Indian Economy - News & Discussion Oct 12 2013

[Suraj]

If West/US sees China as a threat, then they will try to hedge it with India, because India is only nation that can match human resources of China, then there might be an acceleration (manufactures moving from China to India) in the above processes.

I disagree with this thesis. The west's primary interest is self-preservation, as would be everyone else's. All other concerns flow from that. China's rise threatens their position in the world. The last thing they need is *another* China in the form of India, threatening their pre-eminence further. They don't want an India that can take on China as much as one that can keep them down, preferably fed by the west's weapons. Anyone who's strong and independent enough to take on China is also strong enough to take on the western led system, primarily the economic one.

However, I would like to request that any further discussion go into the geopolitical thread, not here.

[panduranghari]

Suraj,
Why do you think big banks as recommended by Jaggi is a good idea? Small banks make more sense. The better choice for business lending would be to make 2 or more banks lend. Thus it permits the project viability to be cross checked and the bank does not become beholden to an business man like Mallya. Of course, in theory it will slow the speed of implementation. But will it really?

[srin]

Suraj,
Why do you think big banks as recommended by Jaggi is a good idea? Small banks make more sense. The better choice for business lending would be to make 2 or more banks lend. Thus it permits the project viability to be cross checked and the bank does not become beholden to an business man like Mallya. Of course, in theory it will slow the speed of implementation. But will it really?

+1. I go even further - we should encourage smaller companies than larger companies lest they become "too big to fail" - esp banks, where management/lending mistakes can take down the economy with them.

That's why i advocate taxing corporates by slabs (like the personal income tax) instead of a flat rate. More the absolute profits, the higher the tax rate ...

[Suraj]

Suraj,
Why do you think big banks as recommended by Jaggi is a good idea? Small banks make more sense. The better choice for business lending would be to make 2 or more banks lend. Thus it permits the project viability to be cross checked and the bank does not become beholden to an business man like Mallya. Of course, in theory it will slow the speed of implementation. But will it really?

The capital base of small banks individually are not large enough to fund the large projects without substantially risking their credit base on a small number of large projects, i.e. a few large eggs in a small basket. 'Make two or more banks lend' to me is simply inefficient and the effort of duplicating due diligence doesn't have any benefit. As far as the Mallya case goes, what he did happened *despite* us having small banks now. So the entire argument in favor of small banks is moot.

If the solution is to fix the process of due diligence, then by consequence that obviates the very need for multiple small banks to lend together, because the due diligence process takes care of that. If the solution is ineffective such that one still needs redundancy in the form of multiple banks checking independently, then your problem isn't big vs small banks as much as an inefficient process of due diligence, which can affect any bank, small or large.

Therefore I see no benefit in multiple efficient small banks - their efficiency and ability to fund large projects will just increase by merging into larger more efficient banks.

[amit]

There's no reason not to, if they can get away with it. Despite all the gas about TRIPS and general IP issues, the west has absolutely no problem trying to patent basmati rice or even yoga if they can get away with it. This is not about 'satyameva jayate'. It is 'might is right'. We already do it by applying patent evergreening laws in a manner that suits us, rejecting claims from Pfizer, Novartis etc in the process. We should be more aggressive about it .

Oh don't get me wrong Suraj. I have no qualms if Indian firms rip off IP from foreign companies. But the point is you don't always need to do that in order to build capabilities. A good example of that is Samsung and its TV and DRAM businesses.

About a decade or so ago Sony entered into a collaboration with Samsung to build fabs to manufacture TV screens. It worked like a charm for Sony with costs coming down. Unfortunately it only dawned on the Japanese manufacturers much later that Samsung was gaining expertise and was surpassing Sony in the TV business. Today we know what has happened.

It's a similar case with Toshiba vis a via Samsung in the DRAM business.

But there is one thing that Samsung did, it invested like crazy in R&D. Even today Samsung as a group spends more on R&D than any other electronics/IT company in the world.

That's where IMO, most Indian companies fail miserable with only a few honorable exceptions. The sad fact is that in the Indian IT/electronics sector the major R&D spenders are the US multinationals who have operations in India.

Coming back to the original point of our discussion, for local telco manufacturers to flourish they need to not only beg, borrow or steal technology but also need to invest in R&D. I don't see that happening. There are too many easy options for Indian companies who can just go and buy from Chinese companies rather than build up capabilities. Look at Reliance as an example. A huge, diversified conglomerate but how much IP do they create every year? How much, as a group do they spend on R&D?

Look at Huawei on the other hand. They did steal a lot of IP from all around. But you have to give it to them, they also invested a lot in R&D as well. As a result today the company has a portfolio of products that spans the portfolio of the likes of Ericsson, Cisco/Juniper and a Motorola.

[amit]

If the solution is to fix the process of due diligence, then by consequence that obviates the very need for multiple small banks to lend together, because the due diligence process takes care of that. If the solution is ineffective such that one still needs redundancy in the form of multiple banks checking independently, then your problem isn't big vs small banks as much as an inefficient process of due diligence, which can affect any bank, small or large.

