Indian Economy - News & Discussion Oct 12 2013

Supratik · Post by **Supratik** » 30 May 2014 10:52

There is some talk on AI privatization. But Modi is not a compulsive privatiser. At least not in Gujrat. So he will rather try turning them around with better management. I personally would want Govt to get out of non-strategic businesses.

Yagnasri · Post by **Yagnasri** » 30 May 2014 11:26

Any news on the use of Ardha Kranti ideas on transaction tax?NDA leaders have attended to the presentations on this tax.

Is there any proposal to use gold as currency at least in digital format? Any news items on these type of highly unorthodox steps.

Uttam · Post by **Uttam** » 30 May 2014 18:54

Supratik wrote:There is some talk on AI privatization.

Good Luck with that. Who'd buy this piece of rotting junk? In my judgement liquidation of AI will be a much better outcome. Sell its individual assets like landing rights, ground maintenance, planes, etc. to the highest bidder. We have enough private airline participation that no one will miss absense of AI. Its good employee will easily placement in existing and new airlines and the bad ones are not needed anyway.

muraliravi · Post by **muraliravi** » 30 May 2014 19:05

Uttam wrote:
Supratik wrote:There is some talk on AI privatization.

Good Luck with that. Who'd buy this piece of rotting junk? In my judgement liquidation of AI will be a much better outcome. Sell its individual assets like landing rights, ground maintenance, planes, etc. to the highest bidder. We have enough private airline participation that no one will miss absense of AI. Its good employee will easily placement in existing and new airlines and the bad ones are not needed anyway.

That's exactly my thought too, sell the assets and get out of the business. Only some bold guy who thinks he can turnaround that junk may want to buy it, but I highly doubt if anyone will come forward. Airline industry as such is a perennial loss making one. Prior to all the major consolidations that have happened recently in the US airline industry (United-Continental, AA-US Airways, Delta-Northwest-KLM, Southwest-Airtran) etc.. almost all airlines were making loss except southwest. Similarly in India, Jet, Kingfisher all were making loss and I guess still continue to bleed though not as much as previous years. In such a scenario, unless the govt gives any major incentives to airliners, which in turn will spur the airlines to partially transfer some of that benefit to customers in terms of lower prices, which in turn will drive enough demand for the govt and airliners to remain a net positive, this whole industry is not a very profitable one for the time being. In such a scenario, AI can only dream of being bought up.

Suraj · Post by **Suraj** » 30 May 2014 19:54

Privatization of AI can only be successful when combined with throttling access to the middle eastern carriers. Those carriers have become our de facto national airlines now. Emirates in particular will be in significant financial trouble if access to India is restricted; their success today is the other side of the coin of domestic carriers' failures. As with many other things, the commercial aviation sector has several issues that need to be addresses together; just doing one thing will not fix problems. This is where Modi's ability to see all the interconnected issues, is at a premium.

Supratik · Post by **Supratik** » 30 May 2014 20:03

AI is a big bamboo. If you keep it you will have to shell a few thousand crores every now and then. If you sell its assets, rights, etc the opposition will go ballistic. To privatize AI you will need to hold your nose, clean its books, and then sell it or declare lock out. Expect vigorous opposition but if you don't want to put more crores in the drain there is no other option.

Theo_Fidel · Post by **Theo_Fidel** » 30 May 2014 20:35

I think Ratan Tata will still be interested in some down sized purged version of AI.
Certainly all the freebies for minister, ex-employees, etc must go.

Do it now when the iron is hot. Else inertia will slowly creep in. I don't see why it could not be done tomorrow and closed down by Dinner time.

muraliravi · Post by **muraliravi** » 30 May 2014 20:43

Supratik wrote:AI is a big bamboo. If you keep it you will have to shell a few thousand crores every now and then. If you sell its assets, rights, etc the opposition will go ballistic. To privatize AI you will need to hold your nose, clean its books, and then sell it or declare lock out. Expect vigorous opposition but if you don't want to put more crores in the drain there is no other option.

