Indian Economy: News and Discussion (June 8 2008)

Muppalla
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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Muppalla » 27 Jul 2009 20:09

Is India doling out contracts to China?

NEW DELHI: Are Indian manufacturers being overlooked and Chinese made equipments being preferred for power projects in India?

If construction major Larsen & Toubro's chairman and managing director's concerns are anything to go by, then Indian companies are being shortchanged by government’s policies that inadvertently tilt the scales in favour of Chinese companies.

At a time when India-China rivalry has left relations at the lowest ebb, come complaints from industry heads of 'buy China' bias, that gives Chinese companies inordinate advantage over their Indian counterparts.

A letter written to the Finance Minister last month ahead of the Union Budget, L&T CMD A M Naik expressed concerns over import of Chinese power equipment to India that totalled nearly 8.3 billion dollars, while Chinese taxation model struck down any hopes of Indian exports to China.

The letter is in the possession of Times Now.

The letter points out that India is following the 'buy Chinese' policy in which international tenders are not floated to give China Advantage. It also says that Indian power companies changed specifications to suit Chinese manufacturers and that the Indian manufacturers are being overlooked and Chinese exporters incentivised.

The letter also points that exports from China is to the tune of $8.3 bn while Indian exports to China is negligible

Katare
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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Katare » 27 Jul 2009 23:00

Tax to GDP ration would decline to 10.9% this year from 11.8% last year. Ideally Tax/GDP ratio should be around ~18%.

Link

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Hari Seldon » 28 Jul 2009 00:03

RBI report on India’s forex reserves

As at end-March 2009, out of the total foreign currency assets of US$ 241.4 billion, US$ 134.8 billion was invested in securities, US $ 101.9 billion was deposited with other central banks, BIS and the IMF and US$ 4.7 billion was in the form of deposits with foreign commercial banks / funds placed with the External Asset Managers (EAMs) (Table 5). A small portion of the reserves is assigned to the EAMs with the objective of gaining access to and delivering benefit from their expertise and market research.


Some commentary on the above can be found at the following link.
Link

HS

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Suraj » 28 Jul 2009 06:07

RBI forecasts 6.5% GDP growth in current fiscal
India’s economy may grow at a faster pace than earlier forecast this year, the central bank said, reducing the chance of a cut in the key policy rates tomorrow.

Asia’s third-largest economy may expand 6.5 percent in the year ending March 31, the Reserve Bank of India said, citing a survey of eight estimates it conducted in June from agencies including the World Bank and the Asian Development Bank. The survey in March had estimated a 5.7 percent gain.

“The macroeconomic outlook of the Indian economy, based on various business expectation surveys indicates that the earlier decline in overall business sentiment has reversed,” the central bank said in a report on the economy ahead of the monetary policy announcement tomorrow. “Emerging lead information indicates firming up of inflation over time.”

The central bank’s report on growth and inflation suggests Governor Duvvuri Subbarao may not lower interest rates further from the current record lows. The bank slashed rates six times since October while the government cut taxes and stepped up spending to support the local economy as the global economy sunk deeper into a recession.

“The RBI’s key interest rates look set to remain unchanged for some time,” said Robert Prior-Wandesforde, a senior economist at HSBC Holdings Plc in Singapore. “The expansionary budget and prospect of a pick up in wholesale prices in the months ahead makes a near term rate cut unlikely.”

The inflation rate has been subdued because prices rose faster in the same period last year, the central bank said, adding that the outlook could change “with the waning of last year’s high base effect”.

“The monetary response to these developments would require continuous coordination with fiscal policy,” the central bank said in its report.

Finance Minister Pranab Mukherjee’s budget for the year to March 31 has added to inflation risks. Mukherjee, who wants to spur growth to 9 percent a year, on July 6 stepped up spending on roads and aid to poor, widening the budget deficit to 6.8 percent of gross domestic product. It would result in record borrowings of 4.51 trillion rupees ($94 billion) this year, the finance ministry estimates.

The economy grew 6.7 percent in the year ended March 31, the weakest pace since 2003.

India May Signal End to Sharpest Round of Rate Cuts
The Reserve Bank of India will hold its reverse repurchase rate at 3.25 percent, according to 20 of 23 economists in a Bloomberg News survey. The central bank, which cut borrowing costs six times between October and its last quarterly meeting in April, will release its decision at 11:15 a.m. in Mumbai.

Governor Duvvuri Subbarao is preparing the ground to gradually tighten monetary policy as consumer demand and investments revive. Inflation risks have increased after Finance Minister Pranab Mukherjee this month announced plans to raise spending and widen the budget deficit to a 16-year high to shield India from the worst global recession since World War II.

“We see monetary policy moving to a neutral phase before tightening begins,” said Mridul Saggar, chief economist at Kotak Securities Ltd. in Mumbai. “Inflation may be at 8 percent by March,” double the central bank’s forecast made in April, Saggar said.

India, which announces final inflation numbers after a two- month lag, raised its estimate for the benchmark wholesale price index in the week ended May 16 to 1.65 percent from 0.61 percent, indicating the gathering pace of price gains.

Consumer price indexes that measure the cost of living for industrial and farm workers were also running at between 7 percent and 10 percent in May, stoked by high food costs.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby neel » 28 Jul 2009 18:23

Katare wrote:Tax to GDP ration would decline to 10.9% this year from 11.8% last year. Ideally Tax/GDP ratio should be around ~18%.

Link



5% for Defense
+ 2% for non-Defense Central Bureaucracy
+ 2% for State Bureaucracies
+ 2% for Municipal Services
+ 4% for Public half of 8% Infrastructure
= 15% total

What is the other 3%?

