Category Archives: economy

RBI can sell upto $30bn to support rupee; may opt for NRI bond

In order to arrest rupee depreciation, the Reserve Bank of India has a capacity to sell up to $30 billion from the forex reserves and may go for an NRI bond issue to mop-up up to $20 billion, foreign brokerage Bank of America Merill Lynch said on Monday.

“We expect the RBI to eventually mobilise $20 billion via NRI bonds, a la 1998 Resurgent India Bonds and 2001 India Millennium Deposits, as the sell-off of emerging market debt should constrain the ability of FII debt limit hikes to raise forex reserves,” it said, adding that the central bank can sell upto $30 billion to support the rupee.

The BofAML report said that five year money can be raised by issuing the 7 to 9% coupon bonds to stabilise markets, just as it was done in 1998 and 2001.

The country’s banks had raised $4.8 billion and $5.5 billion from the bonds targeted at the diaspora during the economic crisis years in 1998 and 2001, respectively.

BofAML said it expects RBI to defend the Rs. 60 to a dollar level. The rupee opened 40 paise down against the dollar on Monday and was trading at Rs. 59.74 to the dollar at 2:37pm.

Every round of volatility in the rupee (the current one has been on for over three weeks now) causes a dent of up to $15 billion to the forex reserves, and considering where the reserves stand right now, RBI can sell up to $30 billion, the report said.

The selling will get the country’s import cover down to six months from the current seven months, the BofAML said.

Its strategists expect the rupee to peak at Rs. 59 to a dollar, according to the report.

RBI will start buying rupee once markets stabilise and the inflows from Unilver buy back, which would be in the region between $3 billion and $5 billion, happen,  it said.

Raising the rates is not the answer to arrest the fall in rupee, it said, noting that the differential between the $Federal Reserve’s lending rate and the RBI’s is already at a peak of 7%.

India squeezed by QE3

US Federal Reserve chairman Ben Bernanke’s comment on rolling back the monetary stimulus package couldn’t have come at a more inopportune time for the Indian economy.

The rupee has crashed to a new low, nearly touching 60 and still counting. As portfolio investors pull out funds, the slide in equity markets continues.

Blame it on QE3. It sounds like the name of a scientific project, but it is essentially a financial market jargon for the third round of quantiative easing or QE by the US central bank.

It involves a large purchase of bonds by the Fed to pump in loads of cheap money into the financial system to aid the American economy. Part of these funds came to emerging markets such as India that were still delivering returns in high double-digits a year.

The tide has since turned.

Financial investors have begun selling Indian stock since the beginning of May and with the curtains likely to come down on the US stimulus package, one can safely expect more billions to move out.

A weak rupee can also fan inflation by making fuel and other imported goods costlier. Oil companies fear that if the trend sustains for a few more days, retail prices of transport fuel would have to be hiked again, which can fan inflation.

Higher inflation will also limit the RBI’s ability to cut interest rates, dimming hopes of lower loan EMIs for individuals.

Also, the record current account deficit (CAD) may restrict the RBI’s elbow room to prop up the rupee by dipping into its $290 billion of foreign exchange reserves, enough to cover imports for seven months, analysts said.

“A reversal of capital inflows would likely wreak havoc on the rupee, as financing the CAD becomes difficult,” said Sonal Varma, economist at research firm Nomura.

“Return of foreign capital in the short term will critically depend on adopting the right policy mix to attract higher investment inflows and improve growth prospects of the economy,” said DK Joshi, chief economist, CRISIL Research.

Rupee ends off day’s low at 59.68 against dollar

The rupee fell to near record lows on Monday as foreign investors continue to sell debt and stocks as part of an exit from emerging markets, with only fears of central bank intervention arresting a further drop.

The partially convertible rupee closed at 59.68/69 per dollar, against its previous close of 59.27/28. It fell to a low of 59.8250 in session.

The rupee is likely to continue hovering around a record low of 59.9850 hit on Thursday as long as global markets remain weak over worries about the rollback of U.S. monetary stimulus and concerns about China’s financial sector.

