Indian Economy - News & Discussion 27 May 2012

[Virupaksha]

Import duty on Gold to be hiked further from current 8%.

isi and dawood would be kissing Sonia and chidu

[vera_k]

Why is a foriegn rag talking about details of the internal reform
Something is wrong unless it is a form of messages to internal groups
These rags have no stake in India and their interest in India is a suspect

So why isn't an Indian rag writing articles like this? Doesn't that indicate something is wrong?

[Prem]

Exports up by 11.6% in July, highest rate in almost 2 years

http://zeenews.india.com/business/news/ ... 81773.html

New Delhi: In a rare bright spot in an otherwise struggling economy, exports grew by 11.64 percent in July, the most in nearly two years, while imports dipped by 6.2 percent.The trade deficit was unchanged from USD 12.2 billion in June, putting pressure on the current account deficit and the fluctuating rupee.While exports soared to USD 25.83 billion in July, imports declined to USD 38.1 billion.Gold and silver imports, which dipped by 34 percent to USD 2.9 billion in July from USD 4.4 billion in the same period last year, helped to maintain the trade deficit at the June level.Commerce Secretary S R Rao expressed hope that recently announced incentives, including a hike in the rate of interest subsidy, would help shipments to grow in the coming months."We do hope that these measures would help us in improving our export target performance in the coming months...Continuing interest in Africa, Latin America, Asean and Far East regions should be helping us (in increasing exports)," he told reporters here.He said the country's exports should be "slightly" better than the previous fiscal when it touched USD 300.6 billion.During April-July, exports grew by 1.72 percent to USD 98.2 billion. Imports increased by 2.82 percent to USD 160.7 billion during the period. The trade deficit during the first four months of this fiscal stood at USD 62.4 billion.In May and June, shipments were in negative zone. In September 2011, exports were up by over 35 percent.India's economic growth fell to a decade's low of 5 percent in fiscal 2012-13. The CAD touched a historic high of 4.8 percent of GDP in 2012-13, mainly on account of import of gold and petroleum products. The rupee touched an all time low of 61.81 against the dollar last week.The Commerce Secretary said the government is aiming at a 10 percent growth in exports as compared to the previous fiscal year."...That (10 percent growth) is what we should be aiming at...New initiatives should play out in the medium term and we do expect exports should be slightly better," Rao sai

[Austin]

New Delhi Looks to Buy More Iran Oil, Risks U.S. Ire

On Monday, Mr. Chidambaram indicated a change in course. "Within the U.N. sanctions and fully complying with the sanctions, there may be more space for imports from Iran," he said.

Under the plan, Iranian oil would be purchased with Indian rupees, which Iran would then use to buy Indian goods—potentially including food, drugs, consumer products and auto parts—for shipment to Iran.

The effect of that would be to offset some of the drain that oil imports impose on India's international balance of payments and help shore up the Indian rupee, which hit a record low against the dollar last week.
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Ajay Sahai, director-general of the Federation of Indian Export Organizations, said greater Indian imports of Iranian crude would mean "a greater market for Indian products to Iran."

India's exports to Iran as part of past oil purchases have mainly been agricultural products such as basmati rice and soybean meal, along with medicines. But now, Mr. Sahai said, India is prepared to export a wider range of goods and services.

[Austin]

India Takes Steps to Address Current-Account Gap
Measures Aimed at Lowering Imports, Boosting Capital Flows

NEW DELHI—India on Monday announced steps to help manage the country's bloated current-account deficit, prop up the local currency, and potentially mitigate the grim outlook for its economy.

The country will increase its imports of crude oil from Iran, with which it has a deal to pay in rupees, and introduce fresh steps to reduce gold and silver imports, Finance Minister Palaniappan Chidambaram said at a news conference Monday. In addition, some state-run firms will issue bonds overseas to fund Indian infrastructure projects, he added.

These measures come at a time when India's economy is going through a dark phase, amid a decline in output and consumer demand. Economists have recently lowered their targets for India's growth to as low as 5% for the financial year that ends March 31, 2014, versus 8% to 9% growth a few years ago.

Data released Monday showed that India's industrial output fell for the second successive month, declining 2.2% from a year earlier in June. Manufacturing output, which contributes about 75% to the country's industrial output, also shrank 2.2% from a year earlier in June.

"Given the across-the-board negativity in the industrial data, we think growth concerns are likely to be more exacerbated in the coming months," Siddhartha Sanyal, India economist at Barclays Capital, said in a research note. The bank now expects India to grow at 5.3% versus its previous expectation of 6% for the current financial year.

While the Indian economy is hurting on several fronts, the government has lately been focused on stabilizing the local currency, which has fallen around 10% since early May, and hit a record low of 61.80 rupees against the U.S. dollar last week.

Mr. Chidambaram said Monday that concerns over India's wide current-account deficit have been pushing the rupee lower.

So, he introduced several steps which he believes will help contain India's current-account deficit at $70 billion, or 3.7% of gross domestic product, in the current fiscal year, compared with 4.8% last year.

These steps mainly include attempts to reduce India's import bill, such as by importing more oil in rupees from Iran. The government will introduce measures to reduce the import of gold, silver and some nonessential goods, Mr. Chidambaram said, but didn't give details.

He also announced steps to bring more dollars into India to help fund the $70 billion current-account gap he expects.

