Indian Economy - News & Discussion Oct 12 2013

[Uttam]

The area irrigated by government canals jumped from less than 10 lakh hectares in 2010 to 15.6 lakh hectares in 2011, to 20.2 lakh hectares in 2012, and 23.3 lakh hectares in 2013. In 2014, despite being a poor monsoon year, Julaniya expects the state will have 30 lakh hectares irrigated in canal commands, way more than the potential created of 28.3 lakh hectares.
They tripled the irrigated area in the past 4 years. It's not surprising yields grew dramatically as well. I know the press prefers to talk about the latest hot political scandal there, but there's great things happening there too.

Wow! just Wow! This news made my day. I wish a similar progress can happen in my home state of U.P. Alas, all I see are those grand parks, massive corruption. Some day

[Philip]

The market tanked 500+ points yesterday.Trouble ahead on all fronts.Is China going to take the global economy down the hole ? Greece was a mere picnic compared with this.

China losing control as stocks crash despite emergency measures
http://www.telegraph.co.uk/finance/chin ... sures.html
Margin debt on the Chinese stock market has reached $1.2 trillion. 'We suspect that it’s a matter of time before banks may have to face the music,' Bank of America says

The red Yangtze river flows through Chongqing. There has been a bloodbath on Chinese markets, with the Shanghai Composite index falling 8.5pc on Monday despite emergency measures to shore up equities Photo: China Foto Press / Barcroft Media

Ambrose Evans-Pritchard
27 Jul 2015

Chinese equities have suffered the sharpest one-day crash in eight years, sending powerful tremors through global commodity markets and smashing currencies across East Asia, Latin America and Africa.

The Shanghai Composite index fell 8.5pc despite emergency measures to shore up the market, with a roster of the biggest blue-chip companies down by the maximum daily limit of 10pc. The mood was further soured by news that corporated profits in China are now contracting in absolute terms, falling 0.3pc over the past year.

The violence of the moves unnerved investors worldwide, stirring fears that the Communist Party may be losing control after stoking a series of epic bubbles in property, corporate investment and equities to keep up the blistering pace of economic growth.

Brent crude prices slid to a five-month low of $53.34, re-entering a bear market. The DB-UBS commodity index fell to 2002 levels, obliterating the gains of the resource "supercycle".

The FTSE 100 fell 1.27pc to 6.497, dragged down by mining groups and energy companies. All of the year’s advances have been wiped out.

Mark Williams, chief Asia strategist at Capital Economics, said the Chinese authorities appear to have been testing the waters to see what would happen if they stopped intervening. The market verdict was swift and brutal.

“They have got themselves into a very difficult situation. They have put a lot of credibility on the line to shore up prices and this credibility has been badly damaged,” he said.

The Shanghai index looks poised to test its 200-day moving average, now just below 3,600, a crucial support level watched with trepidation by China’s authorities.

The Chinese media reported on Monday night that the state regulator is ready to intervene with yet more stock purchases. It has already bought an estimated $250bn of equities and has borrowing lines for a further $450bn if necessary.

Western banks say they are coming under heavy pressure from Chinese officials to refrain from negative comments. They are effectively gagged if they wish to do business in China.

“Large parts of the market are closed, and those stocks that are still trading are selling off regardless of support measures. Clearly something very serious is happening,” said one economist.

The long-standing assumption that the Chinese authorities know what they are doing has been shattered.

The government’s heavy-handed measures include a ban on short sales and on new share issues, as well as pressure on the 300 largest companies to buy back their own stock, and forced purchases of stocks by brokerage houses.

Many investors are effectively trapped with margin debt used to buy the stocks. These liabilities cannot be covered without selling the stocks. The longer the market remains partially frozen, the more likely it will lead to extreme stress.

David Cui, from Bank of America, said $1.2 trillion of stock holdings are being carried on margin debt. This is 34pc of the free float of the Shanghai and Shenzhen stock markets. “When the market ultimately settles at a level that can be sustained on fundamental reasons, we expect that the financial system may wobble, due to high contagion risk,” he said.

“Most leveraged positions may suffer from losses ultimately, likely in trillions (of yuan). The risk is that the unwinding of the leverage will be disorderly: due to implicit guarantees behind most shadow banking products, investors could easily panic,” he said.

Mr Cui said the brokers and trusts have barely 1.6 trillion yuan ($260bn) to absorb losses and may be overrun. “Given the particularly thin front line of the financial institutions, we suspect that it’s a matter of time before banks may have to face the music,” he said.

This in turn risks setting off a “bank run” on the shadow banking system as investors lose trust in wealth management funds, fearing that their deposits in the $2.1 trillion industry no longer have an implicit guarantee.

