by admin | May 25, 2021 | Interviews
Bimal Jalan
By Biswajit Choudhury,
New Delhi : The sharply depreciating rupee amidst rising global oil prices and the massive foreign funds outflow from the capital market are not crises comparable to the likes of the balance of payments (BoP) emergency India experienced in 1991 because the country’s fundamentals are stronger than before, its BoP is strong and it has one of the highest levels of foreign exchange reserves, says former RBI Governor Bimal Jalan.
On the Reserve Bank of India (RBI) refusing to raise its key lending rate in October as a way to counter the falling rupee and the fund outflows, Jalan told IANS in an interview that in setting its interest rates the central bank’s monetary policy committee has its own set of considerations like inflation, growth and the global economic scenario.
Instead, Jalan, also a former Finance Secretary and Chairman of the Prime Minister’s Economic Advisory Council, says in his latest book — “India Ahead 2025 and Beyond” — that though the country’s fundamentals are much stronger today, it faces several old and new challenges in the area of politics, economics and governance.
“What is happening to the rupee is not a crisis… it is not a situation like in 1991 when we had a grave balance of payments situation. Now we have a much better ability to intervene, the economy has high capacity, we have hi-technology… our fundamentals are strong,” he said in reply to a question.
On the ongoing sharp foreign fund outflows from the capital market, Jalan pointed to the earlier flush of inflows in the preceding period.
“Financially we are in a much stronger position now than, for instance, we were during the Asian financial crisis in the nineties. We were able to handle that crisis, and we can handle this outflow situation now,” he said.
The Asian financial crisis was a sequence of currency devaluations and other events that began in mid-1997 and spread through many Asian markets. The currency markets first failed in Thailand and the contagion spread rapidly throughout Southeast Asia, in turn causing stock market declines and reduced import revenues.
On the other hand, the former Governor pointed to the need for reform in the wider area of political economy as elaborated in his latest book, which would include strengthening the prudential, provisioning and capitalisation norms of state-run banks to bring them in line with the best international standards and reduce the possibilities of future financial crises.
The accumulated non-performing assets (NPAs), or bad loans of banks, which have crossed a staggering Rs 10 lakh crore, are a matter of great concern, he writes.
“PSBs (public sector banks) have to decentralise. Banks report now to the government, which should withdraw from the actual day-to-day governance of banks,” Jalan said.
“The government should restrict its role to deciding on policy and monitoring the performance of banks. It has to decide to do this reform.”
He pointed out that some reform measures, like the RBI’s Prompt Corrective Action (PCA) framework for banks and enactment of the Insolvency and Bankruptcy Code (IBC), had been initiated to deal with the NPA crisis which had provoked risk-aversion among banks and has been accompanied by a significant decline in private corporate revenues and investment.
“All these measures could have been taken a little earlier… one or two years ago,” he said.
Declining to comment on the RBI-government relations, Jalan, instead, drew attention to the many old and new challenges in the areas of politics economics and governance that the country faces which are the focus of his book.
“These can only be met if we are able to generate sufficient political will to pursue the right policies and shake off the dead weight of the past,” he said.
The RBI has recently underlined the importance of its autonomy and warned that the government’s focus on short-term goals could be harmful to the economy.
At a public lecture in Mumbai last week, RBI Deputy Governor Viral Acharya said undermining the regulator’s independence could be “catastrophic”, citing the examples Argentina’s former central bank chief, who resigned following a dispute over the transfer of reserves, and the recent criticism of their central banks’ actions by the US and Turkish Presidents.
Finance Minister Arun Jaitley retaliated by alleging that the central bank looked the other way when indiscriminate lending happened between 2008 and 2014 leading to the NPA crisis.
Media reports earlier this week said that the government has invoked Section 7 of the RBI Act that empowers it to consult and direct the RBI to act on issues that it considers necessary in public interest.
Facing criticism for invoking a hitherto unused section to issue instructions to the RBI, the government on Wednesday said that it respected the autonomy of the central bank but within the framework of the RBI Act.
(Biswajit Choudhury can be reached at biswajit.c@ians.in)
—IANS
by admin | May 25, 2021 | Economy, News, Opinions
By Amit Kapoor,
The 2019 general election is now just months away. This means that the time for any significant change on the ground has passed as the government will soon get into campaign mode.
However, as is often the case just before an Indian election, matters of economic concern are gaining importance in national conversations. The rupee is plummeting, banking and financial institutions are in the news for all the wrong reasons, and domestic investment sentiment is ominously subdued. At the same time, foreign investors are taking money out of the economy and running like rats deserting a sinking ship.
