Indian Economy - News & Discussion Oct 12 2013

Prem · Post by **Prem** » 13 Jan 2015 09:42

http://hindi.newsroompost.com/8985/vibr ... 0-billion/
वाइब्रेंट गुजरात : 250 खरब रुपये निवेश के वादे

250 Billion $ MOU at Vibrant Gujarat.
( More Like The GDP of Saarc-India)

Suraj · Post by **Suraj** » 13 Jan 2015 10:23

hanumadu wrote:If you look at the graph in Suraj's post, most of the debt is incurred around ~~2009 - 2010~~ 2009 - 2013, when the UPA is doing its best to screw the economy and the growth rate has fallen significantly. How did the corporates not notice it and still went on a spending binge?

Companies had no reason to expect a slowdown. Remember, UPA 2 was elected with the strongest single party mandate since 1991. The slowdown and its greatest effects took hold around 2011. A lot of the borrowings were also ECBs. When the Rupee fell 20%, that also hurt these borrowers. Slowdown in implementation, for a variety of reasons, slows debt servicing. Slow economic growth lowers returns on the investment, causing companies to struggle to repay their loans, and rising interest rates means they cannot roll over the loans into lower term ones. In fact only recently were RBI rules framed enabling companies to easily roll over loans into lower term ones. I posted an article about it about a month ago.

In the meantime, bond market continues to price in a rate cut in the near future:
India’s 10-Year Bonds Rally as Inflation Data Boosts Rate Cut Bets

Indian bonds rallied, pushing the 10-year yield to the lowest since July 2013, on optimism inflation holding below the central bank’s target for a third straight month will encourage it to cut interest rates.

The consumer-price index rose 5 percent in December from a year earlier, official data showed after the markets closed yesterday. That was less than the 5.35 percent gain forecast in a Bloomberg News survey and compared with November’s 4.38 percent, which was the least since the gauge was created in 2012. Reserve Bank of India Governor Raghuram Rajan has kept the key repurchase rate steady at 8 percent after three increases from September 2013 to January 2014. The rupee rose today.

“The latest inflation data and benign outlook strengthens the case for monetary easing,” Citigroup Inc. economists Rohini Malkani and Anurag Jha wrote in a note dated yesterday. “We expect CPI to undershoot RBI’s 6 percent target through 2015.”

The yield on the sovereign notes due July 2024 declined five basis points, or 0.05 percentage point, to 7.76 percent as of 10:57 a.m. in Mumbai, prices from the RBI’s trading system show. That’s the lowest level for the benchmark 10-year debt since July 2013. The rupee gained 0.1 percent to 62.1050 a dollar, prices from local banks compiled by Bloomberg show.

Rajan, who left rates unchanged for a fifth straight meeting on Dec. 2, said that day a change in the monetary policy stance is likely in early 2015 should improvements in inflation and fiscal health continue. Citi expects the first repo rate cut this quarter and a cumulative 100-basis point reduction till March 2016 to 7 percent.

Oil Prices

India, which imports about 80 percent of its oil, has seen its inflation outlook improve as a 48 percent slump in Brent crude prices last year, the most since 2008, cut costs.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, declined six basis points to 7.60 percent, the lowest level since July 2013, according to data compiled by Bloomberg.

Three-month offshore non-deliverable rupee forwards rose 0.2 percent to 63.03 a dollar, data compiled by Bloomberg show. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

Theo_Fidel · Post by **Theo_Fidel** » 13 Jan 2015 19:41

Well we did did have the minor incident of the Global recession in there.

For while it looked like the EU would go bankrupt and USA would be laid low for decades.
-------------------------------------

The real problem is Corporate profitability. Companies have been unable to extract nice margins from their infrastructure investments. In roads the toll commitments they made turned out wildly optimistic WRT traffic projections. In power they have had trouble getting paid and getting coal. Importing coal is slowly bankrupting several companies esp. after coal prices spiked and rupee declined. For instance exports of cars from Hyundai Chennai's facility has stagnated at 200,000+- units per year since about 2010, mostly because the infrastructure to export more cars has not been built. You can see what has happened to profitability due to this. The chart below shows RoE declining from the mid 30% to low teens 12%. Along with that capital deployed growth rate has gone from 20% pa to about 10% pa.

Suraj · Post by **Suraj** » 14 Jan 2015 02:52

Arvind Panagariya assumes charge of NITI Aayog vice-chairman

Pro-reform economist Arvind Panagariya on Tuesday took charge as the first vice-chairman of the National Institution for Transforming India (NITI) Aayog, which has replaced the decades-old Planning Commission.

He was briefed about the newly created institution by Aayog CEO Sindhushree Khullar and other senior officials.

The government announced the appointment of vice-chairman, two full-time members, four ex-officio members (Union ministers) and three special invitees for the Aayog on January 5.

Economist Bibek Debroy and former DRDO chief V K Saraswat were appointed full-time members. They are expected to join shortly.

Union ministers Rajnath Singh, Arun Jaitley, Suresh Prabhu and Radha Mohan Singh will be ex-officio members.Their colleagues Nitin Gadkari, Smriti Irani and Thawar Chand Gehlot would be special invitees.

The government had notified the Cabinet resolution on January 7 regarding constitution of the NITI Aayog, approved by the prime minister on January 1. The 62-year-old Panagariya is a professor of Economics at Columbia University.

The earlier Planning Commission had a deputy chairperson at the helm, with the prime minister as its chairperson. The prime minister will be the chairperson of the current body, too.