If you check their website for annual reports, http://www.airindia.com/writereaddata/P ... report.pdf

and take the chaff out (i dont want to go into their assets breakdown and complicate things), AI made 140 billion rupees in revenue and expenses including depreciation were roughly 213 billion rupees. Holy crap, thats a loss of 73 billion rupees per year, thats 7300 crores per year. This is a royal loot of taxpayer money unless the payouts to AI employees and the ancillary system is funneled back into the economy through their spending. But even with all that there is no way they make up for the loss.

A PSU can be turned around if its operating income is lets say negative 2% or even -10%. but how on earth can you salvage and turnaround a PSU that is making -50%

muraliravi · Post by **muraliravi** » 30 May 2014 20:44

Theo_Fidel wrote:I think Ratan Tata will still be interested in some down sized purged version of AI.
Certainly all the freebies for minister, ex-employees, etc must go.

Do it now when the iron is hot. Else inertia will slowly creep in. I don't see why it could not be done tomorrow and closed down by Dinner time.

They have to deal with 26000 employees of AI. But again if there is a will, there is a way.

Theo_Fidel · Post by **Theo_Fidel** » 30 May 2014 21:17

tahnx for the numbers murali,

So losing a cool Rs 1 Crore per hour. During the 12 hours of this discussion another Rs 12 Crore gone. But its only yours & my tax money after all…..

Shut the darn thing down. Give each employee a Rs 10 lakh retirement send off. GOI will probably save money immediately.

panduranghari · Post by **panduranghari** » 31 May 2014 04:33

Narayana Rao wrote:Any news on the use of Ardha Kranti ideas on transaction tax?NDA leaders have attended to the presentations on this tax.

Is there any proposal to use gold as currency at least in digital format? Any news items on these type of highly unorthodox steps.

Not so soon Saar. This is coming. At the right time. The current system won't allow these good ideas any breathing space. Every 40 years, the world has got used to a new currency system. The current one is way past its expiry.

The economic paradigm changes very rarely. This change is much more than a currency transition.

When it happens, arthakranti will come into its own. I expect many nations will take this up too.

Supratik · Post by **Supratik** » 31 May 2014 13:35

Thats what I said - AI is a huge waste of scarce resources. Imagine how those thousands of crores could help the public school system. It needs to be disposed off somehow. Expect vigorous opposition from the Congress and Left including allegations of selling the country, corruption, crony capitalism, nuclear warfare, etc. It is more a political issue than an economic one - as there is in fact no economic good sense in that crap continuing.

muraliravi · Post by **muraliravi** » 31 May 2014 18:42

Yeh lo, One more horrible PSU BSNL (my dad just retired today from BSNL after 39 years of service there)

http://www.bsnl.co.in/opencms/export/fi ... /PL_BS.pdf

7800 crore loss per year, again 1 crore a day

muraliravi · Post by **muraliravi** » 31 May 2014 19:37

BSNL -7800
AI -7300
MTNL -4044
Hindustan Cable -648
BPCL -4200

These 5 PSU's alone account for 24000 crore loss or $4billion or 0.2% of GDP. Just these 5 PSU's. Na jane aur kitne hai jo loss banate

Prasad · Post by **Prasad** » 31 May 2014 20:55

The thing with selling off AI is this - who takes over the route capacity on the Indian side? We have reciprocal seat #s with other countries. Mainly gulf carriers Emirates, Etihaad, Qatar etc carry huge numbers to the gulf and beyond from india. We do not have any indian carrier who can compete to that extent other than AI. Rather than cracking the whip, straightlining its work culture, we're talking abuot taking the easy way out. Why?

Supratik · Post by **Supratik** » 31 May 2014 21:12

Because that has been said since my "grand-dad's days" and it hasn't worked. I can say I will make AI the best carrier in the world. Means zilch. If Modi can turn it around more power to him. But right now it is a criminal waste of resources in a poor country. Also why do you need a state carrier? What purpose does it serve?

A_Gupta · Post by **A_Gupta** » 31 May 2014 23:43

Thomas Pikketty, "Capital in the 21st Century", page 71: (emphasis added)

Make no mistake: participation in the global economy is not negative in itself. Autarky has never promoted prosperity. The Asian countries that have lately been catching up with the rest of the world have clearly benefited from openness to foreign influences. But they have benefited far more from open markets for goods and services and advantageous terms for trade than from free capital flows.

