Indian Economy News & Discussion - Nov 27 2017

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A_Gupta
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Re: Indian Economy News & Discussion - Nov 27 2017

Postby A_Gupta » 16 May 2018 15:36

From 2013:
https://www.reuters.com/article/us-indi ... 5O20130905

“Viewed in one light, India’s steeply inverted yield curve is the result of a deliberate and classic policy strategy to defend a weak currency. From another perspective, it is pointing at deep economic problems to come, possibly even recession.“

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby A_Gupta » 16 May 2018 16:14

India - private sector coal power plant debt debacle, per Bloomberg:
https://www.bloomberg.com/view/articles ... n-times-20

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby vina » 16 May 2018 17:51

The bond markets are giving out very iffy signals. The last couple of auctions actually devolved and had to be picked up by the underwriters and primary dealers (poor sods.. an unenviable job in this kind of environment , where you have to suck it up and get beaten, but pretty attractive in normal circumstances, the flip side of it I suppose). Last auction on 10th may say bids of just 81 cr out of 3000 cr of 2022 securities on offer. The auction previous to that devolved as well.

On 18th, the RBI is selling dated securities from (2020 to 2051) worth Rs 12,000 cr. The earlier options flopped despite allowing the foreign guys to buy short term securities (which they were banned from doing) and exposing ourselves to short term hot money looking to play the interest rate arbitrage game. Now the poor PSU guys will be forced to buy this Rs 12000 cr auction and take body blows to their already bloodied bond books with MTM losses. I wonder how the govt will get them to do it. They are loaded to the gills beyond the statutory requirements with GOI bonds.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Suraj » 16 May 2018 18:20

There’s been an inverted yield curve on and off for several MONTHS now - dating back to Nov/Dec 2017 , and we are half way to June 2018 now . Anyone depending on it as a sole indicator of a recession when credit, growth, core sector and transport indicators all indicate the contrary, needs a MUCH stronger argument than a rate curve one. The yield curve in any case inverts when there’s a tight liquidity situation, which was the case during year end, and again in April/May .

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby vina » 16 May 2018 20:35

The 10 Year yields went UP by roughly 140 bps (1.4%) between roughly June-July 17 to Feb end 18. This was driven by huge supply of paper (ie govt borrowing) , along with global yields hardening. Then the Govt came out in March and said that they would cut borrowing in the 1st half (there was no one to sell the 10 year to at any reasonable price, the PSU banks bond books got murdered. Anyone who got in earlier and saw MTM profits when yields fell to 6.4% must have got a rude shock when it so swiftly reversed), the 10 year fell. The fear is that the borrowing would come back in the 2nd half. Then the govt decided to go sell bonds in the short end of the yield curve. Guess what. Now that has inverted the yield curve and even the short end is not getting buyers anymore and they are demanding higher yields. With this kind of yield curve , the bond investors would logically put money in the short end, because they get better yield with less duration risk! Doesn't make sense normally. I would suspect the RBI has done some Open Market operations in the 10 year and kept the yield down there and cycled that into the short end driven up the yields there. Why? I don't know. Headline management ? Hoping to sucker in buyers ? Trying to keep cost of investment /longer term borrowing low ? Take your pick.

Bottom-line. It just shows that the govt borrowing program is under pressure and they CANNOT get cheap funds anymore when the global yields are hardening. This is NOT 2017 June when they made merry and just amped up the borrowing and raised costs for everyone else. Now whatever the micro reasons for the inverted yield curve (or a combination of reasons) , looking forward, reading that in conduction with a deteriorating macro (higher trade deficit, higher oil prices, hardening global yields , higher expected inflation) the one way that interest rates seem headed is UP. Higher interest rates --> reduced demand , lower growth. That is what the inverted rates are pointing at in India, not necessarily the big "R" (face it, a 3 % growth rate dip in India is a big "R", looks like one, feels like one, and squawks like one.. you really not need to experience negative ones per technical definition).

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Austin » 16 May 2018 20:54

I had this question in my mind , Why do we have to peg Rupee against a Dollar or Euro , Why cant RBI or GOI just ban these exchange rates and create a fixed exchange rates , Like why cant Rupee just be fixed Rs 40 against USD and why it has to be 68 ? If exporter want hard currency they can directly approach RBI who can may be sell it at 45 versus USD ? Why cant we delink Rupee against any hard currency and keep it at fixed rates ?

I have seen Gelf countries eg UAE Dhiram has not changed from Rs 16-17 versus USD since atleast nearly 2 decade , How can these countries manage such fix exchange rates for such long time ?

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Suraj » 16 May 2018 22:43

Picking July 2017 for 10 year bond rates is a great example of cherry picking from a money manager with an agenda, who's just back from his latest ban for trolling . The original post sounds like it was meant to be posted on Apr 1 but was delayed due to your ban :)

Modus operandi: Pick the most recent low, and the present, and scream bloody murder. The reality is that the 10 year bond rates have inched up from low 6s to high 7s for the full trailing year, and YET, macroeconomic indicators have picked up during the ~175bp rate rise during that period. Trailing 3 and 6 month IIP, exports, auto sales and in particular MHCV sales, core sector, tax revenues, everything. And guess what, that 175bp rise brings up 10 year bonds back to where there were in 2016, at or near the bottom of the previous business cycle, and a LONG way down from the high 9 rates in 2013.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby pravula » 17 May 2018 05:27

Austin wrote:I had this question in my mind , Why do we have to peg Rupee against a Dollar or Euro , Why cant RBI or GOI just ban these exchange rates and create a fixed exchange rates , Like why cant Rupee just be fixed Rs 40 against USD and why it has to be 68 ? If exporter want hard currency they can directly approach RBI who can may be sell it at 45 versus USD ? Why cant we delink Rupee against any hard currency and keep it at fixed rates ?