Panagariya is known for his market-friendly views and is a protege of well-known trade economist Jagdish Bhagwati. Together with his mentor, he contested Nobel laureate Amartya Sen on prioritising wealth distribution over economic growth.

Services tax collection wilts in Dec

Taxes on services, the biggest sector of India's economy, declined by 5.2 per cent in December year-on-year, as a result of which overall indirect tax collections rose only 5.1 per cent in the month. This could aggravate the finance ministry’s concerns over the fiscal deficit.

However, excise duty collection rose 17.2 per cent the same month. It is normally the reverse way, in that excise duties lag and service tax brings major numbers for the kitty.

For the first nine months of the ongoing financial year, indirect tax collections, which encompasses Customs duty, services tax and excise duty, rose 6.7 per cent over a year earlier, to Rs 377,648 crore as compared to Rs 354,049 crore earlier. The year's Budget has targeted 20 per cent growth for indirect tax realisation. With the latest number, 60 per cent of the target has been met, leaving 40 per cent of the targeted Rs 623,244 crore or Rs 245,596 crore to be realised in the final three months (January-March).

In the first eight months of the current financial year, the Centre's cumulative fiscal deficit has already touched close to 99 per cent of the full year's estimate. The biggest setback has been the slowing in service tax collection, pegged to grow by 30 per cent for the financial year. The growth has been only 8.7 per cent in April-December.

Experts said in spite of targeting e-commerce companies, collections weren't being boosted. A national goods and services tax is the way to remove the multi-level taxation the department has to battle with and which, in many instances, leads to muted collection.

“Primarily the issue is the understanding of law by the department. In many cases the laws have changed while taxing services in India, where the department is yet to catch up,” said Ashish Sodani, member, international tax practice, at Nishith Desai Associates.

That December's excise duty collections grew 17.2 per cent indicates the manufacturing sector has gathered steam. Till December, these collections had risen only 1.6 per cent over a year, at Rs 119,719 crore against 117,877 crore in April-December 2013.

Collections from Customs increased from Rs 126,285 crore in April-December 2013 to Rs 138,529 crore during April-December 2014, a rise of 9.7 per cent, enabling 68.6 per cent of the fixed target.

Govt to soon ease exporters' hassles

It is planning a two-pronged strategy for exporters by rolling out procedural simplification and online inter-ministerial consultation. Firstly, exporters can soon file their applications onsite with the Directorate General of Foreign Trade (DGFT).

Second, the government plans to make the office of DGFT as ‘paperless’ as possible. Once this takes effect, the office will issue authorisations to exporters in online format.

The plan is also to integrate all fiscal incentives meant for exporters under one procedure.

The second task force on transaction costs in exports, constituted in April 2013, gave its report in July last year. It made recommendations for simplification of procedures and on electronic data interface (EDI).

Minister for commerce and industry Nirmala Sitharaman had recently stated the government was evolving a strategy in terms of specific operational problems for export or import processes.

ArmenT · Post by **ArmenT** » 14 Jan 2015 12:51

How Does India Become A 'Cashless' Country?

Disclaimer: Author is a friend that I grew up with.

Suraj · Post by **Suraj** » 15 Jan 2015 00:50

ArmenT wrote:How Does India Become A 'Cashless' Country?
Disclaimer: Author is a friend that I grew up with.

I think the author misses out a critical aspect to this - cashless payments will be 'white'. A lot of economy is informal and is cash only. They'd have to be willing to be part of the formal economy (read - taxes) for this to work out in a widespread manner. The technological issues are low hanging fruit that can be easily addressed. Even city or town issued smart cards will work, e.g. the Delhi Metro tag card can be used as a payment card. Pretty standard payment mechanism in places like Tokyo.

Theo_Fidel · Post by **Theo_Fidel** » 15 Jan 2015 02:27

Wasn't that the entire purpose of VAT. If you don't declare you can't get the input costs charged to you back from the taxman. So you end up paying tax anyway.

Well other than for vegetables, maybe the local paalkaran....

Prem · Post by **Prem** » 15 Jan 2015 04:57

India to become fastest-growing economy in PM Narendra Modi government's 4th year: World Bank

http://economictimes.indiatimes.com/new ... 879440.cms

NEW DELHI: India is set to become the fastest-growing big economy in the world in the fourth year of Narendra Modi's government, edging past China. It's set to clock a 7% rise in GDP in 2017 compared with 6.9% for bigger rival China, the World Bank said in its flagship publication, Global Economic Prospects, released on Tuesday. India will recover to 6.4% in the current calendar year itself on the back of higher export growth and bolstered investor confidence with the election of a reform-minded government at the Centre, according to the report. Global growth is expected to rise moderately to 3.0% in 2015 from 2.6% in 2014 and further increase to 3.3% in 2017, the report said, pointing out that there will be significant divergence in trends and that the "oil price collapse will result in winners and losers". India to become fastest-growing economy in PM Narendra Modi government's 4th year: W "In India, export growth has been robust, and investor confidence has been bolstered by election of a reform-minded government. The current account deficit and elevated inflation—both persistent vulnerabilities—have declined considerably. Over the mediumterm, growth is expected to rise steadily to 7% as reforms begin to yield productivity gains. This is expected to benefit other countries in the region which receive remittances from India," the World Bank said in its report.

