Indian Economy News & Discussion - Nov 27 2017

[Katare]

What is your beef with Rajan?

He talks too much and on nuanced topics like GST and DeMo he comes out as a person who missed the bus due to his own making and blames the current GoI for that.

GST and DeMo are not nuanced topics both of these are monumental economic reforms.

The second part of your post is what’s often claimed but I have not seen any of his speeches where i found him blaming or unfairly criticizing the govt. The latest speech is also very complementary to current gov’s flagship programs.

He considers GST as the single biggest idea implemented in recent years but he doesn’t consider DeMo to be a correct step. I think he is wrong about it, he is only looking at it from monetary shock pov not holistically as is looked at by the GoI.

I have very low tolerance for anyone sulking or whose views appear even slightly biased against one or the other side. I have obsolutely no interest in left’s economics or their so called articles.

Rajan’s accomplishments at RBI fall way short of brilliance that was expected of him by many yet there is no denying that he is one of the tallest economic guru of our time and his analysis carry a lot of weight.

[Katare]

IMF chief’s post is for politicians not experts and job requires him/her to handle political side of the work. Both Lagarde and Kahn were finance ministers in french govt before appointed as IMF chiefs. Technical side is led by a chief economist like Raghuram Rajan.

RBI governor’s job is for an expert banker or economist, not for the politicians, they have their place at FinMin.

[disha]

GST and DeMo are not nuanced topics both of these are monumental economic reforms.

GST and DeMo are epochal moments and rarely (or seen only first time) in human history and monumental economic reforms and precisely the reason why any discussion on that needs to be nuanced. One cannot blatantly say that economic growth hurt because of GST/DeMo or cause such a causation to be derived from one's utterances.

The second part of your post is what’s often claimed but I have not seen any of his speeches where i found him blaming or unfairly criticizing the govt. The latest speech is also very complementary to current gov’s flagship programs.

He considers GST as the single biggest idea implemented in recent years but he doesn’t consider DeMo to be a correct step. I think he is wrong about it, he is only looking at it from monetary shock pov not holistically as is looked at by the GoI.

Isn't the bolded part a critique? It is not fair for me to say that DeMo is an incorrect step without identify the problems and providing alternate solutions. And you yourself point out that the Rajan is not sharing the broad POV of the GoI. So any statement which appear to be critique of the GoI is thus unfair., since it comes from a very narrow POV.

Rajan’s accomplishments at RBI fall way short of brilliance that was expected of him by many yet there is no denying that he is one of the tallest economic guru of our time and his analysis carry a lot of weight.

I do not have problem with Rajan per se. Being RBI governor is not easy. He is still brilliant and can still contribute significantly. However, him being on the media circuit espousing issues with DeMo or opinion on GST which prima-facie can be twisted into a critique is wrong. I pointed that out very much when I posted that article.

[Supratik]

Bunch of news.

Labour reform.
https://indianexpress.com/article/opini ... p-5458103/

After mobile, cars it is white goods.
https://economictimes.indiatimes.com/in ... 743569.cms

City gas
https://www.financialexpress.com/econom ... n/1388836/

Mobile.
https://indianexpress.com/article/techn ... a-5457529/

[Suraj]

What is your beef with Rajan?

Why do you have the hots for him ? Guy hasn't even been at his job in over 2 years after a brief tenure, and you're still babbling 'RR said...' Who's next ? Kim Kardashian ?

[Suraj]

Its the same with the RBI governor's role. There is a purely economistic aspect to it, wherein the broad policy of inflation-targeting was spelled out by Rajan while dedicating a panel of experts to look into the nitty-gritty of implementation, but the bulk of the work is still the formulation of administrative policy given that RBI is the primary regulator of the country's financial system. In both matters, the governor needs to exercise his judgement - he's not a rubber stamp.

Rajan is demonstrably a bad match for all these responsibilities . He is not a bureaucrat. He's an intellectual who loves public attention. There are more public speeches by Rajan online than by his predecessor and successor combined, despite them together having twice the duration of tenure as his own. What exactly makes him so much more speech worthy ?

Rajan didn't block the demonetization proposal because the govt never asked him to implement it or even told him that such a thing was planned. He was verbally asked his opinion about such an exercise and he gave it as honestly as he could have. Given the sensitivity of the move, if the govt felt that they ideally needed a governor who was personally supportive of the move, well then that's that.

That is a bunch of hearsay since neither you nor I were privy to whatever he decided. Whatever Rajan claims was his reasons, are his own justifications.

[Suraj]

IMF chief’s post is for politicians not experts and job requires him/her to handle political side of the work. Both Lagarde and Kahn were finance ministers in french govt before appointed as IMF chiefs. Technical side is led by a chief economist like Raghuram Rajan.

The RBI governor's job is the same as the IMF chief's post, which is exactly why Rajan sucked at his job - he's more interested in being a publicity hound than actually being an original intellectual contributor. Not a single major successful policy initiative is his own.
DeMo: PMO
GST: FinMin and PMO
MPC: Urjit Patel
Payment Banks: Nachiket Mor

For a technocrat and intellectual, he has no intellectual contribution at all. It's like a university professor without a single primary author credited paper, and just a bunch of meeting minutes attendees logs to show for his mental abilities.

[Prem]

https://www.businesstoday.in/top-story/ ... 93271.html

India's GDP was valued at $2.59 trillion at the end of 2017, while the French economy stood at $2.58 trillion.

As of 2018, the top ten economies of the world are: US $20.51 trillion followed by China at second spot with $13.45 trillion, Japan at $5.07 trillion, Germany at $4.03 trillion, UK at $2.81 trillion, France at $2.79 trillion, India at $2.69 trillion, Italy at $2.09 trillion, Brazil at $1.91 trillion and Canada at $1.73 trillion.According to IMF's projections for 2019, India is likely to be the fifth largest economy in the world surpassing both the UK and France.
The International Monetary Fund (IMF) has predicted India to grow at 7.4 per cent in 2018 and 7.8 per cent in 2019. The IMF has predicted the world's economy to grow at 3.9 per cent over the next year.In a new report titled "The World in 2050," consulting firm PwC projects that India would be the second largest economy in the world with a share of 15 per cent in the world economy. India is predicted to surpass the US economy by the year 2040. This would make India the second largest economy in the world after China.India is currently the fastest growing economy of the world . But, India witnessed slowdown in six successive quarters beginning from June 2016.The reasons for slowdown have been attributed to the increase in oil prices, demonetisation and introduction of goods and services tax (GST).France, on the other hand, had experienced virtual zero growth between 2012 and 2014, with the French economy expanding by 0 per cent in 2012, 0.8 per cent in 2013 and 0.2 per cent in 2014.French economy's growth picked up in 2015 when it posted a growth of 0.8 per cent and a growth of 1.1 per cent for 2016, to a growth of 2.2 per cent for 2017. Currently French economy is growing at 2.1 per cent in 2018.