I have seen Gelf countries eg UAE Dhiram has not changed from Rs 16-17 versus USD since atleast nearly 2 decade , How can these countries manage such fix exchange rates for such long time ?


That would be currency manipulation. You can peg at a fixed rate, but how are you going to defend?

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Austin » 17 May 2018 08:20

If you have enough forex to meet your export import needs then these people can approach rbi for forex needs.

We don’t have capital account convertibility or a full floating currency then what is the need to defend , you can have a fixed rate against dollar euro as deemed appropriate by rbi be that be 40 or 80 and keep it without change for decade, for citizen for India it won’t matter we don’t buy in dollar or euro but just use rupee , if inflation is under control I won’t care 1 dollar is 40 or 80 rupee

Tell me how does gulf country can keep their rial Dhiram rate fixed versus dollar for decades

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Philip » 17 May 2018 08:38

The Rupee is facing a rout.It has slid by 6% so far in 2018! Trade deficit widening to $13.7B in April compared to last yr.We have to stop the massive outflow to China, no other way as oil prices are climbing.The massive imbalance with China is destroying the Indian economy especially the MSMEs. Drastic duties and ban on Chin goods like phones, etc. must be carried out.Chin phones and electronic eqpt. are banned in the US as security risks.The same is needed here.I found even a state minister using one and warned him about the risks!

The US attitude too is forcing a flight of FDIs. 15,500 cr. pulled out in April, highest since Dec. last yr.
The need immediate is to obtain cheaper oil/ gas rates from any source.Venezuela offered us cut price oil for payment in their crypto-currency the Petro.We should seize the day along with more deals with Iran and Qatar.
SL have approached Qatar, being ostracised by its Arab neighbours for cheaper supplies with a visit by its Pres. Sirisena.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby pravula » 17 May 2018 08:42

Austin wrote:If you have enough forex to meet your export import needs then these people can approach rbi for forex needs.

We don’t have capital account convertibility or a full floating currency then what is the need to defend , you can have a fixed rate against dollar euro as deemed appropriate by rbi be that be 40 or 80 and keep it without change for decade, for citizen for India it won’t matter we don’t buy in dollar or euro but just use rupee , if inflation is under control I won’t care 1 dollar is 40 or 80 rupee

Tell me how does gulf country can keep their rial Dhiram rate fixed versus dollar for decades


1 USD == 80 INR means a lot more INR is chasing USD than 1 USD == 40 INR. So, how would we provide those USDs? Stop all trade that requires USD?

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Austin » 17 May 2018 10:12

pravula wrote:
Austin wrote:If you have enough forex to meet your export import needs then these people can approach rbi for forex needs.

We don’t have capital account convertibility or a full floating currency then what is the need to defend , you can have a fixed rate against dollar euro as deemed appropriate by rbi be that be 40 or 80 and keep it without change for decade, for citizen for India it won’t matter we don’t buy in dollar or euro but just use rupee , if inflation is under control I won’t care 1 dollar is 40 or 80 rupee

Tell me how does gulf country can keep their rial Dhiram rate fixed versus dollar for decades


1 USD == 80 INR means a lot more INR is chasing USD than 1 USD == 40 INR. So, how would we provide those USDs? Stop all trade that requires USD?


Like I said RBI needs to decide to fix what is the appropriate USD versus Rupee Rate for Exporters/Importers , Be that be 30 , 40 or 80 and they can get that from RBI

The common man has no interest in what the USD rate is we cant get USD for Rupee and we dont use USD to buy any thing , So as long as inflation is under control common man does not have to worry about those rates.

How is that Gulf country can maintain a constant peg for decades wrt to USD ?

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby vina » 17 May 2018 10:21

Austin wrote:I had this question in my mind , Why do we have to peg Rupee against a Dollar or Euro , Why cant RBI or GOI just ban these exchange rates and create a fixed exchange rates , Like why cant Rupee just be fixed Rs 40 against USD and why it has to be 68 ? If exporter want hard currency they can directly approach RBI who can may be sell it at 45 versus USD ? Why cant we delink Rupee against any hard currency and keep it at fixed rates ?

There is a story apocryphal perhaps about Joseph Stalin. It seems that he asked around what the Rouble -USD exchange rate was. Some one gave him the number and he just cut out the last digit out and said..There! This is the exchange rate now and so it was officially! This is the kind of thing that will warm the cockles of any JNU type.

Trouble is, just like there are laws in Physics there a "laws" not as ironclad as in natural sciences of course, in economics as well. If you jump 2 feet in the air and proclaim , I am going to "float", guess what you will come thudding down immediately. The equivalent in financial economics, you will thud down eventually , but it will be a more stochastic event.

