Indian Economy News & Discussion - Nov 27 2017

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

Postby Dexter » 23 May 2020 13:33

After reading BRF intermittently since 2005 this is my first post. Hello Everyone ! It was pleasure learning so far ...

I read two different ideas here which together can possibly help give an good stimulus during Covid as well as support to self sufficiency program.
I am listing the idea ... request Gurus to enlighten and if it seems good probably we should try to refine it in a whitepaper and send across to some one in the Govt.

To give a stimulus to economy we need to give money in everybody's hand. An easy way to do that is to print money. That however carries the risk that money will not be worth anything. The last statement derives from the fact that India does not create enough goods and services which people want so our currency is weak unlike US and even to some extent Chinese.

However, we can create a Wallet like app with a UPI like interface. Any income tax payer can recharge that app to the amount which they have paid in taxes last year. The government will automatically double that amount in 24 hours.

The catch should be that any money in this app cannot be sent back to bank. It can only be used like an independent wallet with other users of the same wallet. Only Indian nationals would be allowed to own such wallets. So there is additional liquidity in the economy but only for services and goods of India. It is will have an effect of massively subsiding Indian goods without allowing them to be complacent since the real cash economy would be very much in parallel. This money can stay only in Indian ecosystem and the huge liquidity that the government will push in it will act as a stimulus while simultaneously limiting import and eroding the value of this currency. This is an all digital currency with the government firmly in control.
It was not possible until now since easy digital currency were not possible but suddenly it becomes viable, that is one reason I could come up with that why no has thought of this before.

More details could be decided later like up to 50% salaries may be allowed in this currency etc etc

Any inputs please

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby isubodh » 23 May 2020 14:20

Dexter wrote:However, we can create a Wallet like app with a UPI like interface. Any income tax payer can recharge that app to the amount which they have paid in taxes last year. The government will automatically double that amount in 24 hours.


How odd it will look to promote such a scheme. Those who have money to pay taxes get more credit to buy more products. From the first look of it, its anti-poor.
Rahool will have a field day making cynicism laced tweets and putting the ruling party to backfoot.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Dexter » 23 May 2020 15:08

The limitation truly is not because money cannot be doled to everybody, rather to protect less literate users from cheating look-alike apps which can con them in the first phase. The same facility may be extended to everyone after that ecosystem has stabilized for some time with some fixed cap. And this can be declared with the plan that it will be made available to everyone after 4 - 6 months.

Additionally, we still cannot justify why only smart phone users can get it. So the very poor still cannot get it. Hence Income Tax looks like a good differentiator but better may be thought off. As far as opposition is concerned, historically they have never agreed to both good and bad initiatives of government.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Suraj » 27 May 2020 09:53

RBI continues to retain a weak Rupee policy to foster domestic industry and exports in these times, and continues to accumulate forex reserves in the process. Currently India has $487 billion in reserves and should touch $500 billion sometime in summer. India ranks #5, with Russia who have $562 billion being in 4th place and China, Japan and Switzerland in the top 3.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby yensoy » 27 May 2020 11:30

Dexter wrote:More details could be decided later like up to 50% salaries may be allowed in this currency etc etc
Any inputs please


Welcome to BRF!

China is doing something similar with their blockchain linked Yuan. Not to the point of 50% of salary but a much smaller amount, 50% of a transport subsidy to be paid in the form of bityuan which can be used in some local sectors. https://www.ledgerinsights.com/china-digital-currency-transport-payments-in-suzhou/

A locally usable currency or coupon (https://www.inc.com/leigh-buchanan/currency-berkshares-great-barrington-massachusetts-schumacher-center.html) has been in practice for a long time. Only difference is that now the government itself is promoting it. Usually governments don't like the loss of sovereignty with locally issued currencies but tolerate it as long as it doesn't get too big. Bitcoin was a revelation in that this was a "foreign" currency which started getting widespread acceptance.

Economic stimulus can certainly be delivered via local currencies, coupons or credits but how does this ensure appropriate usage? Why not deliver it through Indian rupees and ensure that foreign products are taxed higher, say by an additional 2% GST for foreign products and -2% GST for local products whenever the market has at least a 20% local participation? Regardless of the currency used, it will come at the cost to be borne now or in the future. I agree that economic stimulus is a good idea at this juncture, but we need to ensure that it is used productively and not frittered away on imported consumer goods, or speculated and burned in the stock or real estate market.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Mort Walker » 28 May 2020 10:31

Suraj wrote:RBI continues to retain a weak Rupee policy to foster domestic industry and exports in these times, and continues to accumulate forex reserves in the process. Currently India has $487 billion in reserves and should touch $500 billion sometime in summer. India ranks #5, with Russia who have $562 billion being in 4th place and China, Japan and Switzerland in the top 3.