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Suraj » 28 Jul 2009 21:38

I believe the tax GDP we're reporting is federal tax/GDP. I recall references in the past that including states collections, tax/GDP was around 16-17%. I'm not sure how you got the figure on expenditure by states and municipalities. Further, we don't spend 5% of GDP on defence, but 2-2.5%. Spending 5% of GDP would mean our defence budget is over $60 billion, which isn't anywhere near the case.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Katare » 28 Jul 2009 23:10

Federal Tax to GDP ratio after appropriating state's share comes down to 7-9% of GDP depending on the economic growth in that particular year(although GoI has other non debt creating revenue streams that add up to 1-3% of GDP).That is the total money available for federal govt.

Major head of expanses are

Interest payment on federal debt - 3 to 5%
Defense -2 to 3%
Subsidies - ~2%
Plan and non plan expenditure on -
- Education
- Agriculture
- Infrastructure
- Internal security
- Social sector (Courts, adminstration, licensing, govt services, regulators etc)
- xyz

Chinese and western democracies report 16-18% of GDP as tax collection for central govt. The figures may not be directly comparable as the taxing structure may be different. But almost universally everyone accepts that Indian federal Tax/GDP ratio is well below the international norm for substantive countries (both developing and developed).

Couple of reasons that comes to mind for this low taxation-

1) Agriculture is not taxable (although this factor is declining, Agri sector is below 20% of GDP now)
2) Most of the Service economy (which is 51% of GDP) is still out of tax net (service taxes were started in early 90s, govt provides lot of services)
3) Small industrial base as a percentage of GDP as compared to our peers like China etc
4) Tax evasion
5) Poorly employed political tax exemptions (political orphan industries like security companies, courier companies’ pay 39% tax while some large highly profitable IT companies would pay 0 to 10% tax). This brings average effective tax rate well below 20% for indian industry although statutory rate ~34%.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Adrija » 28 Jul 2009 23:41

Small pedantic clarification- as per the Constitution, agriculture is taxable, but by the state governments, who have largely chosen not to exercise this right. Reasons we may all speculate about, of course

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby neel » 29 Jul 2009 02:09

Suraj wrote:I believe the tax GDP we're reporting is federal tax/GDP. I recall references in the past that including states collections, tax/GDP was around 16-17%. I'm not sure how you got the figure on expenditure by states and municipalities. Further, we don't spend 5% of GDP on defence, but 2-2.5%. Spending 5% of GDP would mean our defence budget is over $60 billion, which isn't anywhere near the case.



I was referring to the ideal situation, in response to the statement that ~18% is ideal.

In any case, I forgot 3% for fundamental research, which brings the total to 18% for center-state-municipalities combined. This of course excludes government mandated transfer payments (i.e., subsidies and the taxes that fund them), whose ideal level (IMHO) is Rs. 0.

In terms of the actual situation, the national income/product statistics released by CSO list GFCE (i.e., Governmental Final Consumption Expenditure) as a major heading.

neel
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Re: Indian Economy: News and Discussion (June 8 2008)

Postby neel » 29 Jul 2009 04:27

Katare wrote:Federal Tax to GDP ratio after appropriating state's share comes down to 7-9% of GDP depending on the economic growth in that particular year(although GoI has other non debt creating revenue streams that add up to 1-3% of GDP).That is the total money available for federal govt.

Major head of expanses are

Interest payment on federal debt - 3 to 5%
Defense -2 to 3%
Subsidies - ~2%
Plan and non plan expenditure on -
- Education
- Agriculture
- Infrastructure
- Internal security
- Social sector (Courts, adminstration, licensing, govt services, regulators etc)
- xyz

Chinese and western democracies report 16-18% of GDP as tax collection for central govt. The figures may not be directly comparable as the taxing structure may be different. But almost universally everyone accepts that Indian federal Tax/GDP ratio is well below the international norm for substantive countries (both developing and developed).

Couple of reasons that comes to mind for this low taxation-

1) Agriculture is not taxable (although this factor is declining, Agri sector is below 20% of GDP now)
2) Most of the Service economy (which is 51% of GDP) is still out of tax net (service taxes were started in early 90s, govt provides lot of services)
3) Small industrial base as a percentage of GDP as compared to our peers like China etc
4) Tax evasion
5) Poorly employed political tax exemptions (political orphan industries like security companies, courier companies’ pay 39% tax while some large highly profitable IT companies would pay 0 to 10% tax). This brings average effective tax rate well below 20% for indian industry although statutory rate ~34%.


1) This is effectively true for all western countries (c.f. Doha round of WTO).
2) Service economy is either large scale (i.e., attracting corporate tax) or small enough to be in the black market (viz. #4); hence, this is not a separate factor.
3) This again, is only significant inasmuch as the service sector is generally in the black market (c.f. #2).
4) This is the main reason that tax collections are so low.
5) This is true in western countries (e.g., in 2006, Boeing payed -80%, while RiteAID payed 34.5%).

B.T.W., at least in US (which is the only western country with multiple political subdivisions even remotely comparable to Indian states), 3 of the 18% of GDP in tax collection is given to the states to administer for infrastructure and education. Moreover, in 2008, GFCE in US was 20.2% of GDP, with 7.5% disbursed by the central government and 12.7% being disbursed to the states and municipalities (including ~5.7 for government schools that largely crowd out private actors, ~2 for municipal government services, ~2 for state government services, and ~3 for infrastructure). Which means of the 18% collected by the central government in taxes (and 2% borrowed), with 3 transfered to the states, an additional 9.5 went to subsidies/income redistribution, while 7.5 was spent on government services (5.1 for defense, .5 for non-defense research including space programme, and 1.9 for other central bureaucracies). Thus, excluding subsidies and interest on national debt, the tax revenue retained by the US central government to fund proper government services amounted to 7.5% of GDP.