Austin wrote:I have seen Gelf countries eg UAE Dhiram has not changed from Rs 16-17 versus USD since atleast nearly 2 decade , How can these countries manage such fix exchange rates for such long time ?


What you have quoted is what is called the currency peg. The peg can be fixed (1 currency = a ratio of some other) or a a "range" (ratio can vary a bit). Lots of countries have it/had it. China had it for a long time ( the peg was I think 1 USD = 6 RMB) , Hong Kong dollar was pegged to the USD , all the gulf monarchies currencies were pegged to the USD (not surprising, oil is priced USD) . The European rate mechanism (ERM) before the Euro was again pegged to each other (Think Soros breaking the bank of England) or coming closer home the Nepali Rupee was historically pegged to the INR ! A lot of banana republics in latin america where historically hyperinflation was experienced , put themselves on the USD peg . The MAS (Monetary Authority of Singapore), conducts its monetary policy not via interest rates, but by changing the exchange rates .. multiple ways to skin the cat.

The issue is, when you have a currency peg, you DON'T have a monetary policy at all! Your interest rates are set NOT by your local central bank , but by the US Fed or whoever you have pegged it to. If you are a currency pegged to USD oil exporting country and oil prices crash, while the US is experiencing inflation ,you cannot simulate your economy by dropping interest rates and expanding your monetary base , because the fed will be pushing high interest rates to cool inflation! You are doubly screwed. In addition , to maintain the peg , you need to maintain LARGE reserves (think of the Chinese reserve size , even before the levels it reached today).

You do want full control of basic policy , especially monetary and fiscal policy. You need to be able to run the economy as per your needs and fine tune it. The interest rate is the clearing rate for both , the basic IS-LM model (Google for it and read it up) explains it. You can play around with it to see what happens when the interest rate is fixed and the curves have to move around. It does make sense for the Gulf sheikdoms where a massive portion of their economy is dollar denominated anyways , so go for the USD peg, or for Nepal where the everything is INR related, so peg to the INR.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby KrishnaK » 17 May 2018 10:30

vina wrote:
Austin wrote:I had this question in my mind , Why do we have to peg Rupee against a Dollar or Euro , Why cant RBI or GOI just ban these exchange rates and create a fixed exchange rates , Like why cant Rupee just be fixed Rs 40 against USD and why it has to be 68 ? If exporter want hard currency they can directly approach RBI who can may be sell it at 45 versus USD ? Why cant we delink Rupee against any hard currency and keep it at fixed rates ?

There is a story apocryphal perhaps about Joseph Stalin. It seems that he asked around what the Rouble -USD exchange rate was. Some one gave him the number and he just cut out the last digit out and said..There! This is the exchange rate now and so it was officially! This is the kind of thing that will warm the cockles of any JNU type.

Trouble is, just like there are laws in Physics there a "laws" not as ironclad as in natural sciences of course, in economics as well. If you jump 2 feet in the air and proclaim , I am going to "float", guess what you will come thudding down immediately. The equivalent in financial economics, you will thud down eventually , but it will be a more stochastic event.

Impossible trinity

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby JayS » 17 May 2018 11:01

Austin wrote:If you have enough forex to meet your export import needs then these people can approach rbi for forex needs.

We don’t have capital account convertibility or a full floating currency then what is the need to defend , you can have a fixed rate against dollar euro as deemed appropriate by rbi be that be 40 or 80 and keep it without change for decade, for citizen for India it won’t matter we don’t buy in dollar or euro but just use rupee , if inflation is under control I won’t care 1 dollar is 40 or 80 rupee

Tell me how does gulf country can keep their rial Dhiram rate fixed versus dollar for decades


How long do you expect the $420B reserves to last if RBI/GOI has to defend weakening rupee, with increasing oil prices and widening CAD..?

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Austin » 17 May 2018 11:11

So my question again is why cant we have a fixed peg ( lets say Rs 50 to USD ) against Rupee verus Dollar/Euro/Yen irrespective weather Rupee Weakens or Strengthns , Didnt we have something similar to this before 1991 liberalization ? Will such a thing lead to Inflation or Hyper inflation ?

I dont know hence asking ....because I see many Gelf countries Rial , Diharam havent changed its peg value against USD in decades while we have like gone from 40s to 65 plus now.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby vina » 17 May 2018 11:21

JayS wrote:How long do you expect the $420B reserves to last if RBI/GOI has to defend weakening rupee, with increasing oil prices and widening CAD..?

Theoretically indefinitely. All you need to do is interfere in the underlying markets (foreign exchange, capital and money markets) with controls (either fully or partially.. or best case, do away with them all and replace them with Baboons) The "impossible trinity" and all the basic interest rate parity models etc assume free flow of capital and free choice and stuff. Our ISI/DSE/Planning commission types know these things pretty well and were in fact VERY good at it (prime reason why a lot of them are in top academic institutions in the west, think Sen, Basu, Bhagwati etc.. the JNU types on the other hand are semi-literate hanger ons mouthing some random sloganeering and pamphleteering the received wisdom). So you do stuff like , oh, You want forex, line up in the RBI office and fill form. You want to make soap, you can get a "license" to make only X tons per year , because your plant can have only "Y" amount of investment. You want a new iPhone?. NOPE. That will be an import. You can get only dozen, one each for the top 12 people in the country and they will have a private network. The rest of you guys make do with a PCO! What do you think ? Every every Tom Dick & Harry in this country needs a smartphone ?

