Indian Economy: News and Discussion (Jan 1 2010)

svinayak · Post by **svinayak** » 24 Jun 2010 22:40

http://www.youtube.com/watch?v=FFgCHblKJoY

Not a good sign for value
The Cabinet is expected to give its nod to the numerical representation for the Indian rupee that could be the Hindi alphabet R with two lines.

Suraj · Post by **Suraj** » 25 Jun 2010 01:50

I personally prefer option #2. Keep in mind the symbol will be nearly always be printed in small fonts, and therefore needs to look clear, with broad lines. I like option 4 too, but it looks too thin and SDRE. I have no idea why #1 even got shortlisted - it looks like a lollipop.

SwamyG · Post by **SwamyG** » 25 Jun 2010 03:40

abhischekcc wrote:1 has two negative points - it looks like zero which is emptiness and void - not a good sign for an economy to have. On top of it, the symbol looks incomplete - again a negative sign for an economy to have.

Beauty lies in the hands of the beer holder. One might look at it as zero while another could look at it as something that is complete in itself. And the incomplete portion could remind us that nobody is perfect. But seriously who makes decision based on some symbol of the currency?

Pulikeshi · Post by **Pulikeshi** » 25 Jun 2010 09:22

#2 or #4 seem the closest, but the stylization could be better on both...

One thing to consider is how folks can write it - do they need to lift the pen, etc.
Another is how will it look printed.
Incorporating the Devanagari character 'ra' for its match with English 'R' seems a minimum requirement...

Prem · Post by **Prem** » 25 Jun 2010 09:32

Why Hydrabad onlee!!

Strange Rumor Going Around India Says That The Government Took "Fivers" Out Of Circulation
Shopkeepers in Hyderabad, India, recently stopped accepting "fivers," five rupee notes, from customers because they believe a strange rumor that the Reserve Bank of India took them out of circulation

Read more: http://www.businessinsider.com/strange- ... z0rprPOuWi

Dileep · Post by **Dileep** » 25 Jun 2010 15:13

Hey, didn't No 3 have the infamed Cross on Rs 2 coin?

Prem · Post by **Prem** » 25 Jun 2010 21:00

http://www.ft.com/cms/s/0/68a87eec-804a ... abdc0.html

India cuts petrol subsidies

India has decided to end state control over petrol prices, allowing them to move with the global market – a crucial first step towards reducing both New Delhi’s huge financial burden from subsidising petroleum products, and its fiscal deficit.
he Congress party-led coalition also said it would take gradual steps to deregulate the price of diesel fuel, which is used for India’s entire trucking fleet, and is now more heavily subsidised than petrol.With global oil prices currently hovering around $75 per barrel, Indian policymakers felt that now was the ideal time to move to deregulate petrol prices, in spite of inflation running at over 10 per cent a year

A welcome move.

biswas · Post by **biswas** » 25 Jun 2010 21:13

Could someone explain in layman terms how this will affect the Indian economy? Will it not harm the ability of aam admis ability to spend money?

Singha · Post by **Singha** » 25 Jun 2010 21:28

aam admi buys diesel fuel cars. if diesel price is hiked to its production cost which is >= petrol then both the indica/fiat/swift vdi buyers AND everyone in general will be hit due to trucking and rail freight rate hikes.

methinks the onlee way fwd to separate diesel cars from transport fleet is to mandate some kind of engine change in diesel to EU std and likewise make the refineries produce that for cars only. trucks and railways would continue to use the old polluting diesel for some time.

I dont see a reason why euro-IV for petrol car helps when sooty diesel cars are being sold in massive numbers and our diesel is likely not at german std. I also dont see the "right" of auto rickshaws to pollute to hearts content using adulterated fuels just because they are "poor". just because anyone is rich or poor doesnt give them right to shit on my lungs and affect my long term health.

I believe at present euro2 diesel is sold in india...but a lot of diesel commercial vehicles are so old one could put beer in them and they'd still emit black clouds of smoke.
http://en.wikipedia.org/wiki/File:Euronorms_Diesel.png
just compare the permitted particulate matter between euro2 and euro5 - it seems to be 8 times.

suryag · Post by **suryag** » 25 Jun 2010 21:37

Singha wrote:aam admi buys diesel fuel cars. if diesel price is hiked to its production cost which is >= petrol then both the indica/fiat/swift vdi buyers AND everyone in general will be hit due to trucking and rail freight rate hikes.