Therefore I see no benefit in multiple efficient small banks - their efficiency and ability to fund large projects will just increase by merging into larger more efficient banks.

+100

[Singha]

reliance does not even seem to have R&D in its core area of petroleum and plastics despite being in the business for decades now with good revenues. i think they outsource the technical details to the consulting arms of foreign operators like Shell. .... same as the gulf cos like aramco or rasgas do.

shell, BP, exxon etc have very strong r&d and geo analysis arms.

ONGC in dehra dun and elsewhere probably have far more scientific work than reliance.

[Singha]

as a data point cisco sales in china have nosedived 20% in last qtr or year and a lot of senior execs in that team have been fired by the new ceo recently.

no prizes for guessing who ate the cake - huawei and zte. they are having to throw even more good money in to try and remain afloat there

http://www.bloomberg.com/news/articles/ ... romote-r-d

Cisco Systems Inc. will invest more than $10 billion in China during the next few years, a costly tactic to get back in the government’s good graces and stay competitive with Huawei Technologies Co.

Cisco’s investment agreement, sealed with China’s state economy planner, comes as the government promotes local firms at the expense of U.S. companies such as Qualcomm Inc. and Microsoft Corp. China said it was concerned with the security of U.S. technology since Edward Snowden revealed details of spying by the National Security Agency.

Cisco is losing market share in the networking business to Huawei and ZTE Corp., both based in Shenzhen, and has said it’s open to forming partnerships in China. Chief Executive Officer John Chambers said he is optimistic Cisco will benefit from improved relations between the U.S. and China, yet the company’s $10 billion may not lead to significantly more business there.

“They probably had to do something dramatic,” said James McGregor, chairman of the Greater China business for consultancy APCO Worldwide. “They’re trying to find a way to continue to have a significant piece of this market.”

Cisco’s agreement was with the National Development and Reform Commission, the same organization that extracted a $975 million fine from Qualcomm after starting an antitrust investigation.

The $10 billion investment will create jobs, fund research and development, spur innovation and equity investment, Cisco said Wednesday in a statement. Cisco also signed agreements to help 100 colleges advance training.

Chambers and Chuck Robbins, his successor, made the announcement after meeting with Vice Premier Wang Yang and other government leaders in Beijing. Revenue from China plunged 20 percent in the quarter ending April from a year earlier.

Cisco shares rose about 1 percent to $29.21 at the close Thursday in New York. The stock has climbed 5 percent this year.

The networking company also is increasing its investment in India. Cisco will spend $40 million to increase the size of its 4 million-square-foot factory in India, the company said in a statement Thursday. Cisco will spend $20 million to train an additional 120,000 Indian students at the Cisco Networking Academy by the end of 2020. The company has already taught about 100,000 Indian students how to design, build and maintain computer networks.


Cisco is the latest technology company to spend billions trying to gain a share of China’s market -- the world’s biggest -- even as the government promotes homegrown competitors.

China is aiming to purge most foreign technology from banks, the military, state-owned enterprises and key government agencies by 2020, people familiar with the effort said in December. Foreign suppliers may be able to avoid replacement if they share core technology or allow Chinese authorities to access it, the people said.

Microsoft pledged billions of dollars in investments during the past decade and urged the government to tackle piracy, and in September started selling the Xbox One video-game console there.

Hewlett-Packard Co. this year sold a controlling stake in its local networking and server business to a Chinese rival, hoping to boost its contract win rate.

“Where this all leads to, nobody knows,” McGregor said. “People are adapting the best they can because the market matters so much.”

[amit]

The networking company also is increasing its investment in India. Cisco will spend $40 million to increase the size of its 4 million-square-foot factory in India, the company said in a statement Thursday. Cisco will spend $20 million to train an additional 120,000 Indian students at the Cisco Networking Academy by the end of 2020. The company has already taught about 100,000 Indian students how to design, build and maintain computer networks.
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China is aiming to purge most foreign technology from banks, the military, state-owned enterprises and key government agencies by 2020, people familiar with the effort said in December. Foreign suppliers may be able to avoid replacement if they share core technology or allow Chinese authorities to access it, the people said.

These two paras say more than what a thousand words can. Note that China isn't interested in Cisco, the great gora company, training Chinese students. It wants access to Cisco (and other US technology companies) core IP and the carrot they are dangling is access to the Chinese market, one that the US companies dare not ignore.

This is a government directed old fashioned arm twisting. This is where IMO the Indian government has failed miserably. We are already the world's second biggest mobile market. When China's mobile phone market was even smaller than what India's is today they arm twisted the likes of Ericsson, Nokia Siemens etc to partner with local companies in order to build the network infrastructure. India hasn't done that and Reliance, Bharti and other service providers went to the likes of Huawei who sold below cost in order to get access into Indian markets. This is typical of short-term thinking that plagues our policy making.

