, government accounts. These are a scandal. The scandal began under UPA, but Modi has not corrected it. If one were to read the comments of the Comptroller and Auditor General on India’s fiscal deficit in 2017-18, the real figure was 5.85 per cent and not the official version of 3.46 per cent.

Another technique used to show a lower fiscal deficit is to shift current year expenditures to the following year, and hoping for the best in terms of higher revenues in that year.

Fifth, the emasculation of the public sector. Fiscal deficit window-dressing requirements are forcing the government to demand buybacks of shares and higher dividends from public sector companies – a practice started by P Chidambaram, and continued under Modi as if nothing is wrong with this practice.

Sixth, GST. India’s biggest tax reform is floundering on the rocks of a bad design and complex rate structure. This is not Modi’s fault at all, but having legislated it, if he does not fix it in the first half of his second term, he will face electoral trouble.

GST has to be quickly brought down to three basic rates, with 15-16 per cent being the middle range, and exemptions and abnormalities being reduced to a minimum.

Seventh, the Monetary Policy Committee (MPC) and inflation targets. The MPC was given an inflation target that was too low at a time when central banks all over the world are finding it tough to raise inflation to levels they are comfortable with.

Modi needs to do two things. One is to give the MPC a dual mandate, both growth and inflation. The new target middle rate ought to be 4-5 per cent and not just 4 per cent. In the absence of a producer prices index, the wholesale prices index, probably updated and reformed, ought to be given some weightage in the MPC target setting. Modi should not wait for 2021, when the current MPC mandate ends, to make these changes.

ighth, statistics. Whether it is jobs or growth, India’s statistical system is being questioned for its credibility. Some of the criticism may be politically motivated, but surely the government can invest a bit more to find out a real figure on the jobs situation and not just rely on Employees Provident Fund data to show that the jobs market is fine.

Ninth, Modi is simply not using the economic think-tanks available to him wisely. He either thinks they offer no useful advice, or believes that his vision of doing the right things for the poor will help him cross the finish line in 2024. He could be seriously wrong.

[Rahulsidhu]

Worth keeping in mind. I think this is goods trade only.

[vijayk]

https://www.moneycontrol.com/news/busin ... 88691.html

India services activity reverses course, surges in July: PMI
The IHS Markit Services Purchasing Managers' Index rose to a one year high of 53.8 in July, up from 49.6 in June and comfortably above the 50-mark that separates growth from contraction.

A sub-index tracking overall demand showed new orders increased at the quickest pace in nearly three years, driven largely by foreign demand which expanded at the fastest pace since IHS began to measure it in September 2014.

The surge in demand, along with increased optimism about new business over the coming year, prompted firms to increase hiring at the fastest pace since March 2011.

"Ongoing expansions in the employment base should support household spending and consumer confidence in the near-term," De Lima said.

Although input costs rose at the quickest pace in five months, firms did not pass all of these to consumers and output prices rose at a slower rate.

That suggests inflation is likely to remain below the Reserve Bank of India's medium-term target of 4% in coming months, underscoring expectations for another interest rate cut by the RBI when it meets on Aug. 7.

The sharp expansion in both services and manufacturing activity pushed a composite index to an eight-month high of 53.9 in July, from 50.8 the previous month.

[vijayk]

https://www.bloombergquint.com/economy- ... port-share

In Trade War, India Is Only Asian Nation Growing Export Share

The only major Asian economy that’s grown its export share since the start of the tariff wars in 2018 is the one with the fewest trade links to China. India’s share of world exports rose to 1.71% in the first quarter of 2019 from 1.58% in the fourth quart

Trade tensions between the U.S. and China have given India an opportunity to ramp up exports to both countries, according to Ajay Sahai, director general and chief executive officer of the Federation of Indian Export Organisations. India’s exports to the U.S. grew at the fastest pace in six years in the year ended March 2018, while exports to China surged 31%, the second highest annual pace of growth

[Uttam]

RBI Rate Cut

The Reserve Bank of India made an unconventional 35 basis point cut in the repo rate and also took a slew of other decisions.

[Uttam]

RBI Rate Cut

The Reserve Bank of India made an unconventional 35 basis point cut in the repo rate and also took a slew of other decisions.