To have this same level of direct service provision in India, with 2% of GFCE met through non-tax means, would require (7.5%-2%=)5.5% + 2% for subsidies + 4% for interest on national debt (formally included under either imports or private services in national income/product accounts) = 11.5%. If you further assume that the public side of infrastructure funding should be borne in a 3:1 centre:states ratio, then the desired central tax:GDP ratio comes to 14.5%.

In any case, my (corrected) opinion as to the ideal level of GFCE is (as % of GDP):

5 for defense
+ 1 for non-defense research
+ 2 for non-defense central government
+ 2 for state government
+ 2 for municipal government
+ 4 for public half of infrastructure
=16% of GDP total (of which 8, plus the central portion of the 4 for infrastructure, is collected by the central government)

Assuming the same 3:1 centre:state ratio of expenditure in infrastructure budget puts ideal central tax collections at 11% (since ideally the subsidy regime would be eliminated, with the non-borrowed funds freed thence going to supplement defense and research budgets, and all PSU's would be fully disvested with the proceeds going to pay off the national debt and build foundational infrastructure (e.g. canals, harbours, tunnels, and mountain passes) [which are typically a one-time large expenditure followed by relatively small maintenance expenses], eliminating interest as a liability of the taxpayer and PSU dividends as a substitute for tax revenue - making politicians more dependent on taxpayers, by reducing the availability of cronies (viz. PSU sycophants) upon which to depend, and balancing budget in the process).
Last edited by neel on 29 Jul 2009 08:02, edited 1 time in total.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Suraj » 29 Jul 2009 05:15

You want 5% of GDP on defence ? You're gone from being an economics wonk to a warmonger :twisted:

So far GoI's initial statements seem to be that disinvestment earnings will funs the 'flagship social sector projects'. You know what they are. I like the idea of using disinvestment earnings on fixed asset investment. Another avenue of funding is tax advantaged infrastructure bonds that some entity like IIFCL issues. Rather than fund infrastructure just out of revenues (disinvestment proceeds go under the capital account, do they ?), I'd rather see funds come from disinvestment proceeds and debt issues. Instead of depending on GoI to remain fiscally responsible, I'd rather they were constrained to be so; it is more sustainable.

Also, there's another aspect to infrastructure, and that is skilled labour. As has been discussed very recently in the infrastructure thread, lack of low/medium skilled labour is a significant impediment to fast implementation, and probably more a concern than money today. Various entities have come up with flexible and innovative means to fund implementation, but the lack of construction labour remains a pressing issue.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby ShauryaT » 29 Jul 2009 06:09

Suraj wrote:So far GoI's initial statements seem to be that disinvestment earnings will funs the 'flagship social sector projects'. You know what they are. I like the idea of using disinvestment earnings on fixed asset investment.
That is what they will claim they are doing, e.g: the claim is NREGA is used to build infrastructure in rural areas and hence creating assets and hence the corresponding deficit from these expenditures should not be a major concern - is this true?

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Suraj » 29 Jul 2009 07:33

Neel was referring to big ticket construction work, not just small scale village infrastructure. Also, NREGA is biased towards employment, more so than fixed asset creation. It specifically forbade use of mechanisation earlier, because 'it lowered employment potential', and only in the most recent budget was there a statement indicating relaxation of the restriction, though it's not clear to what extent mechanisation is allowed.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby neel » 29 Jul 2009 07:51

ShauryaT wrote:
Suraj wrote:So far GoI's initial statements seem to be that disinvestment earnings will funs the 'flagship social sector projects'. You know what they are. I like the idea of using disinvestment earnings on fixed asset investment.
That is what they will claim they are doing, e.g: the claim is NREGA is used to build infrastructure in rural areas and hence creating assets and hence the corresponding deficit from these expenditures should not be a major concern - is this true?


It would be of little concern were the book values of the assets in question in excess of the bonds issues to build them (i.e. if the assets don't depreciate immediately).

Unfortunately, as with any redistribution programme, there is little interest in the results of the work; the only interest is a rhetorical cover for the blatant vote buying scheme that is NREGS. Many of the "assets" are loosely packed dirt filling in freshly dug holes. As such activity only marginally improves the value of the asset (in this case the land where the hole was dug is improved by aeration of the soil), it's increase in value (which depreciates as soon as a non-negligible flood compacts the soil again) does not provide an asset that could in theory be held on the books in balance with the liability accruing from the bond issue that raised funds for the project so as to keep the net worth positive.

That is why I would like to see the bulk of the proceeds from disvestment go to bedrock infrastructure, i.e. those infrastructure projects that depreciate relatively slowly (on a time scale of several years before major maintenance is needed). The best example is that once you cut a mountain pass with explosives it takes hundreds of years for the wind and rain to wear away the new terrain - and even then the rest of the mountain becomes a pass, not vice versa. Similarly, once you clear and level the path of a canal, it won't need to be redone for decades. Once you dig a channel for a harbour, it does not need dredging for years. Once you bore a tunnel, it only needs slightly more maintenance than a overground road. Once you build a dam, it may hold for decades with little maintenance. Steel bridges can last centuries with just a fresh coat of paint every few years; as can sewer pipes and railway tracks (both above and below ground).

Most of these projects need some degree of mechanisation, or explosives. Although the Panama Canal was built by hand with only a handful of steam driven shovels.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby neel » 29 Jul 2009 08:00

Suraj wrote:You want 5% of GDP on defence ? You're gone from being an economics wonk to a warmonger :twisted:


To monger war would mean to promote defence spending in excess of one's potential adversaries. China, US, and Pakistan all spend >4% of GDP on military activity. I merely advocate that India not be left behind.