Bottomline we should stop this bullshit of companies like Cisco and others 'training' Indian students and demand that they instead share technology. In any case the good ones among these 'trained' students will be sent to the US and other places. No benefit to India.

Modi should use Make in India and Indian telco market size to force the US companies to share technology with local champions. The impending upgrade to LTE and the expected 5G networks by 2020 present our last opportunity to develop a telco manufacturing base. Tax concessions and others can be used a corrot with punitive taxes being the stick.

[gakakkad]

reliance does not even seem to have R&D in its core area of petroleum and plastics despite being in the business for decades now with good revenues. i think they outsource the technical details to the consulting arms of foreign operators like Shell. .... same as the gulf cos like aramco or rasgas do.

shell, BP, exxon etc have very strong r&d and geo analysis arms.

ONGC in dehra dun and elsewhere probably have far more scientific work than reliance.

Ambanis are like gelf shaikhs.... lot more money than brains...they were a product of the license raj...the sooner the forces of market cut them to size , the better..

[Singha]

C_DOT which could have been a local champion given its early start and access to a lot of best engineers in that era was allowed to run into the ground under counselling by vested interests who just wanted to keep on importing.

when I joined the industry in 1997, the senior embedded sw/hw engineers were from 3 places only - BARC, C-DOT and DRDO.

[Suraj]

There's no reason not to, if they can get away with it. Despite all the gas about TRIPS and general IP issues, the west has absolutely no problem trying to patent basmati rice or even yoga if they can get away with it. This is not about 'satyameva jayate'. It is 'might is right'. We already do it by applying patent evergreening laws in a manner that suits us, rejecting claims from Pfizer, Novartis etc in the process. We should be more aggressive about it .

Oh don't get me wrong Suraj. I have no qualms if Indian firms rip off IP from foreign companies. But the point is you don't always need to do that in order to build capabilities. A good example of that is Samsung and its TV and DRAM businesses.

About a decade or so ago Sony entered into a collaboration with Samsung to build fabs to manufacture TV screens. It worked like a charm for Sony with costs coming down. Unfortunately it only dawned on the Japanese manufacturers much later that Samsung was gaining expertise and was surpassing Sony in the TV business. Today we know what has happened.

It's a similar case with Toshiba vis a via Samsung in the DRAM business.

But there is one thing that Samsung did, it invested like crazy in R&D. Even today Samsung as a group spends more on R&D than any other electronics/IT company in the world.

That's where IMO, most Indian companies fail miserable with only a few honorable exceptions. The sad fact is that in the Indian IT/electronics sector the major R&D spenders are the US multinationals who have operations in India.

Coming back to the original point of our discussion, for local telco manufacturers to flourish they need to not only beg, borrow or steal technology but also need to invest in R&D. I don't see that happening. There are too many easy options for Indian companies who can just go and buy from Chinese companies rather than build up capabilities. Look at Reliance as an example. A huge, diversified conglomerate but how much IP do they create every year? How much, as a group do they spend on R&D?

Look at Huawei on the other hand. They did steal a lot of IP from all around. But you have to give it to them, they also invested a lot in R&D as well. As a result today the company has a portfolio of products that spans the portfolio of the likes of Ericsson, Cisco/Juniper and a Motorola.

I can't disagree with any of what you said. In fact, there was a multipage discussion on the Micromaxx/Karbonn model sometime ago, where I argued that they're simply good importers contributing to the Chinese manufacturing engine, and that celebrating them as an Indian success story is very shortsighted. Ditto for Reliance, who are very good at executing, but not at building in-house expertise.

[wig]

merger of psu banks might not always be a good idea. Most PSU banks have a different work ethos. Without doubt the formats for final statements of account and compliance with KYC norms and lendee evaluation forms are somewhat standardised and Computerisation has standardised the transaction recording system to some extent because a large number of banks conduct business on Finnacle platform of Infosys. But nevertheless there is very big difference in systems and procedures on the ground. Secondly bank staff have a very different work culture across banks. Many junior level managers are very devoted to the bank which employs them and take pleasure in competing and outdoing other banks in their areas of operation.
I for one would be sad to see any of the banks merged. Most mergers in the past have taken place when financially compromised banks merged into financially healthy banks. The staff of the smaller banks used to be a disappointed lot and were recruited in the larger bank in positions with somewhat lesser responsibilities. All in all a rather disappointing state of affairs.
the problem of advancing loans to big business houses like has nothing to do with banks. The fault lies in the higher echelons of the bank which to quote " crawls when asked to bend". They take leave of normal precautions, documentation and standard operating procedures which they normally follow to the letter in the case of other customers on the request for loans being routed through the right quarters!
IMVHO Mergers and creating large banks will not solve that problem.