Bank of America said the Chinese state may have to swallow the losses from the stock market fiasco in the end but this would have a clutch of toxic side-effects.

The authorities still have a nuclear trump card up their sleeve. They could cut the reserve requirement ratio (RRR) from 18.5pc all the way down to 5pc – as in the banking crisis in 1998 – or even to zero.

This would allow the big state banks crank up lending, injecting $2 trillion to $3 trillion into the economy, putting off the day of reckoning with another cycle of growth.

Premier Li Keqiang is clearly reluctant to pull the credit lever again. One of the reasons why Beijing talked up the stock market was to try to shift reliance from debt to equity, though the policy got out of hand as margin accounts flourished.

The debt to GDP ratio has already doubled to 260pc since 2007, reaching $26 trillion, more than the US and Japanese commercial banking systems combined.

Credit is stretched to dangerous levels and is losing its potency. Wei Yao from Societe Generale said it took $2.50 of credit to generate $1 of extra GDP before the Lehman crisis. This has jumped to $5.50 as the economy reaches credit saturation. This is very little gain, at great risk.

Ray Dalio, a long-time China bull at Bridgewater, issued an extraordinary mea culpa last week, saying he had misjudged the Chinese boom and viewed the equity crash as a turning point.

“We did not properly anticipate the rate of acceleration in the bubble and the rate of unravelling, or realise that the speculation in the markets was so big by the established corporate entities, as well as the naïve speculators. We should have,” he said.

Mr Dalio said the stock market crash is in one sense a minor matter – given that most Chinese do not own stocks – but it is coming at a very delicate moment, and has been a psychological shock. The combined effects of a bursting property bubble, an equity crash and a wave of debt restructuring at the same time have reached critical mass. “Negative forces on growth are strong and self-reinforcing,” he said.

It has hit at a time when the Chinese exchange rate is soaring - due to the dollar peg - and may be 15pc overvalued.

There are still optimists. Wendy Liu from Nomura said the boil has been lanced and Chinese equities are now cheap. “This is the best time to buy. It looks like an ordinary correction to me,” she said.

She compared the sell-off to the mini-panic in June 2013, when Shibor interbank rates soared to 30pc. “Everybody was bearish on China and thought it was going to blow up. I think we are going through a similar situation,” she said.

For the rest of the world, it is a tense moment. China consumes 50pc of global coal, 43pc of industrial metals and 23pc of grains, according to World Bank data.

Brazil, Russia, South Africa and a string of commodity states face a double-barrelled stress test. The Chinese are freezing imports just as the US Federal Reserve drains worldwide dollar liquidity and prepares to raise rates, calling time on emerging markets that have together borrowed $4.5 trillion in US currency.

The Brazilian real fell to a 12-year low of 3.38 against the dollar on Monday. The South Africa rand hit a record low of 12.69. The Russian rouble flirted with the danger line of 60. It was the same story across much of the emerging market nexus.

“One by one the dominoes are starting to fall,” said Societe Generale.

[Altair]

1. How will the Chinese crash impact long term economy of India?
2. Will it impact the Indian manufacturing sector?

[Yagnasri]

Our markers also will fall soon.

In any event, we have to get out the P Note scam at the earliest. When honest Indian citizens need to submit 101 documents for open even a bank account, allowing all the looters and other scum of India and the whole world to invest in India is something which can not be anything but a act to help political looters of India.

[Singha]

and much of the new irrigation water of MP must have come from the sardar sarovar. that much maligned horse always whipped by the enviro activists.

[Virupaksha]

and much of the new irrigation water of MP must have come from the sardar sarovar. that much maligned horse always whipped by the enviro activists.

actually, madhya pradesh doesnt get much benefit from the sardar sarovar dam wrt irrigation as the dam is downstream. It gets lion share of electricity though. The narmada project has around 30 other large, medium and small dams.

The biggest dams for madhya pradesh in the project is indirasagar dam which was commissioned in 2005 as a part of that narmada project. Assuming normal times for completion of canal works, I would venture MP is getting the benefit from this project.
http://nca.gov.in/nb_projects.htm

[rsingh]

Our markers also will fall soon.

In any event, we have to get out the P Note scam at the earliest. When honest Indian citizens need to submit 101 documents for open even a bank account, allowing all the looters and other scum of India and the whole world to invest in India is something which can not be anything but a act to help political looters of India.

Why? Oil,coal,gold and other raw material are cheaper. India has -ive balace with China. China is not buying our high tech products anyway.