[Austin]

Seems from those figures nominal GDP between China and India is 6x times. Per Capita PPP would be better benchmark to compare GDP

[Viv S]

Rajan is demonstrably a bad match for all these responsibilities . He is not a bureaucrat. He's an intellectual who loves public attention. There are more public speeches by Rajan online than by his predecessor and successor combined, despite them together having twice the duration of tenure as his own. What exactly makes him so much more speech worthy ?

Not according to the evidence rolled out so far, all of which suggests he did his job about as well as could be expected within the constraints of his office, and he remains fairly well regarded by the markets, investors, industry as well as his peers including the likes of Arvind Subramanian, Bimal Jalan & D Subbarao.

His time on the lecture circuit & book tour doesn't take away from that - there were more public speeches by Rajan than by his predecessor & successor combined before he was appointed to office. That isn't out of character for an economist, which is what he was before taking office, and what has been since demitting office.

Rajan didn't block the demonetization proposal because the govt never asked him to implement it or even told him that such a thing was planned. He was verbally asked his opinion about such an exercise and he gave it as honestly as he could have. Given the sensitivity of the move, if the govt felt that they ideally needed a governor who was personally supportive of the move, well then that's that.

That is a bunch of hearsay since neither you nor I were privy to whatever he decided. Whatever Rajan claims was his reasons, are his own justifications.

The only justification that Rajan gave for not seeking an extension was that "there was no offer on the table."

But the govt did feel him out on the demonetization move just a few months before his tenure was to expire -

"I was asked by the government in February 2016 for my view on demonetisation, which I gave orally. Although there might be long-term benefits, I felt the likely short-term economic costs would outweigh them. I made these views known in no uncertain terms."

"I left the RBI in September 2016, and as I have said in the book, at no point during my term was the RBI asked to make a decision on demonetisation."

"The duty of the central bank and other regulatory bodies is to work together under the overall direction of the elected representatives of the people. You cannot go off in a separate direction. There are some areas where you have a duty to warn, to persuade, to sometimes say no, and that is something I have talked about in the book. As Dr Y V Reddy talked about in his book, you may be against a certain move and you think it is improper but ultimately after making your arguments, it is the government which has to decide. You cannot be a fifth column inside government, undermining the legitimate right of the government to decide."

The RBI governor's job is the same as the IMF chief's post, which is exactly why Rajan sucked at his job - he's more interested in being a publicity hound than actually being an original intellectual contributor. Not a single major successful policy initiative is his own.
DeMo: PMO
GST: FinMin and PMO
MPC: Urjit Patel
Payment Banks: Nachiket Mor

For a technocrat and intellectual, he has no intellectual contribution at all. It's like a university professor without a single primary author credited paper, and just a bunch of meeting minutes attendees logs to show for his mental abilities.

DeMo: "Success" is highly debatable (on a relevant thread) and far from a given truth.
GST: Fiscal reform - nothing to do with the RBI.
MPC: First proposed by M. Narasimham led advisory group setup in 1999. Reiterated by half a dozen committees over the years. Actual draft of Indian Financial Code negotiated between MoF and RBI in 2014-15.
Payment Banks: Mor committee formed by Rajan to do a granular analysis of existing financial inclusion proposals.

In general, it is not the RBI governor's job to participate in expert committees and it would be irresponsible for a governor to invest his time engaged in such an activity instead of focusing on the broader areas of policy.

That being said, Rajan has previously led such study groups. He chaired the Committee on Financial Sector Reforms, drafted the Economic Survey as CEA and then chaired the Committee for Evolving a Composite Development Index of States. And as an economist, he's produced a variety of books and papers, the most famous of which was presented at Jackson Hole in 2005.

[Suraj]

Viv S: do you realize you’re simply reinforcing my argument that Rajan was a poor hire in his role as RBI governor ? The governors role is not one suited to a publicity focused ‘intellectual’ . The role demands minimal public utterances AND has very little oppprtunity to generate first hand intellectual input, and puts a premium on smooth interaction with the government - something he did poorly at .

Getting an extension past 3 years is the norm . That he didn’t is an effective firing because his appointment is at the governments pleasure and the RBI gov is a public servant . For all the claimed ‘independence’, the MPC effectively places govt at the RBIs rate policymaking table .

My problem with Rajan is that his most high profile role is completely unsuited to what he is - a bookish academic . He could have focused his energies on a Nobel as the next Indian laureate but he’s nowhere in that picture either. He’s no Friedman or Nash.

His tenure at RBI was marked by open acrimony, no individual policymaking credit at all, and an early exit . To be quoted as ‘former RBI governor’, the best candidates are those with long tenures, a record of sticking through difficult periods, and ideally primary credit for major policy initiatives . It’s a pity that this fellow gets so much publicity when those with far greater accomplishments as RBI gov do not .

Rajan is liked because he’s a media celebrity like some Bollywood star, and not because he had long fruitful tenure to speak about. As such he is not suitable for this thread - his videos etc will be moved to the discussions of global economy thread where all the general prognosticators go .

[Katare]

IMF chief’s post is for politicians not experts and job requires him/her to handle political side of the work. Both Lagarde and Kahn were finance ministers in french govt before appointed as IMF chiefs. Technical side is led by a chief economist like Raghuram Rajan.