[Yagnasri]

I work with most of the PSU banks on daily basis. It is true that they have difforent work ethic etc. Merger of banks will be a problem. Other problem is the level of capabilities in the PSU ( and even in New Gen Private Banks) of staff. I do not see people capable to manage very big banks in any PSU Banks. Most of the people raised to top for that capacity to do chamchagiri. There are very good people in some places also.

Serious effort is needed to weed-out this culture of promoting useless people and later making them Chairmans MDs EDs etc. Further most for of the banks have too many GMs, DGMs EDs etc all eating public money for doing nothing. There is no delegation of work, no decision taking at all and delay in almost everything. Unless all this is removed the health of of banking system will not improve.

[panduranghari]

Its a fallacy to assume big banks have the requisite capital to fund huge projects. If that was the case, there would have been no need for many developing world nations to approach IMF and WB for financing. The lack of credit is inexorably tied to the shortage of trust about the banking system. The nationalisation of banks was one attempt to improve this. But now we have nationalised banks wanting to compete with foreign banks within India.

I still feel the due diligence is a canard. The government could in all honesty create a template for such a thing. The trust of the people in such an arrangement would be better. For better or for worse, I envisage the banking system to be a smaller one with more numbers with lower capital base. The consolidation works only in an era of cheap credit.

[amit]

C_DOT which could have been a local champion given its early start and access to a lot of best engineers in that era was allowed to run into the ground under counselling by vested interests who just wanted to keep on importing.

when I joined the industry in 1997, the senior embedded sw/hw engineers were from 3 places only - BARC, C-DOT and DRDO.

There is lies the problem with the Indian model. You cannot have fast paced innovative model in a government set up because it's too rigid and regimented. You cannot, for example, promote a 24 year old bright spark over a whole bunch of senior guys because you think he has the potential. You cannot pay somebody a fat bonus and his colleague zilch because one guy delivered while the other sat on his hands.

One clever thing which the Chinese did IMO was to spin off companies like Lenovo, Huawei, ZTE etc into private entities while extending full government support in funding. The first two in fact have their origins in the PLA.

India on the other hand by keep its premier research/innovation efforts in the government under full control of Babudom hobbled the growth of innovation. Whatever one may say of a guy like Sam Pitroda, to expect him to answer to a joint secretary who probably read history or english or some such subject in university and explain technology nuances in the telecoms sector was bound to failure.

[amit]

For better or for worse, I envisage the banking system to be a smaller one with more numbers with lower capital base. The consolidation works only in an era of cheap credit.

How does this solve the problem of Indian banks not having the requisite capital to take part in large international funding consortiums for mega projects even in India? Why is it that even today Indian companies have to approach international banks for funding for mega projects. Do you see Chinese companies doing that?

China consolidated its banking systems ages ago and despite the huge amount of NPA in their system they have more cash in hand for lending than Indian banks with lower NPA. Size does matter.

[amit]

I can't disagree with any of what you said. In fact, there was a multipage discussion on the Micromaxx/Karbonn model sometime ago, where I argued that they're simply good importers contributing to the Chinese manufacturing engine, and that celebrating them as an Indian success story is very shortsighted. Ditto for Reliance, who are very good at executing, but not at building in-house expertise.

Aha! I should have been around for that discussion, must have been very interesting.

I personally feel that Micromax/Karbonn and others should have a punitive tax imposed on their phones. The provide the backdoor entry for Chinese companies to feast on our huge mobile phone market which the Xiaomis and Appos come very politely through the front door.

Make in India should be prerequisite for selling phones in India, especially by Indian companies. Importing whole modules and then doing a bit of herrowic screwdriver giri and calling the phone made in India is something that should be actively discouraged.

[Yagnasri]

Apart from guidelines prudence required banks not to commit huge funds to one project unless their own size is comparatively big. Therefore Big Banks are needed for big projects. Numerous small loans with each banker giving contradictory instructions and stipulating contradictory and logically impossible sanction conditions for loans will make the life miserable. Many times various branches of the same bank stipulate directly opposite conditions. Just try to handle 84 different bank limits with 30 banks for a single project with money requirement on timely basis and see what happens.

There is no escape from the need to create very Big Indian Bank. The question is how we go about it.

[Suraj]

Its a fallacy to assume big banks have the requisite capital to fund huge projects. If that was the case, there would have been no need for many developing world nations to approach IMF and WB for financing. The lack of credit is inexorably tied to the shortage of trust about the banking system. The nationalisation of banks was one attempt to improve this. But now we have nationalised banks wanting to compete with foreign banks within India.

Nationalization of banks didn't really accomplish any of its stated goals, whether it's generate trust in the banking system, improve financial inclusion or any other. In fact all it did was enable GoI to implement the SLR that gave them access to almost a quarter of the bank deposit base by fiat. The financial inclusion issue was only largely addressed wihin the past one year, with PMJDY. IG nationalized the banks in 1971, and it took until Modi in 2014-15 to add the 160 million odd households who had hitherto been outside the formal banking system.