Dealers were split about whether the Reserve Bank of India (RBI) had intervened in the spot and onshore forward markets, suggesting any action would not have been strong. The central bank is seen likely to defend the 60 level for the rupee, which also provides formidable technical and psychological resistance.

Reserve Bank of India Deputy Governor Anand Sinha said on Monday the central bank and the government are doing whatever is needed to get a “hold over” the deteriorating macro economic conditions.

Investors are now awaiting the release of the current account deficit data on Friday, which will underline whether the funding pressures for the economy will further rise.

“One key factor is whether foreign equity investors pull out. But the government and RBI look determined to take steps to stem the rupee’s fall,” said Samir Lodha, senior partner at QuantArt.

“The RBI seems to have been active in the forex market over the past few sessions. They seem to be protecting the 60 level for now.”

The Sensex shed 1.2 per cent on continued worries about outflows after foreign institutional investors sold cash shares for nine straight sessions, totalling Rs. 7760 crore, as per exchange and regulatory data.

Foreign funds have sold a net $5.33 billion in rupee debt since May 22, the day Fed Chairman Ben Bernanke first hinted at stimulus withdrawal.

In the offshore non-deliverable forwards, the one-month contract was at 60.14, while the three-month was at 60.84.

In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed around 59.79 with a total traded volume of $6.4 billion.

Economy in doldrums, Manmohan takes nation back to 1990s

By Virendra Kapoor on June 23, 2013



Economy in doldrums, Manmohan takes nation back to 1990s

If you feel a sense of déjà vu, you are not alone. There are lots of Indians who might be forgiven for thinking they are back in the 1990s. Internet, invariably is the first to reflect the popular mood. A satirical message that has gone viral on the web reads:

GDP back at five percent; Dalmiya back in BCCI; Murthy back in Infosys; Nawaz Sharif back in Pakistan; Madhuri back in Bollywood; Sanjay Dutt back in jail.

Yeah, the clock seems to have been moved back, what with the rupee sinking and the foreign exchange reserves again looking vulnerable.

Plunging rupee can be revived by opening up markets

A vital part of the remedy for the 1990s’ crisis that was pressed on Narasimha Rao by the IMF-World Bank combine was to appoint a professional as Finance Minister. IG Patel said no. Manmohan Singh said yes. Much water — one may add dirty despite hundreds of crores spent by Shiela Dixit — has flown down the Yamuna bridge since those days when India had to pledge its gold with the Bank of England to tide over the forex crisis.

Rao is no longer around and the Congress leadership seems hellbent on obliterating his memory. Singh has since become Prime Minister, albeit a nominated one. Ironically, what he had managed to achieve in the 1990s under the stewardship of Rao, Singh has failed to achieve a fraction of that success under the aegis of his boss Sonia Gandhi. Blaming global factors for the economic woes is an old ploy but it fools no one. The economic mess is largely of the UPA’s own making.

Though this column is not about the state of the economy, but nonetheless, a few facts ought to alert readers about the gravity of the situation. Rupee was 45 to a dollar in early 2004. This past week it touched 60 to a dollar. That is progress for UPA. Forex reserves are about $290 billion alright, but much of it is short-term debt which can be recalled at short notice. And the trade deficit is a whopping 5.1 per cent of the GDP thanks to policy inaction and wrong-headedness on the export front. The outright ban by the Apex Court on iron ore exports following large-scale illegal mining added to the current account woes.

Admittedly, the latest run on the currency was triggered by the US Fed which is tamping down on quantity easing. But, surely, it cannot be anyone’s case that the Americans should continue to pour liquidity into the global markets so that the Indian currency does not come under pressure. The Fed took that decision following the slow but certain revival of the American economy.

UPA’s ‘success’ is just smoke and mirrors

On the other hand, the rupee has been depreciating long before the Fed announcement. And the reason is the gross neglect and mismanagement of the economy. A number of economic pundits, in fact, argue that the rupee is even now overvalued and should depreciate at least seven to eight per cent more. In other words, the intrinsic value of the rupee is about 65 to a dollar. And you know what will be the fall-out of the depreciated rupee? More hardships for the aam admi. Petrol, diesel, vegetables et al will become costlier.