[Theo_Fidel]

Sigh! Such is the nature of improvement.

http://www.business-standard.com/articl ... 428_1.html

Minister of State for Civil Aviation Mahesh Sharma informed the Lok Sabha that the net loss of the company during 2014-15 stood at Rs.5,547.40 crore down from Rs.7,559.74 crore in 2011-12.

[Suraj]

The market tanked 500+ points yesterday.Trouble ahead on all fronts.Is China going to take the global economy down the hole ? Greece was a mere picnic compared with this.

China losing control as stocks crash despite emergency measures
http://www.telegraph.co.uk/finance/chin ... sures.html
Margin debt on the Chinese stock market has reached $1.2 trillion. 'We suspect that it’s a matter of time before banks may have to face the music,' Bank of America says

Fearful China investors look to India

With global emerging markets again under pressure, India might seem an unlikely port in the storm. Promises of far-reaching economic reforms under Prime Minister Narendra Modi are still to be delivered, while hopes of a rapid investment-led recovery under his leadership remain unfulfilled.

But with China’s equity market convulsed by a painful sell-off, India finds itself the happy recipient of investment searching for safety in the developing world.

The benchmark Sensex index has lost more than 2 per cent over the past two days, reflecting investor unease over much larger falls in China. But the index has eked out a 0.6 per cent increase over the past three months. Though not likely to set pulses racing, this makes India the only country in Asia to see markets rise over that period.

Since the Chinese sell-off began on July 15, the Shanghai index has dropped nearly 30 per cent. Indian stocks, meanwhile, are up around 5 per cent.

The rupee has also been relatively stable, losing 1.6 per cent against the dollar this year. Among emerging market currencies, only the closely managed renminbi, the rebounding rouble and the Taiwanese dollar have performed better.

Looked at more broadly, Indian equities have witnessed a far milder version of China’s ups and downs this year, with markets scaling record highs back in March on heavy inflows from foreign investors hopeful of a robust economic recovery. An unexpected cut in interest rates from the Reserve Bank of India also helped to grease the wheels.

The Sensex then lurched back in the three months to June, as fund managers flocked to China, where stocks had rallied for almost a year. But with Chinese equities tumbling, India has become one of the main winners as investors reallocate in the other direction, argues economist Eswar Prasad of the Brookings Institution.

“For money that wants to stay in emerging markets and for which China is now too hot a destination, India seems the best alternative,” he says.

Foreign investors have also sunk Rs73bn ($1.1bn) into Indian equities so far this month, in part because of worries over China, reversing outflows over the previous two months. Falls in oil prices have also helped to draw funds back into India’s economy, which relies on foreign energy imports.

“There was some reallocation out of India and towards China earlier this summer. That has now stopped, and some of it seems to be coming back,” says Rashesh Shah, the founder of Edelweiss, a Mumbai financial services group. “Investors I speak to see China as a lot riskier now.”

Forever, when there was an equity meltdown somewhere, money ran to 'safe assets' in the form of developed world debt and treasuries. Now, for the first time, our market is the safe harbor.

[Singha]

the US has made a career out of being the 'haven of last resort' when the world is on fire (with some fires fanned by the US itself)

[Austin]

A good thing would be to track how much money is actually coming into India stocks due to China meltdown

[Altair]

I am confused. Some say, Indian markets will fall soon( They actually fell!) We will also face the heat. While some say, we will be safe harbor and people will see us as investment destination.
Which one is true?

[Hari Seldon]

I am confused. Some say, Indian markets will fall soon( They actually fell!) We will also face the heat. While some say, we will be safe harbor and people will see us as investment destination.
Which one is true?

"Anything you say about India, and its exact opposite, will both be true at the same time." - Anon

[Supratik]

I don't think we should look at how Indian markets benefit from problems in China but whether the uncertainty pushes industry to move to India. That has more long term benefits than a market bubble. Fundamentals should determine the market.

[Suraj]

GST on the cusp of being cleared by Rajya Sabha:
Govt okays GST changes proposed by Rajya sabha panel

The Union Cabinet on Wednesday cleared important changes to the government's constitutional amendment Bill on the proposed national goods and services tax (GST). However, exact modalities of a crucial change to limit up to one per cent tax over GST to inter-state sale of goods would be decided later, a move taken to woo dissenting parties.

The changes were based on recommendations by the Rajya Sabha panel which examined it; the committee's report was given a few days earlier. The revisions are likely to be introduced in the House's ongoing session. The Lok Sabha had earlier passed the legislation, which means it will have to now approve these changes.