I thought it was:

1. China $3.3T
2. Japan $1.3T
3. Switzerland
4. Russia
5. Saudi Arabia
6. Taiwan
7. Hong Kong
8. India

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Suraj » 28 May 2020 20:29

Mort Walker wrote:
Suraj wrote:RBI continues to retain a weak Rupee policy to foster domestic industry and exports in these times, and continues to accumulate forex reserves in the process. Currently India has $487 billion in reserves and should touch $500 billion sometime in summer. India ranks #5, with Russia who have $562 billion being in 4th place and China, Japan and Switzerland in the top 3.


I thought it was:

1. China $3.3T
2. Japan $1.3T
3. Switzerland
4. Russia
5. Saudi Arabia
6. Taiwan
7. Hong Kong
8. India

It was . Not anymore .

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Mort Walker » 29 May 2020 05:10

^^^That was from Jan. 2020. As oil prices collapsed, one can understand Russia and Saudi slipping. Even NG prices have fallen nearly 15%, but Russia still maintains significant Forex. Aside from COVID-19, why has the position of Taiwan and Hong Kong slipped?

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Suraj » 29 May 2020 06:07

They haven't. Indian reserves rose from ~$450 billion in January - and ~$390 billion in Jan 2019 - to almost $490 billion now.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby arshyam » 29 May 2020 10:34

S Gurumurthy's comments in TNIE about the ₹20 Lakh Crore relief package and his insights into why the package was structured the way it was. His basic point is that since public-sector banks are at the end of the day guaranteed by GoI, their lending as part of the package could be thought of as government relief/spend itself. This is in contrast to other major economies, wherein public sector banks play a negligible role and hence those governments have resorted to printing money. GoI has, instead, tailored its efforts to suit its own economic framework. Critics parotting the "not enough spending" line could do well to read and introspect.

Please read in full:
Covid-19 package — World and India

Math and effect of Modi package

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Mort Walker » 29 May 2020 23:27

Suraj wrote:They haven't. Indian reserves rose from ~$450 billion in January - and ~$390 billion in Jan 2019 - to almost $490 billion now.


So for the purpose of exporters, the RBI is keeping exchange rates of Rs. 75-76 to USD?

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Suraj » 30 May 2020 00:03

Mort Walker wrote:
Suraj wrote:They haven't. Indian reserves rose from ~$450 billion in January - and ~$390 billion in Jan 2019 - to almost $490 billion now.

So for the purpose of exporters, the RBI is keeping exchange rates of Rs. 75-76 to USD?

I don't have any data to conclude why, and in any case central banks don't openly say that. But there's sufficient reason to say the Rupee isn't exhibiting structural weakness as much as the central bank choosing to let it stay weak - the hard currency reserves continue to accumulate strongly, and without central bank intervention, a 25% increase in foreign exchange reserves over a year and half from $390B to $490B would have dramatically strengthened the Rupee.


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Re: Indian Economy News & Discussion - Nov 27 2017

Postby suryag » 30 May 2020 00:52

Gurus dumb question, does increase in Forex indicate that our balance of trade is healthy and our exports are growing more than imports ? On additional question I had was our import bill is largely oil centered, hypothetically, what would happen to the economy if we make our oil imports to zero ? how would having more forex help ? would it help improve our rating or is it largely restricted to increased bank balance like fidelity IRA which is of no use in the short-medium term

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Suraj » 30 May 2020 01:17

Trade is just one source of accumulation of foreign exchange reserves. Foreign trade figures for last fiscal year (April 2019-March 2020) are summarized in the PIB Update for March 2020, reported in April. We run a $153 billion deficit on merchandise trade, but run a $83 billion surplus on services trade, for a total trade deficit of $70 billion on $1.13 trillion in aggregate trade volume. Not too bad. Then there's remittances, which are about $90 billion, so by this point our balance of payments is already a net positive. Add inflows of FDI and investment in equity and debt, and the surplus shows up in the foreign exchange reserves.

