CEOs across sectors vent anger over red tape, slow decision-making of government

MUMBAI/NEW DELHI /BANGALORE /KOLKATA: The wave of euphoria that swept corner rooms after P Chidambaram's appointment as finance minister and scrapping of restrictions on FDI in retail last year appears to have ebbed, giving rise to angst and recrimination over the slow pace of approvals and reforms.
Bureaucratic hurdles and lack of progress in key issues such as the goods and services tax have upset businessmen already irked by what they see as a vindictive mindset in certain sections of the government.
"I do not see Indian or foreign companies making large investments. The Cabinet Committee on Investment has not acted as fast as expected," says Deepak Parekh, chairman of HDFCBSE 0.93 %, the country's biggest mortgage lender.
India's GDP fell to a decade-low of 4.5% in the October-December quarter, and a worried government has been trying to spur growth by prodding industrialists to increase investments. But the deterioration in the investment climate and the inability of the bureaucracy to take major decisions in time are forcing many industrialists to consider shifting investments overseas to markets where approvals are given more quickly and easily.

"On the one hand, there are segments/ministries of government which are very keen to promote business and investment; on the other, there are departments and individuals who get a perverse pleasure in harassing industry and sabotaging growth plans," says Analjit Singh, chairman of Max IndiaBSE 1.35 %. "No government can afford to be inert, arrogant and callous towards investment. Unfortunately, this has been the case."
The change in sentiment comes as the government teeters on the brink of collapse following the withdrawal of support by a key ally, DMK, on Tuesday. The Samajwadi Party, another ally that is providing outside support, is meeting on Thursday to consider its stance after a cabinet minister accused its leader Mulayam Singh Yadav of supporting terrorists.

BSE

221.65

2.95 (1.35%)

Vol:216 shares traded

NSE

224.90

5.20 (2.37%)

Vol:2613 shares traded

The BSE Sensex has fallen 0.12% since the budget and 2.79% so far this year despite purchases of nearly $10 billion by foreign investors. Consumer price inflation is close to 11%, and the third interest rate cut on Tuesday by RBI in less than one year appears unlikely to lead to higher investments or cheaper loans for retail borrowers.
ET spoke to 18 CEOs across the four major cities of Mumbai, Delhi, Kolkata and Bangalore.


ABDUL WAHEED
PGDM 2nd SEM.
IIMT COLLEGE OF MANAGEMENT

DMK out (for now); weaker government stays in office DMK submits letter to President withdrawing support to UPA; party ministers to tender resignations on Wednesday Liz Mathew Mail Me | Arundhati Ramanathan Mail Me Comment E-mail Print Tweet First Published: Tue, Mar 19 2013. 11 30 AM IST A file photo of DMK chief M. Karunanidhi. Photo: Mint A file photo of DMK chief M. Karunanidhi. Photo: Mint Also Read India for impartial probe into human rights violations in Sri Lanka DMK threatens to walk out of UPA over Sri Lankan Tamils issue Updated: Wed, Mar 20 2013. 10 25 AM IST New Delhi/Chennai: For much of its second term in office that started in 2009, the United Progressive Alliance (UPA) has been in crisis mode, and it went into another on Tuesday when a key constituent, the Dravida Munnetra Kazhagam (DMK), withdrew its support, weakening the government’s ability to pass key items of legislation and take decisive steps to revive a faltering economy, although there is no immediate danger to its continuance in power. The DMK, which is the second largest constituent of the Congress-led coalition, with 18 representatives in the Lower House of Parliament, pulled out on account of New Delhi’s stance on human rights violations by the Sri Lankan government against an ethnic Tamil minority, but threw a lifeline to its larger partner when its leader M. Karunanidhi said it would reconsider its decision if Parliament adopts a resolution before 21 March incorporating the two amendments he had suggested to be moved on the US-backed resolution at the United Nations Human Rights Council in Geneva. Late on Tuesday, DMK leader T.R. Baalu submitted a letter to the President withdrawing support to the government. He said DMK’s ministers will submit their resignations on Wednesday. The UPA said there is no threat to the government’s stability and expressed its willingness to accede to the DMK’s demand for a resolution in Parliament. The government’s optimism received a boost when its so-called friendly parties, the Samajwadi Party (SP) and the Bahujan Samaj Party (BSP), indicated that they would continue their issue-based support to it. “Let me assure everyone that the stability of the government and the continuation of the government are not an issue. The government is absolutely stable and enjoys majority in the Lok Sabha,” finance minister P. Chidambaram told reporters outside Parliament. SP leader Ram Gopal Yadav told reporters in Parliament House, before the DMK submitted the letter to the President: “No one has pulled out; this is only to blackmail the government. It is stable.” BSP chief Mayawati said: “The UPA government is not in a minority; we will support it.” Political observers say that even if the government may not fall immediately, mainly because no party is ready for a snap poll, the reducing majority will create a crisis. The DMK’s move comes in the middle of a deep economic crisis and when the government is struggling to contain high inflation and revive a sagging economy. Opposition parties, however, said the country is heading for an early poll, although analysts put this down as a stock reaction that lacks conviction. “The government does not have a majority now. It should go,” Bharatiya Janata Party (BJP) vice-president Mukhtar Abbas Naqvi said. Asked whether the BJP is ready to face the electorate, he said, “We are always ready to face the elections.” The next Lok Sabha election is scheduled in 2014. “The Indian government has not considered any of the DMK’s recommendations. And it has also diluted America’s draft resolution,” Karunanidhi’s statement issued in Chennai said. “There is no benefit in this to the Sri Lankan Tamils whatsoever, and it would be an injustice to the Tamil race if we continue to give our support to the UPA government.” The DMK said the government should adopt a resolution in Parliament seeking amendments to what it said was the diluted version of the US-sponsored resolution. The DMK has demanded the inclusion of the term “genocide” and called for a “credible independent international probe into the war crimes” in the resolution. The UPA has been in a minority in Parliament since another ally, the Trinamool Congress, pulled out in September. In the Lok Sabha, of which the current strength is 540, the government has 231 members and it relies on the support of 49 others, including the SP’s 22 members of Parliament and the BSP’s 21 for the smooth functioning of Parliament. Chidambaram, who along with his cabinet colleagues defence minister A.K. Antony and health minister Ghulam Nabi Azad, met Karunanidhi to discuss the DMK’s demands, said the government “is in consideration” of its ally’s demands. Sonia Gandhi, president of the Congress party that leads the UPA government, in an address at a Congress parliamentary party meeting on Tuesday morning, said her party demanded an independent inquiry into alleged human rights violations in Sri Lanka. She didn’t comment on the DMK pulling out of the UPA government. Savithri Kannan, a Chennai-based political analyst, said the DMK’s move was an attempt to regain its political credibility and relevance in the state’s politics. “Right now, there is a competition between political parties in Tamil Nadu to see who will show more sympathy towards Sri Lankan Tamils, and the DMK wants to win that competition,” Kannan said pointing out that three cabinet ministers came down to discuss the issue with the former chief minister. “Even after Karunanidhi issuing threats, letters and three central ministers coming to visit him, the Centre has not examined his recommendations, and for Karunanidhi, that is a matter of his pride. Unless, the Centre includes some of his suggestions, the DMK may not get back with the UPA,” he said. Experts also pointed out that there has been an increasing influence of the regional forces on the country’s foreign policy. West Bengal chief minister Mamata Banerjee’s influence had sunk the signing of the Teesta water-sharing pact between India and Bangladesh. Lalit Mansingh, a former foreign secretary, said: “The time has come when we recognize that we are in an era of coalition politics, and so states and their views have to be taken into account.” “But having said that, foreign policy is the responsibility of the central government as per the Constitution, and on foreign policy issues, it can compromise only up to a point. This has to be conveyed to the states that a line has to be drawn. In this case, I don’t think the DMK is justified, though they are concerned about the plight of the Tamils,” he said. Elizabeth Roche in New Delhi contributed to this story. Comment