The RBI governor's job is the same as the IMF chief's post, which is exactly why Rajan sucked at his job - he's more interested in being a publicity hound than actually being an original intellectual contributor. Not a single major successful policy initiative is his own.
DeMo: PMO
GST: FinMin and PMO
MPC: Urjit Patel
Payment Banks: Nachiket Mor

For a technocrat and intellectual, he has no intellectual contribution at all. It's like a university professor without a single primary author credited paper, and just a bunch of meeting minutes attendees logs to show for his mental abilities.

IMF chief’s pisition is a post for politicians and RBI governor’s post is for a subject matter experts or professional. RBI governor’s professional counterpart in IMF is it’s chief economist which is always an expert. Although the two posts also widely different from each other, RBI governor wields a lot of executive powers while chief economist’s powers are mostly advisory.

Rest of your post is your assesment of his job performance, your personal and political preferences which you are entitled to and thanks for sharing them.

[Suraj]

It's fairly evident from 4 years of performance data that the RBI chief is expected to have the skills of the IMF chief, not just that of an IMF chief economist. This can be seen from the fact that there's not a single major action that's a result of a committee chaired by Rajan himself. During a period of major economic reform actions, the RBI governor's job is to manage potential issues with its parent entity - the government of India, effectively. Those who disagree are entitled to walk away for their own sake, but need to live with being called a quitter and not a doer. It's not suited for those who can't stick around for at least the duration of major policy actions to be implemented and shepherded to maturity.

[Suraj]

67 Years Later, The Board Is Back In Control Of RBI

But on one aspect there is a clear direction ahead. RBI will now be a board driven organisation. This is likely to be reflected in the next announcement of the monetary policy by the Governor Urjit Patel on 5 December.

It was the first banking crisis, post independence, that of the Exchange Bank case in 1951 which clipped the role of the Central Board of Directors of the Reserve Bank of India and gave overriding powers to the Governor.

The government learnt from the crisis and amended the RBI Act in 1951 to make it clear that the RBI Governor will have overriding powers to deal with emergencies instead of the Central Board of Directors. His decisions on behalf of the Bank would remain above any question in a court of law. For this purpose Section 7(3) of the RBI Nationalisation Act was amended to offer him or his chosen deputy governor “full powers of general superintendence and direction of the affairs and business of the Bank”. They were to “exercise all powers and do all acts and things which may be exercised or done by the Bank”. In another section of the Act for the words “Central Board” the word “the Bank” was inserted to give him the desired independence from the Board when needed. As the official RBI history puts it, this became “logical and necessary to empower the Governor to take appropriate decisions”.

The outcomes of Monday’s board meeting at Mint Road makes it clear that despite the law, the powers are back with the board. It is certainly not an advisory body anymore with directors appointed more for their distinction as public persona than those with domain knowledge of matters banking.

The current composition of the board will therefore have to be carefully evaluated. But that is less important than the way RBI will go about its job. This will also not be unprecedented. The other regulators in the financial sector are all board driven. In fact RBI has more in common with the non financial sector regulators in this respect. The Telecom Regulatory Authority of India or the Central Electricity Regulatory Commission are not board driven entities.

But it is the board of Securities and Exchange Board of India which evaluates all options for a policy and signs off on those. The Insurance Regulatory and Development Board of India also operates in the same manner. The RBI board will also do so from now.

Thus issues of provisioning requirement for non performing assets of banks, as now decided upon by a sub committee will also become matters of the board. The quantum of currency notes to be printed annually and their composition and other stuff will also be the something on which the board will need to consider. Just as the quantum of profits to be retained by RBI and shared with the government has now clearly become the domain of the board. Deputy Governors who had total autonomy in the supervision of the banks will now have to get the broad directions cleared by the board. Any forensic audit of a financial entity has to be signed off by it too.

The only exception to this will be the conduct of the monetary policy for which there is a monetary policy committee, appointed as per the latest amendment to the RBI Act. But nothing else can be decided by the huge bureaucracy of RBI without the consent of the board.

[Suraj]

An excellent article from Jagannathan summarizing the RBI - FinMin faceoff:
Why The RBI Had To Blink, And What It Can Learn From Needlessly Taking On The Finance Ministry

As expected, it is the Reserve Bank of India (RBI) that has had to blink – and blink hard – in its wholly unnecessary confrontation with the Finance Ministry.

After a marathon meeting of the RBI board yesterday (19 November), the Governor has agreed to consider a scheme to restructure the stressed assets of small and medium companies with aggregate loans of upto Rs 25 crore, set up a joint committee to figure out the appropriate level of capital for the RBI and possibly transfer some of the surplus to the government, relax the capital buffer deadline for banks by one year, and re-examine the “preventive correction action (PCA)” norms for weak banks. The only thing on which the RBI did not offer a white flag was easing liquidity for non-bank financial companies, but this may anyway happen if banks now have more resources to lend due to easing capital norms.

One wonders why all this could not have been worked out without the government having to keep a loaded gun on the table by demanding talks with the Governor under Section 7 of the RBI Act. Under this act, the central bank must take directions from the government.

In no earlier confrontation with the government has the RBI ever won – it usually ends with the Governor leaving his job – and it is thus good that this time we did not end up with this scenario, which would have been damaging not only for the RBI, but also the government. Both the RBI and the government thus need to be complimented for pulling back from the brink by attempting to resolve all their issues at the board meeting.

While we can blame the government and the Finance Ministry for not thrashing these issues out behind closed doors, the first step towards the precipice was taken by the RBI, when Deputy Governor Viral Acharya directly attacked the government in a public speech. After that, the government had no option but to collar the RBI in order to save face.

The first lesson to learn from this brinkmanship is that the RBI and the government must always talk their differences out, and it is the RBI’s job to convince the government that it is doing the right thing. It is fair to assume that governments have a shorter political horizon to operate on than the central bank, but it is equally true that the government is accountable to the people while the RBI is accountable to almost nobody.

The second lesson – and this can be considered a gain – is that the RBI board, even though its role is largely advisory in nature, has found its voice. For too long, RBI governors have treated the board as some kind of needless appendage, making little effort to explain what they are doing.