Suraj · Post by **Suraj** » 15 Jan 2015 05:39

This year's GDP projections are almost a full percentage point above last year:
Economy likely to grow 6.4% in 2015: UN

Suraj · Post by **Suraj** » 15 Jan 2015 08:44

RBI CUTS INTEREST RATES!
RBI cuts repo rates 25bp to 7.75%

The Reserve Bank of India today cut the repo rate by 25 basis points to 7.75% with immediate effect. One basis point is one-hundredth of a percentage point. This is the first repo rate cut since May 2013.

The cash reserve ratio (CRR) has been kept unchanged at 4% of net demand and time liabilities (NDTL) while the reverse repo rate stands adjusted to 6.75%.

The move, which had been widely anticipated by economists, comes after WPI inflation for December came in at 0.11%, marginally higher than the flat inflation logged in Novemeber.

During the month, the rate of retail inflation also increased a little — to 5% from an all-time low of almost 4.4% in November.

However, the number is still well below the Reserve Bank's target of 8% by January.

"Inflation outcomes have fallen significantly below the 8% targeted by January 2015. On current policy settings, inflation is likely to be below 6% by January 2016.These developments have provided headroom for a shift in the monetary policy stance," RBI governor Raghuram Rajan said in a statement.

"Key to further easing are data that confirm continuing disinflationary pressures," he added.

Bond yields fell sharply and the rupee appreciated after the central bank’s decision to cut the repo rate.

Strong vote of confidence in the weakness of inflation on RBI's part, to cut rates out of turn. Bonds and stock will rise sharply, and Rupee will appreciate.

vina · Post by **vina** » 15 Jan 2015 09:02

RAJAN ROCKS

Being a good TamBrahm, very appropriate that the interest rate cut happened on Pongal/Shankaranti. Very auspicious day, and as the Sun goes back north and the new (Tamil Month.....Thai) is born, a very great day to do it.

Perfect timing! (also helped by the weaker retail numbers overnight in the US I am sure).

Suraj · Post by **Suraj** » 15 Jan 2015 09:53

Rajan was way too pessimistic. The rate cut was at least a month overdue. He should have done it during the December policy review meeting itself. He was an activist inflation hawk during the UPA 2 days and did a good job then, but in the last few months he has been too doctrinaire, in my opinion. For someone who resolutely refused to cut rates for 2 years, to do so out of turn is an admission of mea culpa. Good job to the government for finally convincing the RBI head to cut rates, particularly out of turn.

I wouldn't be surprised if he does so again in the next policy review meeting in February. Doing a full 50bps cut now would make him look silly after his December refusal - easier to get away with 25bps now and another 25bps next month. It is worse to cut by 25bps at the policy review and find it's too little and be forced to cut another 25bps out of turn, than to start with a 25bps cut out of turn and make it a full 50bps at the next meeting.

archan · Post by **archan** » 15 Jan 2015 10:04

Is this why the market is better today? my stock investment has almost broken even today after being in red for a while. Part of it is because I am a noob but still..

vina · Post by **vina** » 15 Jan 2015 10:17

Suraj wrote:Rajan was way too pessimistic. The rate cut was at least a month overdue. He should have done it during the December policy review meeting itself. He was an activist inflation hawk during the UPA 2 days and did a good job then, but in the last few months he has been too doctrinaire, in my opinion. For someone who resolutely refused to cut rates for 2 years, to do so out of turn is an admission of mea culpa. Good job to the government for finally convincing the RBI head to cut rates, particularly out of turn.

I wouldn't be surprised if he does so again in the next policy review meeting in February. Doing a full 50bps cut now would make him look silly after his December refusal - easier to get away with 25bps now and another 25bps next month. It is worse to cut by 25bps at the policy review and find it's too little and be forced to cut another 25bps out of turn, than to start with a 25bps cut out of turn and make it a full 50bps at the next meeting.

No way! Rajan was data driven. The recent WPI data and the weakness in the US retail numbers would have convinced him about inflation in India and the sceptre of the Fed rate increase is getting more remote. Fed will hold off on rate increases.

To quote him.

“Key to further easing are data that confirm continuing disinflationary pressures,” Rajan said in the statement. “Also critical would be sustained high quality fiscal consolidation as well as steps to overcome supply constraints and assure availability of key inputs such as power, land, minerals and infrastructure.”

In Inglees, it means, I will drop the rates if the numbers confirm disinflation. I will do my part, BUT you folks in the govt BETTER do your part in fiscal consolidation and REFORMS.. You have a bigger part to do and more levers to pull than I do.

archan · Post by **archan** » 15 Jan 2015 10:30

In Inglees, how does this affect a mango investor and what should they do differently?

Suraj · Post by **Suraj** » 15 Jan 2015 10:51

vina wrote:No way! Rajan was data driven. The recent WPI data and the weakness in the US retail numbers would have convinced him about inflation in India and the sceptre of the Fed rate increase is getting more remote. Fed will hold off on rate increases.

Across two consecutive posts you go from claiming he made the rate cut because of an auspicious religious day, to claiming that he's data driven ?

I have to disagree with you. Rajan dropped the ball here, and tripped up. He carried on his hawkish position way too long, when successive datapoints over several months continued to invalidate his arguments repeatedly. His Waiting for Godot act regarding inflation prevented an earlier industrial recovery.

US retail data - particularly one that many argue is a blip because of retail demand driven by falling oil prices - as a basis for an Indian rate cut is farfetched. If that were the case he should have also hiked rates in June 2014 when high oil prices combined with strong US retail sales were reported. He did not. There's no correlative data between one-month US retail sales and the actions of a central bank on the other side of the planet.

