RBI's tightening measures can pull GDP to sub 5%: Experts


The recent monetary tightening measures by the Central Bank is increasing the downside risk to the country's growth outlook, which could fall to sub 5 percent in the current financial year if these measures are prolonged, experts say.

According to foreign brokerage Bank of America Merrill Lynch (BofA-ML) prolonging the recent liquidity tightening moves by the Reserve Bank may have an adverse impact on GDP growth which could slip to a low of 4.8 percent.

Meanwhile, Morgan Stanley in a research note, said that the recent monetary tightening and uncertain global capital market environment could mean growth stays low for at least two more quarters and increases the risk of GDP growth sliding to 3.5-4 percent.

India's growth fell to a decade's low of 5 percent in fiscal 2012-13.

India's GDP growth was below 5 per cent during the quarters ending December-2012 and March-2013 and is unlikely to have increased during the quarter ending June 2013, Morgan Stanley said in a research note.

"A weak growth trend lasting for 4-5 quarters would increase the risk of a vicious cycle building, whereby the economy becomes vulnerable and the risk increases of GDP growth sliding to 3.5-4 percent," Morgan Stanley Managing Director and the Asia Pacific Economist Chetan Ahya said.

According to DSP Merrill Lynch Chief Economist Indranil Sen Gupta, "incoming data should reinforce our view that FY14 growth will slip to 4.8 per cent if RBI tightening is not rolled back before the October-March busy season."

In two sets of announcements last month, the RBI had taken a string of liquidity tightening measures aimed at curbing speculation on the depreciating rupee, which has lost nearly 12 percent against the dollar since the start of FY14.

The unconventional steps included limiting banks' overnight borrowing to 0.5 percent of their net demand and time liabilities, more sale of government bonds and raising the interest rate on the marginal standing facility for banks.

Morgan Stanley further noted that, if the rupee continues with the downtrend, the government is likely to augment capital inflows in some form of dollar debt.

However, such a move would only help cushion the pace of weakening in the currency, and not make a major difference in the trend unless the global environment changes, it said.

"A sustainable solution would be to accelerate implementation of structural reforms that in turn help correct the imbalances in the economy and put it back on a positive productivity dynamic," Morgan Stanley said.

The rupee crossed the psychological level of 60 per dollar in June-end and crossed the 61-level for the second time this week.
Source..moneycontrol

Banking on more than luck


Raghuram Rajan.

Raghuram Rajan needs to think fast and creatively as he prepares to lead the RBI and its efforts to stabilise the rupee

One of India’s most astute Central bankers, Y.V. Reddy, once said that when faced with a very complex macroeconomic and political environment, what really matters is your intuitive capacity to take the right decision based on experience and knowledge. Some of these intuitive calls may even go against the grain of what well-established technical templates of economics might dictate. After all, “rational policy” has been conspicuous by its absence since the world economy went into a slump in 2008. Every conventional rule of economics has been turned on its head over the past five years.

Indeed, the big challenge for Raghuram Govind Rajan, who will be among the youngest governors of the Reserve Bank of India when he assumes charge on September 4, will be to hone his intuitive ability to do the right thing in the crisis-like situation that has engulfed the economy.

Insight

Mr. Rajan is credited with having displayed a sharp, contrarian insight in 2005, in the middle of the global economic boom, at a function held in honour of the then awe-inspiring Federal Reserve Chairman, Alan Greenspan. In the midst of the Greenspan-led liquidity and credit boom in America, Mr. Rajan had raised the question of whether banks will be able to provide adequate liquidity to the financial markets in the event of large-scale credit defaults. He had also asked whether in such an eventuality “how financial positions would be unwound and losses allocated in a manner that the consequences for the real economy [would be] minimized?” This question remains valid today as large-scale socialisation of losses continues to weigh down sovereign balance sheets, causing social unrest across the developed world, especially Europe. While losses have been socialised, private bankers are fully back in business.

Mr. Rajan, a Professor of Finance at the Booth School of Business, University of Chicago, came as an honorary economic adviser to Prime Minister Manmohan Singh in early 2008. In that year itself, he headed a 13-member committee which recommended far-reaching reform of the financial markets as well as the banking and regulatory system. Some of the big ideas generated by this committee, including fuller capital account convertibility, had lost intellectual support after the 2008 global financial meltdown when reigning market theologies underwent a big change. The role of central banks also altered fundamentally.