The third lesson for the RBI to learn is that it must have its antenna up for more than just inflation and systemic crises. Take the credit crunch facing small and medium enterprises. Given that the goods and services tax is having its greatest impact on this sector, it could easily have anticipated that this segment of industry will need special credit support. The government has eased their pain by fast-forwarding tax cuts for small and medium companies. The RBI did little, focused as it was only on large bad debts, which it duly despatched to the bankruptcy courts.

While it is nobody’s case that prudential norms must be eased for badly-run public sector banks, the RBI needed to take this issue up with the government behind the scenes. And even if the government was unwilling to cough up the funds to recapitalise these banks, it is in nobody’s interest to get credit frozen at a time when non-bank finance companies were anyway struggling with cash flow issues and small and medium companies were gasping for life.

Shutting down credit when such large segments of the economy are struggling for survival is the worst thing you can do. A weak banking system needs growth options more than just a crimp on its lending options.

[ArjunPandit]

^^this public bravado is the side effect of importing american talent, where public speaking of folks is encouraged. of course one can only speak against DT, with ombaba it was never teh case

[ramana]

S.Gurumurthy on State of the Economy : India and the World
On Rajya Sabha TV:

https://youtu.be/aYvG492Ku8Y

[Suraj]

Booster shot for economy: State governments speed up capital expenditure in Q2

After applying brakes on their capital expenditure (capex) to stick to the fiscal goals in FY18, the state governments have accelerated their capex in the first half of FY19, especially in the second quarter, data reviewed by FE showed. The aggregate capital expenditure by 20 major states in April-September this fiscal was Rs 1.31 lakh crore, 16% higher than in the year-ago period. This is despite the fact that in the first quarter, these states reported flat y-o-y growth in capex.

The capex boost by states could help sustain the overall public spending when the Centre’s ability to keep the expenditure momentum is drying out and it is heavily relying on extra-budget resources (PSU borrowings) to crowd in the elusive private investments. Of course, despite the recent pick-up, the states’ capex is still slightly lagging the budget projections. But that is less than comforting from the fiscal point of view, given that most states aren’t exercising the required control on their revenue expenditure.

The Centre’s capex in H1FY19 stood at Rs 1.63 lakh crore, up 11% y-o-y, but as explained by department of economic affairs secretary SC Garg, in a recent interview to FE, the final H1 capex figure could be some Rs 20,000 crore less once an accounting issue (related to state-level projects co-financed by multilateral agencies) is sorted out. Of course, the Centre may still meet this year’s capex budget of around Rs 3 lakh crore.

Among the states, Uttar Pradesh (151%), Rajasthan (62%) and Gujarat (29%) reported the sharpest acceleration in capex in H1FY19. Uttar Pradesh, whose capex saw a 33% decline in FY18, spent Rs 18,318 crore to create new assets in April-September this year.

The overall expenditure of the 20 states have also gathered pace. Revenue expenditure of the states reviewed by FE (including UP, Bihar, TN, Maharashtra, West Bengal, Kerala, Rajasthan, Madhya Pradesh, Telangana, Odisha, Gujarat, Karnataka and Haryana) in H1FY19 was Rs 10 lakh crore, up 13% year-on-year or 39.5% of the full-year target of Rs 25.3 lakh crore against 38.9% of the relevant target a year ago. Tax revenue of these states stood at Rs 7.5 lakh crore, up 11% y-o-y, and 40.9% of the full-year target of Rs 18.2 lakh crore (41% of the target in the year-ago period).

[Suraj]

Govt to invest Rs 420 bn in PSU banks by March; next tranche in Dec: FinMin

The government will infuse Rs 420 billion in the state-owned banks by March-end and the next tranche would be released as early as next month, a senior finance ministry official said Monday.

The government earlier this year pumped Rs 113.36 billion in five PSBs -- PNB, Allahabad Bank, Indian Overseas Bank, Andhra Bank and Corporation Bank -- to improve their financial health.

"We will infuse the next tranche of recapitalisation by mid-December. Close to Rs 420 billion remain to be infused as capital in public sector banks in the current financial year," the official said.

He said that large PSBs such as State Bank of India and Punjab National Bank (PNB) may not need more capital infusion in the current financial year ending March 2019.

"Some big state-owned banks like SBI and PNB may not need further capital infusion from the government in 2018-19. PNB has already received regulatory capital twice so far," the official said.

State-owned banks will need less capital to meet their capital adequacy norms, as the Reserve Bank of India last week decided to defer the deadline for them to meet the global norms or Basel-III requirement by a year till March 2020.

[Suraj]

Govt revises GDP growth data for past years with base year revision

Recalibrating data of past years using 2011-12 as the base year instead of 2004-05, the Central Statistics Office (CSO) estimated that India's GDP grew by 8.5 per cent in the financial year 2010-11 (April 2010 to March 2011) and not at 10.3 per cent as previously estimated.

Similarly, 9.3 per cent growth rate each in 2005-06 and 2006-07 was lowered to 7.9 per cent and 8.1 per cent respectively, while 7.7 per cent rate was now estimated for 2007-08 instead of 9.8 per cent.

"A complex exercise has been carried out by the Ministry of Statistics and Programme Implementation to update the National Accounts Series. The new series has made significant methodological improvements," Kumar said.

He added that the New Series, with its supporting back series, is "internationally comparable and is in sync with UN Standard National Account." When asked if it is a coincidence that GDP numbers have been revised downwards only for the UPA period, Kumar replied in the negative.

"No it was not a coincidence. It was a matter of hard work done by the CSO officials who had taken the pain to do all the recalibration of economy that they have done," he said, adding, the methodology adopted has been vetted by leading statisticians.

The GDP growth rate for 2008-09 -- the year that witnessed the global financial crisis -- was lowered to 3.1 per cent from 3.9 per cent in the previous estimate. For the following fiscal, the same was revised to 7.9 per cent from 8.5 per cent and for 2011-12, the growth was lowered to 5.2 per cent from 6.6 per cent.

In January 2015, the government moved to a new base year of 2011-12 from the earlier 2004-05 for national accounts. The base year of national accounts had been revised earlier in January 2010.

The so-called back-series data released Wednesday is in contrast to an August 2018 report by the Committee on Real Sector Statistics appointed by the National Statistical Commission (NSC), the autonomous body that helps in collection of data by India's statistical agencies.