Singhaji why cant we impose diesel subsidy cost to cover the subsidy cost of the diesel it would consume over a ten year or 150000 km period. This will deter neo rich upper middle class people from buying diesel cars and using them as their vehicle to do groceries. I have been trying to find an answer for this but have not been able to. Diesel car manufacturers in particular indian auto manufacturers(tata, mahindra) will be hit by the increase in the price of the diesel variants but we would have to live with it and hope they innovate and come up with some other USP to sell diesel cars.

Suraj · Post by **Suraj** » 25 Jun 2010 21:41

What I found interesting was that there's apparently no note about the deregulation of kerosene prices, just petrol and diesel. Kerosene is sold to low income families via PDS. Perhaps they will deregulate it once the use of natural gas gains more popularity. In the short term, yes this move will lead to volatility in prices. However, the larger picture is that it cuts a massive chunk out of the GoI's subsidy bill. This in turn will reduce GoI's need to borrow to bridge the deficit. As a result, interest rates will face downward pressure. However, it will push up inflationary pressures in the short and medium term as fuel prices correct, and subsequently, as easier borrowing ability leads to greater economic activity.

Personally I think this is a progressive move on the part of GoI.

Asit P · Post by **Asit P** » 25 Jun 2010 22:02

Suraj wrote:What I found interesting was that there's apparently no note about the deregulation of kerosene prices, just petrol and diesel.

Suraj, they have increased the price of Kerosene as well.

Petrol and diesel will cost up to Rs 3.73 per litre more, households will have to pay an additional Rs 35 per cylinder and poor man's cooking medium kerosene will be dearer by Rs 3 a litre from midnight, the government said here

Source:- http://economictimes.indiatimes.com/new ... 090748.cms

Asit P · Post by **Asit P** » 25 Jun 2010 22:07

Coming back to the discussion of whether it is a good move or not, in my humble opinion, it would turn out to be a very good move in the long term.

Oil subsidy was one of the largest components of our Fiscal deficit. This move would not just enable the government of India to have more money for developmental works, but it will also make the Indians, more conscious towards fuel efficiency.

ramana · Post by **ramana** » 25 Jun 2010 22:15

How does it affect the fertilizer subsidy? From what I heard the cartel trucks fertilizer across the country intead of selling locally because of the double subsidy: diesel and fertilizer.

Suraj · Post by **Suraj** » 25 Jun 2010 22:20

Asit: I was not referring to increasing prices, but deregulating it entirely, so price rises are not driven by GoI.

Fertilizer prices are tied to natural gas prices, from what I recall. With Reliance, Cairns and others bringing their recent hydrocarbon discoveries onstream, at least feedstock supplies should be readily available, though I'm not clear how much control GoI has over the price of natural gas.

vina · Post by **vina** » 25 Jun 2010 23:03

I'm not clear how much control GoI has over the price of natural gas

It is pegged to the equivalent energy level in oil price. Right now it is priced equivalent to $60 per barrel of oil.

Prem · Post by **Prem** » 25 Jun 2010 23:46

vina wrote:
I'm not clear how much control GoI has over the price of natural gas
It is pegged to the equivalent energy level in oil price. Right now it is priced equivalent to $60 per barrel of oil.

Not to mention NG prices will remain despressed . Soon there will be glut in supply of NG.Persians will be left holding the empty bag with little Paki in it as customer with no money in pocket.

astal · Post by **astal** » 26 Jun 2010 00:24

Imho deregulation of oil prices is a very positive development and the current political situation makes it possible. This price hike seems like an attempt to "test political waters". If there is a public outcry and hysteria they will roll it back.

Right now our deficit is at the mercy of volatile oil prices. Something almost entirely out of the governments control and based on sentiments of and speculation by OPEC, Russia, Traders and other sundry actors.

The more important long run benefit from deregulation is allowing consumers to decide how much to use based on the prevailing price. We can cut back when prices are high and relieve demand.

The big disadvantages as Suraj pointed out is short and medium term inflation. In the short run due to increase in transportation costs and in the medium term due to lower interest rates.