He said three state-run financial companies will issue bonds overseas to raise a total of $4 billion to finance infrastructure investments in India. These bonds will be quasi-sovereign, meaning they will carry the implicit backing of the government. They will be issued by Indian Railway Finance Corp., Power Finance Corp. 532810.BY +1.29% and India Infrastructure Finance Co., Mr. Chidambaram said.

He said the government will also take steps to attract more bank deposits from Indians living abroad.

India will also ease rules for companies raising funds overseas, including allowing oil companies-—among India's largest importers-—to borrow more money abroad.

Mr. Chidambaram estimated that these steps will bring in around $11 billion to India. He said that in the usual course of business, India would attract $64 billion this year, so the country would end the financial year with a total of $75 billion, which would not only finance the entire current-account gap, but leave something to add to India's foreign-exchange reserves.

As these measures take effect, "I expect rupee volatility to decrease and I also expect the rupee to stabilize," Mr. Chidambaram said.

Indian markets had closed by the time Mr. Chidambaram provided details on his measures. But currency markets had reacted negatively to his initial remarks as investors weren't convinced about the efficacy of these measures.

The rupee lost value Monday, falling to around 61.28 to the dollar versus 60.80 before the finance minister announced the measures in Parliament.

[Abhijeet]

Good article by the Economist, racist rag or not. Good rundown of all the different areas in which India is not competitive: duties, ports, financial regulation, the legal system, air hubs, basic infrastructure. So much to do.

=======

On a related note: a(n Indian) friend of mine recently got a US green card after a ten year application process. Nothing extraordinary about his case, that's just the normal processing time for cases in that category.

I'm sure fewer Chinese than earlier put up with nonsense like this, now that they have viable cities at home.

Nevertheless, I thought how lucky the US is that its biggest demographic competitors continue to shoot themselves in the foot: China through its autocracy, which makes it a less welcoming place for returning Chinese; and India (of course) through its obstinate insistence on not getting its governance act together.

[James B]

GoI presses the Panic Button. Back to License Raj & Gold smuggling days.

It’s 1991 once more: RBI clamps capital controls on India Inc

by R Jagannathan


In what can only be seen as a panic move, the Reserve Bank of India (RBI) today reversed the long-term secular trend of easing capital controls by limiting the amount of money citizens can remit abroad, and businesses can invest in foreign ventures.

In recent months, industrialists ranging from Kumar Mangalam Birla to Cipla’s Yusuf Hamied to Apollo Tyres’ Neeraj Kanwar have been talking about investing abroad rather than in India due to a vitiated clime here.

On Wednesday evening, the RBI put a spoke in their wheel by indicating that Indian companies can invest only amounts equal to their net worth abroad through the automatic route – as against 400 percent currently. If this norm had in place 10 years ago, the Tatas could probably could not have bought Corus or Jaguar Land Rover, the Birlas would have found it tough to buy Novelis and Bharti Airtel may not have bought Zain. All these deals would have had to pass through government clearances.

The RBI press release said that “this reduced limit would also apply to remittances made under the ODI (overseas direct investment) scheme by Indian companies for setting up unincorporated entities outside India in the energy and natural resources sectors. This reduction in limit, however, would not apply to ODI by Navratna PSUs, ONGC Videsh Ltd and Oil India in overseas unincorporated entities and incorporated entities, in the oil sector.”

In short, Indian companies that want to invest abroad—especially the smaller ones—cannot do so without bureaucratic intervention, while the public sector oil companies, already enfeebled by having to dole out subsidies, will be allowed to do what they can’t.

In a related move, the RBI also de-liberalised the allowances for Indian residents who want to make remittances abroad. The remittance limit under the “Liberalised Remittance Scheme (LRS Scheme) has been slashed from US$ 200,000 to US$ 75,000 per financial year”. In recent years, many Indians have used the LRS route to invest in property and other assets abroad, but this will now be down to a trickle.

In fact, the RBI has gone one step further and simply banned the purchase of property abroad. The press release said: “While current restrictions on the use of LRS for prohibited transactions, such as margin trading and lottery would continue, use of LRS for acquisition of immovable property outside India directly or indirectly will, henceforth, not be allowed.”

These measures may curb short-term outflows, but they send a chilling message of serious crisis. The limited freedom that Indians—ordinary citizens and businesses—enjoyed on capital account convertibility is now being rolled back bit by bit. They can’t buy gold without paying more for it; they can’t buy property; and they can’t invest abroad easily to expand business opportunities. India Inc will not be happy.

To be sure, the RBI has also said that “the present set of measures is aimed at moderating outflows. However, any genuine requirement beyond these limits will continue to be considered by RBI under the approval route”. But when capital controls are being slapped back, no one will expect the RBI to be liberal with its clearances.

It is not clear what impact this will have on foreign sentiment and capital inflows. The big questions are:

#1: Will foreign investors now stop investing because they may worry about whether more capital controls will be introduced to limit outflows?

#2: Will NRIs now worry about their ability to move in and out of Indian bank deposits at will?

#3: Will more of the Indian demand for gold, already subject to high import duties, now shift to unofficial and illegal channels?

#4: Will Indian business now clam up further? If they don’t want to invest in India, and can’t invest abroad, will they now just sit on their hands and wait for the crisis to blow over?