China, for example, still imposes controls on capital: foreigners cannot invest in the country freely, but that has not hindered capital accumulation, for which domestic savings largely suffice. Japan, South Korea and Taiwan all financed investment out of savings. ......

....In other words, the poor catch up with the rich to the extent that they achieve the same level of technological know-how, skill and education, not by becoming the property of the wealthy. The diffusion of knowledge is not like manna from heaven; it is often hastened by international openness and trade (autarky does not encourage technological transfer.) Above all, knowledge diffusion depends on a country's ability to mobilize financing as well as institutions that encourage large-scale investment in education and training of the population while guaranteeing a stable legal framework that various economic actors can reliably count on. It is therefore closely associated with the achievement of legitimate and efficient government.

Y. Kanan · Post by **Y. Kanan** » 01 Jun 2014 02:35

What's the story with Indian stocks since Modi's swearing in? Seems the euphoria's fading... I hope this is just some quick profit taking by all the investors that bought in during the stock run-up that was brought about by Modi's ascension, and not another long bear market.

Theo_Fidel · Post by **Theo_Fidel** » 01 Jun 2014 05:33

The 30% run up is pure heart or head. Probably likely to fade. Lets be realistic and have realistic expectations of the man. 5% growth is going to be with us for a while. It might be a year or more before changes start showing any economic effect.

Yagnasri · Post by **Yagnasri** » 01 Jun 2014 06:00

I have personal knowledge about the AI finances, there are serious negatives which mainly in the areas of huge staff cost and culture of AI. Serious cost cutting can be made. For example AI is the only airline which is giving food, water etc free of cost to people while travelling. Almost none of the others do. This kind of additions can be stopped. Huge staff can be asked to go home. All benifits for retired people like 8 free tickets etc can be stopped immediately. By the way railways also gives it and it also have to stopped.

But the present status AI was also due to serious and delibarate mismanagement by Civil Aviation Ministry. It was looted by our politicos.

One thing can be done though. All its rights and assets can be valued and sold as a running company to any other holding company under GOI and the sale proceeds are distributed to lenders as a final settlement of payment. workers who can not be employed in the Company can be retired.

New holding company then can issue shares to public and see the Airlines and the sale proceeds also are distributed among the lenders. With this the Airlines will servive as a private one and most of the lenders can be repaid. But the debt is guaranteed by the GOI. So final cost once again repaid by the GOI only.

But the way do you know howmuch loss Kingfisher caused to the lenders? Well over 6K crores. Bharat Ship yard 9k Crores. The list of private sector losses is also huge and unfortunately no one is spaking about them. RBI created CDR stucture is saving most of the banks from declearing huge losses due to NPAs and no one clear knows how much is under CDR as of now.

Loss making PSUs have to go immediately. May be this year itself. Not just GOI owned PSUs, States PSUs also. AP power distribution had an accumulated loss of 31K cr when I last checked. Must be more as of now.

The mess is PSUs and also private sector is serious than most of us imagine.

gakakkad · Post by **gakakkad** » 01 Jun 2014 08:49

X POST FROM mODI SARKAR

PM Narendra Modi ushers in changes: GoMs, EGoMs out

http://indianexpress.com/article/india/ ... egoms-out/

Jaitley gets moving on GST

http://indianexpress.com/article/busine ... vt-agenda/

Vipul · Post by **Vipul** » 01 Jun 2014 20:32

India's per capita income grows faster at 2.7% to Rs39,904 in FY'14.

The sluggish growth of the Indian economy has had a lesser impact on its per capita income, which grew at a faster rate of 2.7 per cent to reach Rs39,904 ($674) during the financial year 2013-14, against the 2.1 per cent increase to Rs38,856 during the 2012-13 fiscal, provisional estimates released on Friday showed.This compares with the economy's annual growth rates of 4.7 per cent and 4.6 per cent, respectively, for the two financial years.