There you are. Welcome back to 1950 to 1991 and the so called "Hindu rate of growth" and grinding poverty and mass misery . This was what was done for nearly 50 years. There are still multiple areas where the command and control (especially in individual markets.. think airline for e.g., ) is not dismantled fully.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Prasad » 17 May 2018 11:45

Right. So what is the way forward? Remember, one has to keep electoral reality in mind. Big states are going for elections this year followed by general elections next year. Yindoo mode of 'i'll do good even if it means i'll lose elections and bring back upa3' isn't it.
Oil may or may not slide depending on that orange guy's mood. Will a reduction of oil to $65 be enough to reduce the current high inflationary state?

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby JayS » 17 May 2018 11:47

Austin wrote:So my question again is why cant we have a fixed peg ( lets say Rs 50 to USD ) against Rupee verus Dollar/Euro/Yen irrespective weather Rupee Weakens or Strengthns , Didnt we have something similar to this before 1991 liberalization ? Will such a thing lead to Inflation or Hyper inflation ?

I dont know hence asking ....because I see many Gelf countries Rial , Diharam havent changed its peg value against USD in decades while we have like gone from 40s to 65 plus now.


India's case is not comparable to Gulf countries or even China. Gulf countries don't have to do anything other than sell oil to earn dollar. China has been running trade surplus for decades earning lot of USD. When you earn whole lot of USD than what you need to spend, you in fact have the reverse problem - to keep your currency from appreciation. Since gulf countries give back a whole lot of earned dollar to the US in various ways and spend lavishly otherwise, they do not seem to have much of problem of piling up USD heap. While China had that issue and they finally had to allow appreciation of Yuan to some extent.

Its easy to maintain a reasonable peg if your overall inflow and outflow balances somewhat. In fact in this case you shouldn't need to peg, as the market forces themselves would keep exchange rate from changing much. But when there is difference in the two, the exchange rate is bound to change. Now if its devaluation, you need to pump in more and more USD to maintain the peg. But the question is when you already have net negative inflow of USD year after year, where will you get the USD to keep pumping it in market to maintain the peg..?

In short, Since India is running net deficit account with the world, it simply does not have constant stream of incoming USD to maintain peg against weakening rupee. Whatever we have will soon be over. There is simply now way India can counter the market forces unless it throttles the economy and takes us back to the pre-1991 era, as vina said above.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Suraj » 17 May 2018 11:59

I think way too much credence has been given to exchange rates and BoP. How about someone prove the direct causation ? Show a chart of export growth and/or BoP data plotted against INR/USD. It would be illustrative. I used to chart this for some time a few years ago, but it's an effort to track all datapoints myself, and I no longer have time/bandwidth to do so.

But the reality is that we've sustained high export growth in strong rupee regimes and weak growth in weak rupee times. It's not like everything else is optimal such that a movement in exchange rates will immediately stimulate export growth. The ministry of commerce and industry needs to lead the effort to cut non-capital goods/fuel imports as much as possible while focusing on every major bottleneck in the way of exports of the main components of the export basket. The SEZs Aim to keep the exports - non-oil imports figure to at minimum +$5 billion (if not +$10 billion) every month.

One place where GoI could do something is revise what it takes to get SEZs to perform better. Their data shows that they have been treading water since around 2011-12, with no gains in annual exports from them:
SEZ India export performance
Exports from SEZs have been range bound in approx $75-85 billion a year for years now. With focused effort, they can be pushed up to $150 billion or more.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Austin » 17 May 2018 13:25

vina , JayS , Suraj ....Thanks for all the replies and I now have some idea how these things works

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Prasad » 17 May 2018 13:34

https://www.bloombergquint.com/business ... gs.=KjiyzU

Very interesting interview with hindalco md.
Almost all of the 9 percent growth in FY18 was witnessed in the December - March period. Copper demand rose 4 percent in the January - March quarter, after three flat quarters, ending the year flat-to-negative. “Indian demand for commodities really started to pick up in the last quarter,” said Pai in an interview to BloombergQuint.

Pai estimates 7-8 percent growth for the domestic aluminium business this year and 3-4 percent growth for the copper business.

The aluminium demand forecast is predicated on more business from packaging, transportation, affordable housing and infrastructure industries, besides mainstay consumer-electrical cables sector that’s only now showing signs of recovery. Globally, the electrical sector constitutes less than 20 percent of aluminium demand, and the bigger chunk is from housing and construction, Pai noted. India is also slowly moving to that mix. Domestic automobile companies will also soon be a big source of consumption.

Imports now cater to 54 percent of total aluminium consumption in India, up from an earlier 52 percent. And while the increase may seem small, he said it was worrisome given the 0.5 million tonne per annum excess capacity in India. (Total industry capacity 4 mtpa)

There are signs of China-manufactured aluminium coming to India and local prices being hurt, Pai added.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Supratik » 17 May 2018 19:58

Dollar to rupee has returned to where it was after a brief and sudden appreciation. Ideally currency should not depreciate and if it appreciates should not be more than 1-2% per year. So as of now nothing to worry about.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Austin » 17 May 2018 22:00

^^ Did RBI intervened ?