Effect of foreign exchange reserves on sovereign debt ratings : ZERO . Russia and India rank #4 and #5 in forex reserves and are both rate BBB- , the lowest investment grade rating. This hasn't changed for India in 7 years, during which time forex reserves have approximately doubled. Covered in more detail about 3 pages ago in this post.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby chetak » 30 May 2020 01:23

the pushback against china is getting serious

will this, in some way, help with the migration of some companies from china to India


Jack Posobiec@JackPosobiec
BREAKING: The G7 is considering creating a new group of democracies called the D10, adding Australia, South Korea, and India to align against China
8:01 PM · May 29, 2020

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Mort Walker » 30 May 2020 22:04

Surajsan,

Dumb question. Of the $490 billion Forex, how much of it are obligations such as deposits, interbank transactions, covering imports and exports? Can the Finance Ministry tap into any of the Forex surplus in the event of national crisis? Such as the Chinese incursion into India, which could then direct this surplus to buy materials for national defence? Speculating - can the Defence Ministry provide funds to HAL to ramp up Tejas production to one aircraft a week? Let's just say around $10 billion is needed for 100 Tejas over 2 years that would cover one-time HAL production facility costs. This would be about 2% of the Forex and create roughly 10,000 high paying jobs in manufacturing.

Now the question is, does the Finance Ministry or the GoI have the authority to direct the RBI? Legally it may not, but I'm unsure of the governmental relationship between the RBI and Finance Ministry. Maybe through some creative accounting the Forex surplus can be used for national crisis.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby fanne » 30 May 2020 22:54

while GOI is at it, it can perhaps also tap into these funds, get pilots borned in few days (instead of 9 months), trained and ready in few weeks so that they can start flying these fast made LCA. Suraj sir, please provide your feedback and economic feasibility to this plan

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Suraj » 31 May 2020 00:03

Those are too many random questions there . As you’re tangentially touching upon, forex reserves aren’t a bank account to tap for anything. Reserves are partly an asset column and often come with corresponding liabilities. For example NRE and FCNR account deposits add to reserves but also debt because they are repatriable . The RBI publishes periodic updates on the external debt situation, and it gets reported in the news then . It is pretty easy to find .

PS: guys this isn’t a LCA funding jugaad thread and I’m not Tejasbhai Funderji :)

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Mort Walker » 31 May 2020 01:51

Suraj wrote:Those are too many random questions there . As you’re tangentially touching upon, forex reserves aren’t a bank account to tap for anything. Reserves are partly an asset column and often come with corresponding liabilities. For example NRE and FCNR account deposits add to reserves but also debt because they are repatriable . The RBI publishes periodic updates on the external debt situation, and it gets reported in the news then . It is pretty easy to find .

PS: guys this isn’t a LCA funding jugaad thread and I’m not Tejasbhai Funderji :)


Surajsan,

OK. Just one question then -
Where does one look to find columns of assets and liabilities of the RBI?

Thanks.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Suraj » 31 May 2020 03:50

The mid year and annual statistical release is a good place to look . It’s not hard to find on google .

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby chola » 31 May 2020 04:29

The growing forex is a silver lining here.

The bonds yields in India are going higher which mean even with the recession financing is becoming even harder for Indian firms. The GOI needs to make money available for firms so they can survive and employ. The 20 lakh crore stimulus package is a good start but the solid forex situation should allow Modi to do more if yields continue to go up.


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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Schmidt » 31 May 2020 13:15

Why are bond yields rising when RBI is cutting interest rates at every opportunity ?

Is it that markets are not comfortable with govt borrowing levels and are signalling higher rates to satisfy the required deficit ?

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby Rahul M » 31 May 2020 13:22

kit wrote:
Suraj wrote:The mid year and annual statistical release is a good place to look . It’s not hard to find on google .


@Suraj ., how can i change my name handle ? My private messages are not enabled. Please delete this request after suitable action

Please drop a line to gentleman DAWT cadet YAT Google DAWT kom

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby chola » 31 May 2020 13:37

Schmidt wrote:Why are bond yields rising when RBI is cutting interest rates at every opportunity ?

Is it that markets are not comfortable with govt borrowing levels and are signalling higher rates to satisfy the required deficit ?