DMK out (for now); weaker government stays in office

DMK submits letter to President withdrawing support to UPA; party ministers to tender resignations on Wednesday

Liz Mathew |  Arundhati Ramanathan

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First Published: Tue, Mar 19 2013. 11 30 AM IST

A file photo of DMK chief M. Karunanidhi. Photo: Mint

Also Read

• India for impartial probe into human rights violations in Sri Lanka
• DMK threatens to walk out of UPA over Sri Lankan Tamils issue

Updated: Wed, Mar 20 2013. 10 25 AM IST

New Delhi/Chennai: For much of its second term in office that started in 2009, the United Progressive Alliance (UPA) has been in crisis mode, and it went into another on Tuesday when a key constituent, the Dravida Munnetra Kazhagam (DMK), withdrew its support, weakening the government’s ability to pass key items of legislation and take decisive steps to revive a faltering economy, although there is no immediate danger to its continuance in power.

The DMK, which is the second largest constituent of the Congress-led coalition, with 18 representatives in the Lower House of Parliament, pulled out on account of New Delhi’s stance on human rights violations by the Sri Lankan government against an ethnic Tamil minority, but threw a lifeline to its larger partner when its leader M. Karunanidhi said it would reconsider its decision if Parliament adopts a resolution before 21 March incorporating the two amendments he had suggested to be moved on the US-backed resolution at the United Nations Human Rights Council in Geneva.

Late on Tuesday, DMK leader T.R. Baalu submitted a letter to the President withdrawing support to the government. He said DMK’s ministers will submit their resignations on Wednesday.

The UPA said there is no threat to the government’s stability and expressed its willingness to accede to the DMK’s demand for a resolution in Parliament. The government’s optimism received a boost when its so-called friendly parties, the Samajwadi Party (SP) and the Bahujan Samaj Party (BSP), indicated that they would continue their issue-based support to it.

“Let me assure everyone that the stability of the government and the continuation of the government are not an issue. The government is absolutely stable and enjoys majority in the Lok Sabha,” finance minister P. Chidambaram told reporters outside Parliament.

SP leader Ram Gopal Yadav told reporters in Parliament House, before the DMK submitted the letter to the President: “No one has pulled out; this is only to blackmail the government. It is stable.”

BSP chief Mayawati said: “The UPA government is not in a minority; we will support it.”

Political observers say that even if the government may not fall immediately, mainly because no party is ready for a snap poll, the reducing majority will create a crisis. The DMK’s move comes in the middle of a deep economic crisis and when the government is struggling to contain high inflation and revive a sagging economy. Opposition parties, however, said the country is heading for an early poll, although analysts put this down as a stock reaction that lacks conviction.

“The government does not have a majority now. It should go,” Bharatiya Janata Party (BJP) vice-president Mukhtar Abbas Naqvi said. Asked whether the BJP is ready to face the electorate, he said, “We are always ready to face the elections.”

The next Lok Sabha election is scheduled in 2014.

“The Indian government has not considered any of the DMK’s recommendations. And it has also diluted America’s draft resolution,” Karunanidhi’s statement issued in Chennai said. “There is no benefit in this to the Sri Lankan Tamils whatsoever, and it would be an injustice to the Tamil race if we continue to give our support to the UPA government.”

The DMK said the government should adopt a resolution in Parliament seeking amendments to what it said was the diluted version of the US-sponsored resolution. The DMK has demanded the inclusion of the term “genocide” and called for a “credible independent international probe into the war crimes” in the resolution.

The UPA has been in a minority in Parliament since another ally, the Trinamool Congress, pulled out in September. In the Lok Sabha, of which the current strength is 540, the government has 231 members and it relies on the support of 49 others, including the SP’s 22 members of Parliament and the BSP’s 21 for the smooth functioning of Parliament.

Chidambaram, who along with his cabinet colleagues defence minister A.K. Antony and health minister Ghulam Nabi Azad, met Karunanidhi to discuss the DMK’s demands, said the government “is in consideration” of its ally’s demands.

Sonia Gandhi, president of the Congress party that leads the UPA government, in an address at a Congress parliamentary party meeting on Tuesday morning, said her party demanded an independent inquiry into alleged human rights violations in Sri Lanka. She didn’t comment on the DMK pulling out of the UPA government.

Savithri Kannan, a Chennai-based political analyst, said the DMK’s move was an attempt to regain its political credibility and relevance in the state’s politics. “Right now, there is a competition between political parties in Tamil Nadu to see who will show more sympathy towards Sri Lankan Tamils, and the DMK wants to win that competition,” Kannan said pointing out that three cabinet ministers came down to discuss the issue with the former chief minister. “Even after Karunanidhi issuing threats, letters and three central ministers coming to visit him, the Centre has not examined his recommendations, and for Karunanidhi, that is a matter of his pride. Unless, the Centre includes some of his suggestions, the DMK may not get back with the UPA,” he said.

Experts also pointed out that there has been an increasing influence of the regional forces on the country’s foreign policy. West Bengal chief minister Mamata Banerjee’s influence had sunk the signing of the Teesta water-sharing pact between India and Bangladesh.