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Supratik » 17 May 2018 22:39

Some hence forex rise. Rest market correction. 4-5 Rs rise within a few months is unnatural movement given the fundamentals.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Karthik S » 18 May 2018 00:07

Domestic air passenger volume surged 26 percent in April to 11.51 million over the year-ago period driven by the tourists season, which began from the previous month, according to DGCA data released today.


https://www.moneycontrol.com/news/india ... 70705.html

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby vina » 18 May 2018 11:36

Crude @ 80 gives Govt the jitters

As crude oil prices soared above $80 a barrel for the first time since November 2014, government number-crunchers are feeling fidgety, as it will affect inflation, current account, fiscal position and growth, and call for tighter macroeconomic policies


Most economists and oil industry trackers maintain that this is an artificially high price and cannot be sustained for long.

A government source told BusinessLine: “We believe prices will soften. Besides, the prices at which Indian refiners buy their crude are still manageable. Also, you have to factor in the currency behaviour.”

The average price for 2018 which the Centre and the industry are looking at is in the range of $70-80 a barrel
:rotfl: :rotfl:
Most "economists" wouldn't be able to find their own a**es with their two hands. If they had a price prediction for oil for the next three months, with a probability > 0.6, send those critters across to me. I will show them how they can get very very rich , if they can put their money where there mouth is! . As for that "Govt Source" , I would like to remind them , that last time they bet that oil prices were high and did deficit financing via oil bonds and stuff and failed to pass thru the price (leading to demand destruction), they did the following.

1. Massive shift to diesel (for the Indian car market, because of their hare brained taxation of petrol vs diesel, passing thru for petrol while cross subsidising diesel ) , which further exacerbated the deficit
2. Oil bonds, further increased the deficit, .
3. 1 and 2 resulted in deficits shooting through the roof finally in UPA 2 .
4. Suggestion. Govts (imagine a oil ministry babu trying to do oil trading /speculating ) are TERRIBLE trying to pretend to be commodity traders and CTA hedge funds. Get OUT of that BUSINESS. You guys will lose the country's shirt like you did earlier (of course, your shirts are always covered , your jobs protectedand pensions always paid out, irrespective of what happens of course).

This is one commodity that has an imperfect price market. There is lack of predictability in oil prices; therefore we should not be looking at a long-term high-price scenario,” said a senior government official.

Okay. Please ask the "senior government official" to name one PERFECT commodity market in his opinion and to predict the price of the same "perfect" market price of the commodity in 6 months from now and 12 months from now. Also, ask him to put Rs 1 Crore of his OWN money behind his prediction and I will show him/her how to make a windfall with that money in that time.
Yes, there was a bonanza (with low oil prices). From what I have heard, oil prices up to $65 a barrel we will be comfortable with, and up to $80 a barrel we can manage; beyond that, it starts to hurt

Yes. This is the only part that makes ANY sense and is grounded in reality and truth.
An oil trader said market talk had it that the US had told big oil producers like Saudi Arabia and Iraq that $80 a barrel is too high a price. “When the US leans, you listen,” the trader said

Ah.. There we are. Policy making based on market rumours and innuendo.
Petroleum Minister Dharmendra Pradhan had said recently: “We are concerned about the pinching price.

Finally someone who has done good work and has good sense, talking straight.

While the government is still putting on a brave front, economists believe this is the right time to reduce duties and levies because of the comfortable fiscal situation and the temporary nature of the oil price hike. An inflationary spike has to be avoided because that will hurt the investment cycle, they say

Ah, great "economists" again , living in cloud cuckoo land (sounds like the JNU types here). Comfortable fiscal situation and "temporary" indeed. Last time these guys predicted the top of the market at around $90 or so and did oil bonds to tamp out "temporary spike" , the oil price peaked at around $130 or so , and lasted another 4 year or so . That kind of nonsense (along with a few other things) fundamentally wrecked the economy and resulted in 10% inflation rates in UPA -2 .

The Rupee is down, CAD is up , there are emerging market jitters (Indonesia just raised interest rates to prevent capital flight, Turkey is in Doo-DOo, Brazil ain't looking great, Argentina is back in deep trouble, people are warning that for emerging markets, the situation is more dire than in 2008), Venezuela output is structurally in trouble, Iran might be out of the market for the foreseeable future, Angola output is down -- in short a supply side shock, but said economist wants to raise the fiscal deficit, which somehow will prevent an "inflationary spike which will hurt investment " !

Great going folks. With such "economists" around ( I hope these guys are NO Where near the finance ministry and have no influence in the govt) , we are absolutely in fine hands. Peace!

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Prasad » 18 May 2018 12:09

All true but oil futures aren't looking at a price increase right now. I read an article this morning (sorry forgot which one) that said short term oil is higher but lower for say december.

If the orange puppet moves on Iran it might cause it to spike further.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby JayS » 18 May 2018 12:56

Prasad wrote:All true but oil futures aren't looking at a price increase right now. I read an article this morning (sorry forgot which one) that said short term oil is higher but lower for say december.

If the orange puppet moves on Iran it might cause it to spike further.