When Prime Minister Narendra Modi came to power in 2014, nothing helped him more than the precarious state of the economy at the time. Today, even though the economy is in much better shape with stronger growth and higher foreign exchange reserves, the same old problems are coming back to threaten the incumbent. The economy is currently under threat from a mix of international and domestic factors, most of which were issues before the previous election as well.
On the global front, three major factors are fuelling India’s current economic problems: Rise in US interest rates, the rising oil prices and a growing sense of trade protectionism around the world, resulting in a trade war that is making global investors jittery. Of the three, the first two were pertinent issues in 2013-14 as well.
The first hint of US winding down its tight monetary policy had led to a flight of capital out of emerging economies. Until mid-October, foreign institutional investors had withdrawn a whopping Rs 90,000 crore from India’s capital markets. The country has accumulated a huge pool of reserves to deal with the issue since it was caught unawares in 2013, but clearly it was not enough to stem the slide of the rupee, which has fallen by over 14 percent in this calendar year.
Meanwhile, an issue that will have maximum bearing on voters is the rising oil prices. Global crude oil prices have risen by 24 percent since April this year, after the Organisation of Petroleum Exporting Countries (OPEC) decided to cut production. Such an escalation, combined with a sliding rupee, has resulted in a double whammy for India. A rise in the price of a barrel of oil by one dollar raises the country’s import bill by Rs 823 crore. This has resulted in the widening of the current account deficit (CAD) to 2.4 percent of the GDP in the first quarter.
Another factor with a strong bearing on the fortunes of the Indian economy is the developing trade war between the two largest economies in the world. As the US and China impose newer and higher tariffs on imports into their countries to get back at each other, India plans to introduce higher tariffs on US imports from November in response to the latter’s import tariffs on aluminium and steel. India needs to be careful not to aggravate the situation for itself by getting caught in this cross-fire. In 2017-18, India exported almost double what it imported from the US and it would be an unnecessary burden on the CAD if the equation changed.
On the domestic front, the situation seems to be no better. When Modi came to power, one of the biggest expectations was that the so-called “animal spirits” in the economy would receive a significant push by reviving muted investor sentiments. But in March 2018, investment accounted for merely 30.8 percent of India’s nominal GDP. To put matters in perspective, the average investment between June 2004 and March 2018 has averaged at about 35 percent. In fact, CMIE (Centre for Monitoring Indian Economy) data shows that, for the first time, the value of new projects announced by private players in this quarter is lower than those announced by the public sector.
Another domestic problem is one which had developed much before the BJP government came into power. The country’s banking sector remains burdened by bad loans. Despite the best efforts with loan resolutions through the National Company Law Tribunal (NCLT), Indian state-owned banks had to write off over Rs 300,000 crores between April 2014 and April 2018 as per RBI data. The private banking sector has had its fair share of troubles as well with the top management at ICICI Bank and Yes Bank finding itself mired in controversies.
To make matters worse, more recently, non-banking financial institutions were added to the list after India’s leading infrastructure finance company, Infrastructure Leasing & Finance Services (IL&FS), defaulted on its interest payments, triggering panic in the markets. The collapse of IL&FS is expected to further adversely impact the credit extended to productive sectors.
The only solace for the economy — that it is growing at an impressive eight per cent — is also misleading: An economy recovering from the twin shocks of demonetisation and GST is bound to inflate growth as it slides into normalcy. With no green shoots in sight, there are no straightforward solutions to the country’s economic situation. India is in dire need of a long-term growth strategy; one that can’t fit into weekly columns. But, instead, it is fire-fighting its way out of one crisis after another; or rather, from one election to the next.
(Amit Kapoor is chair, Institute for Competitiveness. The views expressed are personal. He can be contacted at amit.kapoor@competitiveness.in and tweets @kautiliya. Chirag Yadav, senior researcher, Institute for Competitiveness, has contributed to the article)
—IANS
by admin | May 25, 2021 | Economy, News
New Delhi : Reliance Industries Chairman Mukesh Ambani on Tuesday said India is on its way to feature among the three richest countries in the world.
Speaking at the MobiCom 2018 here, he said contrary to general expectations the country has recovered well from global economic slowdown in the past few years.
“Today our GDP is nearing $3 trillion, and India is well on its way to becoming one of the three richest countries in the world,” the RIL Chairman said.