For instance, the Rajan Committee in mid-2008 had recommended that the RBI should confine itself to formal inflation rate targeting for the economy as some western central banks do. The job of regulating banks should be done by a different authority. However, the RBI resisted this idea and D. Subbarao publicly declared that the global consensus after the 2008 financial crisis was that central banks must pursue multiple objectives, including overseeing financial stability. Mr. Subbarao had implied that in Indian conditions, the narrow mandate of inflation targeting would not work. The RBI indeed went on to pursue multiple objectives. The governor was supported by reputed former RBI Governors like Bimal Jalan, Y.V. Reddy and even C. Rangarajan in this argument. This debate remains inconclusive. Mr. Subbarao’s stance was seen by critics, including members of the Rajan Committee, as the RBI’s reluctance to give up its turf.

However, it will be interesting to see how Raghuram Rajan, as RBI governor, views his own recommendations of the past. He cannot bring about any radical change in the bank’s functioning without taking the RBI bureaucracy, which seems quite formidable, into confidence. The RBI has institutional credibility flowing from its history and is known to have fought successful intellectual battles in recent times to preserve its core mandate.

For instance, Pranab Mukherjee as finance minister created an overarching financial stability body called the Financial Stability and Development Council (FSDC). This body, headed by the finance minister, was meant to supervise all regulators, including the RBI. The RBI resisted this idea vigorously and managed to get Mr. Mukherjee to considerably dilute the idea. As a result, the FSDC exists largely on paper today.

Interestingly, the idea to create this body came from the Raghuram Rajan Committee. Will Mr. Rajan, as RBI governor, try to breathe new life into FSDC? If he were to pursue some of the bigger ideas he has espoused personally and through formal committees, he would end up whittling down the RBI’s current mandate.

Task ahead

In any case, in the immediate short to medium term, Mr. Rajan will be fully preoccupied in the firefighting exercise to stabilise the currency market which is the single biggest challenge for the central bank and the United Progressive Alliance (UPA) government. The rupee’s value has gone down from Rs.45 to a dollar in May 2011 to Rs.60 plus today. In just over two years, the rupee has lost over 30 per cent of its value. The rupee’s value crossed the first psychological threshold of Rs.50 in 2011 and stayed mostly above Rs.50 in 2012. This year, it breached the second psychological barrier of Rs.60 and, in spite of all efforts by the government and RBI in recent weeks, the downward pressure on the currency continues.

The RBI today is caught between a rock and a hard place. Economic growth has collapsed and the central bank wants to ease interest rates to boost the economy. If the RBI eases interest rates, it is feared the rupee may weaken further causing a spiral effect. Currently, the RBI cannot address growth and its sole focus is on curbing the rupee’s volatility and letting it come back to its fair value. C. Rangarajan, Chairman of the Economic Advisory Council to the Prime Minister, reckons the appropriate value of the rupee based on the commonly accepted 6 country or 36 country trade-weighted basket is about Rs.59 to a dollar. Going by this metric, the rupee is clearly undervalued. The RBI’s challenge is to see that the rupee does not slide further to Rs.65 to a dollar, which many analysts predict.

Repayment

The government needs to pay about $172 billion of short-term debt within one year, by March 2014. Then there is a current account deficit of about $80 billion which needs to be met with capital inflows. It is estimated that Indian corporates have taken foreign loans of over $200 billion and over 50 per cent of this dollar credit exposure is unhedged. This means these companies have already suffered an extra $30 billion loss in their books because of 30 per cent rupee depreciation in two years. It must be remembered that the high corporate foreign currency loan defaults had primarily caused the East Asian currency crisis and capital flight in 1997.

Mr. Rajan will also have to grapple with the sharply deteriorating loan portfolio of banks. Since 2008, Indian banks have restructured loans of business houses which, if strictly accounted for, may take the non-performing loans to about eight per cent to 10 per cent of the total credit outstanding. This is another time bomb ticking. A large number of influential businesses have used their political clout to postpone repayment of loans even as their extravagant, personal lifestyles have not changed. Mr. Rajan may have to draw some ideas from his first book, co-authored with Luigi Zingales, titled Saving Capitalism from the Capitalists: Unleashing the Power of Financial Markets to Create Wealth and Spread Opportunity in dealing with future loan defaults by big corporates. All in all, he is walking into rather rough weather.
Source ..the hindu

RETIREMENT AGE - Cabinet decision to increase reti...




A proposal to increase the retirement age of government employees from 60 to 62 years came to the Cabinet on Thursday but a decision was deferred. The government might make the announcement in the Prime Minister’s Independence Day address, his last before general elections in 2014. The ministry of personnel, public grievances and pensions has proposed an increase in retirement age of government employees from 60 to 62 years, top sources confirmed.

There are around five million central government employees in India. The previous occassion the government raised the retirement age of central government employees was in 1998, from 58 to 60 years. The move is meant to ease the financial burden on the government in terms of its pension liabilities, sources said.