I checked Dec, Jan futures. All are up and above $77. Can't trust Long term futures too much, their prices will converge to the real price as the expiry comes close. Oil can be at 60 or at 100 in December.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby chetak » 18 May 2018 13:48

Karthik S wrote:
Domestic air passenger volume surged 26 percent in April to 11.51 million over the year-ago period driven by the tourists season, which began from the previous month, according to DGCA data released today.


https://www.moneycontrol.com/news/india ... 70705.html


These guys are two faced.

In some of their articles in the usual international garbage press, they portray India in a bad light.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby vina » 18 May 2018 13:59

JayS wrote:I checked Dec, Jan futures. All are up and above $77. Can't trust Long term futures too much, their prices will converge to the real price as the expiry comes close. Oil can be at 60 or at 100 in December.


Commodity futures will exhibit Normal Backwardation . The futures price should normally be LESS than spot price for commodities. This is a normal market. Contango was last seen in the oil when the price collapsed to $30 or so. The oil guys hired huge ULCCs and just bought up the oil in spot , and inventoried that in huge amounts in mid sea (going nowhere) and delivered it on expiry.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby nandakumar » 18 May 2018 16:13

Vina
I have an issue with your contention that it is normal for futures price to be lower than the spot. Let us say, I have one barrel of oil. I sell in the spot market (30 dollars) and collect cash. Take the cash and buy 180 day T Bills and thus lock into a certain amount of interest income. Additionally I buy one barrel of oil in the futures market to be settled 6 months later. Since that oil is cheaper than today's spot price, as you contend, I end up owning a barrel of oil at price lower than $30 and additionally earned interest income. I have earned some free income jn the process which theory says is not possible. Isn't it more logical to assume that tomorrow's price is greater than today's price as it seeks capture the cost of money?

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby A_Gupta » 18 May 2018 16:25

“Normal backwardation” does not mean backwardation is normal.
https://www.investopedia.com/terms/b/backwardation.asp
“The primary cause of backwardation in the commodities' futures market is a shortage of the commodity in the spot market.”

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby JayS » 18 May 2018 16:49

nandakumar wrote:Vina
I have an issue with your contention that it is normal for futures price to be lower than the spot. Let us say, I have one barrel of oil. I sell in the spot market (30 dollars) and collect cash. Take the cash and buy 180 day T Bills and thus lock into a certain amount of interest income. Additionally I buy one barrel of oil in the futures market to be settled 6 months later. Since that oil is cheaper than today's spot price, as you contend, I end up owning a barrel of oil at price lower than $30 and additionally earned interest income. I have earned some free income jn the process which theory says is not possible. Isn't it more logical to assume that tomorrow's price is greater than today's price as it seeks capture the cost of money?


which theory says its not possible..?

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby JTull » 18 May 2018 16:51

Insolvency and Bankruptcy Code is A Winner: Modi’s Gambit Squeezes Cronies, Reducing Bankers’ Haircuts

The Insolvency and Bankruptcy Code (IBC) appears likely to deliver in spades for the Modi government, both economically and politically. Not only are many major cases close to resolution, recent reports suggest that in many cases banks may take no haircut at all.

No haircut means the government can say banks recovered all the money lent to defaulters – and/or cronies fed during the United Progressive Alliance regime – at least in some cases.

This happy outcome is the result of two developments – one was the Modi government’s decision to disallow bids from promoters who had defaulted; and the second was litigation at the National Company Law Tribunal (NCLT) and its Appellate Tribunal (NCLAT), which is forcing many bids to be escalated post-haste. The litigation delays prompted by rival or losing bidders have enabled the Committee of Creditors (CoC) to expect bids higher than they originally expected.

Consider just a few recent developments.

To be eligible to bid for Essar Steel, ArcelorMittal has promised to clear the dues of two other companies it has been linked to and which were in default – Uttam Galva and KSS Petron. It has already parked Rs 7,000 crore in an escrow account with the State Bank of India, making it eligible to bid for Essar Steel. In the first bid, it had offered Rs 32,000 crore for Essar Steel, which had dues of nearly Rs 49,000 crore. While banks may still take a haircut on Essar, they are likely to get two other defaults fixed if the ArcelorMittal bid goes through.

Not to be outdone, Numetal, which had a Ruia on board, has been asked to clear Rs 40,000 crore of dues in order to be eligible to bid for Essar. This is obviously a tall order, but in the second round of bidding (canned by the NCLT), it had already raised its bid to Rs 37,000 crore.

It is possible that the CoC can, even if they decide to opt for ArcelorMittal, negotiate a higher bid to match Numetal’s second offer. The haircuts will be lighter than expected earlier.

In the Binani Cement case, the promoters have promised to clear all dues of bankers in two weeks’ time if they can exit the insolvency process altogether. The money will obviously come from the Aditya Birla group, which has shown great desperation to bag this company. While the original top bidder, Dalmia Bharat, may challenge this again, chances now are that the bankers will ultimately get almost their entire money back. The old Dalmia bid seems unsustainable now.

In another case, Reliance Communications, which sold its assets to Reliance Industries to avoid the bankruptcy process, is now talking of an out-of-court settlement with Ericsson, which is a vendor to whom the company owes nearly Rs 1,000 crore. If this happens, it seems the mere threat of being dragged to the bankruptcy court is a good enough one to force some debtors to pay up.