His language is unremarkable. He could have said exactly that in December and easily made sense back then too.

Vamsee · Post by **Vamsee** » 15 Jan 2015 11:11

archan wrote:In Inglees, how does this affect a mango investor and what should they do differently?

In general it is a good news for rate-sensitives but stock market has already priced-in the rate cut

Prem · Post by **Prem** » 15 Jan 2015 11:27

Sensex ji have gained 600 points and Bhyaa Rupyya Chavani + against USD. Overall its a good change from May Day to pay day.

vina · Post by **vina** » 15 Jan 2015 11:30

Vamsee wrote:In general it is a good news for rate-sensitives but stock market has already priced-in the rate cut

Ah.. But the markets were factoring in a rate cut later. So what Rajan is signalling is an earlier and deeper than factored in by market rate cut.

So it is the flip side of "Taller & higher" , it is the SDRE "Earlier and Deeper"

a_bharat · Post by **a_bharat** » 15 Jan 2015 13:21

^^
How is it deeper? 25 basis points is the minimum step.

Patni · Post by **Patni** » 15 Jan 2015 13:33

It is expected to keep softning till it reaches 7% in next 12 months or so. Maybe faster if oil price remain south of 50$ which it most likely will. By year end, ecomomy will have good momentum built up too so overall clear sign of "acche din" are here

amritk · Post by **amritk** » 15 Jan 2015 18:56

Jhujar wrote:http://hindi.newsroompost.com/8985/vibr ... 0-billion/
वाइब्रेंट गुजरात : 250 खरब रुपये निवेश के वादे

250 Billion $ MOU at Vibrant Gujarat.
( More Like The GDP of Saarc-India)

kharab = 10^11, therefore this is closer to $400B.

Vamsee · Post by **Vamsee** » 15 Jan 2015 21:00

December trade deficit shrinks 44 per cent m/m to $9.43 billion

disha · Post by **disha** » 15 Jan 2015 22:34

archan wrote:In Inglees, how does this affect a mango investor and what should they do differently?

As a phata-mango abdul who lives on gutli's (mango seeds) you will not see much difference immediately.

However think from an aam-mango abdul perspective first before we come to investment. For an aam-mango abdul living in say B'gloru or Mumbai or C'nai or Delhi or Gurgaun with a 20 lakh Rs. loan on the aam-flat - your interest will come down by 50,000 Rs. (this is @5k Rs. saving every month).

This is additional money going into the Indian Sukhonomy* - as either savings - which will boost capital spending behind transport infrastructure or education infrastructure or health infrastructure or boost aam-abdul spending behind dal-chawal-roti or kapda and jootein or boost spending in general. The later may lead to a short spike in retail inflation however if the demand is fulfilled the inflation is tame and communal hindu-rate of growth only.

Further with an interest rate cut, capital costs to do "make in India" will ease - for example if a company has 100 crore in debt it will immediately save them 2.5 crore in interest saving! Either it will boost further expansion or more hiring. Which again will case an tame and communal hindu-rate of upward blip in inflation, this is due to increasing demand which will further capital spending which will further cause some wage growth and more hiring which will increase further demand ... you get the idea - if the inflation remains tame - India is set to be in a Sukhonomy* - where the inflation hovers around 5-6% and growth hovers around 9-10% (I will be challenged on the numbers by true BRF gurus - but again I am an aam-abdul seeing it my way - your bottomline exact to the point rational numbers do not matter to me, I am an irrational aam-abdul onlee)

So you should invest in stock market in general - basically buy some bonds/FDs now (since interest rate will go down further if the inflation is tepid - likely so till the end of the year because of low oil prices and better governance) and buy stocks of hard to come by good companies. If you have a home, and can refinance - do that.

If oil prices stays low for say 2 years (my prediction is that it will be in 60-70 range in 2 years - still some 40% low) and if Modi Sarkaar gets to a better power generation (Maun-mohan really screwed India here) and some good monsoons with some bumper crops - do not get surprised if the Indian Sukhonomy* will be at 10% real growth with 5% inflation.

Any good legislation like a smoothened tax regime (Opposition will still find something to scream about! However with elections in UP/Bihar giving a kick to CONgIs in RS and a boost to NDA in RS - their screaming will become a whine) - will be additional layering (I will not be surprised if India's real growth crosses 10%!!!)

So sit back and enjoy the ride of your life!!!

vishvak · Post by **vishvak** » 15 Jan 2015 22:35

Jhujar wrote:Sensex ji have gained 600 points and Bhyaa Rupyya Chavani + against USD. Overall its a good change from May Day to pay day.

Hindu rate of growth? Where are the experts!

disha · Post by **disha** » 15 Jan 2015 22:44

vina wrote:RAJAN ROCKS

Being a good TamBrahm, very appropriate that the interest rate cut happened on Pongal/Shankaranti. Very auspicious day, and as the Sun goes back north and the new (Tamil Month.....Thai) is born, a very great day to do it.

Happy Pongal. However, just to point out - Rajan had to do what he should have done on the Secular Christmas day! Or even earlier ....

And he had to do what he had to do thanks to Modi Sarkar. A US-Visa reject communal chai-wallah is a better economist than an US felicitated oxbridge scholar like Maun Mohan.

Of course what does a clueless Ghee Eating Cretin like me understand about economics?