So far GoI's initial statements seem to be that disinvestment earnings will funs the 'flagship social sector projects'. You know what they are. I like the idea of using disinvestment earnings on fixed asset investment. Another avenue of funding is tax advantaged infrastructure bonds that some entity like IIFCL issues. Rather than fund infrastructure just out of revenues (disinvestment proceeds go under the capital account, do they ?), I'd rather see funds come from disinvestment proceeds and debt issues. Instead of depending on GoI to remain fiscally responsible, I'd rather they were constrained to be so; it is more sustainable.


I am pretty sure that it would take the supreme court interceding to stop them from claiming NREGS as cap. ex. But, I do agree that actual cap. ex. on infra. is the most appropriate use for the proceeds of disvestment (especially since, IMHO, infra. is for what the money that ended up going to PSU sops should have been reserved).

Also, there's another aspect to infrastructure, and that is skilled labour. As has been discussed very recently in the infrastructure thread, lack of low/medium skilled labour is a significant impediment to fast implementation, and probably more a concern than money today. Various entities have come up with flexible and innovative means to fund implementation, but the lack of construction labour remains a pressing issue.


This will take time to fix; but as long as demand is sustained and prices are allowed to float, supply will rise to meet demand as quickly as is feasible.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Atish » 29 Jul 2009 09:16

The plantation sector is taxed but I believe 4 crops only, Tea, coffee, rubber and one more maybe teak. Used to be punitive taxation in some states on these, still in the 35% range, but dont know whats the rate in Bengal, Tamil nadu etc.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby ShauryaT » 29 Jul 2009 19:50

neel wrote:That is why I would like to see the bulk of the proceeds from disvestment go to bedrock infrastructure,
I have no disagreement that disinvestment funds are best utilized to build core/large infrastructure but based on the past record have no such confidence on both counts. 1. Do not believe that this government will disinvest, at least not enough to result in institutional design changes. 2. what they will disinvest, those funds are more likely to result in social welfare programs and other subsidies and government waste. However, that is just my skeptical and biased mind.

Moving on to NREGA, beyond turning over the soil there is much that can be done, to improve rural quality of life, if not "infrastructure", which may not need "mechanization". Building toilets (60% of the sewage in the country is untreated, higher in rural areas), building check dams, irrigation of more fields, investing in hygiene - like paying someone to collect garbage, separation of bio-degradable garbage from non, and disposing them appropriately, maybe building a small roof over a school, instead of children reading under a tree, using the funds to train people to acquire non-farm skills, paying for health clinics, etc.

My point is between the large infrastructure projects of rural electrification, roads and others, India needs a plethora of small projects. They may not meet the balance sheet definition of "assets" but if the funds are used to invest in improving rural quality of life then I did be happy, but the proofs that this is what is actually happening are hard to come by.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Suraj » 29 Jul 2009 22:10

ShauryaT: What neel mentioned was not that the NREGA is unproductive as a program, but that it is neither sufficiently audited for asset creation or productive output, nor is it even a program focussing on either, but just intends to employ people. I'd be very happy with NREGA if it were modified into an audited rural infrastructure and economic activity generation scheme, say by combining it with and expanding the scope of the Bharat Nirman program.

Just a few days ago, I posted an article about how NREGA effectivity is tied to many localized factors, including distance to the nearest town. While we'd like to view it as a uniformly effective program that helps improve rural life, in reality it is affected by several localized variables, as the article indicates.

As for disinvestment, I think this GoI will do it for one good reason - to erode communist influence by cutting unions down to size. However, they've already indicated that they'll probably channel the proceeds into their flagship social sector programs, e.g. NREGS.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby svinayak » 29 Jul 2009 23:20

Lights Go Out in New Delhi as Billionaire Ambani Brothers Feud
http://www.bloomberg.com/apps/news?pid= ... izGOqvsu8M

By Abhay Singh

July 29 (Bloomberg) -- About 50 kilometers (31 miles) east of New Delhi, along a rutted dirt track through fields of corn and barley, lies an empty plot of land where a power plant was supposed to have stood, pumping electricity to alleviate blackouts in India’s capital.

Instead, there are rows of freshly planted saplings, two rusting corrugated metal sheds and a sign on one of them reading, “Reliance Energy Generation Ltd.”

The plant is four years late and a victim of a corporate feud between India’s richest resident billionaires, Mukesh Ambani, 52, and his brother Anil, 50. The two split the Reliance group in 2005 following a fight for control, three years after their father and the company’s founder, Dhirubhai Ambani, died without leaving a will. The conflict has persisted with a legal spat over supply of gas from Mukesh’s company that Anil’s plant needs.

“The loser is not just the brothers, but the whole country,” said Walter Rossini, who manages $283 million in an India fund at Aletti Gestielle in Milan. Power shortages impede development in India as more than 400 million lack electricity and supply falls short of peak demand by 16.6 percent, the World Bank said in June.

In the four years since the split, the feud has led to stalled projects, a court battle and a scuttled merger that may benefit a rival. In the case of the North India power plant, Anil claims his brother is refusing to honor an agreement that fixed the price, quantity and tenure of gas supply needed to start generating electricity.

Mukesh Ambani declined to comment for this story through his spokesman. Anil didn’t respond to questions sent by e-mail.

‘Monopolistic’ Producer

At a shareholder meeting yesterday, Anil directly attacked his brother’s business, Reliance Industries Ltd., India’s biggest company by market value, as a “monopolistic gas producer” that is going back on its word for the sake of greed.

“It is unfortunate that Reliance Industries has tried every trick in the book and apparently several outside the book to back out of its solemn, legal and contractual obligations,” he said.

The differing styles of the brothers -- who live under the same roof with their mother, Kokilaben -- were once seen as complementary. Mukesh was the traditional tycoon who helped build the company’s oil refinery, and Anil the financial wizard who steered the sale of a 100-year bond in the U.S.