#5: Will some exporters now begin underinvoicing exports in order to keep more of their dollars abroad, out of the clutches of the Indian state.

Make no mistake, the message coming out of North Block and Mint Street is a clear downer for India Inc. In terms of the sense of crisis, we are back to pre-1991 days.

[nawabs]

Govt bans gold coins, medallions imports to curb deficit

http://www.livemint.com/Page/Id/2.0.2950123607

Gold coins and bars constituted about 36% of total demand in 2012

India has banned imports of gold coins and medallions as part of steps to curb its current account deficit, Arvind Mayaram, economic affairs secretary, said on Wednesday, after total gold imports picked up again in July.

Gold coins and bars constituted about 36% of total demand in 2012. Total gold imports rose to 47.6 tonnes in July from around 31 tonnes in June.

The federal government will take more steps to stabilise the rupee as and when required, he said, adding the current measures were not permanent in nature.

[Abhijeet]

Good interview with Jim Rogers.

http://www.livemint.com/Companies/pqNgQ ... India.html

Nails the usual suspects: politicians looking for scapegoats rather than fixing the fundamentals, poor education system, one of the worst places in the world in which to start a business etc.

[Prem]

India Sparkles with Promise of Diamonds, Study Finds
http://www.livescience.com/38864-diamon ... india.html

India may contain a natural trove of diamonds previously overlooked by prospectors, new research shows.Canada, Russia and southern Africa currently dominate the world diamond market. But, in recent years, geologists have debated whether southeast India could produce large quantities of diamonds as well. Now, research from a group of geologists at the National Geophysical Research Institute in Hyderabad, India, suggests that southeastern regions of the country do, in fact, contain the right ingredients for these gems to form in abundance. A report of their findings appeared earlier this month in the journal Lithosphere.Previous studies based on seismic data have suggested that southeastern India rests atop a thin portion of the lithosphere. But Das Sharma and his team reanalyzed related data using different techniques, and discovered a signal much deeper indicating the lithosphere reaches down far enough to facilitate diamond growth.The team also examined existing analyses of the chemical composition of nearby rocks on the surface to further confirm that the temperature and pressure conditions would have been extreme enough to support diamond growth.Indian diamond mining?

Ultimately, the researchers identified a region wider than 120,000 square miles (200,000 square kilometers) across southeastern India that could potentially contain diamond-bearing rocks. These findings could lead to increased diamond mining in the country, but this will depend on the interests of mining companies, Das Sharma said."Diamond mining could become viable once an appropriate mining strategy is worked out," Das Sharma said. "This needs concerted efforts in field detection of generally obscured kimberlites and lamproites in a region." [Infographic: Tallest Mountain to Deepest Ocean Trench]While the team's techniques are relatively quick and cheap, geologists elsewhere have developed other efficient methods for diamond prospecting as well. For example, some use electromagnetic tools that measure the conductivity of the mantle in search of carbon-rich areas (because carbon is highly conductive, or allows for the easy flow of electrons), while others use seismic imaging techniques that illustrate physical boundaries within the mantle.Still, this new study demonstrates how to use effective and relatively cheap techniques that could help smooth the way for future diamond exploration programs around the world, according to Alan Jones, a geologist at the Dublin Institute for Advanced Studies in Ireland who was not involved in the study.
"This has really cleared up this Indian lithosphere issue," Jones told LiveScience. "In terms of global impact, I would say the paper is on part of the cutting edge along with other people's work."The team members plan to share their results with the Indian government, and to continue honing their research methods to develop even more efficient diamond-hunting techniques.

[Austin]

Deleted Wrong Thread

[Christopher Sidor]

India Fighting Worst Crisis Since ’91 Seeks to Buoy Rupee --- Bloomberg Dated 15-Aug-2013

Today in office I heard a remark by a colleague, "We have got independence but we did not end slavery". And to this insult we can add another injury. The current Indian government can be accused of racism. The reason is the following
1) The limit of amount that Indians can remit overseas has been reduced to USD 75K from USD 200K. Oh by the way there is no such restriction on foreigners remitting money.
2) RBI has tightened liquidity and restricted money supply. As if excess supply of money was the cause why INR fell by over 50% from its high since 2008.
3) Foreigners can still buy Indian assets from other foreigners and still not pay a Tax in India. While the same is not applicable for Indians.

All the steps that GoI and RBI have taken like
1) Restricting Derivatives
2) Imposing higher duties on precious metals
3) Restricting liquidity
is means to hide and not resolve the problem. As if closing down trading in derivatives in INR is going to stem the rupee slide. The INR Derivatives was an indicator and not the cause of the problem.
Indians buying gold or gold itself is not the problem. It is an indication on the value of our currency. We do not see citizens of other north Atlantic countries hoarding gold. Why is it that we see our citizens hoarding gold?
Our finance minister can go on TV Sets and appeal for not buying gold. But why does he not take the same appeal to this colleagues in GoI and other provinces and ask them to decrease their expenditure. Is it because UPA has been founded on cash transfers?
We have sold the idea that foreigners need not pay a Tax. And when we sought to correct the impression it was derided as regressive and all sorts of other unspeakable adjectives.