The retirement age of professors in all central universities was recently raised to 65 years. D L Sachdev, national secretary of the All India Trade Union Congress, said his union was totally against the increase of the retirement age beyond 60. It would hurt the youth, especially when the government is doing nothing to create jobs for them, Sachdev said.

Congress-affiliated Indian National Trade Union Congress national president Sanjeeva Reddy said his union had been demanding increase in the retirement age to 62 years and would welcome it.

Minister for Personnel, Public Grievances and Pensions V Narayanaswami had ruled out an increase in the retirement age to a question in Parliament in the winter session this year. An official in the ministry, when asked, refused to speak about it.

Souece - business-standard.

Microsoft India launches Office 365 University for students

Office 365 University includes complete set of Office apps and can be installed on two systems.

Internet Major Microsoft today launched its Office 365 for full time and part time university students in India with an affordable subscription offer.

The Office 365 University includes the complete set of Office applications and can be installed on two PCs or Macs. It also sports Office on Demand and an additional 20 GB premium SkyDrive storage.

Microsoft has priced it at Rs 4,199 for a 4-year subscription and is available for students studying in accredited colleges and universities in the country.

"The special pricing for students will help provide them with opportunities and empower them to develop the necessary skills to be successful in the fast-paced campus environment," Microsoft India GM (Microsoft Office Division) R Pichai said.

Besides, it makes working easier and efficient as one can edit and share documents or notes in real time and store them on the cloud, he added.

To purchase the product, students need to go to the Office website to verify their eligibility in order to activate it. They need to provide their university credential and after it is verified, students can purchase Office 365, he said.

Besides, students, college/university faculty and staff in accredited institution can also purchase Office 365 University subscription.
Source ..indian express

Companies Bill introduced in Rajya Sabha



New Delhi, Aug 6 (PTI) The much-awaited Companies Bill, which aims at protecting the interest of employees and small investors, was introduced in the Rajya Sabha today amid din.

Moving the bill for consideration and passage, Corporate Affairs Minister Sachin Pilot said the legislation is progressive and forward looking.

Discussion on the Companies Bill, 2012, will take place tomorrow.

The Bill was moved amidst uproar created by some Andhra MPs protesting against creation of Telengana state.
Source .. pti news

Govt, RBI taking steps to stabilise rupee: Chidambaram



Attributing the decline in the rupee to a host of global and domestic factors, the government on Tuesday informed Parliament it has taken a slew of steps to check forex volatility and is monitoring the situation.

"The government is continuously monitoring the emerging external sector developments leading to higher CAD and rupee depreciation.

"(The government) has taken a slew of initiatives to boost exports and reduce imports, encourage capital flows to facilitate financing of CAD and stem the volatility in the exchange rate of the rupee," finance minister P Chidambaram told the Rajya Sabha in a written reply.

The rupee hit a record low of 61.80 to the dollar in afternoon trade today, while the S&P BSE Sensex declined more than 300 points. The currency has lost over 16 % since April.

Referring to the measures taken by the government to support the rupee, Chidambaram said they include "raising the rate of interest subvention from 2 to 3 % that will benefit exporters and small and medium enterprises, hike in import duty on gold, liberalisation of FDI, etc."


Regarding the current account deficit (CAD), the Minister said it has declined to 3.6 % in the January-March quarter from 6.5 % in the previous quarter of 2012-13.

For the full fiscal 2012-13, the CAD worked out to 4.8 % of GDP, or $ 88.2 billion.

In a separate reply, Minister of State for Finance Namo Narain Meena said the rupee depreciated significantly in the second half of 2011-12 owing to the impact of the Eurozone crisis on the Indian forex market.
Source .. hindustan times

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E-filing of income tax returns crosses one-crore mark



The e-filing of income tax returns has crossed the one crore mark with the maximum of such filings done by the salaried class of taxpayers. In a latest data released by the Central Processing Centre (CPC) of the I-T department based in Bangalore, a total of 1,03,21,775 e-returns were filed by taxpayers till July 31, which is quite less than the over 2 crore e-filing numbers filed during the financial year 2012-13.

The Central Board of Direct Taxes (CBDT), the administrative authority of the Income Tax department, has recently enhanced the last date for filing of I-T returns, both manual and e-filed, to August 5 for the 2013-14 fiscal. A total of 57,81,252 people under the salaried class filed their e-returns till July 31 through the Internet which is also less than the over 64 lakh figure filed by salaried taxpayers during the same period last year. "The Income Tax department and the CBDT are aiming to encourage more and more taxpayers to file online returns.