Divisions have grown between Mukesh, who owns a cricket team, and Anil, who is funding movies for Steven Spielberg’s DreamWorks SKG and is married to a former Bollywood actress.

‘Bruising Egos’

“Both brothers have big, bruising egos,” said Nigel Nicholson, a professor at London Business School and co-author of “Family Wars: Classic Conflicts in Family Business and How to Deal with Them” (Kogan Page, 288 pages, $24.75). “Mukesh is very much the traditionalist, wanting to build a big industrial empire. Anil is highly political, wanting to go off and do his own thing.”


The clash is spurring investors to take positions in both brothers’ companies to cover themselves. The combined market value of their listed businesses grew fivefold to 5.2 trillion rupees ($108 billion) since they separated.

“Not knowing what will be the legal outcome, I prefer to hedge between the two,” said Aletti Gestielle’s Rossini, explaining his decision to own both Mukesh’s Reliance Industries and Anil’s Reliance Natural Resources Ltd., the parties on either side of the gas dispute.

Father’s Death

The first murmurs of the discord surfaced five months after their father died. In December 2002, Anil didn’t attend the unveiling of a mobile phone venture led by Mukesh. In July 2004, Reliance Industries’ directors approved a proposal to give Mukesh power to overrule Anil’s decisions, bringing the division to a head.

Under the 2005 agreement to split the Reliance group, Mukesh kept the petrochemicals, oil and gas units along with the flagship company, Reliance Industries. Anil got newer businesses such as power, telecommunications, financial services and entertainment. Both retained rights to the Reliance name.

In October 2007, Anil’s side of the business complained to the Indian markets regulator that Reliance Industries was trying to stall the initial public offering of the younger brother’s Reliance Power Ltd.

Merger Blocked

Last year, Mukesh bought the Mumbai Indians cricket team in the Indian Premier League, the country’s biggest sporting franchise, and was seen at stadiums supporting his side. Anil, who is married to former Bollywood film star Tina Munim, announced an $825 million plan July 15 to fund Spielberg’s DreamWorks after its split with Paramount Pictures.

‘Image Management’

“Mukesh is trying to show he’s not a boring technocrat,” said Hamish McDonald, the Sydney-based author of “The Polyester Prince: The Rise of Dhirubhai Ambani” (Allen & Unwin, 296 pages, out of print), an unauthorized biography of their father. “There is a bit of image management going on, on both sides.”


The natural gas at the center of the latest dispute was discovered by Reliance Industries off the eastern coast of India in 2002, before the brothers separated. About a fourth of the power plant’s planned 8,000-megawatt capacity was meant for New Delhi, Anil told the Press Trust of India in August 2006. The city’s residents confront 8-hour-long power cuts that shut down air conditioners and fans in 45 degrees Celsius (113 degrees Fahrenheit) summer heat.

On June 15, Anil’s Reliance Natural won a case in the Bombay High Court, asking Reliance Industries to honor the 2005 family agreement, under which it was to supply 28 million cubic meters of gas a day at $2.34 per million British thermal units for 17 years. Reliance Industries shares fell the most in five months the day of the High Court ruling, while Anil’s company jumped 24 percent.

Court Battle

The dispute over the gas supply contract is scheduled to be heard in the Supreme Court, the country’s highest judicial body, on Sept. 1. Its decision can’t be appealed.

India’s oil ministry has become party to the case in the Supreme Court. Oil Minister Murli Deora said it is “unfortunate” that companies owned by the Ambani brothers sought to divide up the gas, a “national property.”

“It really doesn’t belong to them, but to the people of India,” Deora said by telephone from New Delhi on July 21.

At yesterday’s meeting for Reliance Natural shareholders, Anil criticized the oil ministry for interfering in a commercial dispute.

“This bogey of sovereign ownership is being raised with the sole purpose of attempting to bail out Reliance Industries and help them renege on their contractual commitments,” Anil Ambani said.

If Anil’s Reliance Natural loses the case in the Supreme Court, it will cast doubt over the entire 2005 separation agreement between the two brothers, said a person familiar with Anil’s case who declined to be identified because the matter is yet to be decided by the courts. The 2005 agreement has an indemnity clause, under which Anil can seek compensation if he can prove damages in court, said a person close to Reliance Industries who wouldn’t be identified because he wasn’t authorized to speak publicly on the matter.

‘Disturbs Investors’

“The new developments we hear about disturbs investors,” said Juno Madan, who manages $500 million of Indian stocks at New York-based Brahma Management Ltd., including shares of Reliance Industries and Reliance Communications. “They really should bring the feud to a close or it will affect them negatively.”


The men’s father, Dhirubhai, who was the son of a school teacher, founded Reliance using money earned during a stint in Aden, Yemen, where he worked at a gas station and sold petroleum lubricants. Back in India, Dhirubhai began trading yarn and spices, going on to make textiles, manufacture petrochemicals and refine oil.

Fortunes Shrank

The feud has begun to hurt the brothers’ deals. Anil’s inability to pursue a transaction with South Africa’s MTN proved to be billionaire Sunil Mittal’s gain. Mittal’s company, Bharti Airtel Ltd., Anil’s chief rival in the Indian cell-phone market, resumed talks with MTN when negotiations with Reliance Communications fell through. Mittal had unsuccessfully tried to strike a deal with MTN last year before Reliance Communications.

“If they drag on the fight too long, it might come to haunt them,” Madan said. “In this case it was Bharti that took advantage of it. Tomorrow it will be some other company.”

The global recession saw Mukesh’s fortune shrink to $20.8 billion in 2008 from $49 billion in 2007, according to the Forbes India rich list. Anil’s wealth contracted to $12.5 billion from $45 billion over the same period.

