by admin | May 25, 2021 | Banking, Economy, Markets, News
Mumbai : The Reserve Bank of India (RBI) is expected to keep its key interest rate unchanged at its penultimate monetary policy review of the fiscal on Wednesday owing to higher inflation in October and a surge in oil prices, even as the reversal in the decline of GDP growth during the second quarter has eased pressure on the central bank to cut rates.
At its previous bi-monthly policy review here in October, the RBI had maintained status quo on its repo, or short term lending rate for commercial banks, at six per cent, citing risks to inflation and uncertainties on the external and fiscal fronts.
The central bank had earlier, in August reduced the repo, or its repurchase rate by 0.25 percentage points to six per cent.
According to the minutes of October’s Monetary Policy Committee (MPC) meeting, Governor Urjit Patel said: “We have to be vigilant on account of uncertainties on the external and fiscal fronts; this calls for a cautious approach.”
Japanese financial services major Nomura said in a report that input cost pressures are marginally higher now, which along with higher food inflation is likely to push retail inflation slightly above the RBI’s target of four per cent in November and beyond.
“We expect a hawkish hold from the RBI..and policy rates to remain unchanged through 2018,” it said.
Data released in November showed that India’s annual rate of inflation based on wholesale prices (wholesale price index) rose to 3.59 per cent in October due to an exponential rise in food prices.
In addition, the consumer price index (CPI), or retail, inflation for October rose to 3.58 per cent from 3.28 per cent in September.
Domestic credit rating agency ICRA said the MPC would leave the repo rate unchanged at six per cent “in a non-unanimous decision in the December 2017 policy review, given the expectation of a further rise in the CPI inflation in the coming months”.
On the other hand in October, the central bank lowered the country’s growth projection for 2017-18, pegging the Gross Value Added (GVA) to 6.7 per cent, from earlier estimate of 7.3 per cent.
Declaring that inflation is expected to rise from the then-level of around 3.3 per cent “and range between 4.2-4.6 per cent in the second half of this year”, Patel said the MPC remains committed to keeping headline inflation close to four per cent “on a durable basis”.
Five members of the six-member MPC voted in favour of maintaining the key lending rate.
The MPC had expressed concern about the upside risks to inflation and that implementation of farm loan waivers by states may result in fiscal slippages resulting in upward pressure on prices.
“Although the domestic food price outlook remains largely stable, generalised momentum is building in prices of items excluding food, especially emanating from crude oil. The possibility of fiscal slippages may add to this momentum in the future,” it said.
Breaking a five-quarter slump, a rise in the manufacturing sector’s output pushed India’s growth rate higher to 6.3 per cent during the second quarter ending September, official data showed last week.
On a sequential basis, GDP growth for the second quarter went up to 6.3 per cent, from 5.7 per cent reported during the first quarter of 2017-18.
On the oil price front, the Indian basket, comprising 73 per cent sour-grade Dubai and Oman crudes, and the balance in sweet-grade Brent, regained the $60 a barrel level in November and closed trade on November 30 at $61.60.
—IANS
by admin | May 25, 2021 | Economy, Finance, Markets, News
Mumbai : India’s foreign exchange (Forex) reserves kitty increased by $1.20 billion as on November 24, 2017, official data showed on Friday.
The Reserve Bank of India’s (RBI) weekly statistical supplement released on Friday showed that the overall Forex reserves rose to $400.74 billion from $399.53 billion reported for the week ended November 17.
India’s Forex reserves comprise of foreign currency assets (FCAs), gold reserves, special drawing rights (SDRs) and the RBI’s position with the International Monetary Fund (IMF).
—IANS
by admin | May 25, 2021 | Banking, Corporate, Corporate Buzz, News
Mumbai : The Reserve Bank of India (RBI) on Wednesday cautioned some co-operative societies against the use of word “Bank” in their names.
“It has come to the notice of RBI that some Co-operative Societies are using the word – Bank – in their names. This is a violation of Banking Regulation Act, 1949 (As Applicable to Co-operative Societies),” the central bank said in a statement.
It also said that it has come to the notice some co-operative societies are accepting deposits from non-members or nominal members or associate members which tantamount to conducting banking business in violation of the provisions of the 1949 law, stressing such societies have neither been issued any licence under the act nor are they authorised by the RBI to undertake banking business.
The RBI also advised the public to “exercise caution and carry out due diligence of such co-operative societies before dealing with them”.
—IANS
by admin | May 25, 2021 | Books
(‘Note-Bandi: Demonetisation and India’s Elusive Chase for Black Money’ is an upcoming book from Oxford University Press dedicated to the “memory of Indian citizens who lost their lives due to demonetisation”). Excerpts from a chapter.
By R. Ramakumar,
The litmus test for the success of any demonetisation is the amount of cash that does not return to the banking system. For long, economists and observers were intrigued by the refusal of the RBI to share data on SBNs (Specified Bank Notes) returned to banks after December 10, 2016.
Information on SBNs returned was important because any amount not returned to the banking system was supposed to be ‘black money’, which could be ‘extinguished’ by the RBI… Consequently, the RBI could pass over an equivalent amount to the government, which in turn could spend it for welfare purposes.