Prem · Post by **Prem** » 15 Jan 2015 23:16

disha wrote:
vina wrote:RAJAN ROCKS
And he had to do what he had to do thanks to Modi Sarkar. A US-Visa reject communal chai-wallah is a better economist than an US felicitated oxbridge scholar like Maun Mohan.
Of course what does a clueless Ghee Eating Cretin like me understand about economics?

Issko Economist Matt Kaho,Ikk Numberi Sabotager Hai Hindustan Kaa
Abb Economy Chaaai Wale Ki Hai,Formula & Moolla Hai Desh Pyar Kaa

Theo_Fidel · Post by **Theo_Fidel** » 16 Jan 2015 02:33

Suraj wrote:His language is unremarkable. He could have said exactly that in December and easily made sense back then too.

I think this is true all the way back to the 1960's - 1950's and beyond.
The problems in India have little to do with the interest rate.
Lot more to do with the nature of our spending and savings.

Cutting rates has no meaning if all the cash is diverted to yet another loan mela or MREGA or Diesel subsidy or (substitute crazy GOI/State policy here)...

arshyam · Post by **arshyam** » 16 Jan 2015 02:35

^^ Hasn't the diesel subsidy been done away with?

Theo_Fidel · Post by **Theo_Fidel** » 16 Jan 2015 03:11

While we are on the subject here is a list of sectors the banks must lend too.

Total Priority Sector: 40%
Total Agriculture: 18%
Total Disadvantaged: 10%

Total RBI directed : 68%
On top of that is the CRR.

http://www.rbi.org.in/scripts/FAQView.aspx?Id=87

I don’t know what the full answer to this is but this is crazy IMHO.
You should not predetermine 2/3rds of bank lending.

Now one can argue that things like Housing and SME and Infrastructure is within this list.
But what the banks do is cross subsidize different sectors.
So Industry/Infrastructure gets 12% while agriculture gets 6.5% etc.

My own view is the government should direct subsidize Agriculture and SME & Disadvantaged groups if it wants too.
Not his plant this millstone around the entire economy and distort 100% of the structure.

Or at least find a more rational way of directing money to get the best bang for the buck.
But I have spoken enough blasphemy already.

-----------------------
arshyam,

Maybe I shouldn't say diesel subsidy but it is just short hand for the petroleum subsidy. this year. Rs 65,000 Crore. Last year. Rs 84,000 Crore.

arshyam · Post by **arshyam** » 16 Jan 2015 03:50

Makes sense. Given that petrol and diesel are already deregulated, I think the only thing left is kerosene, which probably won't be deregulated. The best we can hope for is the low oil price translating into a low kerosene retail price, thereby lowering the subsidy burden.

vina · Post by **vina** » 16 Jan 2015 03:52

And he had to do what he had to do thanks to Modi Sarkar. A US-Visa reject communal chai-wallah is a better economist than an US felicitated oxbridge scholar like Maun Mohan

Modi Sarkar caused global oil prices to crack from $115 to $45 , by facilitating a fracking boom all over India, leading to record Indian oil production of 10m barrels per day, leading to zero oil imports and nay India becoming an oil exporter ?

4.1% of GDP, the laxman rekha for deficit. That number is Chidambarams' target. Jaitely (mercifully), just accepted it. All we have to be thankful to Modi Sarkar is their smartness in keeping the nutcase out, continuing on the sensible fiscal consolidation laid out by Chidambaram , slash through the thicket of logjam in decision making of the Congress , and yes, they got hugely lucky with oil prices crashing along with gold, which immediately repaired India's macro finances.

Yes, Modi govt deserves credit, not for the things you say, but for keeping a calm head, sticking to the sane path and not becoming a soosai bummer and doing some idiotic things economically like throwing out the fiscal deficit target (long the JNU commie wet dream, it actually happened under UPA and we saw the disastrous results on inflation) , and kicking out the RBI Gov and dropping interest rates prematurely , like the tea drinker here wanted.

vina · Post by **vina** » 16 Jan 2015 04:24

Raghuram Rajan - India's Central Banker in Defense Mode

A NY Times article clearly showing where the vested interests of the BJP support base (hugely indebted industrialists and leveraged guys ) who want inflation AND stronger rupee (can happen only if India bankrupts itself) , acting against India's national interest (low inflation, strong reserves to protect against external shocks, and a stable currency regime, setting the base for sustainable growth).

MUMBAI — Few central bankers in emerging markets have been as internationally lionized as Raghuram G. Rajan of India.

Mr. Rajan, the governor of the Reserve Bank of India, has been honored with awards this winter for his role in helping to bring momentum back to the country’s economy. His unexpected interest rate cut on Thursday helped strengthen emerging market stocks around the world.

At home, the view is less favorable, as Mr. Rajan finds himself caught in a political struggle.

The coalition of Hindu conservatives and small-business owners who form the political base of Prime Minister Narendra Modi want deeper rate cuts and other policies to help borrowers and stimulate economic growth. Mr. Rajan’s critics contend that he has been so focused on reducing inflation that he has not paid enough attention to tumbling world oil prices or the heavy debt burdens of many Indian companies.

“He believes the best way to reduce the temperature of a patient is to kill him,” said Subramanian Swamy, the chairman of the strategic affairs committee of Mr. Modi’s party and a former commerce minister and law minister.

The situation reflects Mr. Rajan’s bigger dilemma. At 5 percent, inflation in India is high, compared to the rest of the world. But it is low enough by India’s standards that political support is splintering over further action to address the issue. While Western-trained technocrats like Mr. Rajan are still concerned about price increases, populists and businessmen in Mr. Modi’s political base are not.