Third world markets always get clobbered during times of crisis. Mainly because they don't believe that loans could be paid back. It is that simple.

Yes, there is danger that if the GOI continues to go further into deficit spending to restart economy the yields can go even higher as the GOI as a backstop gets riskier for the market. The forex pile can cushion that fear.

Without more available and cheaper funds, corporate spending will continue tanking so the GOI can't be too hesitant at this critical juncture. Bridge loans are needed to allow many businesses to survive. (That is what the $2T the US is passing is designed to do.)

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby kit » 31 May 2020 15:13

deleted
Last edited by kit on 31 May 2020 17:38, edited 1 time in total.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby yensoy » 31 May 2020 17:28

chola wrote:
Schmidt wrote:Why are bond yields rising when RBI is cutting interest rates at every opportunity ?
Is it that markets are not comfortable with govt borrowing levels and are signalling higher rates to satisfy the required deficit ?

Third world markets always get clobbered during times of crisis. Mainly because they don't believe that loans could be paid back. It is that simple.
Yes, there is danger that if the GOI continues to go further into deficit spending to restart economy the yields can go even higher as the GOI as a backstop gets riskier for the market. The forex pile can cushion that fear.

When government does deficit spending it does so by printing money which causes inflation. At least that is ordinarily the case - we don't know what is going to happen when demand itself is suppressed due to depression. Lenders are assuming that the currency will fall in value and any interest rate will have to cover the projected currency depreciation, which is why bond rates go up. Of course the ratings agencies insert a level of fear here by lowering the credit rating despite GoI's spectacular record of paying back every obligation, and investors have little scope in going against their recommendations.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby chetak » 31 May 2020 17:36




doesn't kamat have somewhat of a "reputation" for running a coterie when he was with the private bank that may preclude his FM
ambitions.


Probe ICICI Bank CEO Sandeep Bakhshi, ex-chairman KV Kamath's role in Chanda Kochhar case: CBI


January 24, 2019

In what could have far-reaching consequences for ICICI Bank, Standard Chartered Bank as well as the New Development Bank of BRICS countries, the preliminary probe by CBI in the Chanda-Kochhar-Videocon alleged fraud case has asked for a probe into the role of their current CEOs-Sandeep Bakhshi, Zarin Daruwala and KV Kamath-as they were part of the ICICI committees that sanctioned the loans to the Videocon group. ICICI gave loans worth Rs 3,250 crore to the Videocon group. On January 22, the CBI filed a first information report on the basis of the preliminary probe report.

"These loans have turned NPA resulting in wrongful loss to ICICI Bank and wrongful gain to the borrowers and accused persons. The role of these senior officers of the sanctioning committee may also be investigated," the FIR says. The FIR, registered by Bank Securities and Fraud Cell of the CBI, also calls for an investigation into roles of other former directors and top bank officials including K Ramkumar, Sonjoy Chatterjee, NS Kannan, Rajeev Sabharwal and Homi Khusrokhan.
Last edited by chetak on 31 May 2020 17:46, edited 1 time in total.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby kit » 31 May 2020 17:40

chetak wrote:



doesn't kamat have somewhat of a "reputation" for running a coterie when he was with the private bank that may preclude his FM ambitions


guess its all rumours, but i think the top echelons in GOI might need more "capable" people to deal with the myriad issues , esp with the economy in focus..

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby chola » 31 May 2020 22:17

yensoy wrote:
chola wrote:Third world markets always get clobbered during times of crisis. Mainly because they don't believe that loans could be paid back. It is that simple.
Yes, there is danger that if the GOI continues to go further into deficit spending to restart economy the yields can go even higher as the GOI as a backstop gets riskier for the market. The forex pile can cushion that fear.

When government does deficit spending it does so by printing money which causes inflation. At least that is ordinarily the case - we don't know what is going to happen when demand itself is suppressed due to depression. Lenders are assuming that the currency will fall in value and any interest rate will have to cover the projected currency depreciation, which is why bond rates go up. Of course the ratings agencies insert a level of fear here by lowering the credit rating despite GoI's spectacular record of paying back every obligation, and investors have little scope in going against their recommendations.


Yes, it is prejudice against any south state no matter the track record of the government. The US can print as much paper as it wants without issues and so can EU, Japan and Cheen.