Mukesh, who lives with his family on separate floors to Anil’s family in Sea Wind tower in south Mumbai, is building a new $2 billion, 27-story tower, some 10 kilometers from Sea Wind on Altamount Road.

In February, the brothers were seen together welcoming guests at the 75th-birthday party of their mother, sparking rumors in the Indian media of reconciliation. The mother, who brokered the 2005 agreement, may be the only one keeping the feud in check, McDonald said.

“It’s become quite a heated internecine battle,” he said. “It’s not going to be patched over easily.”

To contact the reporter on this story: Abhay Singh in New Delhi at abhaysingh@bloomberg.net

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Suraj » 30 Jul 2009 00:15

Note that our officially reported FDI data does not include the reinvested component that others like China include, so it will appear smaller than reality if compared:
FDI slips by over 43% to around $2.2 bn in May
India's foreign direct investment (FDI) declined by over 43 per cent to around $2.2 billion in May, 2009, compared to $3.9 billion in the same period last year on account of global recession.

"FDI was around $2.2 billion in May," Department of Industrial Policy and Promotion Secretary Ajay Shankar told reporters on the sidelines of a seminar organised by CII-Institute of Logistics.

And "we think that liquidity is improving and confidence in the economy is rising. These numbers (FDI) should pick up," Shankar said.

The government had scaled down the FDI target by $5 billion from $35 billion last fiscal. Cumulative FDI from April 2000 to March 2009 stands close to about $90 billion.

Thanks to robust trends in the first six months of the last fiscal, FDI in 2008-09 was $27.3 billion against $24.5 billion in 2007-08.

Companies Bill likely to be re-introduced this week
The new Companies Bill, 2008, which lapsed after the 14th Lok Sabha was dissolved, is likely to be re-introduced in Parliament this week, official sources said.

It plans to make amendments including incorporation of class action suit and specifying accountability of independent directors in the Bill. Further, the government also seeks to make norms for auditors tougher and corporate governance norms more stringent.

Former Corporate Affairs Minister Prem Chand Gupta had said there was a case for re-looking at certain provisions of the Bill to enable the government to take swift and more effective action in cases of large scale frauds.

The Companies Bill, which seeks to replace the 52-year-old Companies Act 1956, was tabled last year in the Lok Sabha paving the way for radical changes in the country’s regulatory environment for corporates while limiting the government’s role and empowering shareholders.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby vera_k » 30 Jul 2009 12:52

Suraj wrote:As for disinvestment, I think this GoI will do it for one good reason - to erode communist influence by cutting unions down to size.


Manmohan Singh and Congress have gone on record dissing disinvestment and have said that some minority stakes will be sold at the most. I believe this is because the U Progressive A cannot afford to antagonise it's own communist support base in the unions.

What makes you think that disinvestment will happen during this government's tenure?

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby ShauryaT » 30 Jul 2009 19:06

vera_k wrote:
Suraj wrote:As for disinvestment, I think this GoI will do it for one good reason - to erode communist influence by cutting unions down to size.


Manmohan Singh and Congress have gone on record dissing disinvestment and have said that some minority stakes will be sold at the most. I believe this is because the U Progressive A cannot afford to antagonise it's own communist support base in the unions.

What makes you think that disinvestment will happen during this government's tenure?
I did not respond as disinvestment is tightly linked to politics. To each his own views on the issue. For India's sake, I hope Suraj is right and I am wrong.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby MurthyB » 31 Jul 2009 06:05

I had a stupid question for the gurus here. I recall that India's forex reserves were continuously growing for a while, maybe until 3-4 years ago. After that they seem to have balanced off and are now at around 250B. Why doesn't it grow? Does India spend it instead, with the idea that this much reserve is enough, or does it have to do with trade imbalance these days due to oil imports?

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Suraj » 31 Jul 2009 06:32

Update on SEZs:
Exports from SEZs reach almost Rs.100,000 crore ($21.5 billion) in 2008-09
"Exports worth Rs 99,689 crore have been made from SEZs during 2008-09 registering a growth of 50 per cent over the exports for the year 2007-08 ... Projection of exports for 2009-10 is Rs 1,10,000 crore," Minister of State for Commerce and Industry Jyotiraditya Scindia said in a written reply to a question in the Rajya Sabha.

Mr. Scindia said that tax-free zones in Andhra Pradesh contributed Rs 2,727 crore to the total SEZ exports.

So far 576 formal approvals have been given for setting up SEZs, of which 319 have been notified.

The country's tax-free enclaves have attracted foreign direct investment of over Rs 10,900 crore in the last three years.

SEZ exports rise 50 per cent to Rs99,689 crore in 2008-09
The value of exports from special economic zones (SEZs) in the country rose 50 per cent to Rs99,689 crore during the 2008-09 financial year, against a 93 per cent jump to Rs66,638 crore in the year 2007-08 financial year.

Exports from Seas had grown 52 per cent to Rs34,615 core in the previous financial year (2006-07), Jyotiraditya M Scindia, minister of state for commerce and industry, informed the Lok Sabha in a written reply.

During the year 2008-09 total exports from SEZs grew 3.5 per cent as compared to a growth of 29.1 per cent during the previous year. The slow growth of export was primarily due to adverse impact of global slowdown on India's exports from the second half of the year, the minister stated.

Exports from SEZs:
2005-06: Rs.22,773 crore
2006-07: Rs.34,615 crore
2007-08: Rs.66,638 crore
2008-09: Rs.99,689 crore
2009-10: Rs.1,10,000 crore (est)

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Hari Seldon » 31 Jul 2009 07:39

Silly question but would appreciate any clarification.

Isn't all of an SEZ's output export? Even if the SEZ output is consumed in India it is technically treated as exports to India and levied customs duty upon.