Some more details in the monetary policy change:

The Reserve Bank of India (RBI) in its Statement on Developmental and Regulatory Policies issued on August 7, 2019, has stated that in order to ensure that credit to the priority sector is taken care of, while permitting banks to on-lend through NBFCs, it has decided to allow, subject to certain conditions, bank lending to registered NBFCs (other than MFIs) for on-lending to housing up to Rs 20 lakh per borrower (up from Rs 10 lakh at present) to be classified as priority sector lending. The detailed guidelines on the above measures will be issued by the end of August 2019.

[Suraj]

Very proactive move from the RBI there. In addition to the rate cut, they've made some decisive moves to offer liquidity to NBFCs:
RBI opens more liquidity taps to NBFCs, says will not allow any large one of them to collapse

(Governor Shantikanta) Das said the RBI has identified around 50-odd large NBFCs, including some housing finance companies and are being monitored now. “It is our enedeavour to ensure that there is no collapse of any large systemically important NBFCs,” Das told reporters after announcing the bi-monthly policy review. He recalled the budget announcement of the 10 percent first-loss guarantee to state-run banks on their purchase of securitized assets of NBFCs. Along with that the RBI announced liquidity measures to help in its implementation.

These steps together could release Rs 1.3 trillion of additional liquidity to the fund-starved sector but only to better rates ones. It can be noted that the NBFC segment has been facing trouble since the collapse of the infra-focused IL&FS in September 2018. Banks claim to have started lending, but are preferring only better-rated ones. As a result, NBFCs have gone slow on disbursements affecting verall economic growth and some have also resorted to non-core asset sales to wade through the difficult times. Meanwhile, in the monetary policy review, the RBI has taken a slew of measures aimed at the NBFC segment. To offer additional liquidity, RBI has allowed banks to on-lend through NBFCs and making it eligible for priority sector lending.

“It has been decided to allow bank lending to registered NBFCs (other than MFIs) for on-lending to agriculture (investment credit) up to Rs 10 lakh; MSMEs up to Rs 20 lakh and housing finance companies up to Rs 20 lakh per borrower (up from Rs 10 lakh at present) to be classified as priority sector lending,” it said. It also decided to raise a bank’s exposure limit to a single NBFC to 20 percent of tier I capital of the bank from 15 percent now to help increase credit supply to such companies.

RBI cuts repo rate again as expected but here’s the twist; interest rates down 1.1% since Jan

The Reserve Bank of India has cut key interest rates for the fourth time in a row in its third monetary and credit policy review for the current financial year, but took the street by surprise by cutting the repo rate by an unusual 35 basis points, instead of the normal 25 bps steps. The RBI Monetary Policy Committee cut the repo rate to 5.4%, a little more that what was expected on the street. Subsequently, the reverse repo rate was also cut to 5.15% and the marginal standing facility rate to 5.65%. Governor Shaktikanta Das-led RBI MPC has cut policy interest rates by a total of 110 basis points, in four straight moves since February this year, as growth outlook weakens and inflation remains well under the central bank’s comfort level.

Meanwhile, liquidity in the system has turned surplus (for the first time) since the MPC’s last meet in June. A review of the liquidity framework will be crucial in determining the outlook for money market rates, which is underway. Another major expectation from the central bank is the further revision of its prompt corrective action guidelines allowing the remaining banks functioning under this scheme to start lending.

[Rahulsidhu]

RBI is behind the curve. Both them and Govt. are underestimating the slowdown.

[Suraj]

RBI is behind the curve. Both them and Govt. are underestimating the slowdown.

I agree with that . RBI is doing a rather poor job of keeping track of real interest rates and it’s impact on growth momentum lately . The MPC hasn’t done as well as they could .

[Rahulsidhu]

I watched a bit of the post meeting Q&A. It was just painful to watch. In a response to a Q about why real rates are > 2%+, the gov. just mumbled something about closing the output gap. I would love to see the analysis they did which said they need to cut 35 in order to close the output gap but not 50.

In response to another Q about why banks are not transmitting and if they are cartelising, he denied this. To me, it it clear that transmission is broken and it should be raising reg flags. Apart from the high rates, this is the big issue. Seems absurd that in a system where small merchants can be compelled to pass on GST cuts, highly regulated banks are not being forced to cut lending rates.