The constitution amendment is an enabling mechanism to allow the Centre and states to impose a GST. After its passage, the new indirect tax regime would require another central law, as well as state laws, on a GST. The Bill passed by the Lok Sabha had a provision for levy of a tax up to one per cent additional to the GST, for inter-state supply of goods. The idea was to help producing states in the switchover, as GST is a destination-based tax. However, this had drawn criticism for those who said it would have a cascading effect.

To address the interests of both sides, the panel had recommended the proposed GST law say inter-state movement of goods wouldn't be taxable if without a consideration, meaning the movement of goods within the same company (stock or branch transfers) would be exempt.

The cabinet decided to defer determining the details of the mechanism to restrict the tax of up to one per cent over GST on inter-state movement of goods for a consideration. It may come up either in the GST law or GST rules later.

[RoyG]

I'm a little confused about how public spending works in India. If GoI wants to spend does it call up the RBI with an offer to exchange bonds for money? If so, why doesn't it just issue the money directly instead of saddling itself with the promise of paying back the amount with interest?

If inflation is becoming a problem, in theory you could just have the PSU banks loan the money to individuals with interest like they normally do and set aside a certain extra percentage which matches just the interest for gov spending. That way you also ensure that there is enough money coming back to the bank.

Taxes in the form of GST can be used to suck up whatever extra money is out in the open market to prevent any residual inflation.

Next, just cap the rupee notes to 100 and begin R&D on producing them within the country with improved security features.

This will go a long way toward thwarting countries like Pakistan from waging economic war against us in the form of counterfeit currency.

If this is done, would you really need SEBI, debt agency, etc?

[Suraj]

I'm a little confused about how public spending works in India. If GoI wants to spend does it call up the RBI with an offer to exchange bonds for money? If so, why doesn't it just issue the money directly instead of saddling itself with the promise of paying back the amount with interest?

RBI issues money as the monetary policy authority, not GoI. The only money issued by GoI was the old Re.1 note, whose circulation is being restarted.

The sense of the market is rate will stay as they are in August but may be cut in Sept, depending on monsoon data:
RBI to hold rates on Tuesday; cut likely in September, say brokerages

Reserve Bank is likely to pause on rates at its ensuing meeting next week, but may go for a rate cut by the end of the year, as further clarity on the monsoon front is awaited, say leading brokerages.

Bank of America Merrill Lynch and HSBC in two separate reports today said that the RBI is likely to stay on "hold" at the policy review meet next week, but there is possibility of more rate cuts in the coming months.

According to BofA-ML, RBI will maintain a dovish note to reiterate that the door is open for further rate cuts to support growth.

FM seeks $4 billion spending boost, almost half for state banks

Finance Minister Arun Jaitley sought Parliament's approval on Friday to increase the spending budget for this fiscal year by $4 billion, with almost half to be used to inject extra capital into state banks struggling with bad loans.

High levels of non-perfoming assets in the state-run banks have made it hard for the government of Prime Minister Narendra Modi to revive investment or accelerate growth in Asia's third largest economy.

State lenders account for more than 70% of all outstanding bank loans, and they are in need of support to meet Basel III regulatory requirements.

Having allocated $1.24 billion for the state banks in February budget, the finance ministry aims to inject an extra $1.9 billion, if parliament approves.

The ministry is also seeking to raise support for Air India, the loss-making national airline, by an additional Rs 800 crore ($125 million).

Junior finance minister Jayant Sinha told reporters that the additional capital infusion for the banks will help them meet regulatory requirements as well as growth needs. The government could provide more capital to the banks if needed.

"We have a robust recapitalisation plan in place," he said.

The finance ministry also issued a statement saying state-run banks have capital requirements of Rs 1.8 lakh crore ($28 billion) until 2018-19.

Natural gas output hampers core sector:
Core sector data slows to 3% in June

Growth in the eight core sectors - coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity - slowed to 2.4% in June after hitting a six-month high of 4.4% in May mainly on account of contraction in crude oil and natural gas production.

Total growth in the core sectors, which has a weightage of nearly 38% in the index of industrial production (IIP), during the period April-May came down to 2.4% from 6% in the first quarter of last fiscal, according to the data released by ministry of commerce and industry here today.

Crude oil production declined by 0.7% in June. During the first quarter April-June also its production declined 0.9% over the same period last year.

Similarly, production of natural gas also contracted by 5.9% in June. Its cumulative index during April to June, 2015-16 declined by 0.9% over the corresponding period of previous year.

Coal production came down to 6.3% in June compared to 7.8% in the previous month and 8.2% in the same month last year. Cumulatively, it increased 7.3% over corresponding period of previous year.