In the report, which the government had subsequently stated was a draft seeking comments from stakeholders, the economy grew at a faster pace under the UPA government from 2004-05 to 2013-14, compared with the average growth during the first four years of the current government.

It had put the GDP growth at 10.08 per cent in 2006-07 under the then Prime Minister Manmohan Singh, the highest since the liberalisation of the economy in 1991. The highest ever growth rate since Independence was stated to be at 10.2 per cent in 1988-89 when Rajiv Gandhi was the Prime Minister.

The committee's report has not been accepted and Kumar said the methodology adopted by them was flawed.

Giving reasons for divergence in the data sets, Srivastava said in the new series the share of primary sector in total Gross Value Added (GVA) is higher than that in the earlier 2004-05 series primarily due to changes in the data sources.

In the mining and quarrying sector, regular annual returns of public sector have been used instead of the Indian Bureau of Mines data in the 2004-05 base.

According to the CSO, the share of secondary sector in total GVA has increased in the back-series compared to the 2004-05 series. The increase is largely due to use of Ministry of Corporate Affairs (MCA) data and public sector data in organised electricity and manufacturing sectors, which was earlier sourced from annual reports of private electricity companies and annual survey of industries, respectively.

The share of the tertiary sector, which mainly includes services, in overall GVA has reduced in the back-series compared to the 2004-05 series.

Current fiscal year Q2 (July-Sept) data is going to be released on Friday Nov 30.

[Supratik]

Q2 GDP growth rate at 7.1%.

[Suraj]

GDP data is in line with estimates by analysts beforehand.

Official CSO report: Press note on Q2 2018-19 GDP
Some observations:
* Growth in nominal terms is back to double digits now - 13.8% in Q1 and 12% in Q2 (Statement 4). H1 Nominal GDP growth is 12.4%, up from 8.6% in H1 prior fiscal (Statement 7)
* Despite lower growth in Q2 than Q1, gross fixed capital formation has increased in Q2 from 31.6% of GDP to 32.3% (Statement 2) H1 GFCF is 32%, up over a percentage point from 30.9% in H1 of previous fiscal. Pretty substantial gain. (Statement 6)
* Q1 to Q2 drop in growth is primarily due to a moderation in agri and manufacturing value add. Not bad news as such - manufacturing growth was 13.5% in Q1 due to low base effect, a figure that was hard to duplicate in more quarters. Q2 GVA in manufacturing was 7.4%, not as high but hardly shabby. Electricity and other core sector items actually did significantly better in Q2 (9.2% vs 7.3%). (Statement 1)

Overall, these remain solid numbers. Growing GFCF (investment / GDP ratio) indicates more investment in capacity, which yields more growth in future. The 'drop' is IMHO just a statistical artifact of higher than typical Q1 figures. With the significant deceleration of crude prices below $50/bbl now in Q3, the GDP figures for next 2 quarters should be quite positive.

[hanumadu]

https://www.financialexpress.com/opinio ... d/1400008/
By Surjit Bhalla.

He has been a great defender of the new series for the last few years. A very convincing argument IMO.

This healthy growth in employment was assumed by the CSO in making estimates until the next major NSSO survey, in FY12, became available. [There was a drought-infected NSSO survey for FY10 which was rightfully ignored by the CSO]. However, the results of the FY12 NSSO survey were a shocker for employment gains, and in “polite” circles, the jobless growth encountered during these years is not much discussed. For the seven-year period FY05 to FY12, NSSO data revealed a total job gain of only 9 million (from 419 million to 428 million). Nine million over seven years translates into a CAGR of only 0.3% per annum. GDP growth for this period: 8.1% per annum implying an average productivity growth of 7.8% per annum. Some acceleration in labour productivity growth was to be expected given the large increase in investment—but 7.8% per annum?

For WRT, the growth in employment was even lower than the aggregate—only 0.2% per annum. The CSO (and international advisers) rightly got down to the task of changing the method of estimating GDP for the WRT sector. They rightly converged on using growth in real sales tax revenue as an indicator of GDP in wholesale and retail trade.
How much difference does the new, and improved, method make for estimation of GDP growth? For starters, it decreases the share of WRT in GDP by about 5 ppt (from 16% to 11%)

[eklavya]

Payment Banks: Nachiket Mor

Speaking of which:

Nachiket Mor’s 2nd tenure on RBI board cut short

“He had completed just a year of his four-year term. He was brought for a second stint because of his expertise in banking areas,” said one of the persons cited, above. “But he used to speak up (and) was not exactly the darling of bureaucrats, which could be a reason why his term was cut short.”

The RSS-affiliated Swadeshi Jagran Manch (SJM) had written to Prime Minister Narendra Modi demanding the Mor’s removal from the RBI board on the grounds of conflict of interest because of his association with Gates Foundation. RBI has oversight over funding for NGOs coming from overseas, SJM co-convener Ashwani Mahajan had said. He also questioned the foundation’s work.

However, it could not be verified if this had anything to do with Mor’s ouster.

“If this was the reason, then they would not have allowed him to continue even on the eastern board,” said the person cited above.

In August, the government had appointed SJM convenor S Gurumurthy to the RBI board.

[Suraj]

Conflict of interest with his private $$ job at the Bill and Melinda Gates Foundation would be perfectly reasonable grounds for removal from the RBI board .

[rgosain]

Conflict of interest with his private $$ job at the Bill and Melinda Gates Foundation would be perfectly reasonable grounds for removal from the RBI board .

Thanks for spotting this. Indians have this fetish for seeking validation from unelected foreign funded bodies.. shades of the EIC

[eklavya]

Conflict of interest with his private $$ job at the Bill and Melinda Gates Foundation would be perfectly reasonable grounds for removal from the RBI board .

The works of an authorised charitable foundation conflict with the duties of an RBI governor?

Which sector do the following work in? Are their organisations more or less exposed to RBI decisions that the Gates Foundation?

https://m.rbi.org.in/scripts/bs_viewcon ... =2453#3144

Shri Natarajan Chandrasekaran

Shri Bharat Narotam Doshi

Shri Dilip S. Shanghvi

[Suraj]

The works of an authorised charitable foundation conflict with the duties of an RBI governor?