We are not targeting the root cause of the issue over here. We are targeting the symptoms or trying to hide symptoms. From the article quoted above

These measures are not really helpful as they are going to do damages to the local economy. The real danger is that foreigners start to withdraw more capital and you start a vicious cycle.

And they will withdraw once they see that GoI is prescribing a wrong prescription for what ails its currency and its economy.

[subhamoy.das]

somebody here the other day was say "no need to paint a gloom and doom" about going back to an era where VCR was a luxury. Capital control is the first step towards that path. Wait and see as more such steps will follow. These steps will further worsen the investment confidence and more money will flow out and rupee will tank more. The real steps were taken between 1990 and 2004. And these steps were negeted in last 10 years. I feel that UPA is even worse than the Brits and the Mughals!

[svinayak]

s The real steps were taken between 1990 and 2004.

Who said this.

I feel that UPA is even worse than the Brits and the Mughals!

How it is so?

[Suraj]

I've a different take on the capital restriction plans. If you look at the scope of the cross-border capital transfer limits previously, it's fairly apparent that GoI set itself up for this. Interest rates have remained quite high since the late 2000s. However, there were very liberal limits when it came to external borrowing. While this restricts small and medium industries from borrowing money cheaply, large businesses could easily circumvent the high cost of money domestically by using ECBs or FCCBs to borrow externally.

This worked quite nicely when the Rupee was stable or appreciating - borrow cheaply abroad, buy dollars back even more cheaply when it came time to pay. Unforunately, the exchanged rate then zigged instead of zagging, just as external borrowing costs rose. For those with longer term borrowings, they might have come out on top by borrowing in Rupees in the first place, instead of using external borrowings.

Until now, explicitly targeting a BoP surplus, much less a current account surplus, has simply not been GoI's priority. Yes, I give them credit for enabling exports to almost quintuple in a decade, but they let imports rise even more without controls in place to manage BoP. Rather than lowering the cost of money domestically, they instead - IMHO - provided too much freedom to borrow abroad, raising the exchange rate risk profile and the risk of a run on the currency, which happened. As a consequence, they now resort to short time / ineffective capital control measures like gold import restrictions.

What happened is not a surprise. Several folks - across the board on the political spectrum here - warned about this years ago. Vina, for example, ranted about how GoI's 'spend during bountiful times' mindset during the boom years will set them up for massive pain later.

I believe the Rupee will find it's way back up, as will general economic confidence rise quickly, when there's a proper environment in place. This GoI clearly doesn't have it in them anymore. They blew the biggest mandate in quarter of a century, and now lack even the common sense to avoid resorting to measures that gain them nothing more than bad PR and public anger while not being particularly effective. I hope whoever replaces this government realizes that both promoting exports and a current account surplus matter.

[shyamd]

Stocks are at an inflection point now - will either collapse or survive and strengthen from here on.

[member_20317]

Now that would be another A-sad-fall.

But bhaijaan, that is why we have both buyers and sellers in the market place for every transacted trade. Which is what makes the market. Everything else is merely a derivative, bound by the spot futures parity.

[Christopher Sidor]

We have a CAD because we have not curtailed our expenditure in line with our revenue. Ideally we should be spending only what we earn. So what we earn in the previous financial year should be spent in the current financial year. In reality this will not work. Here are some of the steps which we should have done but have not carried out.

• Do no scrap NREGA and other schemes like Mid-day Meal. But make them more effective. Currently there is a lot of leakage in NREGA and the projects carried out under it is also of dubious quality. Along with NREGA make the ITIs impart technical education to the workers so that their skills can be enhanced. For example the workers will only be paid for the work done plus skill enhancement, which will be verified by carrying out exams and tests. Also put a ceiling on the expenditure for these schemes.
• Solve the mess that our State governments and local municipalities are in. So that they do not come running to Delhi for their economic mismanagement. GoI should allow certain state governments to go bankrupt. This would be a wake up call for all the provincial leaders. And sometimes it is better to start with a clean slate.
• Currently banks have to maintain in excess of 20% SLR. SLR is nothing but money given to Government and its enterprise for their day-to-day working. This should be curtailed. This would lead to the cost of funding to drop for private sector and let the PSU and GoI compete with the private sector on solvency and liquidity. This would also go a long way in making Indian companies turn towards Rupees loans instead of going to dollar/euro loans or Dollar-euro bonds/ADRs, etc. And especially ban the yuan denominated loans.
• Convert all the National Highways to toll-roads and give their upkeep to the lowest bidder. If GoI wants to spend money on building roads and bridges it should do that only for defense and security.
• We are planning to spend massively on the proposed Delhi-Chandigarh-Amritsar or Ahmedabad-Bombay-Pune or Chennai-Bangalore-Mysore high speed rail. It would be better to spend the same money to augment these existing routes so that we can run triple stacked container trains on these routes. We would need not put in new lines, but expand the freight carrying capacity of these existing routes to get the biggest bang of the buck.
• Make Foreigners, especially companies like vodafone, pay a tax which is at par to what Indian entities pay when they transact in any of the Indian assets. Otherwise they are free to leave the potentially the biggest market in the world permanently.