At the same time, economic growth, which is expected to reach 6.4 percent this year, looks robust by Western standards. Even so, growth is not enough to satisfy many of Mr. Modi’s backers, who promised the economy would spring forward if freed from heavy government regulation and taxation. They now want the central bank to help the process by stimulating lending.

In an hourlong interview Wednesday afternoon at the Reserve Bank’s headquarters overlooking Mumbai’s financial district, Mr. Rajan said that he was not feeling pressure to change the direction of monetary policy. He described a harmonious working relationship with Mr. Modi’s top economic policy makers. “We completely understand each other,” he said.

Mr. Rajan defended his decision not to lower interest rates at his last monetary policy review on Dec. 2. While oil prices had already fallen considerably by then, he said there was no way to foresee the abrupt plunge that followed, or to pass judgment on how long prices would stay low.

In a news release on Thursday, Mr. Rajan made such a judgment, saying, “Crude prices, barring geopolitical shocks, are expected to remain low over the year.” He reduced the bank’s main overnight loan rate by a quarter percent, to 7.75 percent.

Despite the move, Madhav Nalapat, a Manipal University professor with close ties to the conservative wing of Mr. Modi’s Bharatiya Janata Party, predicted that the party’s conservatives would remain deeply unhappy with Mr. Rajan, a holdover from the previous government.

“He’s good for Wall Street,” Professor Nalapat said. “He’s not good for our Main Street.”

The acrimony that has greeted Mr. Rajan’s slowness to reduce interest rates is symptomatic of why India in particular has tended to tolerate more inflation and of the particular challenges facing central bank leaders in emerging markets.

Many companies in India are heavily indebted and are in favor of rising prices, which make it easier for them to afford fixed monthly payments.

Compounding the anger is that Mr. Rajan has interpreted broadly his mandate as the country’s top financial regulator as well as monetary policy maker. Mr. Rajan has repeatedly urged the country’s mostly state-owned banks to step in and replace management at struggling, indebted companies, instead of waiting for them to fail and default on loans.

He has also insisted that banks start requiring the founders and controlling shareholders of big companies to provide more collateral and give personal guarantees for large bank loans extended to their businesses. That has set off considerable indignation in India’s business elite, which has periodically been able to persuade state-owned banks to expunge debts during hard times, sometimes while retaining their holdings in the same companies.

But Mr. Rajan, a former chief economist at the International Monetary Fund, said that he had no plans to relent.

“If they do take the risk, they should pay the costs of taking that risk, rather than benefit when that risk pays off but shove the cost on somebody else when it doesn’t,” he said. (isn't that what Wall St was excoriated for during the 2008 crisis, when they were bailed out? private profits, but socialised losses?

Another criticism is that Mr. Rajan did not try to reverse the rupee’s steep fall against the dollar, which occurred in the summer of 2013, before he took office in September of that year. This has meant that Indians who had borrowed dollars overseas need more rupees to repay their debts. The central bank has even been intervening in currency markets in ways that tend to prevent the rupee from rising against the dollar: spending rupees to buy more dollars for its foreign exchange reserves.

Mr. Rajan defended this move, saying that India needed to rebuild its foreign exchange reserves, which had been depleted during the rupee’s rout in 2013. He also noted that because the rupee had been steady against the strong dollar of late, it had generally been rising this winter against most currencies.

The job of governor of the Reserve Bank of India is a strange hybrid, a holdover from British colonial rule, which ended in 1947, with the checks and balances of democracy grafted on.

Unlike the practice at the United States Federal Reserve and many other central banks, where interest rate changes are voted on by a committee, such decisions in India are the personal responsibility of the governor, although he may consult with others. The reserve bank also has an unusually broad array of regulatory powers, many of which are not subject to judicial review. It oversees bank licensing, bank regulation, bond trading and consumer protection.

But the central bank governor has less independence, at least on paper. The governor may be dismissed and replaced by the finance minister, who may also order the governor to make an interest rate change, although the order must be issued in writing. Because either move would be highly contentious, finance ministers have refrained over the years from exercising these powers.

Some conservatives around Mr. Modi want to see Mr. Rajan removed. Mr. Swamy, who was a president of the Janata Party before its merger with Mr. Modi’s party, predicted on Thursday that Mr. Rajan would someday be forced to resign.

“I don’t know why they kept him; they didn’t even appoint him,” he said. “He was appointed by the last government.”

But Mr. Swamy acknowledged that Mr. Rajan retained the strong support of the finance minister, Arun Jaitley, a longtime pillar of the New Delhi establishment. Another friend of Mr. Rajan, and his former colleague at the I.M.F., Arvind Subramanian, became the government’s chief economic adviser in October.

Mr. Rajan brushed away questions about political tensions sounded. He sounded wistful only once during the interview on Wednesday, when he explained why he ran half-marathons.

“I have never run a full marathon, and my wife will not let me run one,” he said. “She says that’s tempting fate.”

disha · Post by **disha** » 16 Jan 2015 04:30

Vina'ji - with all due respect your cognitive dissonance goes very quick and very deep. Maybe you are not aware of the FRBMA.

It is interesting you bring in Chidambaram's target of fiscal deficit! First of all his own government did not adhere to its own FM's target - never intended to. Chiddu could have pulled out any number from his you-know-where for the fiscal deficit and the UPeeA government would have beaten it - quickly and deeply.