It is a double whammy for everyone else. The virus killing economic activity and then the burden to get things re-started. The first world will be advantaged again. As always.

https://www.deccanherald.com/business/india-needs-to-flatten-more-than-just-the-coronavirus-curve-843848.html

In large developing economies deeply challenged by the virus, from Brazil to Indonesia, the yield curve, or the excess of longer-term bond yields over shorter-term bill rates, has steepened appreciably from a year ago. In the U.S., Europe and Japan, as well as in China, where the outbreak started, the difference has either remained at similar levels or gone down. Bond investors are more comfortable with fiscal expansion as a strategy to deal with the pandemic in countries that can issue large amounts of debt in their own currencies without facing exchange-rate instability or runaway inflation.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby nandakumar » 01 Jun 2020 10:25

chola wrote:
yensoy wrote:When government does deficit spending it does so by printing money which causes inflation. At least that is ordinarily the case - we don't know what is going to happen when demand itself is suppressed due to depression. Lenders are assuming that the currency will fall in value and any interest rate will have to cover the projected currency depreciation, which is why bond rates go up. Of course the ratings agencies insert a level of fear here by lowering the credit rating despite GoI's spectacular record of paying back every obligation, and investors have little scope in going against their recommendations.


Yes, it is prejudice against any south state no matter the track record of the government. The US can print as much paper as it wants without issues and so can EU, Japan and Cheen.

It is a double whammy for everyone else. The virus killing economic activity and then the burden to get things re-started. The first world will be advantaged again. As always.

https://www.deccanherald.com/business/india-needs-to-flatten-more-than-just-the-coronavirus-curve-843848.html

In large developing economies deeply challenged by the virus, from Brazil to Indonesia, the yield curve, or the excess of longer-term bond yields over shorter-term bill rates, has steepened appreciably from a year ago. In the U.S., Europe and Japan, as well as in China, where the outbreak started, the difference has either remained at similar levels or gone down. Bond investors are more comfortable with fiscal expansion as a strategy to deal with the pandemic in countries that can issue large amounts of debt in their own currencies without facing exchange-rate instability or runaway inflation.

While it is true that the yield curve has widened the source of such widening is equally important. That is, whether, it has widened because yields at longer duration maturities increased disproportionately or shorter end yield have shrunk disproportionately. If it is the former then it spells trouble for fresh investments as new projects have to generate that much more returns than before to make them viable. The causes tend to be structural and therefore more difficult to resolve in quick time. On the other hand if it is case of disproportionate shrinkage in the yield of short term paper, it is reflective of savers/lenders waiting on the sidelines and hoping for changed perceptions about economic fundamentals. Since perceptions are more amenable to change very rapidly. India is in such a situation right now.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby yensoy » 01 Jun 2020 11:16

Could there be 2 distinct reasons for the widening of the yield curve:
1. Traditional reason that if longer term rates are higher, it reflects uncertainty in the future of the economy
2. In the short term with the economies of the world basically in depression, there are no borrowers and no uptake in investments because apart from the collapse of demand, there are logistical hurdles to start off any new projects at this point in time.

If there is any credence to reason 2 above, I wouldn't worry about the widened yields as cause for concern.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby nandakumar » 01 Jun 2020 11:49

yensoy wrote:Could there be 2 distinct reasons for the widening of the yield curve:
1. Traditional reason that if longer term rates are higher, it reflects uncertainty in the future of the economy
2. In the short term with the economies of the world basically in depression, there are no borrowers and no uptake in investments because apart from the collapse of demand, there are logistical hurdles to start off any new projects at this point in time.

If there is any credence to reason 2 above, I wouldn't worry about the widened yields as cause for concern.

That was my point as well. Andy Mukherjee 's analysis has more often than not been shallow, if not outright misleading.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby chola » 01 Jun 2020 13:31

yensoy wrote:Could there be 2 distinct reasons for the widening of the yield curve:
1. Traditional reason that if longer term rates are higher, it reflects uncertainty in the future of the economy
2. In the short term with the economies of the world basically in depression, there are no borrowers and no uptake in investments because apart from the collapse of demand, there are logistical hurdles to start off any new projects at this point in time.

If there is any credence to reason 2 above, I wouldn't worry about the widened yields as cause for concern.


It is a worry because whatever the reason, it will impact recovery for a black swan event. You cannot wait even for tradition short term wringing out of these rates because huge numbers of businesses cannot survive till then. These are unprecedented times.