Apart from these certain policies of GoI have to be altered irrevocably. Like
We need to preserve the value of our currency. We need not have a strong currency, but we have to preserve its value. We should not have a generation of people who have only seen a depreciating rupee till date. This creates incentive for people to invest in gold and real estate. Gold so as to have some unaccounted wealth. Indians invest so heavily in real Estate so that their principal appreciates and also it gives a monthly return. There is no financial instrument available to Indians which appreciates in value and also gives a decent monthly return.

Further we import 80% of our Oil & Gas which will go upto 94% by the end of this decade if nothing is done. This does not mean that we go in for fracking or Gas hydrates, but what we need is to reduce the role that Hydrocarbons play in our energy mix. This means increasing nuclear energy, solar based solutions, Tidal power, Offshore Wind power etc. We have massive capacity which can be tapped in the Bay of Bengal alone in Wind and Tidal power. This also means doing away with the duty cut which is available to diesel cars below 4 meters and having a displacement less than 1400 cc.

[Patni]

Indian political class will take prudent and sensible decisions, to prop up economy, only when they have no other choice!. Things will have to get even worse before any sensible decisions (non vote buying) can be expected from current GoI.

[Dipanker]

As Indian rupee hits record low, foreign investors baulk

[Austin]

Indian political class will take prudent and sensible decisions, to prop up economy, only when they have no other choice!. Things will have to get even worse before any sensible decisions (non vote buying) can be expected from current GoI.

Political call in India will have to be prudent when it comes to Economy and well as Social Obligations within the confines of coalition politics that we seem to have entered and stabilised.

Else you might have some good economics of Vajpayee Era but in the end it does not bring the party to power , so good economics and right politics needs to be balanced. The current state seems to be bad economics but politics of appeasement and high social spending which also needs to be avoided.

[vera_k]

Stocks are at an inflection point now - will either collapse or survive and strengthen from here on.

Seems the calculation is that the rupee has to be defended. Therefore stocks will go lower, while this is the policy.

[Patni]

Indian political class will take prudent and sensible decisions, to prop up economy, only when they have no other choice!. Things will have to get even worse before any sensible decisions (non vote buying) can be expected from current GoI.

Political call in India will have to be prudent when it comes to Economy and well as Social Obligations within the confines of coalition politics that we seem to have entered and stabilised.

Else you might have some good economics of Vajpayee Era but in the end it does not bring the party to power , so good economics and right politics needs to be balanced. The current state seems to be bad economics but politics of appeasement and high social spending which also needs to be avoided.

The Social Obligations of the sort currently implemented makes for only feeding a man rather then teaching him to fish for himself! Already there is nothing left to keep up with huge non-productive expenditure on "social (Populist vote buying) Obligations". Socialism is fine as long as its affordable by the society at large. Spending beyond means will only hurl us down faster. My point was only that current GoI is not capable of being financially prudent and if anything will go overboard on more wasteful social spending.

[VKumar]

A better economy comes from a confident, optimistic business and people. Right now, both segments are hunkering down and hoping the cyclone will blow away.

First of all business sentiments have to be improved. RBI and Government must make business environment positive by creating a business friendly environment and removing anti-business rules.
For example, get the infrastructure build-up moving fast, and get the labour reforms through. Anyway, if CON is likely to lose then by doing these it has nothing to lose!

Secondly, do not tolerate scams any longer - whether by politcos or businessmen - NSEL for example. By doing this the middle class may 'migrate' back to the Country, as they have left in all but their physical presence. This will also improve their confidence and perhaps they will reduce investment in gold.

Thirdly, get rid of the mountains of grain stocks, rotting away, and either export them ( i.e. export the exportable quality, even if it is fresh), which will earn foreign exchange and distribute the rest of the excess to the poor at the lowest cost, which will save the cost of carrying the stocks and free up the money that is blocked.

Fourthly, show some toughness against TSP & China. At least stand up verbally. Get rid of ministers who advocate leniency at all times.

Lets start with these.

[Austin]

The Social Obligations of the sort currently implemented makes for only feeding a man rather then teaching him to fish for himself! Already there is nothing left to keep up with huge non-productive expenditure on "social (Populist vote buying) Obligations". Socialism is fine as long as its affordable by the society at large. Spending beyond means will only hurl us down faster. My point was only that current GoI is not capable of being financially prudent and if anything will go overboard on more wasteful social spending.

The problem today is the man is so sick that he cannot stand up and fish , so the first thing you do is to make the man well and then you can teach him to fish.

Providing Food , Medical Healthcare, Education and decent basic infrastructure is not a luxury for this country but a necessity which means you need to subsidise that part ......even rich country provide huge subsidy and they are well past being sick or teaching them to fish.

Even a moderate growth rate with focus in improving governance , reducing corruption and controlling price is what most people in this country would appreciate far more than beyond the mad rush of showing 8-9 % growth and assuming this will solve our problem. That was the same logic they applied in 1991 and even in 2013 we have far more problems in our hand then what we have solved.

Most people in this country wouldn't have a clue as to the growth rate we are achieving or the inflation we are facing but most would know that price have risen , things are far more expensive then they were before , infrastructure is bad and corruption has reached a tipping point ......the common thing that we see and face every day in this country impacts us most then some statistics that are confined to few people who are hell bent on throwing that time and again to show we are doing well while the common man is dying.

[Patni]

The problem today is the man is so sick that he cannot stand up and fish , so the first thing you do is to make the man well and then you can teach him to fish.