Per capita net national income in real terms (at 2004-05 prices) during 2013-14 is estimated to have reached Rs39,904, a growth of 2.7 per cent compared to the first revised estimates for the year 2012-13 of Rs38,856, as per provisional estimates.The earlier estimate, released on 7 February 2014, had first projected a 2.8 per cent growth in per capita income at Rs39,961 for the year 2013-14.

At current prices, India's per capita income is estimated to have grown at an annual pace of 9.6 per cent to reach Rs74,380 (around $1,256) during 2013-14, compared with the revised figures for the year 2012-13 of Rs67,839.This is more or less the same as the 9.7 per cent recorded in 2012-13.However, growth of per capita income was faster at 14.5 per cent at Rs61,855 in 2011-12, 16.8 per cent in the previous year and 13.4 per cent in 2009-10.

Against this, per capita income in neighbouring Pakistan rose to around $1,370 in fiscal 2013-14, up four per cent over the revised figures for the previous fiscal.Sri Lanka's per capita income has reached $2,920 in 2013-14 while Bangladesh's per capita income stood at around $1,190.China had per capita income of around $5,720 during the 2013-14 fiscal

Last year, Singapore reported per capita income of $29,500, while the US had per capita income of $17,460, Hong Kong ($16,340) and Japan ($15,450). Europe's largest and second largest economies Germany and France had per capita incomes of $12,730 and $12,720, respectively.

gakakkad · Post by **gakakkad** » 01 Jun 2014 20:51

^^ which base year are they using? The per capita income of amreeka bahadur is close to 50k...while french and germans it is close to 40k .... something grossly incorrect with the stats..I don't believe germany ,fance,US or Singapore report incomes on a 2004-2005 base year...

Suraj · Post by **Suraj** » 01 Jun 2014 20:59

Base year is still 2004-05 for GDP. I think IIP still uses 1999-00 . The US and European data is far off from the mark, which leads me to question all the other numbers in the article.

saip · Post by **saip** » 01 Jun 2014 21:01

muraliravi wrote:
Theo_Fidel wrote:I think Ratan Tata will still be interested in some down sized purged version of AI.
Certainly all the freebies for minister, ex-employees, etc must go.

Do it now when the iron is hot. Else inertia will slowly creep in. I don't see why it could not be done tomorrow and closed down by Dinner time.
They have to deal with 26000 employees of AI. But again if there is a will, there is a way.

I know compared to many airlines there are too many employees/plane. But how does this compare in dollar terms?

Supratik · Post by **Supratik** » 01 Jun 2014 22:16

If I am not mistaken I think the article talks about per capita real income and not GNI/capita or GDP/capita.

chaitanya · Post by **chaitanya** » 02 Jun 2014 03:03

Theo_Fidel wrote:Anyone know what the BJP/NM stance on PSU privatization is?

I remember NM saying in MSM interviews that he favors keeping PSUs and thinks that lack of management is the issue. He talked about some examples of PSUs in Gujarat where he told the employees to come up with ideas to improve them, and turned loss makers around. He seems to be very pragmatic so I am guessing he will give air parasite and others time to mend their ways, but if this nearly 1 crore/hour loss (

, nice find muraliravi!) im sure he will cut them off... at least I hope he will!

chaitanya · Post by **chaitanya** » 02 Jun 2014 03:35

Supratik wrote: One reason could be that Indians have been used to buying food from ugly markets and shops and the idea of buying food from a clean, AC retailer is new. The other reason is everyone buys food so it is a price sensitive item. If your local thela-wala gives you Rs 2 discount per kg of potato you are going to buy from him.

muraliravi wrote:My own experience has been that people go to big stores to buy groceries and it is not that they dislike it. It is more of a pain going there. Unlike the west where people stack up for a week or 2 and have their large refrigerators full, Indians usually buy food and groceries on a daily basis. On an average Indian refrigerators are small and can house only so much at a time. It is a royal pain to go to a super-bazaar every day to buy 1/4 kg potato and 3 onions and 2 tomatoes which is how most Indian households buy.