Lalit Mansingh, a former foreign secretary, said: “The time has come when we recognize that we are in an era of coalition politics, and so states and their views have to be taken into account.”

“But having said that, foreign policy is the responsibility of the central government as per the Constitution, and on foreign policy issues, it can compromise only up to a point. This has to be conveyed to the states that a line has to be drawn. In this case, I don’t think the DMK is justified, though they are concerned about the plight of the Tamils,” he said.

Elizabeth Roche in New Delhi contributed to this story.

A file photo of DMK chief M. Karunanidhi. Photo: Mint

Also Read

• India for impartial probe into human rights violations in Sri Lanka
• DMK threatens to walk out of UPA over Sri Lankan Tamils issue

Updated: Wed, Mar 20 2013. 10 25 AM IST

New Delhi/Chennai: For much of its second term in office that started in 2009, the United Progressive Alliance (UPA) has been in crisis mode, and it went into another on Tuesday when a key constituent, the Dravida Munnetra Kazhagam (DMK), withdrew its support, weakening the government’s ability to pass key items of legislation and take decisive steps to revive a faltering economy, although there is no immediate danger to its continuance in power.

The DMK, which is the second largest constituent of the Congress-led coalition, with 18 representatives in the Lower House of Parliament, pulled out on account of New Delhi’s stance on human rights violations by the Sri Lankan government against an ethnic Tamil minority, but threw a lifeline to its larger partner when its leader M. Karunanidhi said it would reconsider its decision if Parliament adopts a resolution before 21 March incorporating the two amendments he had suggested to be moved on the US-backed resolution at the United Nations Human Rights Council in Geneva.

Late on Tuesday, DMK leader T.R. Baalu submitted a letter to the President withdrawing support to the government. He said DMK’s ministers will submit their resignations on Wednesday.

The UPA said there is no threat to the government’s stability and expressed its willingness to accede to the DMK’s demand for a resolution in Parliament. The government’s optimism received a boost when its so-called friendly parties, the Samajwadi Party (SP) and the Bahujan Samaj Party (BSP), indicated that they would continue their issue-based support to it.

“Let me assure everyone that the stability of the government and the continuation of the government are not an issue. The government is absolutely stable and enjoys majority in the Lok Sabha,” finance minister P. Chidambaram told reporters outside Parliament.

SP leader Ram Gopal Yadav told reporters in Parliament House, before the DMK submitted the letter to the President: “No one has pulled out; this is only to blackmail the government. It is stable.”

BSP chief Mayawati said: “The UPA government is not in a minority; we will support it.”

Political observers say that even if the government may not fall immediately, mainly because no party is ready for a snap poll, the reducing majority will create a crisis. The DMK’s move comes in the middle of a deep economic crisis and when the government is struggling to contain high inflation and revive a sagging economy. Opposition parties, however, said the country is heading for an early poll, although analysts put this down as a stock reaction that lacks conviction.

“The government does not have a majority now. It should go,” Bharatiya Janata Party (BJP) vice-president Mukhtar Abbas Naqvi said. Asked whether the BJP is ready to face the electorate, he said, “We are always ready to face the elections.”

The next Lok Sabha election is scheduled in 2014.

“The Indian government has not considered any of the DMK’s recommendations. And it has also diluted America’s draft resolution,” Karunanidhi’s statement issued in Chennai said. “There is no benefit in this to the Sri Lankan Tamils whatsoever, and it would be an injustice to the Tamil race if we continue to give our support to the UPA government.”

The DMK said the government should adopt a resolution in Parliament seeking amendments to what it said was the diluted version of the US-sponsored resolution. The DMK has demanded the inclusion of the term “genocide” and called for a “credible independent international probe into the war crimes” in the resolution.

The UPA has been in a minority in Parliament since another ally, the Trinamool Congress, pulled out in September. In the Lok Sabha, of which the current strength is 540, the government has 231 members and it relies on the support of 49 others, including the SP’s 22 members of Parliament and the BSP’s 21 for the smooth functioning of Parliament.

Chidambaram, who along with his cabinet colleagues defence minister A.K. Antony and health minister Ghulam Nabi Azad, met Karunanidhi to discuss the DMK’s demands, said the government “is in consideration” of its ally’s demands.

Sonia Gandhi, president of the Congress party that leads the UPA government, in an address at a Congress parliamentary party meeting on Tuesday morning, said her party demanded an independent inquiry into alleged human rights violations in Sri Lanka. She didn’t comment on the DMK pulling out of the UPA government.

Savithri Kannan, a Chennai-based political analyst, said the DMK’s move was an attempt to regain its political credibility and relevance in the state’s politics. “Right now, there is a competition between political parties in Tamil Nadu to see who will show more sympathy towards Sri Lankan Tamils, and the DMK wants to win that competition,” Kannan said pointing out that three cabinet ministers came down to discuss the issue with the former chief minister. “Even after Karunanidhi issuing threats, letters and three central ministers coming to visit him, the Centre has not examined his recommendations, and for Karunanidhi, that is a matter of his pride. Unless, the Centre includes some of his suggestions, the DMK may not get back with the UPA,” he said.

Experts also pointed out that there has been an increasing influence of the regional forces on the country’s foreign policy. West Bengal chief minister Mamata Banerjee’s influence had sunk the signing of the Teesta water-sharing pact between India and Bangladesh.

Lalit Mansingh, a former foreign secretary, said: “The time has come when we recognize that we are in an era of coalition politics, and so states and their views have to be taken into account.”

“But having said that, foreign policy is the responsibility of the central government as per the Constitution, and on foreign policy issues, it can compromise only up to a point. This has to be conveyed to the states that a line has to be drawn. In this case, I don’t think the DMK is justified, though they are concerned about the plight of the Tamils,” he said.

Elizabeth Roche in New Delhi contributed to this story.