Providing Food , Medical Healthcare, Education and decent basic infrastructure is not a luxury for this country but a necessity which means you need to subsidise that part ......even rich country provide huge subsidy and they are well past being sick or teaching them to fish.

Even a moderate growth rate with focus in improving governance , reducing corruption and controlling price is what most people in this country would appreciate far more than beyond the mad rush of showing 8-9 % growth and assuming this will solve our problem. That was the same logic they applied in 1991 and even in 2013 we have far more problems in our hand then what we have solved.

Most people in this country wouldn't have a clue as to the growth rate we are achieving or the inflation we are facing but most would know that price have risen , things are far more expensive then they were before , infrastructure is bad and corruption has reached a tipping point ......the common thing that we see and face every day in this country impacts us most then some statistics that are confined to few people who are hell bent on throwing that time and again to show we are doing well while the common man is dying.

No question about India needing huge improvements in governance and reduction in corruption etc. The run away inflation that affects lot more adversely & disproportionately to bottom 70% of our population. IMHO its lot better for government of the day to be fiscally prudent in not spending more then what the revenue generated can support. I am all for maximising revenue and that is best achieved by allowing best users of available resources to generate wealth and in turn give priories on social spending at same time efficiently implement social reform without differentiating on caste/creed/religion. IMHO, A large percentage of average Indian no matter how poor, would prefer to support self as best as one can, rather then be hooked on mai-baap sarkar doles. The role of any government should not be in equatable distribution of hardship all around and kill what ever wealth generating engines private sector enterprises manage to provide. I cant believe people cant see that, its lot better not to overload nascent growth engine, to a point where it stalls and dies. Allow it to slowly work up enough momentum and gather speed and get things moving!

[James B]

There are rumours in the twitter world that certain government officials have been spotted with IMF officials. My hunch is, it could be true.

[Patni]

Economic history recurs because we don't learn from it: Subbarao

Amid a debate on whether India's current economic crisis is a repeat of 1991 balance of payments (BoP) woes, RBI Governor D Subbrao today said economic history repeats itself if lessons are not learnt.

"...at least in matters of economics and finance, history repeats itself, not because it is an inherent trait of history, but because we don’t learn from history and let the repeat occur," Subbarao said.

The RBI governor was speaking at a function in the Prime Minister's residence on the occasion of the release of the fourth volume of the RBI history which covers the period of 1981 to 1997, which included the BoP crisis as well.

Releasing the volume, Prime Minister Manmohan Singh hoped that RBI governor-designate Raghuram Rajan would steer the country of the present challenging times.

Subbarao said the challenge for Rajan is to make RBI a knowledge institution.

"How you will use your formidable intellect, scholarship and global experience to shape the Reserve Bank as a knowledge institution that will set standards for how an emerging economy central bank should manage macroeconomic policy in a globalising world."."

As if replying to Finance Minister P Chidambaram's statement that the central banks' mandate is no longer price stability alone, Subbarao said the central bank is committed to controlling the rate of price rise because it cares for economic expansion.

"The Reserve Bank was committed to inflation control, not because it did not care for growth but because it did care for growth."

Chidambram had said in the Rajya Sabha on Wednesday that the RBI's mandate is price stability but it has to be seen in the larger mandate of economic growth and employment generation.

"My government believes that while price stability is indeed important, it has to be in the larger context of growth and employment generation. Let Parliament takes a stand on it, so that the message will go to the central bank," Chidambaram had said.

The volume envelopes the tenures of six RBI governors - part of I.G. Patel’s tenure to begin with, and covering Manmohan Singh, A Ghosh, R N Malhotra, S Venkitaramanan and ending with the tenure of C Rangarajan.

[shyamd]

Seems the calculation is that the rupee has to be defended. Therefore stocks will go lower, while this is the policy.

Its like putting a plaster when you have internal bleeding. Govt moves are temporary - its an illusion to show they have control. They can't stop what will happen. My team say that likelihood is stocks will go lower and rupee as well.

[vishvak]

Is this downturn in any little way related to visits of dignitaries from amrikhan lands viz Kerry and another one. If the government knew that the stock market is going to crash then what were government plans for such unsuccessful visits or not letting people know about underhand deals that affect general economic situation.

Looks like govt has had no plans for when FIIs withdraw monies away. Now what is the probability that babudom can and will find ways to purchase essential defense supplies when borders are heating up.

[wig]

Islamic banking gets RBI approval

KOCHI: The Kerala government has got the go-ahead from the Reserve Bank of India ( RBI) to launch a financial institution following the principles of Islamic finance.

Cheraman Financial Services Limited (CFSL) will be floated by Kerala State Industrial Development Corporation to function as a non-banking finance company (NBFC).

A formal announcement on CFSL, the latest incarnation of Al Baraka Financial Services, is expected on Saturday. Counting on the state's traditional Gulf links, the previous government had hoped to raise Rs 40,000 crore.

CFSL will have a paid-up capital of about Rs 100 crore but intends to raise about Rs 250 crore as alternative investment fund.

The Shariah-compliant institution will desist from charging interest on loans or give interests on deposits.

It will target sectors like infrastructure, services and manufacturing sectors and keep off taboo areas including liquor, tobacco and gambling or speculation.