Yet, all that the Government does is field its policy wonks before the media to deny the seriousness of the crisis. From P Chidambaram to his chief economic adviser, Raghuram Rajan, and that compulsive publicity hog, Montek Singh Ahluwalia, everyone seems to be engaged in talking up the rupee. If only it was so easy! Markets are a better judge of the health of the economy. When the Sensex falls more than five hundred points in a single day, it constitutes a huge vote of no-confidence in the Government’s ability to set things right.

With less than a year left before the next Parliamentary poll, the Government is hardly in a position to take tough decisions. Even if it musters the numbers in the Lok Sabha, no single legislative measure is likely to reverse the economic slide. Political drift and policy paralysis these past five years has taken a huge toll on the economy. Only a new Government with an assured majority can put the economy back on the growth path.

Where our money went wrong

Till then, the rupee would remain under pressure, the share markets would move in a narrow band, and the aam admi will have to suffer double-digit consumer inflation. The truth is the economist Manmohan Singh as PM is no patch on the economist Manmohan Singh as Finance Minister. But then you don’t have to be a leader in your own right to be a successful FM.

Govt cuts import tariff value of gold

The government on Monday  slashed the import tariff value of gold to $421 per ten grams and that of imported silver to $709 per kg, considering the falling trend in global prices.

Tariff value is the base price on which the customs duty is determined to prevent under-invoicing.

Last month, the tariff value of gold was at $459 per 10 grams and silver at $737 per kg.

The notification in this regard has been issued by the Central Board of Excise and Customs (CBEC).

The government has reduced the import tariff value of gold as global prices in Singapore have been volatile in the last few days. Global prices today fell by 1.4 per cent to $1,278.94 an ounce and silver by 2.8 per cent to $19.55 an ounce. A similar trend was seen in silver rates as well.

India’s gold import in the second quarter of the current fiscal is expected to more than halve to 150 tonnes, as against around 350 tonnes in the April-June period of the 2013-14 fiscal, as per the Bombay Bullion Association.

Gold in the national capital is costing around Rs 27,320 per 10 grams, while silver at Rs 42,500 per kg.

NRIs Gain from Rupee’s Fall

The Indian rupee ended on Monday at Rs 59.68 against the US dollar, an all-time closing low. But while its slide in recent weeks has been giving many, especially importers, sleepless nights, there are some who have reason to smile as well. For C.J. George, Managing Director and Promoter of Geojit BNP Paribas Financial Services, for instance, it was a pleasant surprise to discover, at his company’s board meeting, currently on in Dubai, that non-resident Indians have grown much more interested in investing in Indian real estate than before, since it will cost them far fewer dollars to do so than just a few weeks ago.

“It is not just real estate,” adds George.  “Interest has generally been seen from NRIs and foreign institutional investors, who are waiting on the sidelines for the rupee to stabilise. The concerns of overseas investors are that the government could mess things up further. More than anything they want a clear message from the government on the stability of the rupee. Once they get some confidence the flows are just waiting to get into the market, particularly equities.”

However he feels it is unfortunate that the outflow from debt will not be easy to bring back. The entire FII inflow into the debt segment in 2013 has been wiped out as of Monday (June 23). FIIs have sold bonds worth $4.4 billion.

CNG prices in Delhi hiked by Rs.2 per kg due to weak rupee

Picture for representation

CNG price in New Delhi was on Monday hiked by Rs.2 per kg, the second increase in rates since January, due to rupee depreciation.

Also, piped cooking gas (called PNG or piped natural gas) rates were also increased by Re one with effect from midnight tonight.

CNG sold to automobiles in Delhi will cost Rs.41.90 per kg from midnight as compared to Rs.39.90 currently. The rates of CNG in neighbouring Noida, Greater Noida and Ghaziabad have been hiked by Rs.2.25 to Rs.47.35 per kg.

“The consumer price of PNG to the households in Delhi is also being revised from Rs.23.50 per standard cubic metre to Rs.24.50 per scm for consumption of up to 30 scm in two months,” Indraprastha Gas Ltd (IGL) said in a statement.