Electricity generation increased by 0.2% in June, 2015. Its cumulative index during April to June, 2015-16 increased by 1.5% over the corresponding period of previous year.

Production of cement increased 2.6% in June. Cumulatively, it increased 0.9% over the corresponding period of previous year.

In June production of steel also increased by 4.9% and during April-June in increased by 2.8% as against the same period in 2014-2015.

The continued stable growth of the non-fuel core sector items (steel, cement, electricity) is encouraging.

[Kakkaji]

Government capital spend soars 38% in Q1 to boost investment, growth

NEW DELHI: Capital spending rose sharply in the first quarter of the current fiscal with the Narendra Modi-led NDA government looking to turn around the investment cycle and lift growth through higher public spending.

The 38% rise in capex spending in the first quarter is part of the government's big plan to spur growth as private sector still remains reluctant with interest rates still remaining high.

"This will have a strong multiplier effect on growth," minister of state for finance Jayant Sinha said on Friday

[RoyG]

RBI issues money as the monetary policy authority, not GoI. The only money issued by GoI was the old Re.1 note, whose circulation is being restarted.

Right so just like the 1 rupee note, why not just print all the denominations and electronically create the money directly from the PSU bank so you aren't indebted to anyone? Take over the RBI and turn them into a regulatory agency without any money issuing powers. All the RBI would need to do is ensure that the interest rates of the PSU banks and the the gov expenditure are both in sync and to ensure good loan issuance. Then ensure that there is a PSU bank for every district, state, etc. and make it mandatory for them to deposit the equivalent of the collective interest on the loan that they issue into public expenditure account. Why go through a bond auction process or direct RBI purchase for the issuance of money?

[Suraj]

To separate the power of issuing money from the direct hand of the government who remains in charge of fiscal policy, and add a new set of checks and balances in the process.

The Re 1 note is a special contingency measure to address the breakdown of central bank operation and give the government limited power to issue currency in an emergency situation.

[RoyG]

To separate the power of issuing money from the direct hand of the government who remains in charge of fiscal policy, and add a new set of checks and balances in the process.

The Re 1 note is a special contingency measure to address the breakdown of central bank operation and give the government limited power to issue currency in an emergency situation.

If they manage to raise most of the money they ask for anyway through the issuance of debt instruments, why wouldn't debt free money be a better alternative? If a proper legal framework is passed so that the gov can't take more than what's in the public expenditure account except in times of emergency, wouldn't it be a better alternative to what we have now? I'm pretty sure that with all the private loans made annually, the gov should have more than enough coming from a pool of accounts coupled with taxes. You're killing two birds with one stone. On the one hand, you're capping gov spending to the rate of money creation through private loans, ensuring very low debt, and that inflation won't rise above a few percentage points.

[Suraj]

If they manage to raise most of the money they ask for anyway through the issuance of debt instruments, why wouldn't debt free money be a better alternative?

Power without responsibility. I don't favour the elimination of the existing check and balance of a monetary issuing authority separate from the arm of government tasked with economic and fiscal policy.

[M Joshi]

Revenue from taxes on diesel, petrol at Rs 75,441 crore in FY15

NEW DELHI: Government's revenue collection from taxes on petrol and diesel rose to Rs 75,441 crore in 2014-15, a rise of over 60 per cent from 2012-13, Parliament was informed today.

In 2012-13, the revenue from petrol and diesel stood at Rs 46,926 crore while in 2013-14, the government earned Rs 50,222 crore from these petroleum products, Minister of State for Finance, Jayant Sinha said in a written reply to Lok Sabha.

Petrol price cut by Rs 2.43 per litre; diesel by Rs 3.60

Additionally, the price of non-subsidized LPG has been reduced by Rs 23.50 per 14.2-kg cylinder to Rs 585, with effective from midnight.

[Suraj]

Very strong passenger car sales growth in July suggests consumer sentiment is picking up:
Passenger vehicle sales find firm footing in July, up 17%

Passenger vehicle sales in July suggest a recovery in demand is gaining strength. During the month, new launches helped companies in the segment report high growth. Market leaders Maruti Suzuki and Hyundai reported annual sales growth of 22.5 per cent and 24.7 per cent, respectively.

Four of the top five companies have recorded volume growth compared to a year earlier.

Based on the sales numbers of seven automobile makers, volumes in the sector are estimated to have grown 17 per cent compared to the year-ago period. Passenger vehicle sales had increased 6.17 per cent in the quarter ended June this year.

NIIF to be operational by year end

The proposed Rs 20,000 cr ($3.3 billion) National Investment and Infrastructure Fund (NIIF), cleared by the Cabinet earlier this week, will be operational and taking investment decisions by December, said Minister of State for Finance Jayant Sinha on Friday.