Volatility of fuel prices is another disadvantage. Some of that can be dealt with by creating a buffer stock and by exploring for more oil and natural gas in India.

astal · Post by **astal** » 26 Jun 2010 00:40

The US interstate system was funded with a 2 cent tax on fuel from 1956. It has worked out very well and I do not see any reason not to adopt a similar tax in India.

A direct tax of say Rs.1-2 tax per litre on fuel with a mandate to use the revenues exclusively for funding highway construction and maintenance with help relieve infrastructure funding problems. In urban areas, an additional fuel tax used exclusively for urban roads would be also useful. This would be superior to the inefficiency of the current toll system and puts the burden of roads directly and proportionally to users.

There must be a good reason for India not to adopt a similar direct fuel tax. Would anyone know why we do not have this?

Asit P · Post by **Asit P** » 26 Jun 2010 00:41

Suraj wrote:Asit: I was not referring to increasing prices, but deregulating it entirely, so price rises are not driven by GoI.

Sorry for the misunderstanding.

Shalav · Post by **Shalav** » 26 Jun 2010 03:59

astal wrote:The US interstate system was funded with a 2 cent tax on fuel from 1956. It has worked out very well and I do not see any reason not to adopt a similar tax in India.

The US has laws stating that taxes applied for certain purposes MUST be used for that purpose. ie vehicle registration / road taxes MUST be used to fund road related maintenance / building.

Indian laws allow for taxes and surcharges collected against a particular head to be used against any other head the govt. decides. So it is not mandatory for the govt. to use road and fuel taxes to fund road infrastructure. Anyway IIRC petrol is already taxed by upto 25% (??) across India.

I recall BEST used to tack on 5ps. per ticket for the '71 war well into the 90s, so there is no limit to how deep and how long the govt. will dip into mango mans pocket, but there is no guarantee it will actually be used for the purpose it was intended.

Suraj · Post by **Suraj** » 26 Jun 2010 05:26

Another option to manage fuel price volatility is enabling a spot and futures market in its trade, with restrictions so that it doesn't entirely become a speculators haven. For example, a retailer can buy purchase contracts, enabling them to then offer something like a a frequent buyer program to automobile owners, where people buy prepaid cards that apply a fixed rate to each petrol/diesel purchase for a fixed duration of time, the price subsequently readjusting as the retailed signs newer contracts. Sort of like how store loyalty cards work...

With this piece of news, I wonder if Reliance Industries will now reopen their Reliance petroleum outlets, all of which they mothballed some time ago since they could not compete with the subsidies provided to state-owned oil cos. I expect Mukesh Ambani is busy at work; I would not even be surprised if he 'encouraged' this policy announcement.

Shalav makes a good point about tax revenues all going into the consolidated fund, without clear requirements that a specialized fund only be used for the designated purpose. Actually, the US isn't entirely blemish-less in this regard either; I recall reading how the social security fund was raided by past administrations.

Singha · Post by **Singha** » 26 Jun 2010 07:02

yeah even low hanging fruit like road tax and the 2% education cess on all income tax is disappearing into state and central pools with no clear cause and effect linkage.

I dont blame people for being pissed about it. after all, I paid huge sum in road tax recently and I would like to see it used for blr
or karnataka roads rather than provide tv sets to the poor or Rs 5/kg rice.

A Deshmukh · Post by **A Deshmukh** » 26 Jun 2010 11:33

I am not sure if this is good or bad.

Today oil is 80$ a barrel.
if it goes up to 100 or 140$ a barrel?
Will petrol go up to 100Rs/ltr?
How can that be good for the economy and people?

On the other hand it may come down also to $40 a barrel.
GoI must have internal predictions on this.

Also more than 50% of the pricing is really taxes.
Petroleum is like the blood of the economy. Taxing 100+% on it is ridiculous.
Govt needs to reduce the taxes if it really wants to do something good.

Don't know whether there is some long term thinking going on or just RIL lobbying behind this deregulation so that they can reenter the space.

Suraj · Post by **Suraj** » 26 Jun 2010 23:12

Bloomberg article with more on what I postulated earlier, i.e. short/medium term inflation:
India's Fuel Price Increase May Spur Inflation, Pressure to Boost Rates

India’s decision to allow fuel prices to rise may spur the inflation rate by almost a percentage point, the finance ministry said, adding pressure on the central bank to raise interest rates.