 

amit kumar singh

pgdm 

FICCI Frames 2013: 'Digitisation should ultimately be a win-win situation'

Manish Tewari, union minister of information and broadcasting, aired his views through a recorded video played at the start of the valedictory session of FICCI Frames 2013.
In his message, he chose to respond to FICCI media and entertainment committee chairman Uday Shankar's comments on day one of the conclave.
Tewari said, "I cannot agree with the sentiment that the media and entertainment industry is not only a huge economic multiplier but it also has the potential of absorbing the creative intellect of our younger people as India goes into the next two decades of its economic ladder. It is therefore upon the government to try and ensure that we put in place appropriate mechanisms that try and play the role of a facilitator or enabler in order to ensure the growth of this sector at a far more rapid pace than it has over the past. Uday in his speech had particularly referred to two issues; one with regard to increased custom duty on set top boxes (STBs) and the other issue, in regard to withholding taxation on content rights."
Noting that STBs are largely being imported from South Asian countries, he explained, "It is important that when such a huge exercise (digitisation) is undertaken, which involves a revenue of about four to five billion dollars, essentially paid by the people of India and the multi-system operators, there should be certain tangible benefits which must accrue to Indian manufacturers. So, the finance minister in his wisdom decided to increase the custom duty on the import of set top boxes slightly."
"As we go into the second phase of digitisation across 38 cities, I think it is very important for the industry to realise that while there is a legal contract which backs this entire process, there is also a social contract which calls upon all stakeholders in this, whether they are broadcasters, MSOs or cable operators to sort out the issues that they have because eventually this eventually needs to be a win-win situation for the broadcasters and the consumers. If any section within this large family feels shortchanged, then obviously there's a cause of concern," the minister added.

ARUSI SINGH
PGDM 2nd SEM

Your turn now, RBI tells government

Central bank cuts key repo rate by 25 bps to 7.5%, but signals that the rate-easing cycle may be nearing an end

 

A file photo of the RBI building in Mumbai. Photo: Abhijit Bhatlekar/Mint 

Mumbai: The Reserve Bank of India (RBI) on Tuesday trimmed its key lending rate by a quarter percentage point, doing so for the third time in the past one year, to breathe life into Asia’s third largest economy, but signalled that its rate-easing cycle may be nearing an end despite concerns of slowing growth.

The widely anticipated cut is unlikely to result in a lower cost of funds for retail or corporate borrowers, and, in its guidance, the central bank expressed its concern over inflation and the size of India’s current account deficit (CAD).
“Headline inflation is expected to be range-bound around current levels over 2013-14... Risks on account of the CAD remain significant. Accordingly, even as the policy stance emphasizes addressing the growth risks, the headroom for further monetary easing remains quite limited,” RBI said.
And, while admitting the role of a low interest rate regime in boosting economic growth, it emphasized that it was more important for the government to address issues related to capacity building, fiscal prudence and governance itself.
The apex bank kept the cash reserve ratio (CRR), the portion of deposits banks need to park with RBI, unchanged at 4%.
For the financial market, RBI’s rate action was largely a non-event as it had factored in the move, but the apex bank’s caution on future rate cuts weighed heavily, driving the bellwether equity index, the S&P BSE Sensex, by 353 points below the psychologically important 19,000 mark.
The rupee fell by half a percentage point and bond yields rose.
The Sensex later pared some of its losses to close the day at 19,008.10 points, down 1.48%, while the rupee ended at 54.38, down 0.37%. The yield on India’s 10-year bond ended at 7.91%, up from 7.87% at the last close.
More than the RBI action, the decision by the Dravida Munnetra Kazhagam to withdraw support from the Congress-led United Progressive Alliance government dampened market sentiment, analysts said.

The 25 basis points (bps) cut in the repo rate, at which RBI lends short-term funds to banks, to 7.5% will not benefit borrowers in the near future as leading banks have ruled out any immediate cuts in lending rates. A basis point is one-hundredth of a percentage point.
“A repo rate cut doesn’t mean much for the banking system, as it will not bring down our cost. Any significant cut in lending rates is unlikely,” said Pratip Chaudhuri, chairman of State Bank of India, the country’s largest lender. A cut in CRR would have enabled the bank to lower its lending rates further, he added.
R.K. Bansal, executive director of IDBI Bank Ltd, also ruled out any immediate reduction in rates. “The deposit rates have to first come down before reduction in lending rates, but high inflation poses hurdles to lower the deposit rates,” Bansal said
For companies, there was not much reason to cheer. “CII (Confederation of Indian Industry) was hoping that the RBI would go ahead with a 50 bps reduction in the repo rate to make a significant impact on investor sentiments,” said Adi Godrej, president of the lobby group.
Naina Lal Kidwai, president of the Federation of Indian Chambers of Commerce and Industry, another industry lobby, said the association hopes that “RBI will follow this up with further rate cuts even though they have indicated that headroom for further cuts is limited”
RBI began cutting rates in April last year after hiking it 13 times between March 2010 and October 2011 to fight inflation. Since then, it has cut the repo rate by 100 bps and slashed CRR by 75 bps.
Meanwhile, the Indian economy is estimated to expand at a decade’s low of 5% in the year ending 31 March by the government’s own estimates.
Unlike the 2008 financial crisis, following which RBI sharply eased its monetary policy to boost growth, the central bank has been cautious this time due to surging inflation and the rising fiscal deficit.
Inflation based on wholesale prices has fallen below 7% in recent months after staying above that level throughout the past year. After easing to 6.62% in January, it inched up to 6.84% in February. But core inflation, or non-food, non-oil manufacturing inflation, eased significantly to 3.79% in February from 4.12% in January.
But RBI is not confident of inflation easing in the new fiscal year. “Notwithstanding moderation in non-food manufactured products inflation, headline inflation is expected to be range-bound around current levels over 2013-14 in view of sectoral demand-supply imbalances, the ongoing corrections in administered prices, and their second-round effects,” it said.
While acknowledging the need to support growth, the Indian central bank reiterated its stance that efforts to boost growth should come primarily from the government. “A competitive interest rate is necessary for this, but not sufficient. Sufficiency conditions include bridging the supply constraints, staying the course on fiscal consolidation, both in terms of quantity and quality, and improving governance,” RBI said.
Planning Commission deputy chairman Montek Singh Ahluwalia said the rate cut was a “clear signal” that inflation is subsiding. Noting that RBI’s move will lead to “softening” of rates, Ahluwalia said the rate cut “could have been larger”.
C. Rangarajan, chairman of the Prime Minister’s economic advisory council, said any further rate action will depend on how inflation behaves. According to the former RBI governor, policy action will be “very difficult” going ahead unless inflation declines
Also, RBI may step up open-market operations (OMOs), or bond purchases from the market, to manage liquidity in the banking system, Rangarajan said.
RBI has been extensively conducting OMOs to ease liquidity. Tight liquidity has forced banks to borrow an average Rs.1 trillion daily from RBI’s liquidity window since January. On Tuesday evening, the central bank announced a Rs.10,000 crore OMO to be conducted on 22 March.