Second, the Fiscal deficit target of 4.1% of GDP you state was not even Chiddu's target - the previous NDA government brought in the idea of keeping the Fiscal deficit target at 3% of GDP and the Sonia-Mauno sarkaar kept on beating it and pushing the target for returning to fiscal responsibility every year.

You definitely are not aware of FRBMA 2003. So please make yourself aware first. Second, the NDA-II will follow the NDA-I since FRBMA was their baby and they will be more than happy to adhere to it. So all your Chiddu puja is of no use.

Coming back to oil prices., Modi clearly said that if Oil producers can form a cartel, Oil buyers can also form one and force the producers to negotiate. And here we have a situation where Saudis are pumping oil to save their marketshare. With China's economy slowing down (less oil) and using more coal - and India diversifying with its energy options (Russia oil/nuclear, Vietnam oil, Australia Coal, Gas/Solar within India) it was a matter of time that oil imports into Asia (India/China) will stagnate (and may even go down!!!!)., given that the price of the oil had nowhere to go but down! Heck just last year around this time even Goldman Sachs was predicting 200$/barrel oil and come June 2014 I was wondering how will Modi bring down the oil prices by forming a "buyer's cartel"!!!. I guess only GECs can figure that out and Yum-bee types were caught with proverbial-chaddi down.

So yes, Modi Sarkaar can be credited with exploring a pragmatic mix of India's energy options (the only large economy in the world which may cross double digit growth in the next 2 years!) and inadvertently bringing down the price of oil.

vina · Post by **vina** » 16 Jan 2015 04:46

Coming back to oil prices., Modi clearly said that if Oil producers can form a cartel, Oil buyers can also form one and force the producers to negotiate.

Great! But I need petrol for my car NOW. Modi can "say" whatever he wants. But there is a proverb in Yindee which reflects reality. Modi or anyone else could have done jack schmidt some 6 months ago.

Jiski Lathi, Uski Bhains

.

You had ZERO leverage to negotiate on oil prices until recently in a tight market. It is only the US oil boom that destabilised it. Nothing that Modi did or can do.It will be amusing to see Modi and others "collectively" negotiate with say Opec in an under supplied market. Chinese will not even talk to you on that, they have the dollars to buy at whatever price, you will go with a tattered shirt and say what ? Give me oil at price X or I will do what? Hold my breath and turn blue ?

So yes, Modi Sarkaar can be credited with exploring a pragmatic mix of India's energy options (the only large economy in the world which may cross double digit growth in the next 2 years!) and inadvertently bringing down the price of oil.

I have heard only speeches. I have not consumed a single unit of solar power that Modi talks about , might happen a few years down the line. Fact is, MMS held the line on the on the Nuke deal and did exactly what you said "Pragmatic mix of India's energy options".

Giving Modi that is like "Mangalyaan success was due to Modi .. why , he came to the ISRO control room when the MoM entered orbit!"
The launch of the Canadian satellite a few days after he took office was also due to him.. Why "Because he was at Sriharikota when the launch happened.. " .. You get the idea.

ramana · Post by **ramana** » 16 Jan 2015 04:50

Satya,

Any insight into the Swiss franc de-linking to euro/$? it has caused a $1T loss in US today.

disha · Post by **disha** » 16 Jan 2015 04:53

vina wrote:Raghuram Rajan - India's Central Banker in Defense Mode

And you bring in the hoity-toity NYTimes - so that us GECs can shiver in our dhotis reading this choice quotes (highlights are yours):

At 5 percent, inflation in India is high, compared to the rest of the world. But it is low enough by India’s standards that political support is splintering over further action to address the issue. While Western-trained technocrats like Mr. Rajan are still concerned about price increases, populists and businessmen in Mr. Modi’s political base are not.

The stated target of the US Fed is to bring back inflation to 2%. For a large economy like US 2% is considered a good target. But for a growing economy like India 4-6% of inflation is a bad target!! Not sure what NYTimes is smoking.

Despite the move, Madhav Nalapat, a Manipal University professor with close ties to the conservative wing of Mr. Modi’s Bharatiya Janata Party, predicted that the party’s conservatives would remain deeply unhappy with Mr. Rajan, a holdover from the previous government.

Why, there are no good Ghee Eating Cretins who can be good financial regulators that Mr. Rajan has to be tolerated? Again I am not against Mr. Rajan - it is just that the Rajan pooja is out of place.

The acrimony that has greeted Mr. Rajan’s slowness to reduce interest rates is symptomatic of why India in particular has tended to tolerate more inflation and of the particular challenges facing central bank leaders in emerging markets.

Many companies in India are heavily indebted and are in favor of rising prices, which make it easier for them to afford fixed monthly payments.

What???? So what is NYTimes saying? Indians should not tolerate more inflation? How much of inflation should Indians tolerate? 0% - 2% - 4%? Oh the US Fed wants 2% inflation for US OF A. So should India also have 2% of inflation because the mighty FED said so? Why not 4%? Why not 6%?

Compounding the anger is that Mr. Rajan has interpreted broadly his mandate as the country’s top financial regulator as well as monetary policy maker. Mr. Rajan has repeatedly urged the country’s mostly state-owned banks to step in and replace management at struggling, indebted companies, instead of waiting for them to fail and default on loans.

So now the anger against Rajan is because others are seeing him step out of perceived boundaries. Maybe that is indeed the case. But seeing how NYTimes is batting for Rajan, it really makes Rajan suspicious!!!