Suraj wrote:The previous regime was characterized by a continuous lack of ability to plan the details and execute them. The current dispensation is led by a man who is quite the opposite, and places a premium on details. 'FDI in retail' simply does not address the details sufficiently for the matter to be important today; it seeks to bring in those with frontend expertise we already have, without sufficient incentive to address the backend locally. [...] They have NO incentive to sink in more costs into an Indian backend. Bringing them in constitutes a poorly aligned set of incentives between our side and theirs. Enabling FDI by logistics and supply chain companies is what really addresses what we need.

muraliravi wrote:^^^ Exactly, but even for that we need to essentially shake up India's infra.

Sorry for the series of quotes, but it seems like big MNC retail is a nonstarter right now for multiple reasons, the primary one being Indian purchasing habits. I feel that the Walmarts of the world survive and gain their competitive edge when a region has large quantities of people with limited purchasing power trying to economize on essentials, esp. the non-perishable ones. Most Indians dont buy in bulk and those consumption habits are not there, nor is the buying power/supply chain diffuse enough for such items in India.

I am sure the current government knows about these glaring issues... Maybe this FDI hike is going to come with a caveat of actually forcing investment in infrastructure and clauses to force local sourcing? I just feel that if within the span of two pages we can flesh out major issues on a topic that has been sitting in the national agenda for a while, there might be a more strategic motive behind this?

kshirin · Post by **kshirin** » 02 Jun 2014 04:58

I support FDi if it comes with local sourcing. Why not 80%? Otherwise we risk bigger trade deficit and plunging rupee. This way it can actually ebenfit India.

[quote="muraliravi"]Amit,

The real worry is dumping of the other products and destruction of local manufacturing which is why the govt should mandate a big chunk of local sourcing.

I dont care for small shops or kiranas, the real issue is our manufacturing. If the govt mandates local sourcing, I am 100% in support of FDI. Let the guy come invest and buy locally.[/quote]

Rahul Mehta · Post by **Rahul Mehta** » 03 Jun 2014 07:18

I. How large Indian companies can evade taxes on internal income using SEZs using fake exports losses and fake import profits

SEZs make profits on exports tax free. Now here is how a large Indian company can evade taxes on internal profits as well. For simplicity,. I am taking $1 = Rs 50

1. Say Indian company C1 has made profit of Rs 1000 crore in business. Then tax payable is approx Rs 350 crore.

2 Now the owner can open a company M in say Mauritius . Now say some goods which are worth Rs 1000 crore = $20 million in international market are fetch Rs 1000 crore in Indian market i.e. custom duty is very low

3. Then company M can buy goods for $ 20 million = Rs 1000 crore, and then company C1 can import those goods at twice the price i.e. Rs 2000 crore = $ 40 million.

4. Then C1 can sell those goods in Indian market at Rs 1000 crore. So loss to company C1 = Rs 1000 crore.. But there is NO net loss to the owner, as his company M gained a profit of Rs 1000 crore = $ 20 million

5. So net profit of C1 = Rs 1000 crore + ( - Rs 1000 crore) = 0. So tax payable by C1 = Rs 0

SUMMARY of step-1 to step-5 : Using OVERPRICED IMPORTS , one can move all profits of Indian company outside SEZ to some foreign company M

6. Now consider some goods which cost Rs 1000 crore in Indian market, and also cost Rs 1000 crore in international market i.e. margin is very low. Now owner of C1 can start a company C2 in SEZ. And C2 can export these goods to M at Rs 2000 crore = Rs 40 million . So company M has now zero profit

7 And profit earned by C2 in SEZ = Rs 1000 crore.

SUMMARY of step-5 to step-7 : Using OVERPRICED EXPORTS , one can move all profits of foreign company M to Indian company C2

8. Now since C2 is in SEZ, tax payable will be zero. So total tax owner of C1 = owner of M = owner of C2 will now pay will be zero

===

IOW , a company outside SEZ can siphon off all its profits to a foreign company using OVERPRICED IMPORTS.and then bring back into sez company. using OVERPRICED EXPORTS. Thus one can transfer profits from India non-SEZ company to SEZ-company. But this is possible only at large scale.