 TOUHID HUSSAIN
PGDM 2nd SEM
IIMT COLLEGE OF MANAGEMENT
 

Your turn now, RBI tells government

Your turn now, RBI tells government

A file photo of the RBI building in Mumbai. Photo: Abhijit Bhatlekar/Mint

Also Read

• Market expects RBI to cut repo rate by 25 bps
• Rupee strengthens to breach 54-mark ahead of RBI policy
• Sensex gains in early trade ahead of RBI policy meet

Updated: Tue, Mar 19 2013. 11 43 PM IST

Mumbai: The Reserve Bank of India (RBI) on Tuesday trimmed its key lending rate by a quarter percentage point, doing so for the third time in the past one year, to breathe life into Asia’s third largest economy, but signalled that its rate-easing cycle may be nearing an end despite concerns of slowing growth.

The widely anticipated cut is unlikely to result in a lower cost of funds for retail or corporate borrowers, and, in its guidance, the central bank expressed its concern over inflation and the size of India’s current account deficit (CAD).

“Headline inflation is expected to be range-bound around current levels over 2013-14... Risks on account of the CAD remain significant. Accordingly, even as the policy stance emphasizes addressing the growth risks, the headroom for further monetary easing remains quite limited,” RBI said.

And, while admitting the role of a low interest rate regime in boosting economic growth, it emphasized that it was more important for the government to address issues related to capacity building, fiscal prudence and governance itself.

The apex bank kept the cash reserve ratio (CRR), the portion of deposits banks need to park with RBI, unchanged at 4%.

For the financial market, RBI’s rate action was largely a non-event as it had factored in the move, but the apex bank’s caution on future rate cuts weighed heavily, driving the bellwether equity index, the S&P BSE Sensex, by 353 points below the psychologically important 19,000 mark.

The rupee fell by half a percentage point and bond yields rose.

The Sensex later pared some of its losses to close the day at 19,008.10 points, down 1.48%, while the rupee ended at 54.38, down 0.37%. The yield on India’s 10-year bond ended at 7.91%, up from 7.87% at the last close.

More than the RBI action, the decision by the Dravida Munnetra Kazhagam to withdraw support from the Congress-led United Progressive Alliance government dampened market sentiment, analysts said.

Banks may not take
signal

The 25 basis points (bps) cut in the repo rate, at which RBI lends short-term funds to banks, to 7.5% will not benefit borrowers in the near future as leading banks have ruled out any immediate cuts in lending rates. A basis point is one-hundredth of a percentage point.

“A repo rate cut doesn’t mean much for the banking system, as it will not bring down our cost. Any significant cut in lending rates is unlikely,” said Pratip Chaudhuri, chairman of State Bank of India, the country’s largest lender. A cut in CRR would have enabled the bank to lower its lending rates further, he added.

R.K. Bansal, executive director of IDBI Bank Ltd, also ruled out any immediate reduction in rates. “The deposit rates have to first come down before reduction in lending rates, but high inflation poses hurdles to lower the deposit rates,” Bansal said.

For companies, there was not much reason to cheer. “CII (Confederation of Indian Industry) was hoping that the RBI would go ahead with a 50 bps reduction in the repo rate to make a significant impact on investor sentiments,” said Adi Godrej, president of the lobby group.

Naina Lal Kidwai, president of the Federation of Indian Chambers of Commerce and Industry, another industry lobby, said the association hopes that “RBI will follow this up with further rate cuts even though they have indicated that headroom for further cuts is limited”.

RBI began cutting rates in April last year after hiking it 13 times between March 2010 and October 2011 to fight inflation. Since then, it has cut the repo rate by 100 bps and slashed CRR by 75 bps.

Meanwhile, the Indian economy is estimated to expand at a decade’s low of 5% in the year ending 31 March by the government’s own estimates.

Unlike the 2008 financial crisis, following which RBI sharply eased its monetary policy to boost growth, the central bank has been cautious this time due to surging inflation and the rising fiscal deficit.

Inflation based on wholesale prices has fallen below 7% in recent months after staying above that level throughout the past year. After easing to 6.62% in January, it inched up to 6.84% in February. But core inflation, or non-food, non-oil manufacturing inflation, eased significantly to 3.79% in February from 4.12% in January.

But RBI is not confident of inflation easing in the new fiscal year. “Notwithstanding moderation in non-food manufactured products inflation, headline inflation is expected to be range-bound around current levels over 2013-14 in view of sectoral demand-supply imbalances, the ongoing corrections in administered prices, and their second-round effects,” it said.

While acknowledging the need to support growth, the Indian central bank reiterated its stance that efforts to boost growth should come primarily from the government. “A competitive interest rate is necessary for this, but not sufficient. Sufficiency conditions include bridging the supply constraints, staying the course on fiscal consolidation, both in terms of quantity and quality, and improving governance,” RBI said.

Planning Commission deputy chairman Montek Singh Ahluwalia said the rate cut was a “clear signal” that inflation is subsiding. Noting that RBI’s move will lead to “softening” of rates, Ahluwalia said the rate cut “could have been larger”.

C. Rangarajan, chairman of the Prime Minister’s economic advisory council, said any further rate action will depend on how inflation behaves. According to the former RBI governor, policy action will be “very difficult” going ahead unless inflation declines.

Also, RBI may step up open-market operations (OMOs), or bond purchases from the market, to manage liquidity in the banking system, Rangarajan said.

RBI has been extensively conducting OMOs to ease liquidity. Tight liquidity has forced banks to borrow an average Rs.1 trillion daily from RBI’s liquidity window since January. On Tuesday evening, the central bank announced a Rs.10,000 crore OMO to be conducted on 22 March.

priya singh

pgdm

Govt safe despite DMK withdrawal, says Chidambaram

Union finance minister P. Chidambaram said the government would have enough support in Parliament to pass legislation. Photo: PTI

Also Read

• DMK out (for now); weaker government stays in office
• India for impartial probe into human rights violations in Sri Lanka
• A Nitish Kumar model for India or a Modi model for Bihar?
• DMK out (for now); weaker government stays in office
• Sensex falls in early trade

Updated: Wed, Mar 20 2013. 12 52 PM IST

New Delhi: Indian ministers reiterated on Wednesday that the withdrawal of support by the Dravida Munnetra Kazhagam (DMK) from the ruling United Progressive Alliance (UPA) doesn’t threaten the government, while also signalling that the government was keen on persuading the Tamil Nadu party to change its mind.

Finance minister P. Chidambaram told reporters that India may seek amendments to the text of the United Nations Human Rights Council (UNHRC) resolution on Sri Lanka and will consult political parties to introduce a resolution in Parliament to criticize the island nation for human rights violations. The DMK had demanded earlier that the government strengthen the tone of the resolution censuring Sri Lanka.