There's nothing anywhere stating that being on the pay of the Bill and Melinda Gates Foundation - an American organization - in any way 'authorizes' you to work at the RBI.

Shri Natarajan Chandrasekaran : Chairman of the Board of Tata and Sons, ex Chairman of NASSCOM

Shri Bharat Narotam Doshi : Former Exec Dir of Mahindra & Mahindra, Godrej and more

Shri Dilip S. Shanghvi : Founder and Mg Dir of Sun Pharmaceuticals.

During your time off on your ban for trolling, you can contemplate how being active contributors to the Indian economic firmament is a whole deal different from being on the payroll of a foreign think tank.

[Vips]

UPI transactions cross 500 million in November.

Monthly transactions through the Unified Payments Interface (UPI) crossed the 500 million mark for the first time in November, data released by the National Payments Corporation of India (NPCI) on Saturday showed.

Under the UPI, 524.94 million transactions amounting to Rs 82,232.21 crore were carried out during the month, a 9% increase in transaction volume, compared with 482.36 million transactions worth Rs 74,978.27 crore in October.

“Proud to share that UPI has reached a remarkable new milestone by crossing 524+ million transactions...#HighOnUPI #CashlessTransactions,” NPCI twitted on Saturday.

However, it is not clear whether the data includes or excludes transactions with debit/credit in the same account for the month of November. NPCI did not mention anything on its website regarding such transactions as it did while releasing the figures for August.

In a move aimed at curbing fake transactions and regulating fintech companies from inflating their UPI numbers, the NPCI had asked banks to stop transactions originating from different UPI applications with the debit and the credit happening in the same account, from 1 August.

In September, the monthly transactions through UPI had crossed 400 million for the first time.

[Singha]

i have read his Ocean of churn book which was good. am planning to read the other book soon

https://www.amazon.in/Ocean-Churn-India ... n+of+churn

https://www.amazon.in/Indian-Rennaissan ... n+of+churn

One thousand years ago, India was at the height of its power, influencing the world with its ideas and trade. Now, ten centuries later, India’s recent economic performance is once again attracting world attention as the country re-awakens not just as an economy but as a civilization.

In The Indian Renaissance: India’s Rise after a Thousand Years of Decline, Sanjeev Sanyal looks at the processes that led to ten centuries of decline. He also examines the powerful economic and social forces that are working together to transform India beyond recognition. These range from demographic shifts to rising literacy levels and, the most important revolution, the opening of minds and changed attitude towards innovation and risk—fundamental, if India is to take advantage of the twenty-first century.

[Vips]

Modi government to change customs duty architecture to boost trade, ease of doing business.

Modi government to change customs duty architecture to boost trade, ease of doing business.

Once this is rolled out, an importer in New Delhi would be able to get cargo assessed in Chennai without needing to physically get in touch with the local customs. The faceless interface would also be used for automated release of cargo, which will allow an importer or an agent to receive an email or an SMS alert that the goods are ready for collection, without having to interact with any customs officer at the port. This would be done for low-risk and trusted traders and low-risk commodities.

Ramesh said internal brainstorming is going on to see how India can take the next quantum leap in the Doing Business ranking. “Virtual groups have been formed. We feel we need to build upon what has been done,” he said, adding that the customs proposes to expand the E-Sanchit facility, which allows importers to upload all documents online, to exporters.

It plans to bring export promotion councils and the Directorate General of Foreign Trade on board the customs portal to make the whole experience seamless and paperless for exporters in the next two to three months. Ramesh said that as part of the national trade facilitation programme, the cabinet secretary has written to ports to streamline their infrastructure for smooth and speedier cargo movement. Port IT systems are being integrated with the customs portal.

Ramesh said the board is making all efforts to meet the indirect tax target for the year and revenue collection in many states had improved. Efforts are being made to intensively use data analytics to check for systemic attempts to evade GST and the Directorate General of Analytics and Risk Management has been set up for this.

On the pendency in GST refunds, he said 95% of the integrated GST refunds amounting to Rs 47,161 crore had been disposed of. In the case of input tax credit refunds, more than 96% of the amount has been cleared. Of the Rs 24,788 crore amount claimed in applications, he said Rs 24,012 crore had been disposed of. Besides, he said, a solution is being devised for refund applications with documents to be filed online, obviating the need to visit the tax office.

He said the format of the new simplified GST form has been finalised after extensive consultations with trade and industry but the changes have not been made effective as states are yet to pass it in their GST legislation. To a question on whether the tenure of the National Anti-Profiteering Authority would be extended beyond two years, Ramesh said it would be the GST Council’s call.

[Suraj]

Services export data for September was released a couple of weeks ago:
Services trade data September 2018
September 2018
Exports: $16.4 billion
Imports: $9.9 billion

April-Sept 2018:
Exports: $101.1 billion
Imports: $62.6 billion
Surplus: $38.5 billion

Services trade continues to remain robust through August
August 2018
Exports: $16.5 billion
Imports: $10.4 billion

Apr-Aug 2018:
Exports: $84.7 billion
Imports: $52.7 billion
Surplus: $32 billion

Economic activity picking up! November PMI shows manufacturing hits 11-month high

he country’s manufacturing sector activity improved in November and touched an 11-month high as new order flows encouraged companies to lift production amid strong demand conditions, a monthly survey said Monday. The Nikkei India Manufacturing Purchasing Managers’ Index strengthened from 53.1 in October to 54.0 in November, signalling the strongest improvement in the health of the sector in almost one year.

This is the 16th consecutive month that the manufacturing PMI remained above the 50-point mark.

“The Indian manufacturing sector continued to recover from ground lost in August, with November seeing the headline PMI climb to an 11-month high,” said Pollyanna De Lima, Principal Economist at IHS Markit and author of the report. The expansion in total new orders was supported by greater sales to international markets as producers reportedly received bulk orders from clients in key export destinations.

“Signs of rising confidence in the upturn were also provided by the trend for employment, which continued to grow at one of the quickest rates seen in six years,” Lima added. On the employment front, goods producers created jobs in November. Though the increase in employment softened slightly since October, but was among the fastest seen in six years, the survey noted.