Or am I totally wide off the mark here?

Thx.

-Hari.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Suraj » 31 Jul 2009 10:21

SEZs are deemed to be outside the customs territory of India, so yes, movement of goods/services into the rest of the country, i.e., the domestic tariff area (DTA) constitutes imports into the country. SEZs are required to maintain a positive foreign exchange earning requirement. Exports are incentivized via tax holidays. Here's a nice site about SEZs.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Prem Kumar » 31 Jul 2009 10:47

Suraj wrote:ShauryaT: What neel mentioned was not that the NREGA is unproductive as a program, but that it is neither sufficiently audited for asset creation or productive output, nor is it even a program focussing on either, but just intends to employ people. I'd be very happy with NREGA if it were modified into an audited rural infrastructure and economic activity generation scheme, say by combining it with and expanding the scope of the Bharat Nirman program.

Just a few days ago, I posted an article about how NREGA effectivity is tied to many localized factors, including distance to the nearest town. While we'd like to view it as a uniformly effective program that helps improve rural life, in reality it is affected by several localized variables, as the article indicates.


Suraj: recent article that hints at what you suggest above - tying NREGS to build assets rather than as employment generation only. Hope it becomes reality and not just a talking point.

http://www.deccanherald.com/content/12216/govt-modifies-nregs.html

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby vina » 31 Jul 2009 11:24

I recall that India's forex reserves were continuously growing for a while, maybe until 3-4 years ago. After that they seem to have balanced off and are now at around 250B. Why doesn't it grow? Does India spend it instead, with the idea that this much reserve is enough, or does it have to do with trade imbalance these days due to oil imports?


There is a nice concept called "Marginal Utility" in Economic (not e-Con-o-mix as pushed by JNU ding dongs mind you). Best explained this way (I think this example is from Sameulsen's book).

Now imagine that you have been stuck in the middle of Sahara for 3 days and are dying of thirst. Now you come across a bedouin and he offers you a glass and says $10,000.. You will willingly pay, because it is life and death and that first glass is extremely valuable to you because of it's extremely strong utility. Now after 2 glasses, you will not be wililng to pay $10,000, maybe you think you can rough it out now, so the next liter you will say I will buy $1000 , which presumably will be able to see you through to the next town. After that, your willingness to pay will drop hugely , coz the utility value decreases .. okay lets you badly want a bath and are willing to pay $10 for say 10 gallons and after that the value drops like a rock when it is close to next to nothing like say 10cents for a 1000 gallons,you will use it for all stuff like watering the plants, washing your horse and everything including the neighbor's yard!.

What is true for something as life sustaining as water, is true for foreign exchange as well. As long as there is pain, the utility is very very high. Beyond a certain point, the utility drops like stone. So you really need just about enough to ensure safety of your currency and external sector and after that it is of little utility. If you stash it, it is just like starving your self and going and buying gold every month. In real terms that is such a terrible waste. Just ask the Chinese, who starved their country of internal spending to create that $2trillion or so of reserves. Now it is next to worthless if they actually try spending it in any quantity and cant get out as well.

Nice no, starve yourself so that the AmirKhans can get fat and now when you want to spend AmirKhan money, you cant because if you do it becomes worthless, so you are stuck with keeping AmirKhan fat and getting fatter, while your dollar paper cash file of IOUs grow to become "tarrel than mountains and deepel than oceans"

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Suraj » 31 Jul 2009 11:31

Prem Kumar: Thanks a lot for catching that news item - excellent new indeed! Pranab's proposal is essentially exactly what I mentioned a few days ago as a possible modified approach. What a coincidence to see an official announcement on the same lines.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby arnab » 31 Jul 2009 12:20

vina wrote:
I recall that India's forex reserves were continuously growing for a while, maybe until 3-4 years ago. After that they seem to have balanced off and are now at around 250B. Why doesn't it grow? Does India spend it instead, with the idea that this much reserve is enough, or does it have to do with trade imbalance these days due to oil imports?


There is a nice concept called "Marginal Utility" in Economic (not e-Con-o-mix as pushed by JNU ding dongs mind you). Best explained this way (I think this example is from Sameulsen's book).

Now imagine that you have been stuck in the middle of Sahara for 3 days and are dying of thirst. Now you come across a bedouin and he offers you a glass and says $10,000.. You will willingly pay, because it is life and death and that first glass is extremely valuable to you because of it's extremely strong utility. Now after 2 glasses, you will not be wililng to pay $10,000, maybe you think you can rough it out now, so the next liter you will say I will buy $1000 , which presumably will be able to see you through to the next town. After that, your willingness to pay will drop hugely , coz the utility value decreases .. okay lets you badly want a bath and are willing to pay $10 for say 10 gallons and after that the value drops like a rock when it is close to next to nothing like say 10cents for a 1000 gallons,you will use it for all stuff like watering the plants, washing your horse and everything including the neighbor's yard!.

"


Theoretically correct :) But I think RBI bases its forex accumulation on more practical factors. The trouble with the marginal utility analysis is in knowing at what point your MU starts to diminish ( why is $250 bn enough and not $500 bn?). IOW if India had only $1 b in her reserves, increasing it by another say $10 b would probably increase your MU (because of the downside risks to the economy).
Most central banks who hold on to forex reserves have some rule of thumb to manage reserves. Typically it is either - say enough to finance 9 months of imports, or enough to repay all your 'short-term' debt (RBI focuses on this - the country should have enough reserves to meet its short term obligations and fundings in the event of some disruption).