For consumption of more than 30 scm in two months, the applicable rate in Delhi would be Rs.40.50 per scm.

Due to higher taxes in Uttar Pradesh, PNG in Noida, Greater Noida and Ghaziabad would cost Rs.26 per scm, up from Rs.25 per scm for consumption of up to 30 scm in two months.

Price for consumption beyond that level will be Rs.43.

CNG price was last hiked on January 5 when rates went up by Rs.1.55 per kg.

PNG price was last hiked on February 10 by Rs.1.50 per scm.

“The recent steep appreciation of the dollar vis–vis rupee as well as the increased dependence on imported LNG has resulted in major increase in our input cost of gas, which has necessitated the increase in retail prices of CNG and PNG,” IGL said.

IGL said there has been a sharp depreciation of the rupee vis-vis dollar in the last one month.

The base price of natural gas being procured by IGL from all its sources — domestically produced as well as imported liquid gas (LNG or liquefied natural gas) — are dollar linked thereby making the entire input price totally dependent on price of dollar vis-a-vis rupee.

“However, this increase would have minor impact on the per km running cost of vehicles,” it said.

For autos, the increase would be 6 paisa per km, for taxi it would be 10 paisa per km and in case of buses, the increase would be 57 paisa per km, which translates to around one paisa per passenger-km.

India eases rules for low-cost builders to access overseas loans

A man walks past a logo of the Reserve Bank of India (RBI) in front of its building in Kolkata May 21, 2012. REUTERS/Rupak De Chowdhuri/Files

MUMBAI | Mon Jun 24, 2013 9:59pm IST

(Reuters) – The Reserve Bank of India has made it easier for property developers to access foreign money in an effort to spur low-cost housing projects, such as slum rehabilitation.

The RBI has extended the limit of $1 billion that can be borrowed through the external commercial borrowing (ECB) scheme to the 2014-2015 financial year from this year.

It will also allow companies to hedge the entire borrowing, protect them from any sharp depreciation of the rupee against the dollar.

“The ECB availed of by developers and builders shall be swapped into rupees for the entire maturity on a fully hedged basis,” the RBI said in a notification on Monday.

The central bank also reduced the minimum experience companies have to have to undertake these projects to 3 years from 5 years.

The Reserve Bank also scrapped the minimum paid-up capital of 500 million rupees for property developers.

The Indian rupee slumped to an all-time low of 59.9850 to the dollar last week and foreign investors have been selling Indian debt, with many of them incurring losses due to their unhedged currency exposure.

(Reporting by Neha Dasgupta; Editing by Louise Heavens)

A Map of Economic Freedom in India

Economic freedom in India has improved notably since the beginning of the country’s market reforms in the early 1990s, stimulating high growth from a very low income base. Though India’s level of economic freedom is still low—it ranked 111 out of 144 countries in the latest Economic Freedom of the World index—assigning one overall rating to this vast country can be a bit misleading. The map below shows that, rated on a state by state basis, the levels of economic freedom in India in fact vary greatly. The state of Gujarat, for example, has the freest economy in the country and ranks far above West Bengal, one of the least free states.

The data comes from the Economic Freedom of the States of India: 2012 report, co-published today by Cato, the Friedrich Naumann Foundation, and Indicus Analytics in New Delhi.

Economic Freedom in India

This annual report shows a positive relationship between economic freedom and growth. It is a reminder to policymakers at the state level that they need not wait for national leaders to restart the reform agenda; much can be done at the sub-national level to improve freedom. My colleague Swami Aiyar, one of the co-authors of the report, suggests some reforms in his chapter(.pdf) describing Punjab’s decline.

The study discusses reforms in two other areas that would have a significant impact on Indian growth. In his chapter (.pdf), Ashok Gulati, the head of the Indian government’s Commission for Agricultural Costs and Prices, describes the extent to which Indian agriculture is so incredibly screwed up in every step of production and sales, and he suggests sweeping liberalization. Economist Bibek Debroy describes India’s extremely rigid labor laws (.pdf), which help explain India’s large informal economy and why the country has failed to create labor intensive export industries as have developed in other Asian countries.