These figures are expected to rise drastically by August 5," a senior I-T officer said. The department's web based servers, according to the official data, received a peak rate of 2,303 returns per minute during the current filing spree even as the tax return filing season ends tomorrow.

A special team of the department is continuously monitoring the web portals and information technology parameters of the official e-filing website of the I-T department-- https://incometaxindiaefiling.gov.in. Electronic filing has been made mandatory for assessees having net taxable above Rs five lakh from this year.
source indian express

Creating new investment instruments, Rajan says

CHENNAI: The central government is in the process of creating alternative instruments for investment, beyond the traditional gold and real estate sectors, Raghuram Rajan, chief economic adviser to the government of India, said on Saturday.

"The government has introduced inflation index bonds and equity-linked deposits. Once the economy starts doing well, many of these instruments would also do well and this will take away some of the hunger for gold," Rajan said while answering a question after delivering the ninth Kuruvila Jacob memorial lecture.

On the continuing rupee downslide and the widening CAD (current account deficit), Rajan admitted that the problem had been building up for sometime now. "Solutions take some time," he said. At the lecture organized by Kuruvila Jacob Initiative for Promoting Excellence in School Education, Rajan spoke on 'Seizing the demographic dividend: Educational challenges.'
Source times of india

Coal India Ltd to discuss modalities for coal import this week


Coal India Ltd (CIL) has called a meeting this week of officials from various government departments and public enterprises to discuss modalities for import of coal to meet the needs of fuel-starved power plants.

NEW DELHI: Coal India LtdBSE -5.84 % (CIL) has called a meeting this week of officials from various government departments and public enterprises to discuss modalities for import of coal to meet the needs of fuel-starved power plants.

"CIL invites government departments or government owned companies or public sector entities in a Pre NIT (Notice Inviting Tender) meeting regarding 'supply of imported coal' to the power plants drawing coal under fuel supply agreements (FSAs)," the company said in a notice.

The development follows the Coal Ministry issuing another Presidential directive to state-owned CIL last month to enter into FSAs with power plants for a total capacity of 78,000 MW. The meeting scheduled for August 8 will be held in Kolkata.

Last year, the Coal Ministry had issued a Presidential directive for the first time to CIL to sign FSAs with the power producers assuring them of at least 80 per cent of the committed coal delivery.

CIL will supply 65 per cent of the requirement from domestic sources and another 15 per cent through import. It has signed 82 FSAs with power stations with a capacity of 34,793 MW. This includes 16 power stations belonging to NTPCBSE -0.88 % and its joint venture (JV) companies.

The Coal Ministry had said on July 25 that 11 more FSAs are ready to be signed shortly with NTPC or its JVs, while another 23 FSAs with state and private sector entities are in the pipeline.

"These FSAs were part of the 131 FSAs for a capacity of 60,678 MW which CIL was directed to sign in February, 2012. This will substantially increase the power generation during the current and subsequent years," the ministry had said.

Coal India, the world's biggest producer of coal, had earlier said that it may import as much as 20 million tonnes of the fuel this fiscal to comply with orders to increase supplies to power utilities and avoid paying penalties.
Source economic times

Jet Airways unleashes fresh price war


PTIAccording to industry executives, low load factor in the monsoon months is the primary reason why Jet Airways is has made this offer to draw passengers from other airlines. File photo

The airline is offering 7 lakh cheap tickets, starting at Rs. 1,777

Starting another round of airfare war, Jet Airways (India) has offered seven lakh cheap tickets, starting at Rs.1,777, excluding taxes, to lure passengers in this lean season.

The airline launched this seven-day offer on Saturday, and passengers could book tickets under this scheme till August 9 to travel on Jet Airways routes from August 10 onwards.

The airline has sent emails to its JetPriviledge (JP) members, urging them to avail themselves of this scheme. Even non-JP members, who might have occasionally travelled by Jet Airways, have received this offer. An airline official said this offer was for all.

As per this scheme, the airline is offering one-way economy fares at Rs.1,777 for a flight distance of less than 750 km, Rs.2,777 for a flight between 750 km and 1,000 km and Rs.3,777 for sectors that are over 1,000 km. Though fuel surcharge is included in these fares, passengers will have to pay the applicable taxes such as airport charges as well as service tax and the like. Passengers must be aware that these tickets are non-refundable, and someone wishing to change the date of travel will have to pay Rs.1,200 extra.

According to industry executives, low load factor in the monsoon months is the primary reason why Jet Airways is has made this offer to draw passengers from other airlines.

In February, Jet Airways had offered 20 lakh seats at a flat fare of Rs.2250. In January, SpiceJet had offered 10 lakh seats at Rs.2,013 per one-way ticket across its sector.
Source .the hindu

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