[Suraj]

Modi’s big Ease of Doing Business push: These changes in customs duty on cards to help importers, exporters as Govt aims for Top 50 rank

A few days after Prime Minister Narendra Modi set the target of breaking into top 50 of the World Bank’s Ease of Doing Business index by December end, the government is mulling changes in customs duty to help importers and exporters.

According to a report by ET Now, the government is looking to make several changes including the automated release of goods and doing away with face-to-face contact with customs officers and tax officials. These changes are likely to speed up the process of overseas trade.

On November 19, the prime minister, while addressing India Inc, said that key reforms that are needed to push India into top 50 of the EODB ranking should be aimed for completion by December end so that they can be taken by the World Bank for evaluation.

Narendra Modi said that it is necessary to reduce human intervention in processes and increase the use of modern and digital technologies. Continuing its huge success from 2017, India this year jumped 23 ranks to secure 77th rank on the Doing Business index. Last year, the country had leapfrogged 30 ranks to break into top 100 of the elite list for the first time.

With crude prices cratering, RBI appears to have hit the pause button too:
RBI may hold repo rate yet again; govt’s fiscal math, liquidity to remain in focus

The growth-inflation dynamics continue to be favourable towards MPC (Monetary Policy Committee) preferring to remain on pause for a prolonged period. Inflation readings over the past few months have been undershooting RBI’s estimates by over 50 basis points.

The MPC in its last policy had estimated inflation at 3.9-4.5% in 2HFY19. We estimate inflation at 2.9-4.3% in 2HFY19 as food inflation continues to remain benign, especially as most Kharif crop prices remain well below the MSP prices.

While the food inflation is expected to keep headline inflation muted, there remains significant divergence with the core inflation. However, core inflation should also ease off eventually given the cyclical slowdown. Recent GDP print and lead indicators also seem to be suggesting further moderation in economic activity in the quarters ahead.

External concerns too seem to have ebbed as reflected in the gains in the rupee on the backdrop of falling crude oil prices, FPI inflows and easing trade war concerns as US-China attempt to work out an amicable deal. The dollar strength seems to have fatigued as Fed speakers voice out concerns on global outlook ruling out chances of more than 50bps rate hikes in 2019.

The freefall in crude oil prices has provided the much-needed relief to the Indian financial markets. However, the sustainability of the slide still remains to be ascertained given the high probability of supply cut announcement later this week.

Besides, the reason behind the fall in crude oil prices-either excess supply or weaker global growth- also will determine the risk sentiments going ahead. But for now, there seems to be some relief rally, which is providing the MPC some comfort.

RBI may cut inflation outlook yet again

As the monetary policy committee (MPC) of the Reserve Bank of India braces for its next meet on Wednesday, it might review its forecast of inflation, the most important input for monetary policy-making, again. In recent years, the central bank’s inflation projections seem to have overstated the actual price pressure in the economy, leading to economists in the government, at times, questioning the basis of its monetary policies.

An analysis of inflation data in recent years suggests that only in three of the past 24 months through October 2018 food inflation exceeded the 4% mark, having averaged just 1.7%. Food inflation had fallen from a peak of 3.1% in May 2018 to deflation (-0.9%) in October. This, in turn, has kept a leash on the headline retail inflation, even though core inflation has breached the 5%-mark during this period.

[Uttam]

There is something seriously wrong with the way RBI is measuring and using data to form monetary policy. It is not just MoF Jaitley who is complaining, even some in RBI are pointing to the same.

First: Their inflation measurement is messed up, leading them to overestimate inflation:
Inflation data questioned by RBI policy panel member

Second: RBI is now retreating on its tight policy:
RBI to inject Rs 10,000 cr into system through open market operations on Thursday

I am not questioning anybody's intent but seeking a better measurement of key inputs for policy making. Indian economy is gaining in size and sophistication. It is a lot more formalized now than it used to be, as evident from increasing tax base, electronic transactions, etc. Because of that the monetary policy has a lot more influence now than it used to have. We therefore need more accurate measurement of inflation, gdp, etc. Frequent revisions of data is not a good sign.

[Singha]

someone has asked does RBI/Banks have a real time monitoring system based on data mining/ML principles to track and flag suspicious activity on the millions of money transfers that happen daily within and outside the country? not something that will come up in log analysis later but in real time and with a knowledge gathering engine.

the nirav modis of the world had been salting away funds all over the world for a while before decamping. such trails of suspicious activity could presumably be flagged for human review?

[Yagnasri]

someone has asked does RBI/Banks have a real time monitoring system based on data mining/ML principles to track and flag suspicious activity on the millions of money transfers that happen daily within and outside the country?

I can not say about real time but tracking of cash transactions etc is there for more than a decade and half. Yous truly used to submit such reports to IT department in the earlier avatar.

[Singha]

LPG now used by 89% of indian households

https://economictimes.indiatimes.com/in ... 930092.cms

article notes the main gap is now some rural areas (maybe uneven distribution) and double cyclindering every house to ensure 100% cooking is done with LPG

[Suraj]

And now...
RBI Governor Urjit Patel hints at rate cuts on positive dataprints

The Reserve Bank chose for the status-quo at the Wednesday policy review to “pause and reflect” on incoming dataprints, Governor Urjit Patel said, hinting rate cuts are possible if headwinds to inflation do not materialise. On the surprising dip in inflation lately, Patel said more dataprints are needed to ascertain its durability. Even as the central bank lowered its inflation forecast sharply to 2.7-3.2 percent for the second half of the fiscal, it cited upside risks like food prices, impact of the minimum support prices hikes on inflation, crude prices and global financial markets.

“If the upside risks we have flagged do not materialise or are muted in their impact in the incoming data, there is a possibility of space opening up for commensurate policy actions,” Patel said, hinting a rate cut. But many analysts and banks interpreted the tone of the Governor and the MPC as indicating a long pause, and ruled out any adverse action by the Mint Road at least for the next two-three quarters. Patel seemed to suggest that the status quo on the rates and the stance was pending clarity on the data points.