Prime Minister Manmohan Singh’s government permitted state refiners to set prices of gasoline higher by about 3.5 rupees (7.5 cents) a liter and that of diesel by 2 rupees yesterday, as it sought to cut subsidies and trim the budget deficit from a 16-year high. Gasoline has been freed fully while diesel prices will eventually be market-determined, the government said.

India’s move to pare its $5.5 billion oil subsidy, accounting for about 2.5 percent of its budget, comes as global investors heighten scrutiny of government finances in the aftermath of the European sovereign-debt crisis. The action threatens to stoke inflation from 10.16 percent touched in May.

“India will move toward a better fiscal situation over a period of time -- people will view it positively,” said Jitendra Sriram, who helps manage $800 million as head of equities at HSBC Asset Management (India) Pvt. in Mumbai. “There will be some rate action by the Reserve Bank of India, but it will come in the July policy announcement.”

RamaY · Post by **RamaY** » 26 Jun 2010 23:54

I really do not understand MMS'que logic on key economic policy decisions...

India’s move to pare its $5.5 billion oil subsidy, accounting for about 2.5 percent of its budget, comes as global investors heighten scrutiny of government finances in the aftermath of the European sovereign-debt crisis. The action threatens to stoke inflation from 10.16 percent touched in May

Our economist-dream team (PM, FM and Planning Commission vice-chairman) is trying to look better on one parameter (the Oil subsidy) while phuking up another parameter (Inflation). All this while they do not know the weightage given to these parameters in their risk modeling...

All this is being done when the true culprits, the western-economies are increasing their govt subsidies/TARPs/what-not...

Bunch of *****s

Edited: Removed biased source.

astal · Post by **astal** » 27 Jun 2010 01:36

http://indiacurrentaffairs.org/petroleu ... mukherjee/

During the year 2009-10 as per provisional figure available for the period April to December, 2009, the contribution to central government exchequer by petroleum sector is Rs 56,365 crore. The subsidy provided by the government, including the oil bonds issued to OMCs during the same period, is Rs 14,058 crore i.e., 25 per cent of petroleum sector’s contribution in taxes and duties. Therefore the “Aam Admi” pays 100 rupees as taxes/duties and get 25 rupees as so called subsidy! Who is subsidizing whom? The cruelest joke is that during the worst period of inflation, the Government is reducing this ratio below 20 per cent in 2010-11 by extracting additional revenue of Rs 30,000 crore through hike in import duty on crude and excise duty on petrol and diesel. As a matter of fact, the contribution of petroleum sector to central revenues rose from Rs 46,603 crore in 2001 to Rs 93,513 cr in 2008-09.

I love it when a CPI(M) member is quoted in BR. I know how much we follow and admire them. Its so easy to twist statistics .

What we need is a breakup of the sources of revenue and the destination of subsidy.

Most of the subsidy goes for cooking fuels such as Kerosine and LPG. The tax comes from aviation fuel and petroleum. So much for aam admi. People who fly and use petrol vehicles are subsidizing cooking. The CPI(M) should rejoice.

There were many periods of inflation in India that were similar to this one so hyperbole will not cut it. Inflation is a complex process. It is dependent on expectations. A one-time hike in fuel does not impact inflation as much as the persistent ability of the government to intervene and traders who take advantage of this situation. Reduced government borrowing leads to increased private investment. As Suraj mentioned this will lead to medium term inflation, due to increase in demand caused by private investment. A part of the increased investment goes to increasing salaries. Another portion increases employment which I would not consider negative.

When the price of fuel goes up, should people continue to use the same amount of fuel and balloon the deficit? Unfortunately people do not pay income tax. Direct taxes have to be used to reconcile deficits. Every time the price of fuel rises, should the government have to borrow and stifle private investment? Suppose that the price of oil goes to $ 140 a barrel. We will need to spend less on defense and more on fuel subsidy. There are always some sort of elections going on. Will it be possible for the government to increase the administered price without generating hysteria?

Finally, western governments are borrowing and spending through their noses. We tend the forget that economics was originally called political economy. The alternative for western governments is a spiral of unemployment and deflation. Their economies were on the verge of collapse. Further unemployment would be politically unsustainable. The current opening up of money supply and borrowing is going to have a cost in terms of future growth but that may be an acceptable trade off. Just because the west is doing it, that does not mean it is right for India.