Ambani also said that in the next two decades India would lead the world and contribute to the next wave of global economic growth.
On advancement in digital technology, Ambani said that in India “the transformative power of digitisation is breaking new ground every day”. India’s digital transformation is unmatched and unprecedented, he added.
Outlining the tasks ahead in the digital technology space, he observed that it is a major task to ensure that new technologies create more employment opportunities than the amount of job losses they cause.
A major task is “to ensure that new and disruptive technologies create more employment opportunities than they take away,” Ambani said.
Although, he expressed optimism regarding employment opportunities, he said that there is apprehension in the society regarding the same and these apprehensions may delay the process of digital transformation.
“These very apprehensions could resist or delay digital transformation of our societies. That would be a mistake,” he noted.
Ambani further emphasised that, governments, businesses and civil society organisations should put together an ecosystem for massive upskilling of workforce.
“Significantly, most of the upskilling can happen on digital platforms.”
Apart from employment, the RIL Chairman said the country also needs to prepare for a period of information and digital abundance and adopt to the pace of innovation. He also stressed on the need to shift from a system of time-bound education to a mode of continuous learning.
Regarding India’s global ranking in the broadband segment, Ambani said that the country is currently ranked low at 134th position and RIL’s Jio would take the ranking to the top three.
“Jio is determined to move India to among the top three in fixed-line broadband.”
Ambani had in July, at RIL’s Annual General Meeting, announced that it would launch fibre-to-the-home broadband services, JioGigaFiber.
On prospects of India leading the world in the “fourth industrial revolution”, Ambani on Tuesday mentioned that democracy is one of the factors which would help the country champion in the digital revolution.
“India is a democracy and is run on the model of equitable and inclusive growth with a society-wide culture of empathy. And it is openly embracing the digital technologies of tomorrow,” he said.
With “world-class digital infrastructure”, each one of the 1.3 billion people of India can productively participate in the fourth industrial revolution, he noted.
“We can solve the biggest unsolved problems facing humanity right here in India.”
—IANS
by admin | May 25, 2021 | Economy, Markets, News
By Ravi Dutta Mishra and Rituraj Baruah,
Mumbai : Quarterly results, along with manufacturing PMI and fiscal deficit data, are likely to drive the Indian equity market in the coming week.
Market participants and analysts expect value buying in the indices as the market has been largely bearish in the last couple of weeks.
In terms of quarterly results, companies like Bank of Baroda, Tata Power, Tata Motors, Union Bank of India, Lupin, DLF, HDFC, Axis Bank, Punjab National Bank, SAIL and Vedanta are likely to announce their second quarter earnings in the coming week.
Further, the Nikkei Manufacturing Purchasing Managers’ Index (PMI) for October will be released on Thursday, November 1, and the fiscal deficit data for September is due on Wednesday, October 31. This macroeconomic data would be key for the market sentiments.
“Manufacturing PMI and infrastructure output numbers will be seen crucially while leads will also be taken from ICICI Bank’s result (released on Friday). Mostly the trend will be in tandem with the global markets and indices such as S&P 500,” said Mustafa Nadeem, CEO, Epic Research.
On the technical front, the Nifty50 is seen receiving support at 9,951 points and 10,139 would be the immediate resistance level, analysts said.
In the week gone by, the National Stock Exchange (NSE) Nifty50 lost 273.55 points, or 2.65 per cent, on a weekly basis to settle at 10,030 points on Friday.
Similarly, the S&P Bombay Stock Exchange (BSE) Sensex lost 966.32 points, or 2.81 per cent during the week, to close at 33,349.31 points.
On Friday, both the Sensex and the Nifty dropped to seven-month lows.
“During the ongoing Q2 corporate earnings, companies declared lower-than-expected numbers which led to disappointment on the street. FII selling, lower-than-expected earnings and global markets sell-off combined, led to major selling in the markets,” said Rahul Sharma, Senior Research Analyst at Equity99.
In the coming week, the direction of flow of foreign funds will assume significance as there have been massive outflows in October, as investors pulled out from emerging markets to redeploy their capital in safe-havens such as US securities.
According to data provided by the National Securities Depository (NSDL), the monthly outflow of foreign funds at Rs 24,186 crore from the equity segment was at its highest so far in October.
The NSDL website has data from 2002, as Indian markets received minuscule funds from foreign investors prior to that, said Deepak Jasani, Head of HDFC Securities.