Money must be made available as soon as possible to ensure survival and employment. Especially for the SMEs. In the US, things are so dire that even large publicly traded companies are grabbing small business loans. It will be the same in India.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby yensoy » 01 Jun 2020 14:02

The point is that money is available but there are no takers for it. That's the reason the short term rates are low. If money were not available, the short term rates would be high.

(to be clear yes the rates are for sovereign debt and don't directly translate to the rates demanded by lenders for small businesses, but there is a correlation and trend)

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby chola » 01 Jun 2020 15:18

Yensoy ji, yes the correlation is still there in sovereign debt and again third world nations like India are hit. Even though "low" for India, the short-term interest at around around 5% (historic avg of 6.7%) is still very high compared to say Japan at 0.07% or UK's 0.60%. Yes, we are better than the pakis at over 8%.

Again, this is an unprecedented black swan event. You need to get affordable loans and grants to businesses quickly before they shutter and release jobs. With the forex stash and suffering demand, Modi can print and hand out more to help without setting off overwhelming inflation. In a few months, supplies can run low if the economy remains shuttered and THEN runaway inflation can occur if you print rupees then.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby yensoy » 01 Jun 2020 16:20

chola wrote:You need to get affordable loans and grants to businesses quickly before they shutter and release jobs. With the forex stash and suffering demand, Modi can print and hand out more to help without setting off overwhelming inflation. In a few months, supplies can run low if the economy remains shuttered and THEN runaway inflation can occur if you print rupees then.

Agreed small business need to regrow. But this is one of those times like a forest fire which consumes everything in its way. Once the fire dies out, new seeds sprout and new vegetation grows. It's usually futile to fight the fire itself. Likewise I think it's entirely possible that small businesses will be wiped out, and new small businesses will grow. Instead of funding the dying small businesses, it's probably better to fuel the demand which will make the conditions right for the new generation of small businesses. It is heartless but the better use of money, and you will see more and more countries doing just that - letting the bankrupt businesses - small and big - die in order to make space for altogether new enterprises.

In addition, what you said above is another reason for the yield curve steepening. The world probably expects developing countries to print their way to growth which is why the long term yields are much higher since the currency will be somewhat debased.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby chola » 01 Jun 2020 17:02

^^^ Yensoy ji, with enough time anything can re-grow but is the pain and devastation necessary?

In general I agree with what you say in that there are times to let businesses bankrupt when they are inefficient. But this is not a normal year. The virus and the global reaction to it is unprecedented. No one ever even shut down a city the size of Wuhan until it happened and now whole countries are doing it. Many, many good and efficient businesses are being crushed not because they are not good but because society was ordered into a lock down. And not only the virus but a cyclone and a damn locust plague of all things.

The first world is doing everything to protect their employers with loans and stimulus. India might not be first world but it is not just another developing nation. I think it can and should do more to help. But there's window. India can print more now safely because demand is so depressed but in a few months if productivity remains low and the cyclone and locusts impact food prices then the GOI would lose that option because then there will be too few goods for new money to chase without setting off inflation.

I'm sounding like a damn socialist. But there is no recourse except for government action in times like these. Letting things die so rebirth can happen is good for any other time but this. This is like that meteor hit that killed the dinosaurs. All were clobbered -- both those with good evolutionary strategies and those with bad ones.

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Re: Indian Economy News & Discussion - Nov 27 2017

Postby nandakumar » 01 Jun 2020 17:51

chola wrote:Yensoy ji, yes the correlation is still there in sovereign debt and again third world nations like India are hit. Even though "low" for India, the short-term interest at around around 5% (historic avg of 6.7%) is still very high compared to say Japan at 0.07% or UK's 0.60%. Yes, we are better than the pakis at over 8%.

Again, this is an unprecedented black swan event. You need to get affordable loans and grants to businesses quickly before they shutter and release jobs. With the forex stash and suffering demand, Modi can print and hand out more to help without setting off overwhelming inflation. In a few months, supplies can run low if the economy remains shuttered and THEN runaway inflation can occur if you print rupees then.

The yield rate on G Sec with 7 day residual maturity is 3.16 and 10 year maturity (maturing in 2030) ranges from 5.8 to 5.99% according to Financial Benchmarks India Pvt Limited a company jointly owned by RBI and money market dealers association (FIMMDA) that operates as clearing house of trades.


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