It will function as a sovereign wealth fund and focus on capital infusion in infrastructure projects. “It will be a commercially oriented enterprise focused on projects which can generate returns, and will be located in Mumbai and operate at arm’s length from the government,” Sinha said at a media briefing.

Adding: “We’ll be hiring the best talent in the world for this institution, so that they can assess and evaluate a variety of investment opportunities using the most sophisticated valuation techniques.”

[gakakkad]

Automobile demand growth is a very strong indicator of recovery , considering that it was nearly stagnant for 2-3 years..

Now in coming months one can expect growth in core sectors too..

[M Joshi]

Especially if 7th Pay Commission comes up coupled with the effects of GST, we'll see unprecedented growth in the automobile sector in FY 16-17.

[Suraj]

I don't yet know if passenger car sale data is an anomaly of statistics. Maybe someone can dig into 2014 and 2015 data for it ? 2-3 months of Y-o-Y double digit passenger car growth should be a huge positive indicator. One month, not yet.

I'm even more interested in commercial vehicle sales growth. That is a very important leading indicator of industrial activity.

[Yagnasri]

i do not see any great optimism in Infra companies. Hardly any new projects and lot of Corporate Restructures are being done to save accounts even today. It will take time. may be another year or so.

[Suraj]

i do not see any great optimism in Infra companies. Hardly any new projects and lot of Corporate Restructures are being done to save accounts even today. It will take time. may be another year or so.

The speed of their debt restructuring is key.

[Rahul M]

^^^
which factors would decide that speed ? any indicators we can look for ?

[Suraj]

That's the knot that's tying together the biggest problem in the way of the economy. Companies borrowed a lot in 2009-11 expecting UPA-2 to cause an economic boom because of their strong mandate compared to UPA-1. Instead, they ran the economy into the ground. That left a lot of companies and the banks who lent it to them, heavily indebted. Banks have zombie loans and outright NPAs. I think the Government has been far too cautious, incrementally fixing this problem. It might be better to outright transfer the bad debt into an SPV and recapitalize the banks, but that requires a level of intervention the government has not yet demonstrated. The Chinese did something like this when their big 4 banks were walking NPAs, in the late 1990s. The recapitalized them to the tune of $150 billion then. And back then they were just a $1 trillion economy themselves, so it was a significant recapitalization effort. I don't think GoI+RBI are currently capable of such a dramatic recapitalization QE effort. The problem with doing so without also having a strong hand on the means of production is that if production does not rise fast enough to absorb that recapitalization, what's instead going to happen is massive inflation.

There's a lot on this, particularly combining state owned banks, on page 83

[vina]

Well, the idiotic attempt by the Govt to destroy the independence of the Reserve Bank by having a committee with a majority of 4 rubber stamping baboons saw a sharp response and the govt is thankfully back pedalling on that idiocy and hopefully will see some sense.Blame game passing between two sets of people, the govt blaming a committee and the committee flat out denying that the 4 baboon majority and no veto for the RBI Governor was their recommendation.

[member_29058]

At least this Govt. listens and self corrects. With help of gangster and traitors, ITALIAN scum and friends pushed dangerous laws. Thank God the trash was discarded by Indians otherwise the scum was bringing in Community Violence Bill to destroy India and establish an abrahamic or islamic society.

[member_29058]

http://www.newindianexpress.com/columns ... 952438.ece
That Sense of Drift and the Narrative of Listlessness

Like FDR, Prime Minister Narendra Modi launched his campaign amid despair. Modi ignited hope, wooed pride and won allegiance with his rhetoric of ‘what could be’. The crux of FDR’s success was that he had “Five New Dealers” who propelled his ideas. Modi is constrained for quality and capacity in his Sarkar.

Modi continues to be in campaign mode to aggregate public opinion. There is scarcely an issue that Modi has not articulated his views on and expressed his intent about. Intent has been executed but action awaits blueprints. There is the reticence of the inexperienced ministers and there is the obduracy of the babudom. Team Modi has struggled to migrate from oratory to administration, translate slogans into solutions.

Take Swachh Bharat, which is a critical imperative to clean up the filth and to curb malnutrition and potential for epidemics. But the idea suffers from lack of institutional support—from provision of bins to creating policy and funding for waste management. The Centre could have been the mentor, Finance Commission allocations could have been conditional, corporate (CSR) funds could have been corralled. The idea of Smart Cities fuelled expectations of new cities—a la the Deng initiatives which accompanied SEZs in China. Instead, from the looks of it, overloaded and badly planned cities will hog funding for denting and painting.