After manufacturing, services PMI too shows very positive numbers:
India services sector activity in November sees quickest growth since July, shows PMI data

The country’s services sector activity in November expanded at the quickest pace since July, driven by new work orders and favourable market conditions, which in turn led to a continued rise in jobs, a monthly survey said Wednesday. The seasonally adjusted Nikkei India Services Business Activity Index rose to a four-month high of 53.7 in November, from 52.2 in October, as firms highlighted factors such as favourable market conditions and sales growth that boosted activity.

The services PMI was in the expansion territory for the sixth straight month. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction. Meanwhile, the Nikkei India Composite PMI Output Index — that maps both the manufacturing and services sector — rose from 53 in October to 54.5 in November, pointing to the fastest expansion in private sector activity since October 2016. “The welcoming news complements similar upbeat results in the manufacturing industry, released earlier in the week, and so far suggest that the private sector economy will provide impetus to Q3 FY18 GDP results,” said Pollyanna De Lima, Principal Economist at IHS Markit, and author of the report.

[Suraj]

Jaggi takes on the topic Uttam mentioned above - the overestimation of inflation by the RBI's MPC, the primary reason for the criticism of the government directed at RBI for its hardline stance:
Despite Getting CPI Wrong Repeatedly, MPC Continues To Tilt At Windmills

Give someone a hammer, and everything starts looking like a nail. The Monetary Policy Committee (MPC), given the job of keeping inflation around 4 per cent, plus or minus 2 per cent, has made it a point to highlight inflation risks even when it has repeatedly been wrong on its consumer inflation projections for the last two years.

In his latest monetary policy statement (5 December), Reserve Bank of India (RBI) Governor Urjit Patel announced, with a straight face, that the consumer inflation projection for the second half of this year is being lowered to 2.7-3.2 per cent and to 3.8-4.2 per cent in the first half of 2019-20, “with risks tilted to the upside”. (Read the policy statement here)

There were no red faces in the Governor’s press conference despite the fact that this new projection is a sharp reduction from the one made just two months ago, when “CPI inflation was projected at 4 per cent in Q2 2018-19, 3.9-4.5 per cent in H2 and 4.8 per cent in Q1 2019-20, with risks somewhat to the upside.”

The second half of this fiscal has seen a sharp revision downwards by 1.2-1.3 per cent, and the first half of next year has also seen a lowering of the forecast by 0.6-1 per cent, but the RBI has seen no need for contrition, or even a change in the policy stance. The policy stance continues to be one of “calibrated tightening” instead of being shifted back to “neutral”, which was what one MPC member, Ravindra Dholakia, wanted. The RBI’s conservative views obviously prevailed over the evidence.
...
The only reason why the MPC has remained cussed may be this simple one: it needs to keep flagging inflation risks in order to hide its embarrassment over getting its sums wrong since 2016. By repeatedly highlighting risks, it knows that someday, when something will eventually go wrong, it can be vindicated in its obstinacy.

Aggressively targeting farm exports is a good way to rapidly grow rural incomes, a persistent problem requiring MSP based subsidization:
Cabinet approves agriculture export policy with aim to double shipments to $60 billion by 2022

Seeking to double agricultural export to USD 60 billion by 2022, the Union Cabinet Thursday approved a maiden export policy for the farm sector that imposes no restrictions on export of all organic and processed products. However, export policy for primary agricultural products, like onion, would reviewed periodically on a case-to-case basis depending on price-supply situation, said Commerce Minister Suresh Prabhu after the Cabinet meet. “The policy aims at doubling agricultural shipments to over USD 60 billion by 2022,” he said, adding that achieving the target was “doable”. He said the farm exports have grown by 20 per cent in a year. Agricultural exports are currently estimated at USD 30 billion. Prabhu said there was a time when India used to import agricultural products, but now it is exporting in a big way.

He rued India had no export policy for agri products despite a major producer. Prabhu said the first ever ‘Agriculture Export Policy, 2018′ would help the government in achieving the target of doubling farmers’ income. The policy aims to boost exports of agriculture commodities such as tea, coffee and rice and increase the country’s share in global agri-trade.

[Vips]

Linking interest rate to external benchmark: What does the RBI move mean for you.

The Reserve Bank of India (RBI) has proposed a major change in the way banks price their loans. It said yesterday that banks will now have to link the interest rates charged by them on different categories of loans to the external benchmarks instead of the used internal benchmarks, which is the norm now.

Background
All loans such as for car and home disbursed from April 1, 2016 are linked to marginal cost of funds-based lending rate (MCLR). The MCLR-based regime had replaced the earlier base rate regime to provide transparency in the transmission of monetary policy decisions. MCLR is an interal benchmark rate that depends on various factors such as fixed deposit rates, source of funds and savings rate. The price of loan comprises the MCLR and the spread or the bank's profit margin.

The problem with MCLR-based system
The biggest problem with the current system is the lack of required transmission of policy rates. When the RBI cuts repo rate there is no guarantee a borrower will get the benefit of the rate cut or that it will be transmitted down to him. Due to internal benchmarking of loan price, policy rate cuts often don't reach the borrowers. Secondly, the MCLR system is opaque since its an internal benchmark that depends on the way a bank does its business.

How the new system will work
Under the new system which will come into effect from April 1, 2019, banks will have to link their lending rates with an external benchmark instead of MCLR. The RBI has given these options to banks: RBI repo rate, the 91-day T-bill yield; the 182-day T-bill yield; or any other benchmark market interest rate produced by the Financial Benchmarks India Pvt. Ltd.

One of these benchmarks will be used to decide the lending rate in addition to the spread, Banks will be free to decide their spread value but it will have to be fixed for the tenure of the loan. However, it can change if the credit score of the borrower changes. The interest rates under the new system will change every month.

How it will benefit borrowers
First, it will help better transmission of policy rate cuts which means an RBI rate cut will immediately reach the borrower in the current system in which internal benchmark is not influenced solely by the policy rate cut but depends on a variety of factors. Second, it will make the system more transparent since every borrower will know the fixed interest rate and the spread value decided by the bank. It will help borrowers compare loans in a better way from different banks. Under the new system, a bank is required to adopt a uniform external benchmark within a loan category so that there is transparency, standardisation and ease of understanding for the borrowers. This would mean that same bank cannot adopt multiple benchmarks within a loan category.