Many developing world countries do not have big banks. Even PRC was a heavy borrower from IMF and iBRD(WB), like this 1996 WB report shows. They had poorly capitalized SOE banks back then, swimming in red ink. Take a look at this report. Relevant excerpt:

In August 1998, the government issued bonds to recapitalise the big four banks.
The People’s Bank of China first lowered the statutory reserve requirement ratio
for the banking sector as a whole from 13 per cent to 9 per cent; the Ministry of
Finance then issued RMB270 billion (US$33 billion)7
in special government bonds.
The big four state-owned banks used the liquidity freed up by the lowering of the
reserve ratio to purchase the bonds. The government then injected all the bond
proceeds as equity into the big four banks (Mo 1999), with the consequence that
the capital base of the big four banks more than doubled. As the initial sole owner
of the big four banks, the Ministry of Finance thus met the capital call from these
banks and explicitly burdened future taxpayers to fund a capital injection.
The first round of non-performing loan transfers
In 1999, the government carved out RMB1.4 trillion (US$173 billion, or 20 per cent
of the total loan balance at the time) in non-performing loans from the big four
banks at par value and transferred them to four state-owned asset-management
companies. In return, these companies issued bonds to the four banks and
assumed some of their liabilities to the People’s Bank of China. Effectively, this
batch of non-performing loan acquisition was 55 per cent financed by assetmanagement
company bonds and 45 per cent by People’s Bank of China credit.
This move was a double act of non-performing loan removal and bank
recapitalisation

In other words, getting the likes of ICBC and BoC, current behemoths, were a complicated process then. Remember, back then, their GDP was <$1 trillion, and they were restructuring and recapitalizing banks to the tune of 20% of GDP then. Their banking system was a hell of a lot more sick. then, with the same fiat driven lending issues. In that spirit, I agree with R Jaggi - GoI needs to move faster to restructure the banking system with a view of future credit delivery needs of a much larger economy, not incrementally improve little things alone. One one hand, it is doing thing very efficiently on matters like PMJDY. On others like debt restructuring, the process isn't as fast, at least not visibly so.

I still feel the due diligence is a canard. The government could in all honesty create a template for such a thing. The trust of the people in such an arrangement would be better. For better or for worse, I envisage the banking system to be a smaller one with more numbers with lower capital base. The consolidation works only in an era of cheap credit.

Why is it a canard ? It was your own contention that multiple banks can duplicate the due diligence process and do better. I simply pointed out that N ad-hoc processes are not guaranteed to converge on a complete coverage, and that the question of due diligence is orthogonal to that of the sizes or number of banks. Multiple little banks following the same due diligence template will come to the same conclusion, and therefore the whole reason to have multiple reviews goes out of the window. On the flip side, when each has its own system, what Yagnasri said happens - banks makes conflicting demands upon the borrower.

The bottomline remains that our economic system has inadequate capital to feed investment. Domestic credit to GDP is far below majot developing and developed work economic systems. Several little banks - even SBI is a bantamweight by world standards - aren't going to cut it.

[wig]

please appreciate that the framework is there it is the implementation in cases of particular customers where the observance of operational safeguards and standard operating practices are ignored by the upper echelon of banks.
when more than one bank deals with one customer they are supposed to follow guidelines of consortium lending. The RBI has notified circulars for the same which are collated in a master circular.
Regarding branches stipulating differing conditions that will imply that the branch and its controlling office are not following the circulars on due diligence in letter and spirit.
I also must add that templates exist for most business exigencies.
what I humbly wish to reiterate is that the regulatory framework exists and is robust . The problem is the implementation is excellent in some cases and observed in the breach in other cases where the higher ups in the system intervene for ulterior motives.
It is only when the documentation and operative norms are not observed in letter and spirit that loans are disbursed to business enterprises that go sticky and / or stressed.
the postulate of big or small banks has nothing to do there. The system is subverted by interested parties. i do not see this situation changing if you have big banks.

[Suraj]

what I humbly wish to reiterate is that the regulatory framework exists and is robust . The problem is the implementation is excellent in some cases and observed in the breach in other cases where the higher ups in the system intervene for ulterior motives.

Effectiveness is absolutely the underlying factor, as I myself stated. Just having N different banks do due diligence does not ensure effectiveness. If anything, in the absence of effective implementation of guidelines, they're a recipe for credit disbursal to be held up by N different processes.

Any number of things have very clear guidelines in India. For example, there's a clear set of construction standard for, say road building. The problem is entirely about effectively following guidelines, and N banks, if anything make the task harder.

In fact, many of the actions of the current administration in terms of efficiency have sought to explicitly take away the middleman, decision-making and ad hoc basis of administration. Instead of a storefront subsidy, they use a direct cash transfer after electronically vetting applicants, savings tens of thousands of crores in subsidy.

i do not see this situation changing if you have big banks.