Despite an occasional stumble and the long time spent in litigation, the Modi government – and banks – are emerging victors in the insolvency game. Between this quarter and the next, we can expect over Rs 1 lakh crore of bad loans to either become good or be paid back in spades.

In the run-up to the 2019 general election, Modi can claim huge success in reviving previously insolvent companies and recovering loans. Add the new Fugitive Economic Offenders Ordinance 2018, which will allow the government to grab the properties and assets of people like Vijay Mallya and Nirav Modi, who fled the country after defaults and/or fraud, and it appears that the infrastructure to recover dues from crony capitalists is finally falling into place.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby nandakumar » 18 May 2018 16:59

JayS wrote:
nandakumar wrote:Vina
I have an issue with your contention that it is normal for futures price to be lower than the spot. Let us say, I have one barrel of oil. I sell in the spot market (30 dollars) and collect cash. Take the cash and buy 180 day T Bills and thus lock into a certain amount of interest income. Additionally I buy one barrel of oil in the futures market to be settled 6 months later. Since that oil is cheaper than today's spot price, as you contend, I end up owning a barrel of oil at price lower than $30 and additionally earned interest income. I have earned some free income jn the process which theory says is not possible. Isn't it more logical to assume that tomorrow's price is greater than today's price as it seeks capture the cost of money?


which theory says its not possible..?

Theory doesn't say it is not possible. After all it is a fact that currently at least future prices are lower than spot. It would merely say it is an aberration.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby JTull » 18 May 2018 17:07

Building a reliable database of the Indian economy

The ministry of statistics and programme implementation (Mospi) is often in the news for all the wrong reasons. It is criticised for the poor quality of data, gaps in the data or delays in the release of data. However, several initiatives are progressively putting the database of the Indian economy on a much firmer footing than in the past. The results should begin to show by the end of this year.

The data on employment and unemployment has been the subject of much controversy lately. Generating data on employment for a country like India, with its dualistic structure, is particularly challenging. Over half the labour force is still dependent on agriculture, where the rhythm of production follows the weather cycle with long periods of seasonal unemployment between crops. Further, thanks to the high pressure of population on land and continuing land fragmentation, the phenomenon of what economists call underemployment or “disguised unemployment” is widespread. To illustrate, a family of five people may be cultivating a tiny plot of land which actually requires only two people working full-time. Everyone is underemployed and the production may be no more than what two people could have produced, i.e., zero productivity for the three superfluous workers.

A similar problem of low productivity, low wage, underemployment is also faced in the millions of small and tiny unorganised sector enterprises that account for the bulk of non-agricultural employment as well. Thus, underemployment affects virtually the entire workforce in the country except the small proportion who are employed in the organised sector. Conventional concepts of employment used in the advanced countries are not of much use in measuring employment or unemployment in such a context.

The National Sample Survey Office (NSSO) has addressed the problem through a clever technique of measuring a sampled person’s time disposition using multiple concepts: usual status, daily status and weekly status. By collecting data on employment through large sophisticated surveys of inter-penetrating samples and using these multiple employment concepts, the NSSO has been generating fairly reliable estimates of both open unemployment and underemployment for several decades.

However, since the employment-unemployment survey is an elaborate and costly operation, it is undertaken only once every five years. Such quinquennial estimates of unemployment are obviously inadequate for macro-economic policy, which requires up-to-date information at least annually, if not more frequently. In fact, no NSS estimates of employment are available since 2011-12. Unfortunately, the more recent Labour Bureau surveys have been largely ignored, and all sorts of humbug estimates are put out to fill the gap.

As professor Shibdas Bandhopadhyay of the Indian Statistical Institute would wryly observe when we worked together as members of the National Statistical Commission (NSC) a few years ago, “there are lots of numbers but no data”. A flourishing cottage industry is now engaged in discussing the pros and cons of using such numbers that were never intended to measure employment in the first place. Meanwhile, researchers and analysts hungry for estimates quote and use these numbers for various purposes.

This situation is about to change. The NSSO has replaced the old series of quinquennial employment-unemployment estimates with a new survey series, the periodic labour force survey (PLFS), that matches the different production cycles of the agricultural and non-agricultural sectors. Urban employment surveys are now being conducted every quarter to give us quarterly estimates of urban employment covering most of the non-agricultural sector. Rural surveys are being conducted annually to give us annual estimates of rural employment, and underemployment, covering most of the agricultural sector. The urban and rural estimates are being combined to give us annual estimates of total employment. Survey data collected for 2017-18 is now being processed and the first annual PLFS estimate of total employment, unemployment and underemployment will be available by the end of this calendar year. This will mark a sea change in employment and other derivative estimates.

The second area where there is a marked strengthening of the database is the use of the ministry of corporate affairs (MCA) data from 2011-12 onwards. It is mandatory for all companies registered with the MCA to submit their audited balance sheets. This database, covering over 500,000 companies, is vast compared to the annual survey of industries (ASI) data that was used earlier for the industrial sector and the RBI data for some 2,500 companies that was used in the case of services for estimating gross domestic product (GDP) in these sectors.

However the unit of observation in this database is the company, not the producing establishment as under the ASI. A company may be in multiple lines of production, providing industrial products as well as services out of multiple establishments located in many states and even abroad. Hence the MCA data is not conceptually comparable to the earlier ASI data where the unit of observation was the individual industrial establishment. It is also not possible to readily disaggregate MCA data on value of output, costs, etc., by industrial sectors or by states, as could be done with ASI data.