The government’s expectations were shared by the Attorney-General of India, Mukul Rohatgi, with the Supreme Court. According to Rohatgi, the government did not expect more than Rs 12 lakh crore to be returned to the banks, which implied that about Rs 3 lakh crore worth of ‘black money’ was to be extinguished and passed over to the government.
As demonetisation proceeded, these hopes stood belied. To begin with, (RBI Governor Urjit) Patel was forced to clarify on December 7, 2016, that “the withdrawal of legal tender characteristic status does not extinguish any of the RBI balance sheets … They are still the liability of the RBI”.
On December 8, Revenue Secretary Hasmukh Adhia told journalists that “the expectation is that the entire money which is in circulation has to come to the banking channel”. In other words, the pace at which SBNs were being returned to the banking system had convinced the government that there would be no currency left to extinguish. By December 10, Rs 12.44 lakh crore worth SBNs had already returned to the banking system.
The government staunchly refused to share any figure on SBNs returned after December 10. Instead, it attempted to obfuscate facts and confuse the public with convoluted stories of ‘double counting’. On December 15, (Economic Affairs Secretary Shaktikanta) Das told the media that data on SBNs returned were being withheld because the RBI suspected ‘double counting’ of currency notes.
Das’ statement was soon shown to be wrong.
There were two ways in which returned SBNs could be counted. One, through the simple addition of the cash position of individual banks with respect to the SBNs returned. There could be double-counting here, as banks without currency chests may have deposited cash with banks that had currency chests.
Two, directly from the currency chests, in which case there was no scope for double-counting. (Deputy Governor of RBI Usha) Thorat, in an interview, pointed out that “there is no question of double counting… RBI only looks at the currency chest data”.
In an interview with the Economic Times, Rajnish Kumar, the Managing Director of the SBI, further clarified this in no uncertain terms: …currency chest position is the correct position, there cannot be any flaw in that … double counting can only happen if the individual banks and post offices are reporting the deposit position … but [in] currency chest reporting which is done every day and which is an automated process, the possibility of any discrepancy does not exist … If the Reserve Bank has given the number based on the currency chest position, then there should be no discrepancy. But if the data is given on the basis of daily reports of deposits being given by the bank, then there is a possibility of some double counting.
In its regular media briefings, the RBI was indeed providing SBN data from currency chests and not by adding the cash positions of individual banks. The RBI’s Deputy Governor R. Gandhi told the media on December 13, 2016, that “specified bank notes of Rs 500 and Rs 1,000 returned to the RBI and currency chests amounted to Rs 12.44 lakh crore as on December 10, 2016 “.
Yet, the RBI was to state on January 5, 2017, that “figures [on SBN] would need to be reconciled with the physical cash balances to eliminate accounting errors/possible double counts”. The effort, clearly, was to hide.
It was only in August 2017 that the RBI, ultimately, released the final figures of the SBNs returned. According to the RBI’s Annual Report for 2016-17, out of the Rs 15.44 lakh crore worth of currency in circulation as on November 8, 2016, Rs 15.3 lakh crore had returned to the banking system as on June 30, 2017. In other words, 98.96 per cent of the SBNs was back in the banking system and only 1.04 per cent of the SBNs remained outside.
The verdict was finally out: As most critics predicted, demonetisation had failed to extinguish any amount of money that could be alleged as ‘black’.
(R. Ramakumar is Dean, Centre for Study of Developing Economies, School of Development Studies, Tata Institute of Social Sciences, Mumbai. He can be reached at ramakumarr@gmail.com)
—IANS
by admin | May 25, 2021 | Banking, Corporate, Corporate finance, Corporate Governance, Economy, News, Politics
(Note Ban Series)
By Aparajita Gupta,
New Delhi : When Raghuram Rajan, former governor of the Reserve Bank of India (RBI), cautioned the government against demonetisation, saying short-term economic costs would outweigh long-term benefits, he was not trying to be prophetic. But a year after Prime Minister Narendra Modi made that fateful announcement in a nationwide broadcast on the evening of November 8, it would seem Rajan’s words had actually become so.
As economists and analysts, corporate honchos and statisticians struggle to gauge the beneficial impact of demonetisation, many of the objectives claimed by the government have fallen by the wayside. New claims and afterthoughts on the note ban by senior politicians in power have remained unconvincing. Demonetisation has raised more questions than it has answered.
The Prime Minister, in banning 1,000 and 500-rupee notes — or 86 per cent of total currency in circulation — had indicated that the decision would help remove black money from the system, rein in terrorism and take fake currency out of circulation. Have these objectives been met?
“Demonetisation was an utter failure. Theoretically it was known it cannot be successful. It could not remove black money, but in turn it has damaged the white economy and growth,” Arun Kumar, former professor of economics at the Jawaharlal Nehru University (JNU) told IANS.
The benefits of the decision are yet to percolate to the economy, but the disruption as well as pain that it caused to hundreds of millions was very real, whose lingering effects are seen to this day and, which, at that time, had shaken the country to its core, touching nearly every citizen and visitor.