The matter of big banks is orthogonal to that of effectiveness of due diligence. They're simply a requirement to more effectively perform a single point clearance rather than a consortium based lending mechanism, even one that is individually conducted effectively by N banks. It still requires N banks to individually evaluate the loan request, and check the claim against their own capital base and risk circumstances.

[panduranghari]

Thank you all for your inputs. It makes some sense.

[Suraj]

Costs of accumulated bad loans from years of political mismanagement keep adding up:
Banks stare at Rs 53,000-cr electricity boards NPA on July 1

A whopping Rs 53,000-crore exposure of Indian banks to seven state electricity boards (SEBs) has a “very high probability” of turning into non-performing assets (NPAs) in the quarter ending September, the Reserve Bank of India (RBI) said in its Financial Stability Report, released on Thursday.

These loans were restructured in 2012, with a three-year moratorium for the principal amount of Rs 43,000 crore. If distribution companies fail to pay interest and/or the principal by June 30 (90 days from the date the moratorium ended), these will turn into NPAs.

“Considering the inadequate fiscal space, it is quite likely the government might not be in a position to repay the overdue principal/instalments in time,” the report said.

[Suraj]

FPI appetite for Indian debt remains strong:
India May Denominate Cap on Foreign Investment in Debt in Rupees

India may consider expressing the cap on foreign investment in government bonds in rupees rather than as currently in dollars, a step that would allow increased foreign buying of the debt.

“We are not opposed to setting the limit in rupee terms,”Finance Secretary Rajiv Mehrishi told reporters in New Delhi Friday. The current $30 billion cap was set when “the rupee was much stronger, but at today’s rupee level the FII effective limit is $24 billion,” Mehrishi said. He didn’t say when any change might occur.

The current $30 billion cap for foreigners in government debt stands almost exhausted at 98 percent, according to data compiled by National Securities Depository Ltd.

The yield on the government securities due in May 2025 ended little changed at 7.82 percent Friday, prices from the central bank’s trading system showed.

[Vipul]

Forex kitty gets bigger, now at all-time high of $355.5 billion.

Foreign exchange reserves jumped $1.17 billion to touch a new record high of $355.46 billion in the week to 19 June, driven by a jump in foreign currency assets, according to RBI data.

In the previous week, the reserves had risen $1.574 billion to $354.28 billion. Foreign currency assets, a major component of overall reserves, swelled $1.13 billion to $330.71 billion in the reporting week, the data showed.

Expressed in dollar terms, these include the effect of appreciation and depreciation of non-US currencies such as the euro, the pound and the yen held in the reserves.

According to an HSBC report, the country’s foreign exchange reserves are above traditional levels, but the country’s peculiar characteristics and experience in recent crises suggest that about $60 billion more could buffer sufficiently a prolonged global financial tightness.

“We estimate an additional $60 billion of reserves, taking overall holdings to $420 billion, could take care of key vulnerabilities such as unhedged external commercial debt, short-term external debt and portfolio outflows,” the report said.

In FY15, there was an accretion of foreign exchange reserves to the tune of $61.4 billion compared with $15.5 billion last year. In the week to 19 June, the country’s gold reserves remained unchanged at $19.34 billion.

The special drawing rights with the International Monetary Fund were up by $26.6 million to $4.07 billion while the country’s reserve position with the fund surged $8.5 million to $1.32 billion, the data showed

[Suraj]

Monsoon covers entire India ahead of schedule: MeT

Monsoon has covered the entire country, the India Meteorological Department (IMD) said on Friday, more than two weeks ahead of the normal schedule in a year that is forecast to see below average rains.

The revival of monsoon rains in the grain bowl of northwest and central regions should help speed up the sowing of main summer crops such as rice, corn, soybeans and cotton.

Over a quarter higher rainfall since the start of the June-September season has eased concerns of a first drought in six years.

[Prem]

https://www.rbi.org.in/Scripts/BS_viewWssExtract.aspx
Reserves now almost 356, on path to 400B.

[hanumadu]

Since the Modi govt, we lost 20b because of dollar appreciation against other currencies in our currency basket. The reserves would have been around 375b otherwise.

[wig]

Black economy ‘growing’ at 20% in India

Startling statistics
•As per the paper, the relative size of the black economy in 2012 turns out to be 54.6% of the country’s GDP
•It is almost more than half the size of the official economy
•The paper says black economy was 4.5% of the GDP in 1956, 7% in 1970, 18-20% in 1980, 35% in 1990and 40% in 1995
•As per the paper, black income generation is concentrated in the services sector and is absent in the farm sector