The distance between the Modi Model and Modi Sarkar is best reflected in the power sector. In Gujarat, Modi evangelised the idea of a parallel grid and reduced losses. India, similarly, needs a parallel discom. Fact is, five of the BJP-ruled states—run by CMs who owe their re-election to the Modi magic—account for the bulk of the losses. The question is who will bell the cats? Meanwhile bankrupt SEBs are seeking another bailout to be paid for by taxpayers, including the poor who pay excise on match boxes and service tax on pre-paid cards.

Make in India is an outstanding articulation for revival of growth. The idea demands low-cost capital, land and ease of doing business so as to find a place on the global value chain. Cost of capital is constrained by stressed bank balance sheets, Reforms in land acquisition which should have been left to states now lie stranded between the Centre and states. Ease of business needs Modi to push his ministers to let go, decentralise permissions and dismantle the pelf raj. Sure, GST seems to be a done deal, but letting profligate states tax petro products is akin to giving addicts the password to happy hours. And the contours are foggy on the rate.

Sure, there are legacy issues. A regime, however, cannot spend its tenure blaming its inheritance. On the face of it, the economy is growing at 7-plus per cent but banks are riddled with NPAs, IIP growth is 3 per cent, despite low inflation corporate profits are sub-5 per cent, capacity utilisation is subpar in cement and steel, a host of blue-chip corporates are in the queue for 5/25 restructuring of loans, auto sales are below average, realty is collapsing, and exports have been in negative territory for 10 months. This week, ratings agency Moody’s observed that “lack of reforms could derail medium- to long-term growth prospects”.

The organising principle of any government should include medium- and long-term objectives. The focus seems to be disproportionately on the long term. For instance, the benign prices in commodities— crude oil, steel, fertiliser, palm oil etc.—have a potential to save nearly $70 billion. India could leverage the low price regime to build an inventory. As a medium-term goal with long-term benefits, the savings could have been deployed to create strategic reserves.

Modi argued during campaign—like FDR—that government has no business being in business, but there is little to suggest that it is a mantra. Fact is, till the government gets out of management, PSUs and banks will continue to be bailed out with taxpayers’ monies. Why not create a trust for public enterprises, allow consolidation and strategic investors? Why not use the money to retire government debt to enable lower deficit, inflation and interest rates?

Like it or not, there is a sense of listlessness and buzz about a drift. Perhaps it is the rash of scandals that have hogged the headlines, the near-washout of the Monsoon Session, the daily rigmarole of running a government or perhaps it is all of the above. You could argue it away as just perception. But perception is what fuels power—the power to instal change.

[Rahul M]

thanks Suraj.

[Suraj]

Well, the idiotic attempt by the Govt to destroy the independence of the Reserve Bank by having a committee with a majority of 4 rubber stamping baboons saw a sharp response and the govt is thankfully back pedalling on that idiocy and hopefully will see some sense.Blame game passing between two sets of people, the govt blaming a committee and the committee flat out denying that the 4 baboon majority and no veto for the RBI Governor was their recommendation.

Just because you can't post in the politics thread for fear of a negative response does not mean you can use this thread as proxy.

Here's what the news is about:
Removing RBI Governor's veto on rates not a FSLRC proposal

The revised draft of the Indian Financial Code (IFC), which proposes that any decision on monetary decision should be taken by majority by a seven-member committee without any veto power to the RBI chief, has created a furore and was seen as an attempt to curtail the central bank's autonomy.

This prompted the government to claim that the draft IFC was not a "report of the government or of the Finance Ministry" and it was based on the FSLRC report.

"It is not true," Financial Sector Legislative Reforms Commission (FSLRC) Member M Govinda Rao told PTI.

"There is a misconception that the revised draft of IFC is a report of FSLRC. But that is not true. The term of the FSLRC ended in 2013," Rao said, while adding that RBI Governor should indeed have a "veto power" in the monetary policy.

Rao's comments are in sharp contract to the statements made by Finance Minister Arun Jaitley and other top officials including Chief Economic Advisor Arvind Subramanian, who have said the revised IFC draft was as per FSLRC recommendations.

While the first version of IFC, as recommended by the FSLRC over two years ago in March 2013, had also suggested a Monetary Policy Committee (MPC) to decide on policy rates, it had recommended a veto power to the central bank chief.

The revised draft, released by the Finance Ministry last month on July 23 for public comments till August 8, has suggested doing away with this veto power and wants the seven-member MPC to take decisions by a majority vote.

Subramanian also said, "FSLRC report is a report of FSLRC. It is not the report of the government or the Finance Ministry. The report is not the view of the government."