Financing start-up projects is one of its pilot programmes. There are also plans to set up a commercial complex in Kannur and operate seaplane services.

http://timesofindia.indiatimes.com/city ... 873837.cms

[Christopher Sidor]

Economic history recurs because we don't learn from it: Subbarao

Amid a debate on whether India's current economic crisis is a repeat of 1991 balance of payments (BoP) woes, RBI Governor D Subbrao today said economic history repeats itself if lessons are not learnt.

"...at least in matters of economics and finance, history repeats itself, not because it is an inherent trait of history, but because we don’t learn from history and let the repeat occur," Subbarao said.
.....
.....

How true. We truly have not learnt any true lessons of 1990. What we have learnt and implemented after 1990 is to keep Foreign Reserves capable of sustaining 6 months of imports. We have not carried out structural shifts which are necessary to prevent a recurrence of 1990. And we are staring at one right now. Just as we came out of 1990 by selling our family silver, we are again pawning our family silver to come out of the mess. Right now they have raised the FDI in various sectors but 10 years down the line, when we are faced with another BoP crisis what will we pawn then? Our Sovereignty?

[Patni]

Reserve Bank of India should revisit monetary policy measures: Prime Minister

I would venture to think that the time has come when we should revisit some of those areas - the possibilities and limitations of monetary policy in a globalised economy, in a fiscally constrained economy, stated Prime Minister Manmohan Singh

Prime Minister Manmohan Singh on Saturday said there is a need for fresh thinking on economic policy-making and the Reserve Bank of India (RBI) should revisit its monetary policy keeping in mind the fiscal constraints facing the globalised economy.

"I would venture to think that the time has come when we should revisit some of those areas - the possibilities and limitations of monetary policy in a globalised economy, in a fiscally constrained economy," the prime minister said.

"Macro-economic policy-making, targets and instruments, I think, is another area, where I feel fresh thinking is called for," Singh said after releasing "Reserve Bank of India's History Volume IV" at a function organised at his official Race Course Road residence here.

The prime minister expressed hope that Raghuram Rajan, who is scheduled to take charge as RBI Governor Sep 5, will "attempt to revisit some of these difficult areas."

The book has been written under the guidance of an advisory committee chaired by former RBI governor Bimal Jalan. The members of the committee were Subir Gokarn and Rakesh Mohan, both former deputy governors of RBI, A Vasudevan, former executive director of RBI, Amitava Bose of Indian Institute of Management, Kolkata and Dilip Nachane of IGIDR, Mumbai.

"Reserve Bank has served our country with great distinction. But as I ventured to think, the best is yet to come," the prime minister said.

I think PM is hinting for more pliant RBI so congress can go ahead with its populist agenda of vote buying.

[nawabs]

Not just in RBI, across sectors a reversal of reform

http://www.indianexpress.com/news/not-j ... /1156439/0

Finance Minister P Chidambaram's attempts to talk up the rupee today after it slid to a record low that forced the benchmark stock market indices down by about 4 per cent may not be enough to assuage investors' fears.

For, their confidence has been undermined as much by the Reserve Bank of India's panic late on Wednesday to clamp down on how much Indian nationals and domestic companies can invest abroad as by the long list of administrative clampdown and policy inaction across sectors in this government.

A recent Crisil Research report shows that in January 2008, investment-linked sectors such as materials, industrials, energy, utilities and telecom dominated the CNX Nifty with a weightage of 66 per cent. As these sectors wobbled, that cumulative weightage dipped to 31 per cent by July 2013.

Comparable to the impact of the RBI step is that of pooling of coal price. Instead of letting markets set prices of domestic and imported coal, the Ministry of Coal has tried to develop a pan-national price-pooling mechanism which has been panned by the markets.

Public sector Coal India, mandated to do the import and selling of coal to power plants, has lost a market cap of Rs 56,878 crore (since January 1, 2013) while the largest buyer, another public sector NTPC Ltd, too, has lost Rs 10,224 crore in the same period.

Thare's a parallel to this in the power sector. The latest set of standard bidding documents for award of new generation power projects under the Case II route (where land and fuel source are prespecified) stipulates the appointment of an independent engineer by state electricity boards (or the utility buying power from the project).

This is tantamount to creating an independent authority not envisaged under the Electricity Act, 2003. Private project developers and lenders have termed the plan intrusive and unworkable. But the proposed norms, floated by the Power Ministry in consultation with the Planning Commission, have found their way into the final version of the bidding documents.

Result: the entire process of unbundling of state electricity boards initiated in the early part of the last decade is now coming unstuck.

Companies can still set up a power plant and run it but will have to hand it back to the distribution utility that had invited bids for the project after a period. So distribution companies will become power producers in another two decades — a throwback to the power scenario of the eighties.

In the highways sector, too, it is back to the basics with the government signaling a shift from the build-operate-transfer model to the old engineering, procurement and construction (EPC) route since the beginning of this year.

The risk component of the projects is now entirely back with the government. Private companies will merely build a project and let the government run the maintenance. Similarly a bidder can sell his entire equity in the project at any stage if his finances become tight creating an incentive scenario for them to call in sick.

As a Crisil note points out, over the next 12-18 months, most road projects will be awarded through the EPC route boosting its share in total investments to about 40 per cent in the next five years from 28 per cent in the past five years.