National income estimates since 2012-13 have been partly based on the new MCA database. There are also other conceptual differences between the old series (2004-05 base) and the new series (2011-12 base) which is now better aligned with the internationally accepted United Nations System of National Accounts. Since the MCA database is not available for earlier years, Mospi has not projected the new series (2011-12 base) backwards for earlier years as was done before whenever national income estimates were shifted from an old base year to a new base year. However, national income estimates based on both the old and new series are available for the three years: 2012-13, 2013-14 and 2014-15. These indicate that growth rates based on the new series are significantly higher than those based on the old series.

This has generated a huge controversy. While many independent analysts have directly questioned the credibility of the new national income series, even official sources like the Reserve Bank of India and the chief economic adviser have hinted at their discomfort with the new series. It is essential that Mospi takes the initiative to generate the back series of national income estimates, as in the past, to try and resolve this issue. Fortunately, a committee set up by the NSC is now actively addressing this matter. In addition to the MCA data, the ASI data series needs to be continued and used in combination with the MCA data to generate sector-wise and state-wise industrial production data that are consistent with the MCA aggregates. Further, an annual survey of services sector (ASSS) series needs to be introduced for the services sectors similar to the ASI for industrial sectors. Reportedly, such an ASSS series is now work in progress.

The MCA data combined with the ASI and ASSS should give us fairly robust estimates of output, value added, etc., for the organised sector companies registered with the MCA. But this would still exclude the entire non-agricultural unorganised sector consisting of some 63 million small and tiny enterprises employing around 111 million workers (see my Mint column of 15 September 2017 bit.ly/2InhWDP ). The unorganised sector has remained the most important gap in the database of the Indian economy, though it employs the bulk of the non-agricultural workforce. Fortunately, our data blindness for this sector has been considerably reduced in recent years by the NSS surveys of such unorganised (unregistered) sector enterprises. Starting in 2000-01, these quinquennial surveys alternatively covered industrial and service enterprises and now cover both industries and services in the same survey. Indeed, it is from such an enterprise survey of the NSS 73rd round (2015-16) that we know there are around 63 million such unorganised sector enterprises.

Since these surveys are conducted quinquennially, the data for the intervening years is projected using the ASI-based organised sector growth rate for industry and other organised sector proxies for the services sector. This is clearly unsatisfactory since there is no reason to expect that the organised and unorganised sector enterprises will behave similarly. The PLFS employment data that will be available henceforth will provide a much firmer foundation for such projections. Further, business registers being prepared by the states will provide a sound sample frame for the NSS enterprise surveys. This data, projected forward using PLFS employment data, combined with the MCA, ASI and ASSS data bases will give us a much more robust estimate of GDP for the non-agricultural sector, and hence for the economy as a whole.

The initiatives discussed above do not cover all the data problems pertaining to the Indian economy. Data on agricultural production is still based on unreliable archaic procedures while the recommendations of several committees for improving this data remain unimplemented. The use of wholesale prices as proxies for producer prices continues to confound the analysis of price and real output trends. Poor quality state-level statistics and missing micro-macro data linkages require strengthening capacity in state statistical bureaus, a challenging task. These persisting problems notwithstanding, the improvements in data sources discussed above should give us a much more robust data base for the Indian economy by the end of this year.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby JayS » 18 May 2018 17:12

nandakumar wrote:
JayS wrote:
which theory says its not possible..?

Theory doesn't say it is not possible. After all it is a fact that currently at least future prices are lower than spot. It would merely say it is an aberration.


It is and its can be both ways. Future prices can be higher or lower than future prices even against the prevailing short term trends. One can make money in either cases. You can hedge your position too, to cut down on possible losses.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby JTull » 18 May 2018 17:19

nandakumar wrote:Vina
I have an issue with your contention that it is normal for futures price to be lower than the spot. Let us say, I have one barrel of oil. I sell in the spot market (30 dollars) and collect cash. Take the cash and buy 180 day T Bills and thus lock into a certain amount of interest income. Additionally I buy one barrel of oil in the futures market to be settled 6 months later. Since that oil is cheaper than today's spot price, as you contend, I end up owning a barrel of oil at price lower than $30 and additionally earned interest income. I have earned some free income jn the process which theory says is not possible. Isn't it more logical to assume that tomorrow's price is greater than today's price as it seeks capture the cost of money?


If cost of carry is higher than cost of capital then you can have backwardation too (storage costs more than leaving it in the ground).

Seasonality can cause this over short term (agri products, nat gas etc)

Future supply and demand issues play a huge part too. In case of Oil these factors are particularly well known with OPEC quotas and other major producers publishing their plans regularly. If a major refinery or field is down for maintenance then you could have short term prices spike while long term doesn't change much. Uncertainty of economy and wars also cause this. Moreover, a very high absolute levels can damage global economy so long term offtake will be lower - leading to lower price expectation. Many more factors....

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby A_Gupta » 18 May 2018 17:23

tradingeconomics.com reports:

Foreign Exchange Reserves in India decreased to 417700 USD Million in May 12 from 418940 USD Million in the previous week.


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