Seeking to clear the air over the entire episode, Rao said that FSLRC had not recommended dilution of the powers of the RBI Governor in deciding policy rates.

"Once you assign the responsibility of price stability or inflation targeting to the RBI, it follows from there that the RBI Governor should have full say in deciding the interest rate," Rao said.

He further said that the mandate of the monetary policy committee should be to assist RBI in deciding the policy and it was important that the RBI Governor retains "veto power" in deciding the monetary policy action.

"There is a specific role of the RBI and the FSLRC recommendation had taken that into account. RBI Governor should have the power to decide on monetary policy action and I hold on to that view," the FSLRC member said.

As far as I can tell, the recommendation on removing the RBI governor's veto has not been removed from the draft. Rather, they simply said "it was the FSLRC's idea" and FSLRC said "no it wasn't". This isn't a constitutional amendment and will go through.

The FSLRC itself is an UPA-2 era creation:

FSLRC, which was set up in 2011 to review and rewrite the laws of the Indian financial sector, had submitted its report to the then Finance Minister P Chidambaram in March 2013. It was headed by Justice B N Srikrishna and members included Rao, Y H Malegam, K J Udeshi, Jayanth Varma and P J Nayak.

Not a binding authority by any means, and something FinMin would obviously deflect any political criticism at. M Govinda Rao is a developmental economist, and not a government legislator at all. He's simply one of the members of the ad hoc FSLRC.

[Austin]

Deleted

[Suraj]

India Is All We’ve Got: Manufacturing In Korea, Taiwan, China Continue To Slip

Except for India, Asian manufacturing continues to slip.

Headline PMI in India rose to 52.7 in July, from 51.3 in June and the highest level in six months.

Don’t read too much into the PMI data, advised Capital Economics‘ Shilan Shah.

First of all, India’s PMI data does not correspond well with “hard data” such as industrial production and GDP growth. Capital Economics believes in Asia, only Korea, Taiwan and Malaysia’s numbers correspond well with the hard data. Second, Shah questioned if the strength in India’s manufacturing numbers could persist given that rupee has “appreciated by almost 10% in trade-weighted terms over the last 18 months.”

Beggars can not be choosers. India looks like a bright star if you look across the rest of Asia.

Korea‘s manufacturing sector continued to struggle in July, driven by weak exports. Headline PMI came in at 47.6, a slight improvement from June’s 46.1. But a reading below 50 suggests contraction.

In Taiwan, headline PMI came in at 47.1, also a slight improvement from 46.3 in June. But this level is still low compared to the average of 50.8 recorded over the past year.

And there is China. Caixin/Markit’s PMI fell to 47.8 in July, down from 49.4 in June and below the market expectations of 48.3. This is the lowest reading since August 2012.

Equity markets responded to today’s PMI numbers. India is the only green in an ocean of read. The Sensex Index rose 0.3%. By comparison, the Taiwan TAIEX Index fell 1.6%, the KOSPI Composite Index retreated 1.6% and the Hang Seng China Enterprises Index fell 1.8%.

In July, foreign investors pulled out of Korea, Taiwan and China and piled into India again, because they realized India is the best they’ve got in emerging Asia.

In July, the iShares MSCI South Korea Capped ETF (EWY) and the iShares MSCI Taiwan ETF (EWT) fell 7.1% and 6.8% respectively, while the iShares MSCI India ETF (INDA) gained 2.7%. The iShares China Large Cap ETF (FXI) slumped 12.2% and the Deutsche X-Trackers Harvest CSI 300 China A-Shares Fund (ASHR) was down 14.1%.

[Gyan]

Poof.

[vina]

Head of FSLRC, Justice Sri Krishna came out and said this 4 rubber stamping baboons + no veto for the RBI Guv was the Govt's own doing. That was neither his view or the FSLRC's view.

Then Rajiv Mehrishi, the Finance Secretary came out and said that what was posted in the GOI website is the "People of India's view" and not the GOI's and that the govt has no view on any of the 400 clauses of the IFC! So is he saying that the Govt doesn't represent the will of the people, that the people might want one thing, the govt will do it's own thing ? That apart, this entire thing was so needless and frankly idiotic. Everyone wants an independent RBI that has the mandate to fight inflation , that is the only way you can have price stability in the face of a profligate govt which has fiscal levers. The NDA 1 enacted the FRBM , which has never been followed since!

The govt basically shot itself in the foot on this. Add to that the roll back in the land bill , one gets the sense that the govt really doesn't know which battles to pick and fight. GST is now touch and go and is at the mercy of the Congress who want a "perfect" bill, which the others don't .