The black economy in India is growing faster than the white economy and its growth in recent years has been around 20%.
According to a paper presented by Arun Kumar and Saumen Chattopadhyay of Jawarharlal Nehru University (JNU), while it is difficult to estimate the size of the black economy, the relative size of the black economy in 2012 turns out to be 54.6% of the country’s GDP. This would mean it is almost more than half the size of the official economy.
The paper says this number was 4.5% of the GDP in 1956, 7% in 1970, 18-20% in 1980, 35% in 1990 and 40% in 1995.
Kumar is the Sukhamoy Chakravarty Chair Professor, Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University.
The paper was presented at a seminar on “Black Economy, its Global Dimensions and Impact on Policies” organised in JNU here today.
Kumar said the black economy impacts macroeconomic variables like rate of growth, savings, education and health.
However, he said, the government has not been interested in estimating the size of the black economy since acknowledging a large black economy would force it to answer how it has become large and why steps have not been taken to check its growth.
Kumar said the government has been happy to sweep the issue under the carpet even though policies fail due to the existence of the black economy. Even the RBI, he said, has not acknowledged the existence even though it affects all the monetary variables.
The paper also argued that black income generation is concentrated in the services sector and is absent in the agricultural sector. India’s foreign trade has been a part of the process of black income generation and its flight abroad via capital flight. Through mis-invoicing of trade, black money is generated and transferred out of the country. As trade restrictions have declined, black income has increased.
In addition, globally a large number of tax havens have come up which aid this process of capital flight and its return back in the form of round tripping to the country. The paper argued that with expansion of trade it has become easier to make black incomes since they can be easily hidden or laundered into white.
Pointing out to the difficulties in capturing the black economy, the paper argues that the official data on services sector, operating surplus and crime rate are underestimated because of the presence of the black economy.

http://www.tribuneindia.com/news/busine ... 98970.html

[Kakkaji]

NITI move to prune central schemes

The draft report suggested that centrally sponsored schemes should be divided into two broad groups.

The first is core schemes, which will comprise programmes that are part of the national development agenda, such as legislatively backed MNREGA, Swachh Bharat Mission and Mid-Day Meal. The final list will be decided later. The second group is for optional schemes for social protection and inclusion.

In each of the core schemes, the Centre will implement the umbrella programme having a large number of components with a uniform funding pattern to suit the states' requirement. For general category states, under core schemes, the Centre and states will share the funds in the ratio of 60:40. However, for schemes where the Centre's share is below 60 per cent, it will remain the same.

Under the optional schemes for general category states, the funding will be shared equally. For schemes where the Centre's share is below 50 per cent, it will remain the same.

For the 11 special category states, under core schemes, the Centre and the state's share will be in the ratio of 90:10, while for optional schemes it will be 80:20.

Funding should be continued for projects in which 30 per cent of the work has been completed. The sharing pattern under which the project was approved should also continue till March 2017. If the projects remain incomplete even after that, the states will have to complete the projects using their own funds.

[Kakkaji]

Bigger retail role in gilts

Calcutta, June 27: The Bombay Stock Exchange expects the Reserve Bank of India to come up with a framework within 6-9 months to facilitate more retail participation in government securities (G-secs) and promote trading of these risk-free instruments on the bourses.

At present, retail investors looking to invest in G-secs have to go through intermediaries called Primary Dealers. These are agents authorised by the RBI to act as intermediaries in the G-sec market. SBI DFHI, ICICIdirect and HDFC Bank are some of the primary dealers.

BSE managing director and CEO Ashish Chauhan said, "At present it is not easy for retail investors to trade in government securities, which is completely risk free. But the RBI has set up an internal committee to figure out the issues. It might take 6-9 months."

"If we can facilitate trading of risk free instruments there will be more trust in the market and retail investors will stop investing in other areas where people offer all kinds of promises," he said.

Chauhan said the BSE had tied up with Germany's Deutche Borse to open a new exchange in the proposed Gujarat International Finance Tec-City (GIFT).

[Kakkaji]

Post bank permit soon

New Delhi, June 27: Telecom minister Ravi Shankar Prasad today said the Reserve Bank of India was likely to grant a payments bank licence to the department of post in August.

Payments banks can accept deposits of up to Rs 1 lakh and can offer current and savings account deposits. They can also issue debit cards and offer internet banking. However, they are not allowed to offer loans or issue credit cards.

The move will enable the network of 1,54,000 post offices (including 1,30,000 rural post offices) to offer banking services.

Should help provide services where there are no bank branches.

[Suraj]

Sounds like an approach to do something analogous to what Japan Post Bank does. It's very popular there, and has a large network of ATMs co-located with postal centers. It's also probably the biggest bank in the world by deposit base, with about $3.5 trillion in deposits. Some background on recent attempts to privatize them, and how having such a bank interacts with fiscal policy management: story

[Dipanker]

Quarter of the world’s poor live in eight Indian states: Report

A little over a quarter of people living in extreme poverty in the world live in eight Indian states, says a new Oxford university analysis, sparking concerns about social and economic development in Asia’s third-largest economy.

The 2015 global multidimensional poverty index (MPI) of the Oxford Poverty and Human Development Initiative says Bihar, Jharkhand, Madhya Pradesh, Uttar Pradesh, Chhattisgarh, Odisha, Rajasthan and West Bengal account for nearly 440 million of the world’s 1.6 billion poverty-stricken people — equivalent of 25 African countries together.