I agree that government deficit is not such a bad thing, as long as it is invested in areas that bring about future growth such as education and infrastructure. Not for consumption spending such as fuel.

satyam · Post by **satyam** » 27 Jun 2010 01:53

http://indiacurrentaffairs.org/petroleu ... mukherjee/

During the year 2009-10 as per provisional figure available for the period April to December, 2009, the contribution to central government exchequer by petroleum sector is Rs 56,365 crore. The subsidy provided by the government, including the oil bonds issued to OMCs during the same period, is Rs 14,058 crore i.e., 25 per cent of petroleum sector’s contribution in taxes and duties. Therefore the “Aam Admi” pays 100 rupees as taxes/duties and get 25 rupees as so called subsidy! Who is subsidizing whom? The cruelest joke is that during the worst period of inflation, the Government is reducing this ratio below 20 per cent in 2010-11 by extracting additional revenue of Rs 30,000 crore through hike in import duty on crude and excise duty on petrol and diesel. As a matter of fact, the contribution of petroleum sector to central revenues rose from Rs 46,603 crore in 2001 to Rs 93,513 cr in 2008-09.

@RAMAY
Can't you give a much better source ?

http://indiacurrentaffairs.org/cast-out ... jan-kumar/

This is what i read in one of his blog

Everyday
3 Dalit women are raped
2 Dalits are murdered
2 Dalits Houses are burnt
11 Dalits are beaten
There is a crime committed against a Dalit every 20 minutes.

So all these crimes are commited by priest

. Can't you find much better source?

RamaY · Post by **RamaY** » 27 Jun 2010 06:14

My bad guys... I was searching for data on Taxes Vs Subsidies data and found this on Google. Editing my post...

Prem · Post by **Prem** » 27 Jun 2010 10:12

http://www.democraticunderground.com/di ... 02x4443617

H1B visa growth signals recovery

There’s good news on the US work front. The number of work permit visa issuances in India has gone up and US authorities say they expect the numbers to continue rising during the fiscal year, with a 10% year-on-year growth in all categories of work permits.

The number of H1 visas issued in the year to June 25, 2010 stood at to 55,477, as compared to 55,050 in the same period for the previous year. Likewise, there has been an increase in L visas too, from 31,314 to 35,504 in the same period. “We expect the rise to continue in the remaining months of this financial year. There was a bottoming out last year because of the economic downturn. But now there’s an upswing,” James W Herman, minister, counsellor for consular affairs at the US Embassy, told ET. In China too, there has been a sharp 30% increase in work permit visas. “The higher growth in China than India is probably because we issue shorter duration visas in China,” he added. The United States Citizenship and Immigration Services now expects the quota for H1B visas for 2011 to get used up by August 2010 and the PhD and graduate students H1B quota to get filled up by the end of July 2010. For 2010, the H1B cap quota was filled up only in late December

Abhijeet · Post by **Abhijeet** » 28 Jun 2010 02:10

So will petrol cost Rs. 55 per litre now (about $5 per gallon), while still being considered "subsidized" -- and so ripe for another price increase whenever the deficit gets too high?

nachiket · Post by **nachiket** » 28 Jun 2010 02:21

Abhijeet wrote:So will petrol cost Rs. 55 per litre now (about $5 per gallon), while still being considered "subsidized" -- and so ripe for another price increase whenever the deficit gets too high?

There would be riots in the US if fuel started costing $5 a gallon. I think along with deregulating the prices the GOI really needs to think about reducing the taxes on fuel sold in India.

Sachin · Post by **Sachin** » 28 Jun 2010 10:06

nachiket wrote:There would be riots in the US if fuel started costing $5 a gallon. I think along with deregulating the prices the GOI really needs to think about reducing the taxes on fuel sold in India.

There was also a request from the central govt. to the state govts. to reduce the tax percentage at their side (i.e at state level). This would also bring in some price reduction in fuel. The hypocrisy of the state governments (especially the commies) get exposed each and every time here. For example Socialist Republic of Kerala is ruled by a communist government. The state had the harthal maholsavam (harthal festival) for fuel price increase two days back. But have the champions of the proletariat decided to go for a state level tax cut. Nope, Nada, Zilch

.