Party chief M. Karunanidhi had indicated that the DMK may review the decision if its demands were met.

Chidambaram, however, said the government has enough support in Parliament to pass legislation.

“I am sure, on the merits of reform Bills, political parties will support the government,” he said. The withdrawal by the DMK would not affect the government’s ability to cut the fiscal deficit.

The government is looking to pass several Bills in the current session of Parliament to restore investor confidence and stave off a ratings downgrade. These include legislation on India’s insurance and pension sectors besides land acquisition.

The DMK submitted a formal letter of withdrawal to the President on Tuesday night, and three of its five ministers submitted their resignations to Prime Minister Manmohan Singh on Wednesday. The other two are expected to do so soon.

Parliamentary affairs minister Kamal Nath said the UPA government will survive.

“The UPA is not a lame-duck government, we are stable. The test is on the floor of the House. No political party has challenged the majority of this government,” Nath said.

Reuters contributed to this story.

 

rohit singh

 pgdm 

Cabinet clears revised food security Bill

Cabinet clears revised food security Bill

The extra burden on the food subsidy would be about `20,000 crore from the current level, while foodgrains requirement is expected to be 61.23 million tonnes. Photo: Hindustan Times

Also Read

Updated: Wed, Mar 20 2013. 12 17 AM IST

New Delhi: The cabinet on Tuesday approved the revised food security Bill that, when passed by Parliament, will commit the government to provide subsidized foodgrains to two-thirds of the country’s population.

The government will introduce the Bill in the Lok Sabha on Thursday. The legislation seeks to provide 5kg of foodgrains per person per month to 67% of the population.

Food security was among the promises made by the United Progressive Alliance (UPA) in the campaign for the 2009 general election that brought the coalition back to power for a second consecutive term. The government wants to make sure the legislation is in place with national elections a year or less away.

Prime Minister Manmohan Singh is betting on the legislation, the drafting of which was overseen by Congress president Sonia Gandhi, to woo voters. The programme may increase the government’s food subsidy bill to about Rs.1.25 trillion annually from Rs.85,000 crore this year, widening the fiscal deficit amid forecasts for the weakest economic growth in a decade, Bloomberg reported.

Abheek Barua, chief economist at HDFC Bank Ltd, said: “(Finance minister) P. Chidambaram during the press conference post the budget had said that he would provide additional money than budgeted for if needed for the implementation of the food security Bill. The amount of Rs.1.25 lakh crore is significantly higher than the budgeted amount. There is a possibility of slippage. The additional burden will come at cost of Plan expenditure and that may hurt growth. A staggered approach would have been better.”

Even some members of the government have raised concerns about the challenges the legislation would bring in terms of the quantity of foodgrains required to meet its objectives and the financial burden it would entail.

According to a person familiar with the development, in the special meeting on Tuesday, both Chidambaram and agriculture minister Sharad Pawar reiterated their concern over the financial implications and foodgrains availability, respectively, in the implementation of the Bill.

But defence minister A.K. Antony and coal minister Sriprakash Jaiswal intervened, saying it is a political decision and was a promise given by the UPA, so it will have to go ahead with that.

“This is a good step, but taken at a time when the government is facing serious challenges in economic and political fronts,” said Satish Misra, an analyst at the Observer Research Foundation in New Delhi. “The time is not suitable as growth is weakening, exports are not very positive and there’s a huge fiscal deficit.”

Rice may be sold at Rs.3 per kg, wheat at Rs.2, and millet at Rs.1 in the first three years under the plan, food minister K.V. Thomas said. That compares with market prices of Rs.28 a kg for rice and Rs.19 a kg for wheat in Delhi, according to data from the consumer affairs ministry. The Bill will enable widows, senior citizens, pregnant women and schoolchildren to receive cooked food, according to Thomas.

The government earlier proposed to supply 7kg of rice or wheat or millet a month for every Indian falling within the so-called priority category and at least 3kg per person per month for general households, according to the Bill first approved by the cabinet in December 2011. As much as 75% of the rural population and 50% of the urban population were proposed to be covered under the Bill.

The food Bill will fulfil an election pledge by Singh’s Congress party in 2009 that it will supply 25kg of rice or wheat at below-market rates to poor families each month if voted back to power. About two-thirds of the population live on less than $2 (around Rs.110 today) per day, based on World Bank data.

The changes to the Bill were proposed by a panel of lawmakers, Thomas said. These included identifying a single category of beneficiaries with a uniform entitlement at 5kg per person per month.

The government will need 61.2 million tonnes (mt) of foodgrains to implement the law compared with its annual purchase of about 73 mt from farmers, according to the food ministry.

State stockpiles of rice and wheat were 62.8 mt as of 1 March, compared with 54.4 mt a year earlier, according to state-run Food Corporation of India.

In the budget for fiscal 2013-14, the finance minister has set aside Rs.90,000 crore for food subsidies.

“The subsidized prices of foodgrains will now be fixed for a period of three years,” said a senior government official on condition of anonymity.

He said the Antyodaya Anna Yojana—a scheme to provide foodgrains to the poorest that covers 25.2 million families who currently get 35kg of foodgrains a month—will continue even as the proposed law is implemented.

In order to ensure that the beneficiaries receive the promised foodgrains at the subsidized rates fixed in the Bill, the Union government will bear the transportation costs—now borne by consumers under the public distribution system—and later work out a formula for sharing the cost with state governments.

The final draft included changes suggested by the parliamentary standing committee that had cleared the Bill in January.

Gandhi, who heads the National Advisory Council (NAC) that provides policy inputs to the government, has strongly backed the legislation and exerted pressure on the government to move towards its implementation.

“These are very good decisions. The government, however, will not be able to implement these unless a state-wise ratio of the beneficiary population is determined,” said N.C. Saxena, a member of NAC. “The government also needs to focus on upgrading technological support to check foodgrain leakages. They may even have to re-look at the export policy if the foodgrain requirement under the Bill is likely to be 61 mt. Domestic availability of foodgrains should be maintained.”

Thomas, in an interview to Mint on 22 February, said his ministry had requested the Planning Commission to spell out guidelines to decide the share of each state; the states will have the flexibility to decide the criteria for determining the beneficiaries of the programme.

rohit singh pgdm

Manappuram Finance tanks under selling pressure, down almost 30 per cent in two days

NEW DELHI: After crashing nearly 20 per cent on Tuesday largely on concerns of large loan losses, Manappuram Finance came under selling pressure on Wednesday and was down 14 per cent in early trade.