The overnight serpentine queues for weeks in front of banks, the loss of over a hundred lives in the effort to withdraw one’s own money or change it, and the desperate desire to ensure that cash in hand did not turn to ash took its toll across the country. Was it worth it?
“The government made the elementary mistake of believing that black money is kept in cash. Black wealth can be transacted by non-cash means as well,” said Kumar, who is now Chair-Professor with the Institute of Social Sciences. “Only three per cent of Indians generate substantial black money. But for this, the other 97 per cent had to face the consequences of demonetisation.”
After months of vacillating, and being less than honest with citizens, RBI data in August 2017 said that 99 per cent of the banned currency in high denomination notes had returned to the banking system — Rs 15.28 lakh crore out of the Rs 15.44 lakh crore in circulation on November 8, 2016. The calculation does not take into account the money changed by people in Nepal, where it’s legal tender, or old notes held by many non-resident Indians who could not exchange it within the deadline.
“Indian demonetisation was remarkable, because unlike many countries that faced major economic and political problems after even less drastic measures, this passed off peacefully as most Indians accepted the (wrong) argument that this would end corruption,” Jayati Ghosh, Economics Professor at JNU, told IANS.
“The initial reasons the government had advanced for this move, of reducing terrorism and eliminating both black money and corruption, were rapidly abandoned for other supposed goals, which are also yet to be met. There was no planning before unleashing such a big decision,” she added.
The difficulty in making a cost-benefit analysis is that the move was not purely economic, given the fact that the currency issuer — the RBI — had no role in the decision, as testified by Rajan.
Demonetisation comes across more as a measure of political economy which may appear, on the face of it, to have paid immediate political dividend to the Prime Minister and his party in the Uttar Pradesh elections this year. But the medium-to long-term picture would take a while to clear up, though short-term impact has already taken its toll on growth.
At the end of May, the Central Statistics Office announced that the GDP during the fourth quarter ending in March this year, fell sharply to 6.1 per cent from seven per cent in the previous quarter, while growth for the year as a whole was also expected to decline correspondingly. India’s GDP during the past fiscal grew at 7.1 per cent — at a rate lower than the eight per cent achieved in 2015-16. In terms of gross value added, which excludes taxes but includes subsidies, the growth came in even lower at 5.6 percent over 2015-16.
“Demonetisation is a textbook example of what happens when you remove liquidity that is the basis of transactions. The immediate result was that people didn’t have money even for small transactions. This had a strong negative multiplier effect, most evident in the informal sector,” Ghosh said.
“Cash is the means of transaction in the unorganised sector, which contributes 45 per cent to the GDP. The unorganised sector got hit by 60-80 per cent,” Kumar said, adding that the country went through a negative rate of growth in November-December 2016.
In October, the International Monetary Fund said in its latest World Economic Outlook that India’s economic growth for 2017 and 2018 would be slower than earlier projections. The report cited the “lingering impact” of demonetisation and the Goods and Services Tax (GST) for the expected slowdown, projecting a growth of 6.7 per cent in 2017 and 7.4 per cent in 2018 — 0.5 and 0.3 percentage points less, respectively, than earlier projections.
Ghosh said that the steps on demonetisation, taken together, “generated a perfect recipe for slowdown in the economy. In fact the slowdown is likely to be much sharper than estimated because the quick GDP estimates are based on formal economic activity, and the adverse impact on informal activities have not really been taken into account”.
Ranen Banerjee, Partner & Leader, Public Finance and Economics, at PricewaterhouseCoopers (PwC) feels the country was already cooling down when the note ban came in, and it would take some time to evaluate its impact on the macro economy. “About three to four quarters prior to demonetisation growth rates were already on a sliding path. It could well be that the economy was cooling down and the trend has continued. Attributing the slowdown solely on demonetisation is not possible as we do not have sufficient data points,” Banerjee told IANS.
Economist Dipankar Dasgupta, former professor of economics at the Indian Statistical Institute, said that although GDP in India is not calculated in a very comprehensive manner, the trend growth rate continued to be “pretty robust”. However, despite the claim by the government of ending corruption through demonetisation, “day-to-day bribes are still being taken through cash”, Dasgupta told IANS.
The objectives of dealing a blow to militancy and curbing fake money too seems not to have been met, as can be seen in Jammu and Kashmir, where, ironically, more incidents of militancy have been seen after demonetisation. “Logistics like shelter, passage and cash are mostly routed through over-ground workers and sympathisers of militants and those who could arrange high value notes in the previous system are doing so at present as well”, a senior intelligence officer told IANS in Srinagar on condition of anonymity.
Similarly, about fake currency, officials said the notes carried by militants from across the border were sophisticated copies and those who made them earlier could easily make fakes of the new currencies.
Perhaps there has been some beneficial fallout on the digital economy. Industry stakeholders feel that though the note-ban drive gave the necessary impetus to citizens to start adopting online payment platforms, a lot needs to be done by both the government and the industry to make it a success.
But was the country-wide upheaval worth it to make people adopt more digital transactions? No jury would need to deliberate for long on such a question.
(Aparajita Gupta can be contacted at aparajita.g@ians.in)
—IANS