In the fertiliser sector, the government had claimed that the adoption of nutrient-based subsidy regime from April 2010 for decontrolled fertiliser was one of the biggest reform measures as it did away with setting of prices for the sector. In June this year, however, the department of chemicals and fertilisers brought back price control quietly through an office memorandum.

No wonder, as many as 22 out of 27 companies in the investment-linked sectors (among 2008 Nifty constituents) have displayed negative returns in the same period.

The Civil Aviation ministry, too, is in the process of making operational an economic cell to monitor domestic airlines' pricing mechanism. The cell, according to reports, would analyse data on tickets sold by airlines under different price buckets and would refer cases to the Competition Commission of India in case of any "discrepancies".

[krisna]

Sonianomics is to blame for rupee, Sensex crashes

Everybody is keen to mention the proximate causes for the collapse of confidence in the Indian economy – the panic measures announced by Manmohan Singh, P Chidambaram and RBI Governor D Subbarao, among them – but not the real reason for it all: Sonianomics and the resultant Rahul-flation (inflation fuelled by mindless government spending that boost inflation).

Yesterday’s twin crashes of the rupee and the markets were the result of the market’s final realisation that Sonianomics will dominate economic thinking over the next nine months before the next government is born. No sensible investor will wait till then to figure out whether we are going to get a bonny baby or Quasimodo after this incubation of political suspense. Foreign investors can head for the exits, but Indians can show their displeasure only by buying gold. That’s why gold breached Rs 31,000 per 10 gm, when it is ruling weak all over the world.

Let’s be clear about what Sonianomics is all about and what it is not. Sonianomics is not about the poor. It is about the non-poor and the not-so-poor. It is not about inclusiveness, as I will prove later. It is not even anti-reform. It is merely about keeping the family in power and buying sufficient votes by using taxpayers resources for it.

The rupee is heading south because everyone now knows this. What is good for Sonia is bad for the economy.

economic experts can do a better jon than me on this.

At last some one is right on the ball ---> sonia is the reason for India going off target.
termiet queen needs to be stopped.

[habal]

Keeping India economically cripple until Afghanistan withdrawal 'could' be a plan. Too much dependence on FII hot money, a route that was kept open for domestic black money to be routed back even when the economy was left too vulnerable. And when you have tied the whole economy to FDI and FII, there is lack of interest to prosecute FDI projects as well and resultant FII disinterest has created this calamity. This is not just a downturn, this is blowback.

[Pratyush]

X posting from the Perspectives thread......

India's PM says no way is India going back to 1991:

http://finance.yahoo.com/news/india-pm- ... 14056.html

Well 1991 was preceded by the socialist 70s and the hopeless 80s. We have a long way to go. But will get there, as long as the UPA remains in place.

[subhamoy.das]

This article is right on target. The family loves poverty but hates the poor. I hope the poor folks have realized this now. They will not receive jobs to liberate them from poverty but doles to make sure they remain a perpetual poverty. Poverty has been established as the national faith or religion. If u are poor you are SIKULAR and good. If u show even some semblence of doing good u are COMMUNAL and bad. And I am sure her being a Italian has a big part of what she is doing. So in a nutshell we have been governed by Italy for last 10 years. And she is using a secret book written by her Indian mother in law about how to run a country by just delivering POVERTY. The style of governance and the result of it is making it very clear. In 2014, If the federal front comes to power riding on the support of NDA - they are all anti-ITALY kept at bay for now by CBI - the family will be torn apart and will leave the country to the safe heavens of ITALY just like all dictators around the world flees from the approaching public. The only step that needs to be taken to get India back to 8% GDP growth is to get rid of this ITALIAN family rule and NAMO has given the right call to the citizens.

[Cosmo_R]

Blowback, conspiracies, Sonianomics.

None of the above. We are buying more than we earn WRT other countries. We have financed that through debt (NRI deposits, FII, corporate borrowings, and to a negligible extent, FDI).

We import stuff (coal, aluminum, energy) that we could supply domestically. Tribals, environmentalists and 1000 screaming votebankers get in the way.

For the last 10 years this stupid government has bought into the delusion that because Jim O'Neill of Goldman talked of the rise of the BRICs, it was foreordained. No fuss no muss. It was a done deal, inevitable.

I have listened to countless GoI bureaucrats, ministers who have come to the US. Clueless and uncaring. The audience never bought it--it was a third class vaudeville act. The ministers walked off with the impression that we were stunned by their presence/story/logic. We were stunned: by the facile improvisations and delusional statements.

Mickey said recently that this is not 1991. He's right. It's 2013. And to those who ask why India does not use its FX reserves, here's a thought: they equal 7 months of imports and dropping.

The INR is headed towards 100/USD and the Sensex, who knows? Inflation is going to spike, rates are going to have to rise and that means? crossover into other assets (gold).

BTW, Chidu is making things worse by facile statements that show he does not get it.

They are already in 'informal talks' with the IMF to 'exchange ideas'.

[vera_k]

My team say that likelihood is stocks will go lower and rupee as well.

Some level of additional depreciation in the rupee is baked in, since $s will have to be bought to build the forex reserves just to keep up with natural growth in imports. This is assuming a constant 6 months of import cover is desired.

Stocks in rupee terms depend on where balance is found in this equation. Some good things are happening, like the movement towards unsubsidized fuel.