At 12:20 pm, Manappuram Finance LtdBSE -15.16 % was trading 14 per cent lower at Rs 24. It has hit a low of Rs 23.70 and a high of Rs 27.25 in trade today on the Bombay Stock Exchange.

The stock has plunged close to 30 per cent in a matter of two days as expectations of huge losses in fourth quarter results and regulatory overhang spooked investors.

The company issued a statement to stock exchange on Tuesday evening, saying: "We expect an under-recovery of revenue on certain gold loan portfolios due to correction in the gold price. This may result in reduction in profit numbers for the fourth quarter ending March 31, 2013."

Manappuram Finance Ltd.

BSE

23.45

-4.25 (-15.34%)

Vol:2562279 shares traded

NSE

23.60

-4.10 (-14.80%)

Vol:13841035 shares traded

BofA-ML downgraded the stock to 'underperform' from 'buy' with a target price of Rs 20. The global investment banks attributed the sudden move to support a steep 30 per cent EPS cut for both FY13/14 due to higher than anticipated under recoveries in Q4.

The company's guidance has been inconsistent and the risk to future earnings is high, as company still needs to auction Rs9-10 billion of gold loans in 1QFY14, which can be impacted by gold prices.

"Change in regulations and rising competition has affected MGFLs growth prospects and has increased its chances of getting de-rated," according to analysts.

While valuation comfort is high and capital adequacy remains amongst the best, Bofa-ML remains negative on the stock as near term growth challenges and lack of re-rating triggers.


On Tuesday, domestic brokerage Ambit put its ratings of the company under review as the interest lost on loans disbursed before February 2012 was expected to be higher than earlier estimates.

"We put our earnings estimates and valuation under review as we try to get further colour from the management on the extent of possible income reversal going forward and the steps taken by the management to improve its risk management practices," Ambit said in a report.


ABDUL WAHEED
PGDM 2nd SEM.
IIMT COLLEGE OF MANGEMENT

SBI gets Rs 3,004-cr capital from govt

MUMBAI: Country's largest bank SBIBSE -2.03 % today said it has received Rs 3,004 crore from the government as part of the recapitalisation plan of the state-run banks.


Post-infusion, the share holding of the government in the bank has increased from 61.58 to 62.31 per cent.

According to the bank, the government infused the money through subscribing to preferential allotment of 1.29 crore equity shares at the issue price of Rs 2,312.78 per share.

"We are confident that with this capital infusion, we will meet the capital adequacy requirement prescribed by Reserve Bank," State Bank of India (SBI) said.

Earlier, SBI Chairman Pratip Chaudhuri had said that the bank was likely to attain a tier-I capital of around 10 per cent by the end of the fiscal with capital infusion from the government along with accrual of profits.

Government plans to infuse around Rs 14,000 crore in state-run banks this fiscal to boost their core capital ratios as they prepare to comply with the Basel-III guidelines, which will start from next month. 

State Bank of India

BSE

2202.95

-45.55 (-2.03%)

Vol:690455 shares traded

 

 

 

ABDUL WAHEED

PGDM 2nd SEM.

NSE

2203.55

-46.25 (-2.06%)

Vol:4038806 shares traded

 

 

surya prakash.

                                           

Indian Rupee down 34 paise Vs US dollar in early trade

                                                                                                                                                           Rupee today lost 34 paise to 54.35 in early trade at the Interbank Foreign Exchange, due to increased US dollar demand from importers and appreciation of the US currency overseas. Forex dealers said a weak opening in the domestic stock market also put pressure on the local currency.
US Dollar strengthening against euro on reports that Cyprus would have to tax bank customers' deposits as part of an EU bailout deal, mainly pulled down the rupee, they added.
The domestic currency had gained 34 paise to close at a two-week high of 54.01 on Friday on robust capital inflows and heavy selling of the American currency by exporters. Meanwhile, the BSE benchmark Sensex was down by 183.14 points, or 0.94 per cent, at 19,244.42 in early trade today.

BofA-ML's five triggers for Indian economy into summer

NEW DELHI: Bank of America Merrill Lynch (BofA-ML) has highlighted RBI's credit policy review, FDI in insurance, state assembly polls, lending rate cuts and the value of rupee versus the US dollar as five triggers that investors should watch out for the Indian economy and markets going into summer.

While the bank expects the Reserve Bank of India to cut rates in its credit policy review on March 19 and May 3, reforms and political scenario in the country will also be closely watched.

RBI's monetary policy

BofA-ML's Indranil Sen Gupta in his report says that the RBI may cut rates by 25 basis points each on March 19 and May 3 in order to support growth. The bank sees inflation persisting to be in the 6.5-75 range in the first half of 2013. "The RBI should also commit to further Open Market Operations to ease liquidity to pull down lending rates," the bank added.


FDI in insurance

The bank expects the government to persevere with economic reforms in its budget session which will end on May 10. FDI in insurance is on such reform that is likely to get clearance. "We expect government to try to pilot legislation to hike FDI/FII limits in insurance to 49 per cent from 26 per cent (perhaps with 26 per cent cap for FDI) in the current Budget session ending May 10. The government has also called for a second all-party meeting to discuss the Land Acquisition Bill," the report says.

State assembly polls

BofA-ML is of the opinion that Karnataka and West Bengal state assembly polls will be crucial in determining the political appetite for economic reforms. "We would monitor the West Bengal village panchayat (April-May) and the Karnataka state (May) polls as they may determine the political appetite for reforms," the report says.

Lending rate cuts

There are many apprehensions about whether lending rates will actually come down in the year ahead. The bank expects a 25 basis point lending rate cut with the onset of the slack industrial season. "We continue to expect RBI OMO and/or CRR cuts to push up deposit growth to 15 per cent levels from 12.7 per cent now," the bank says.

At the same time, high lending rates will likely continue to drag down loan demand. The resultant improved bank liquidity should help pull down lending rates.

RBI to hold rupee in range

The central bank is expected to hold the rupee in the 52-56 range versus the US dollar. The RBI can hold rupee in that range if US Dollar trades in the current 1.30s-1.20s/ range. "We expect the RBI to buy foreign exchange to arrest falling import cover at Rs 52/$. Its $291 billion should be able to defend Rs 56/$ levels," the bank says.

ABDUL WAHEED
PGDM 2nd SEM.
IIMT COLLEGE OF MANAGEMENT

SBI Life launches an online term plan

MUMBAI: Private life insurer SBI Life has recently announced the launch of its new online term plan eShield. It is a pure protection policy, where the proceeds are handed over to the policyholders' nominees in case of their death.