Thats why, despite so called exports from SEZ, India is always forex deficient. Because many companies keep importing and importing and importing.

Solution is to cancel all tax exemption to SEZ.

Also, it is myth that SEZ increase jobs or exports. When SEZ comes, the exports of non-SEZ units decrease. And their jobs reduce. So export/jobs shifts from non-SEZ to SEZ . SEZ idea is as sherlockian as taking one railway compartment from front, and putting it an end, and then saying "see I added one compartment to the train" !!!

====

II. Maritius route

please see Indo-Mauritius treaty at the tinyurl my volunteers have created -- http://tinyurl.com/rtrgrp01 . See all 4 clauses of article-13 , and then see the clarification below article-29. It says

3. Paragraph 4 deals with taxation of capital gains arising from the alienation of any property other than those mentioned in the preceding paragraphs and gives the right of taxation of capital gains only to that State of which the person deriving the capital gains is a resident. In terms of paragraph 4, capital gains derived by a resident of Mauritius by alienation of shares of companies shall be taxable only in Mauritius according to Mauritius tax law. Therefore, any resident of Mauritius deriving income from alienation of shares of Indian companies will be liable to capital gains tax only in Mauritius as per Mauritius tax law and will not have any capital gains tax liability in India.

IOW, companies investing from Mauritius pay no capital gains tax from shares, bonds etc, even if they want to repatriate profits in dollars. It s possible to cancel this treaty in one day by an Ordinance.

The treaty came in 1982, but Devi Indira Amma and Rajiv Gandhi never gave permission to foreign companies to invest in Indian share market. So the treaty remained on paper. In 1992, MMS-IMFwala gave permission to foreign companies to invest in India. and so huge exodus of dollars started due to this treaty. But NO PM from PVNR-Shakuni to ABV-EnronPurush to MMS-IMFwala to NaMo-?? has dared to touch this treaty despite losses it is causing.

Theo_Fidel · Post by **Theo_Fidel** » 03 Jun 2014 18:28

Without profit declared the company cannot distribute money to the shareholders. Which would leave the owners high and dry without resorting to illegal games. Companies are required to pay a minimum alternate tax now. If the company has a book profit allowing payout to shareholders then it must pay a 18.5% tax. Doesn’t matter what it bought in Mauritius.

SEZ’s are important to Indian growth not just for tax purposes. The greater advantages are in infrastructure, labor, state support, quick turn around, etc. Don’t attack things that are important for our growth.

Now, a lot of illegal gol-mal does take place. Attack the illegal actions not the innocent by standers. And yes the Mauritius route is abused a lot. Loopholes can be closed without shooting ourselves in the foot.

Suraj · Post by **Suraj** » 03 Jun 2014 20:22

News roundup:
FII system replaced with FPI
Goodbye FII, hello FPI

The FPI regulations aimed at reducing the entry barriers for overseas investors. Investors from new geographies such as Tokyo, Hong Kong and Australia are said to have expressed interest to register under the new FPI regulations.

“It is now easier and faster for foreign investors to access the Indian market and this is a positive development for the country which is attracting more interest from overseas investors,” said Kapil Seth, Head HSBC Securities Services India, a designated depository participant (DDP), a link between the regulator and investor. Existing FIIs and sub-accounts that are due for renewal will have to register under new FPI regime.

Getting core sector and IIP growth up will be the government's near term goal. The UPA regime was a catastrophic failure on this front. Article has lots of data:
Core sector begins FY14 on a positive note

Output of the eight core sectors grew 4.2 per cent in April, compared with 2.5 per cent in March. The rise was primarily aided by electricity generation and the fertiliser and cement segments, showed official data released on Monday.

Though the core industries have a weight of 38 per cent in the Index of Industrial Production (IIP), experts say the outlook for industrial growth for April isn’t bright.

For 2013-14, production in these sectors rose 2.6 per cent, the lowest in at least nine years. For 2012-13, core sector growth stood at 6.5 per cent.

In April, growth in electricity generation nearly doubled to 11.2 per cent, a seven-month high, against 5.4 per cent in March. Fertiliser production stood at 11.1 per cent, against 6.1 per cent contraction in March.