Abhijeet · Post by **Abhijeet** » 28 Jun 2010 13:18

I don't get the logic of claiming that something is "subsidized", while at the same time piling on so much taxes on top of the base price that it starts costing more than in most countries of the world. They can surely reduce the "under-recoveries" of the oil companies while also keeping petrol prices reasonable by reducing the taxes.

Petrol cost Rs. 44 per litre in April 2009. It is now Rs. 55 per litre (I assume, I haven't filled up since the price increase). An increase of 25% in one year. It's fun trying to keep up!

satyam · Post by **satyam** » 28 Jun 2010 14:12

Abhijeet wrote:I don't get the logic of claiming that something is "subsidized", while at the same time piling on so much taxes on top of the base price that it starts costing more than in most countries of the world. They can surely reduce the "under-recoveries" of the oil companies while also keeping petrol prices reasonable by reducing the taxes.

Petrol cost Rs. 44 per litre in April 2009. It is now Rs. 55 per litre (I assume, I haven't filled up since the price increase). An increase of 25% in one year. It's fun trying to keep up!

The reason for high tax on fuel is there is huge tax evasion in India. So they have to start hiking tax on other things.

satyam · Post by **satyam** » 28 Jun 2010 17:13

16.3 mn telecom subscribers added in May: TRAI

http://beta.profit.ndtv.com/news/show/1 ... trai-78737

Essar buys Servosteel in its first-ever UK buyout

http://www.business-standard.com/india/ ... t/99522/on

Core sector grows 5% in May
http://beta.profit.ndtv.com/news/show/c ... -may-78719

Vipul · Post by **Vipul** » 28 Jun 2010 19:05

India then and now: What has changed?

Asit P · Post by **Asit P** » 28 Jun 2010 20:04

Increase in fuel prices will not reduce the fiscal deficit
http://timesofindia.indiatimes.com/Biz/ ... 102420.cms

To a query, the Finance Minister said the decision to hike the fuel prices will not have any impact on fiscal deficit as the additional money does not go to the Consolidated Fund of India, but oil marketing companies.

This is a very interesting comment. So far we have all been under the impression that increase in the fuel prices will reduce the fiscal deficit of GOI, and will enable it to spend more money on developmental works. But this statement of the finance minister is quite in contrast to our assumption.

Now the question is - how right is the decision of putting a dent in the pocket of millions of Indians, in order to protect the interests of oil marketing companies?

Prem · Post by **Prem** » 28 Jun 2010 21:45

»Elevation Partners Invest $120 Million In Facebook As Company Opens India Office
http://www.allfacebook.com/2010/06/elev ... ia-office/

This morning Techcrunch published information about Elevation Partners’ continued investment in Facebook, which has reached $210 million after purchasing $120 million in the private markets. Additionally, Facebook will be making a significant investment in their Indian offices, opening up a 50,000 square foot office which will employ close to 500 people, as first published by The Economic Times.

Mort Walker · Post by **Mort Walker** » 29 Jun 2010 13:45

satyam wrote:
Abhijeet wrote:I don't get the logic of claiming that something is "subsidized", while at the same time piling on so much taxes on top of the base price that it starts costing more than in most countries of the world. They can surely reduce the "under-recoveries" of the oil companies while also keeping petrol prices reasonable by reducing the taxes.

Petrol cost Rs. 44 per litre in April 2009. It is now Rs. 55 per litre (I assume, I haven't filled up since the price increase). An increase of 25% in one year. It's fun trying to keep up!
The reason for high tax on fuel is there is huge tax evasion in India. So they have to start hiking tax on other things.

Tax evasion is there because the overall tax burden is high and there are no services. I wouldn't call it tax evasion, but rather under or no reporting of cash income where paying taxes simply does not come in to the picture unless someone buys big ticket items. As an example, in 2nd tier cities in India, a hand cart vendor will easily sell Rs. 5,000 - 9,000 a day and his profit margin is about 40%. As long as the fellow has good health, he has a good income for his family, but at the same time he won't expand his business or buy a better home since he will have to pay high taxes. This money generally goes to gold or some other risky investment and the rest to retail. This is the reason why retail is expanding so big in India - there are a lot of people who can afford to buy expensive merchandise in cash.