Why have we stopped accumulating reserves? Partly due to sterelisation costs. If RBI buys USD - it releases indian rupees in the market, which increses the risk of inflation - which means RBI would have to increase interest rates to dampen inflation. RBI would not want to do this in the current economic environment. So in order to avoid these costs RBI would typically let Rs drift and may be depreciate a bit, rather than risk increasing interest rates.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Suraj » 31 Jul 2009 12:34

Foreign exchange reserves fell because:
* Quarters 1-3 of the last fiscal recorded a current account deficit as a result of high prevailing crude prices at the time.
* Massive pullout of FIIs since between Sept'08 and May'09.

With hydrocarbon prices now leveling off, and FIIs returning, it's no surprise forex reserves have risen from their trough of just under $250 billion to around $265 billion now.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby putnanja » 31 Jul 2009 12:59

40 lakh tonnes of pulses wasted

...
A Headlines Today investigation has exposed how approximately 40,000 to 60,000 tonnes of pulses are lying unused at the Kolkata port. Arhar dal comprises at least 6,000 tonnes out of this and urad dal around 4,000 tonnes.

The colossal waste has been captured on camera by an undercover team of Headlines Today, which visited the Kolkata port with a hidden camera. Also, the port official who certifies that the material imported is fit for human consumption has been unavailable for the last two and a half months, sources said.

The pulses were procured from the international market using taxpayers’ money. Also, around 3 lakh tonnes of yellow peas are lying at the Tuticorin port and a huge quantity of pulses remains unused in the warehouses of the Central Warehousing Corporation.

Despite this, the government has been claiming that there is a severe shortage of pulses and is out to import stocks.
...

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby MurthyB » 01 Aug 2009 00:27

Thanks vina, arnab, and suraj. I guess reasons for its stablilizing seem to be both factors: trade deficit/bad economy and "this much is enough". As far as the chinese go, it doesn't look like they have really starved themselves since they have been building infrastructure at a pace that makes everyone dizzy. If they spent another 1.5 trillion from their reserves, there may not be enough steel and cement in the world to sustain that! Besides, their 2t in reserves, mostly in US currency, is also a great strategic leverage with the US.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby neel » 01 Aug 2009 20:18

MurthyB wrote:Besides, their 2t in reserves, mostly in US currency, is also a great strategic leverage with the US.


This, IMHO, is the real reason for having so much. If not for the strategic issue, they would most likely have stopped at ~$500bn.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Suraj » 01 Aug 2009 20:37

The Japanese have ~$1T . What sort of special strategic leverage do they have ?

There's a limit to how quickly you can absorb current account surpluses, without domestic inflation and/or currency appreciation. Both were anathema to the Chinese. Turning around and buying US debt with their export earnings allows them more headroom when it comes to sterilization efforts.

In our case, the RBI was actively on the same case, trying to both constrain monetary expansion from the rapid capital inflows, and trying to keep the Rupee from appreciating too fast. However, in terms of fraction of total reserves, we've spent far less on US debt.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby neel » 02 Aug 2009 02:55

Suraj wrote:The Japanese have ~$1T . What sort of special strategic leverage do they have ?

There's a limit to how quickly you can absorb current account surpluses, without domestic inflation and/or currency appreciation. Both were anathema to the Chinese. Turning around and buying US debt with their export earnings allows them more headroom when it comes to sterilization efforts.

In our case, the RBI was actively on the same case, trying to both constrain monetary expansion from the rapid capital inflows, and trying to keep the Rupee from appreciating too fast. However, in terms of fraction of total reserves, we've spent far less on US debt.


Besides de facto protectorate status?

Japan and Germany are US protectorates, and finance US current account deficits as tribute.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Suraj » 02 Aug 2009 03:31

I wouldn't quite call protection money as 'strategic leverage', as much as a convenient means of absorbing the rapid current account surplus accumulation, that the Chinese economy itself couldn't absorb fast enough. I don't have historical data, so I don't how consistent Germany and Japan have been as big holders of US debt. However, looking back to a similar lender-borrower situation in the 1980s between the US and Japan, the latter were knifed in the back by the Plaza Accords. A similar devaluation of the USD vs JPY and CNY would result in both those countries reserves losing anywhere between $500B-$1T in value.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Katare » 02 Aug 2009 23:12

Again and again on multiple threads extream exgagerations were made and posted about fake currency and ISI's attempts to launch an economic war on India. Here is one of those very rare "from horse's mouth" official version of the truth....

Four notes out of 10 lakh notes in circulation are fake: RBI

MUMBAI: Out of 10 lakh notes in circulation, only four notes were found to be forged in 2007-08, the Reserve Bank has said.



"... the forged notes detected by the banking system, including the Reserve Bank, in 2007-2008 were four notes in one million notes in circulation," RBI said in a release.

The number of forged notes detected by the banking system in 2007-2008 was 1,95,811 against 4,422.5 crore notes in circulation, the apex bank said.

RBI also said that some media reports have been erroneously quoting the Nayak Committee findings for estimates of forged currency notes in circulation in India.

However, there is no estimate of forged notes in circulation by any agency, the release added.

The Nayak Committee, which was set up in 1988 to go into the dynamics of currency management, estimated the value of notes in circulation in 2000 at Rs 1,69,000 crore.

"The Nayak Committee did not make any study of fake notes and did not give any figure relating to such notes," the release said.

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Re: Indian Economy: News and Discussion (June 8 2008)

Postby Katare » 02 Aug 2009 23:18

Here's another report, same day same paper but peppered with just speculation and scandalism no hard data or facts.

Fake currency from ATMs? Banks in denial

This report has some data-

If fake Rs 500 note bad, Rs 100 a bigger worry

The National Crime Records Bureau (NCRB) of the home ministry has reported that the total value of counterfeit currency seized by law enforcement agencies and recovered through banking channels during 2007, 2008 and January-March 2009, was Rs 10.54 crore, Rs 21.45 crore and Rs 4.09 crore respectively.



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