May PMI data looking up. Companies often invest ahead of time when sentiment suggests an upturn.
Index on factory output shows growth in May

The measure of factory production was up at 51.4 points in May from 51.3 points in April. March, too, had recorded 51.3. In a year, May PMI was surpassed only in February 2014, when the reading stood at 52.5 points. A reading above 50 shows growth.

The increase in PMI reading could have been higher had power cuts not dulled factory orders. General elections also came in the way of manufacturing activities, said Markit Economics, the financial information firm that compiles PMI data.

There was a ray of hope in job creation. Respondents to the survey reported higher new orders, signing of new contracts and improved demand from domestic and foreign clients. “Growth of both total new orders and new export business accelerated over the month, leading to further job creation across the sector,” said Markit Economics.

HSBC asked the Reserve Bank of India (RBI), due to announce its monetary policy review on Tuesday, to not lose guard over inflation, though input price pressures have eased.

RBI eases SLR, which should lower the crowding out effect and slightly lower interest rates
RBI cuts SLR by 50 bps to support economic recovery; partially relaxes remittance

The Reserve Bank of India (RBI) today left the key policy rate unchanged at 8% for the second successive policy review as inflation concern showing signs of abating and said a pro-growth stance could be adopted if prices rise at a slower pace than expected – a message that will be welcomed by a pro-growth National Democratic Front government which took oath last week after a landslide victory.

The cash reserve ratio – the proportion of deposits which the bank have to keep with RBI – was also left unchanged at 4%.

Mindful of the need for funds when investment picks up, the central bank reduced the statutory liquidity ratio – the proportion of deposits that banks have to investment in government papers – by 50 bps to 22.5% and promised further reduction depending on the government action on fiscal consolidation. The 50 bps cut in SLR which will free up about Rs 35,000 funds for the banks which could be deployed.

“The reduction in the Statutory Liquidity Ratio is a welcome signal of the commitment to reduce pre-emption of resources over time and create more room for banks to finance growth,” said Chanda Kochhar, managing director and chief executive officer, ICICI Bank.

In addition, confident of a stable exchange rate on the back of narrowing current account deficit and swelling foreign exchange reserves, the central bank partially rolled back capital control measures it imposed last year due to halt rapid depreciation of the rupee, by increasing the cap on foreign exchange remittances to $ 125,000 million from $75,000 million per financial year.

Another article on the significance of the SLR move. The UPA was never in favor of such measures, preferring GoIs pre-eminence when it came to borrowing power, through a high SLR.
RBI's SLR cut a step towards migrating govt to market-driven rate

By reducing the statutory liquidity ratio (SLR) of scheduled commercial banks by 50 basis points from 23.0 per cent to 22.5 per cent, Governor Rajan's move is expected to impact both the private sector and the government, albeit in different ways. The private sector stands to gain as the move will release liquidity and credit will be available at an affordable price. So rather than cut key interest rates, RBI has released liquidity into the system specifically targeted at the private sector. Ritika Mankar Mukherjee, economist at Ambit Capital, says the core message sent out by the RBI with the SLR cut is that it is willing to make credit available to the private sector. The central bank, she says, is trying to pre-empt the fiscal consolidation by the government.

The impact of this move is expected to be much more far-reaching on the government than on the private sector. A section of economists believe that currently, the exposure of banks to government securities is at around 28 per cent, which is well above the mandated levels. The RBI is gradually attempting to move banks to move their government securities holdings from held-to-maturity to mark-to-market. The government has a captive investor base in banks and, due to regulatory reasons, ends up borrowing at artificially low rates. Borrowing at lower rates also incentivises the government to keep borrowing at elevated levels. With banks moving away from held-to-maturity to mark-to-market, the government will eventually have to borrow at market-determined costs.

GoI will have to borrow at market costs, discouraging them. Private entities have access to more credit, and comparatively cheaper rates now. Growth in investment should further spur a virtuous low interest rate cycle.

gakakkad · Post by **gakakkad** » 03 Jun 2014 21:29

^^ thanks suraj for the key news...reminds of the good old days when economy grew 10%+ when you and others would compile articles from many sources...