He has also insisted that banks start requiring the founders and controlling shareholders of big companies to provide more collateral and give personal guarantees for large bank loans extended to their businesses. That has set off considerable indignation in India’s business elite, which has periodically been able to persuade state-owned banks to expunge debts during hard times, sometimes while retaining their holdings in the same companies.

Maybe Indian businessmen are really Ghee Eating Cretins. They do not understand how US government did not bail out the banks during S&L crisis, LTCM Crisis, Lehman brother crisis etc. Maybe if you are a Nobel prize winning genius and do an LTCM crisis and get bailed out by US Govt. - it is okay.

“If they do take the risk, they should pay the costs of taking that risk, rather than benefit when that risk pays off but shove the cost on somebody else when it doesn’t,” he said. (isn't that what Wall St was excoriated for during the 2008 crisis, when they were bailed out? private profits, but socialised losses?

Sir, are you having tube-light moments on NYTimes batting for Sri Rajan? Or what Sri Rajan says is "Do what I say, but do not do what I do"?

Another criticism is that Mr. Rajan did not try to reverse the rupee’s steep fall against the dollar, which occurred in the summer of 2013, before he took office in September of that year. This has meant that Indians who had borrowed dollars overseas need more rupees to repay their debts. The central bank has even been intervening in currency markets in ways that tend to prevent the rupee from rising against the dollar: spending rupees to buy more dollars for its foreign exchange reserves.

Mr. Rajan defended this move, saying that India needed to rebuild its foreign exchange reserves, which had been depleted during the rupee’s rout in 2013. He also noted that because the rupee had been steady against the strong dollar of late, it had generally been rising this winter against most currencies.

Did not the steep fall made the CAD worse? The gold/oil imports became costlier? And was it not the UPeeA sarkar which brought in aspects of Gold control from the backdoor? They made a mess, got somebody who made further mess, and they took steps to make it more messier. Was it a race to show who is the messiest?

Some conservatives around Mr. Modi want to see Mr. Rajan removed. Mr. Swamy, who was a president of the Janata Party before its merger with Mr. Modi’s party, predicted on Thursday that Mr. Rajan would someday be forced to resign.

“I don’t know why they kept him; they didn’t even appoint him,” he said. “He was appointed by the last government.”

I am a liberal and I also wonder why dictatorial Modi is tolerating Rajan. Oh wait.,

But Mr. Swamy acknowledged that Mr. Rajan retained the strong support of the finance minister, Arun Jaitley, a longtime pillar of the New Delhi establishment. Another friend of Mr. Rajan, and his former colleague at the I.M.F., Arvind Subramanian, became the government’s chief economic adviser in October.

So dictatorial Modi is not dictating Sri Jaitley to do his job, but giving his FM Sri Jaitley freedom to do his job!! Hain!!

vina · Post by **vina** » 16 Jan 2015 05:04

What???? So what is NYTimes saying the how much of Indians inflation should Indians tolerate? 0% - 2% - 4%? Oh the US Fed wants 2% inflation for US OF A. So should India also have 2% of inflation because the mighty FED said so? Why not 4%? Why not 6%?

Yes indeed. Why not 6% ? Why not 10% like from 2005 to 2013 ? . Why not 25% like many Latin American Countries. Why not 100% like Zimbabwe had. Why not some 1000% like during some instances like Weimar Germany.

The borrowers will immediately pay off their borrowings (after all, you are paying back with paper that is not even worth wiping your backside with) , and by your reckoning the "NPA" of banks will be zero , the banking system will be in the pink of health and there will be HUUUGE growth in nominal GDP (your salary will increase 1000% as well) , so everyone including your GEC will be happy na?

So what you need is MORE inflation and not less , I suppose. So why do the GEC and the JNU commies sound exactly similar ?

Coming to US, they have a "Deflation Problem" and want to get inflation to 2%. We have an "Inflation" problem, and want to get inflation DOWN. The US problem is constipation, our problem is diarrhoea . They have a starting problem and we have a stopping problem. You don't want to give castor oil to someone with diarrhoea do you ?

vina · Post by **vina** » 16 Jan 2015 05:13

Switzerland Removes Cap on Exchange Rate

Swiss give up in the face of impending ECB bond buyouts/ quantitative easing. And mayhem erupts, Swiss currency shoots up 39% at one point. The major exporters get whacked, nay shell shocked. Interest rates dropped, currency rise, exact situations where the BJP - Rajan must go wallah seem to be pining for.

So a quick quiz. In light of the experience of the Swiss Central Bank and the massive volatility of the Swiss currency .

Raghuram Rajan should

1) Build reserves, guard against external shocks and watch the value of the rupee from Fed and ECB actions or
2) Drop interest rates, run down reserves and please the BJP "drop interest rates and go nangoo on reserve and run 10%+ inflation " wallahs

Suraj · Post by **Suraj** » 16 Jan 2015 05:16

The NY Times article is a joke - nothing more than troll bait. NY Times is not a source of sound financial news to begin with. It's also an extremely questionable source of news about India, particularly any Indian right of center administration.

The crippling corporate debt overhang remains at approximately the same level as it was in Sept 2013, despite oil prices having dramatically fallen and inflation itself barely registering today. The very fact that Rajan cut rates out of turn calls into question his position a month ago, when he refused to do so. His rationale for this cut betrays very little original content that would not have made sense in December. An earlier rate cut would have helped. I'm just glad he FINALLY acted, even if late.