The figures are based on data from 2005-06, raising questions on their utility as well as underscoring India’s poor record in collating social-indicator figures despite running many welfare schemes. In comparison, other South Asian countries have data for 2009, 2011 and 2013.

“It is really shocking and disappointing that a country like India does not have better survey data about the poverty of its citizens in non-monetary dimensions like malnutrition. To me it seems odd that a country as rich and capable as India fails to enquire how poor people’s lives are going,” said Sabina Alkire, director of the Oxford Poverty and Human Development Initiative that developed the MPI.

But analysts said the data were good enough to show broad indicators. The MPI is unique in capturing simultaneous disadvantages experienced by poor people, such as malnutrition, education and sanitation. The UN and other international organisations turn to the MPI to prepare policies.

By these parameters, Bangladesh is better off than India, which is second only to war-torn Afghanistan.

“Our measure of destitution, which identifies a subset of poor people as destitute if they experience a number of extreme deprivations like severe malnutrition, losing two children, having all primary-aged schoolchildren out of school, and using open defecation,” Alkire said.

In 2010, the Oxford analysis said there were more poor people in India than in sub-Saharan Africa. In 2014, it said the most number of people classified as “destitute” in developing countries live in India.

So the rest 21 states are much better off than these 8 states as they have only remaining 8% of the world poor ( approx. ) ? Of course large population of these 8 states is the major factor, still it seems the disparity between these 8 and the rest is quite high.

[Rahul M]

>> The figures are based on data from 2005-06, raising questions on their utility as well as underscoring India’s poor record in collating social-indicator figures despite running many welfare schemes. In comparison, other South Asian countries have data for 2009, 2011 and 2013.

what utter garbage. it's time we stop paying attention to every 2-bit survey and go by GoI surveys only.

[Vayutuvan]

Stealing IP and know how is not going to do any good. We need to know why also if the products have to be improved. There is a huge lack of talent. As I posted in education thread or something, there are only 350 usable phds PA from Indian Engg./tech. Schools. I bet a lot of them end up in one of those big SW service companies and in < 5 yrs. will be doing project sizing, skills management, project management, and ppt giri. Granted that these are essential functions in any large organization but Engg. PhDs are hammers to squash a process problem.

For example, I was going through the papers presented at the recently concluded DAC. What struck me was that almost 30% of the papers came from China from people working in Chinese universities/industry. There are lots of Indian authors too but all of them are either in U.S. Universities or in si valley and sone from Texas.
Only two papers are from IITM and iirc iitk. That is it.

Even if Indian companies want to spend on r&d, where is the talent?

Given the dismal state of civic amenities, an irrationally exuberant Real estate market, coupled with the slog one gas to go through to get even some simple things done is a big damper on people who want to return after their advanced degrees abroad, especially the U.S.

[VinodTK]

India's GDP to hit $3 tn mark in 5 years: Panagariya

NEW DELHI: India's growth rate is expected to accelerate to 8 per cent in the current financial year and the economy will surpass USD 3 trillion mark in less than five years, NITI Aayog Vice Chairman Arvind Panagariya said on Monday.

"I will be greatly disappointed if we do not hit the 8 per cent mark in 2015-16. I expect the economy to hit USD 3 trillion within five years or less," he told PTI in an interview.

Indian economy, which is little more than USD 2 trillion, recorded a growth rate of 7.3 per cent in 2014-15. India is presently the third largest economy in Asia after China and Japan.

On the back of ongoing reforms and stress on manufacturing sector as part of the 'Make in India' drive, the NITI Aayog chief said that India can look for much bigger share in global exports, the global economic woes notwithstanding.

"...the world economy is large and our share in the world exports is still below 2 per cent. So we have a huge scope for growth even in a sluggish world economy. As long as we continue on the reforms path and ensure that the rupee does not become unduly overvalued, we will be well positioned to chip away some of the 12 per cent share that China currently enjoys in the world merchandise exports.

"Wages in China have already risen enough that many manufacturers there are looking for new destinations with lower wages and India is well placed to be that destination," Panagariya said.

On global developments impacting India, he said the "fragility of the global economy itself is greatly overstated".

[VenkataS]

^ China went from $2 trillion in 2005 to a $10 trillion in 2014.

I would be surprised if we do not cross $4 trillion in 2020 (unless the World economy tanks completely).
If Modi is at the helm for 10 years we should be more than half the Chinese economy by 2025.
Hopefully it is not all wishful thinking on my part.

[RoyG]

Even if the world tanks, we will have 4 strategic weapons:

1) Nukes

2) We hit the sweet spot between spending and saving

3) Gold reserves in public and private hands

**We must move soon and bring the gold to India that was bought from IMF during UPA. If we don't hold it, we don't own it.