Gus · Post by **Gus** » 03 Jun 2014 21:51

the econ thread and the 'nation on the march' were in top 10 threads for a couple of years. UPA2 has killed it.

thread activity is a good indicator of the economic story of the past decade. nation on the march is now in the last page.

vic · Post by **vic** » 03 Jun 2014 21:59

Foreign Investment which is does not improve manufacturing or provide technology just produces inflation. We can print our own currency without handing over assets to foreigners or suffering massive price escalation as in reality.

Suraj · Post by **Suraj** » 03 Jun 2014 22:32

gakakkad wrote:^^ thanks suraj for the key news...reminds of the good old days when economy grew 10%+ when you and others would compile articles from many sources...

Yes indeed. I was thinking of exactly the same thing as I collected those articles again. I used to do that weekly in the past. After 3-4 years of ennui, suddenly I'm enthusiastic about tracking and posting news updates. With Modi's focus on investment growth, infrastructure, job growth and manufacturing, this thread should get moving again. Lets start moving more of the Modi sarkar thread economic discussions here.

Gus: indeed. Hopefully the economy and nation on the march threads will be in the top 10 TEF threads continuously now, along with infrastructure, roads, railways and related threads.

vic wrote:Foreign Investment which is does not improve manufacturing or provide technology just produces inflation. We can print our own currency without handing over assets to foreigners or suffering massive price escalation as in reality.

FDI much exceeds FII now, and has been the case for a few years now. It's still incoming capital, to be welcomed. If we love getting remittances, there's no reason not to welcome FPI (formerly FII). Yes, FPI is hot capital that enters and exits quickly. But it's still capital. Better to make conditions good enough to ensure the FII money keeps coming in, rather than sticking our noses up at it for its negatives.

Rahul Mehta · Post by **Rahul Mehta** » 04 Jun 2014 07:05

I am looking for yearwise data since 1991 to 2013 on following

1. Dollars NRIs sent from abroad to India
2. Exports
3. Imports , including dollars India tourists took away from GoI
4. Capital
--- 4a. Capital which came via FII\FDI
--- 4b. Capital + Profits which went out via FII\FDI
5. Debt
--- 5a. Debt we took in dollars
--- 5b. Debt + Interest we paid in dollars

My guess is -- (4b) his higher than (4a) i.e. we lost more dollars via FDI/FII route then we gained., which is as such obvous, but annual data will help.

And (5b) > (5a) is tautology, but here too annual data will help

IOW, my hunch is that what ever we gained by (1) , we lost via capital and debt.

So any link to a report of forex history of India will help. TTIA = Ten Thanks in Advance (too much mahangai , cant afford to give Thousand Thanks)

==============

Investment is something in which Govt = nation has NO commitment to give back . All risk is on investor. In FDI, the Govt is committed to give the dollars for repatriation. So calling FDI "investment" is a gross misnomer amount to cheating the public.

member_27845 · Post by **member_27845** » 04 Jun 2014 08:19

India world's second largest textiles exporter: UN Comtrade

http://articles.economictimes.indiatime ... ender-year

http://www.dnaindia.com/money/report-in ... ts-1993053

Sri · Post by **Sri** » 04 Jun 2014 12:50

Theo_Fidel wrote:tahnx for the numbers murali,

So losing a cool Rs 1 Crore per hour. During the 12 hours of this discussion another Rs 12 Crore gone. But its only yours & my tax money after all…..

Shut the darn thing down. Give each employee a Rs 10 lakh retirement send off. GOI will probably save money immediately.

I am privy to a report by a NGO submitted to AI management by extension to GOI, which essentially said that if Air India suspends all flights and just paid salary it will make lesser loss (Just pay Basic and Statuary benefits ask employees not to report to work). Basically the more they fly the more they hurt the tax payer.

Yogi_G · Post by **Yogi_G** » 04 Jun 2014 13:15

Lest we forget how some from the khan land mocked us when Chidu went hunting for investment funds in the US. our exuberance was short lived they said.