During the week just-ended, provisional figures from the stock exchanges showed that foreign institutional investors sold shares worth Rs 5,751.17 crore, whereas domestic institutional investors bought Rs 4,508.62 crore worth of stocks.
Figures from the NSDL showed that foreign portfolio investors divested Rs 4,563.31 crore, or $622.5 million, in the equities segment during the week ended October 26.
Besides, the rupee’s movement against the US dollar and global crude oil prices will also be closely followed by investors.
The Indian rupee on Friday closed at Rs 73.46 to a US dollar, weakening by 14 paise from its previous week’s close of 73.32.
(Ravi Dutta Mishra and Rituraj Baruah can be contacted at ravidutta.m@ians.in and rituraj.b@ians.in )
—IANS
by admin | May 25, 2021 | Opinions
By Amit Kapoor,
The Indian growth story has been far from perfect. That is not an understatement by any stretch of imagination. A growing challenge for the economy is the fast-evolving problem of inequality.
Most recently, James Crabtree in his latest book, “The Billionaire Raj”, claims that “India is one of the world’s most unequal countries.” His claim is based on the fact that the billionaire wealth as a proportion of the entire country’s output is the highest for India, except for Russia. The latest human development rankings released last week also corroborate his findings. India already ranks a lowly 130 on the index out of 189 countries but when adjusted for inequality, the scores experience a drastic fall of almost 27 percent against a world average of 20 percent.
What explains India’s dismal performance on the inequality front? Why don’t other developing countries face a similar problem? To put it simply, economic growth in India has not been inclusive enough. All the hype about the country’s fast-paced economic growth has not percolated down through the economy. The recently-released Social Progress Index can provide an explanation on why that is so.
The Index, which measures the extent to which a country can provide for the social and environmental needs of its citizens, ranks India at 101; a position it had achieved as early as 2014. India is the worst performer among all the BRICS countries and performs poorly than quite a few other developing countries like Thailand, Sri Lanka, Philippines and Indonesia as well. The country’s abysmal performance on social and environmental aspects can explain its widening inequality to a large extent.
To first put things in perspective, the countries which are performing better on the Social Progress Index are managing to do so irrespective of their economic heft; that is, even economies that are poorer than India have ranked higher. But they have made it possible to have broad-based public participation in economic expansion by pursuing policies which allow for extensive schooling, higher literacy, better healthcare, widespread land reforms and greater gender parity. The only way to maximise the gains in poverty reduction for an economy is to make it more participatory, which is not easy to achieve if the webs of social barriers are not broken down through such policies. Economic advancement cannot be equitable if social opportunities are not enhanced on a wider basis.
China offers the perfect case in point for how a large economy can achieve equitable growth on a sustained basis. China was at the same economic level as India around 1980 when it undertook market reforms. At the same time, the country made investments in improving its basic education and health standards. When China soon became an export-led economy, the products did not particularly require highly skilled labour, but schooled and literate population nevertheless. The production of such basic manufactures for the world markets requires adherence to certain specifications and quality controls where good school education comes in handy. A healthy workforce is also imperative to ensure that economic schedules are not marred by illnesses and intermittent absences and that adequate productivity is maintained.
Thus, basic education, good health and decent environment are not only valuable constituent elements of quality of life themselves but can also aid in driving economic successes of the standard kind in a more equitable manner. India has missed the bus on that front. Surely it can continue to achieve high rates of growth with the rather limited bouquet of social opportunities that exist currently. In fact, a lot of complacency arises from the achievement of high growth rates on an aggregate level. But a status quo would only continue to widen the disparity across society that has already reached concerning levels. Most of India’s growth arises from industries which make excessive use of its historic accomplishments in higher education and technical training. The fruits of such a growth, therefore, are skewed on the wrong side of the income spectrum.
The problem with the inequality debate in India is that it is often argued that since poverty has dramatically declined in the country post-reforms, the trend of rising inequality should not concern policy-makers as it is a small price to pay. But, the fact that India is an outlier in terms of inequality among all developing countries, except an oligarchic Russia, should raise the alarm bells. Most importantly, if there exists a way where the gains from existing growth can be more equitably distributed, clearly that is the Pareto optimal path of development and worth striving for.
(Amit Kapoor is chair, Institute for Competitiveness. The views expressed are personal. He can be contacted at amit.kapoor@competitiveness and tweets @kautiliya. Chirag Yadav, senior researcher, Institute for Competitiveness has contributed to the article)
—IANS