The product comes with two plan options - level cover and increasing cover. It also offers the option of adding the accidental death rider benefit to these two plans. While the chosen sum assured stays constant throughout the policy tenure under level cover, it increases at regular intervals in case of the latter. The basic sum assured under increasing cover will go up at the rate of 10% simple interest after every fifth policy year. However, the premium will not be hiked.

Accidental death benefit, as the name suggests, will come into the picture if the policyholder dies in an accident. This cover amount will be equal to the basic sum assured or Rs 50 lakh, whichever is lower.

Like other online term plans in the market, this product, too charges a lower premium compared to its offline counterpart. For instance, a 25-year-old, non-smoker male choosing the level term cover and a policy term of 20 yeas will have to pay an annual premium of Rs 6,360 for a Rs 1-crore cover under eShield. On the other hand, the same individual will have to pay Rs 10,158 for SBIBSE -0.58 % Life's other term product Smart Shield, all other parameters remaining the same. Also, additional discounts are offered to women and non-smokers.

Upside: Term policies are considered the ideal protection covers as they safeguard your family's financial interests at a minimal cost. The product structure, too, is simple to understand. And, the premium goes down further in case of online term policies.

Downside: The minimum sum assured under the policy is Rs 20 lakh, which means that those with a lower life cover requirement will not be able to buy this product

 TOUHID HUSSAIN 

PGDM 2nd SEM

HDFC Bank, Axis Bank announce fresh measures in money laundering probe

ICICI bank has suspended 18 employees

  HDFC Bank also said it will carry out “special audit of some of its branches” where the videotaping was done. Photo: Abhijit Bhatlekar/Mint 

Mumbai: HDFC Bank Ltd and Axis Bank Ltd said they have initiated inquiries and suspended employees to limit the damage done by the Cobrapost.com exposé on Thursday.

In a email statement HDFC Bank said it had appointed audit firm Deloitte Touche Tohmatsu India Pvt. Ltd “to carry out an independent forensic enquiry into the allegations and reported statements, as made by Cobrapost representatives”. It had also suspended the 20 employees seen in the video exposé, a bank official said.

HDFC Bank has also hired law firm Amarchand & Mangaldas & Suresh A Shroff & Co “to examine the breaches, if any of the bank’s code of conduct and ethical standards, by any bank officials”. Both the firms will work in association with the bank’s internal departments “to verify the truth or untruth or correctness, as the case may be, in the reported tapings of bank officials”, HDFC Bank said.

In a separate statement also on Saturday, Axis Bank said it had “advised” 16 employees “to report to respective administrative offices pending the enquiry”.

“These employees will not be allowed to do any work related to customers till the inquiry is completed,” a bank spokesman said.

“A senior-level committee has been constituted to monitor and supervise the entire investigation process on a daily basis.A thorough internal enquiry is already underway to look in to all aspects of the matter and the findings are expected shortly,” Axis Bank said in an emailed statement.

HDFC Bank, Axis Bank and ICICI Bank are facing questions over their internal procedures after a sting operation video by Delhi-based website revealed that some bank employees had helped people with illegal money laundering activities.

The exposé by cobrapost.com has forced all three banks to release statements announcing an internal probes on Thursday. Late on Friday ICICI said it had suspended 18 employees pending inquiry after forming a high level committee within the bank to investigative the allegations.

HDFC Bank also said it will carry out “special audit of some of its branches” where the videotaping was done.

“This process has been initiated without prejudice to the authentication of the video recordings or electronic data. Internal and external audits and inspections undertaken previously, and the action taken reports in this regard are being compiled and reviewed once again, to enable the bank to reiterate that the internal checks and balances and processes for ensuring compliance with KYC norms and for prevention and detection of, and protection against money laundering activity are robust and adequate,” HDFC Bank said.

 

TOUHID HUSSAIN

PGDM 2nd SEM

 

Money laundering case: Forty bankers face axe if inquiry proves violation

MUMBAI: At least forty middle level bankers at the top three private sector lenders Axis Bank, HDFC BankBSE -1.67 % and ICICI BankBSE -3.93 % face an uncertain future as they are either suspended or stripped off their roles pending inquiry into alleged money laundering.

Axis BankBSE -0.90 % directed 16 of its staff caught in sting operation to report to their administrative office that suggested violation of various laws, HDFC Bank hired auditors Deloitte Touche Tohmatsu India Pvt Ltd to audit the branches, and ICICI suspended 18 pending the outcome of an internal inquiry.

Axis Bank's internal enquiry is already underway to look in to all aspects of the matter and the findings are expected shortly,'' a statement said. Pending the enquiry, the Bank has advised 16 concerned employees to report to respective administrative offices. A senior level committee has been constituted to monitor and supervise the entire investigation process on a daily basis.''

The top private banks and various investigating agencies, including the regulator Reserve Bank of India are probing whether the banks and their staff helped people evade taxes, siphon off funds and help launder money. The probe follows a sting operation by Cobrapost.com., an online news provider, which showed bankers suggesting ways to circumvent law.

The country's second largest private sector bank, HDFC Bank has hired Amarchand & Mangaldas & Suresh A Shroff & Co to examine the breaches, if any of the bank's code of conduct & ethical standards, by any bank officials.

The bank will also conduct special audit of some of its branches, where the reported videotaping was done. This is being done without prejudice to the authentication of the video recordings or electronic data,'' HDFC Bank said.

The Bank is also detailing the efficacy of induction and ongoing training provided for ingraining ethical behaviour and conduct rules, as preventive and protective measures.

Rajiv Tukru, secretary, department of financial services, said that the government would come up with strict penalties if these banks were found violating guidelines.

All government agencies and regulators are working together to probe charges. In case violations are found, there would be a very severe reaction and we would come down with a very heavy hand,'' said Tukru.

The internal and external audits and inspections undertaken previously, and the action taken reports in this regard are being compiled and reviewed once again, to enable the Bank to reiterate that the internal checks and balances and processes for ensuring compliance with KYC norms and for prevention and detection of, and protection against money laundering activity are robust and adequate,'' said the bank.

 

ABDUL WAHEED

PGDM 2nd SEM.

IIMT COLLEGE OF MANAGEMENT

Air India plans courier service to boost

revenues national carrier Air India has planned an aggressive strategy to increase ancillary business revenue, which would help the airline cut losses and reduce dependence on the Centre.

The airline plans to open a separate courier division within the company, which would cater to bulk
. The airline has hived off its maintenance, repair and overhaul (MRO) unit into a separate business entity. AI has a fleet of 111 planes and has 4,000 engineers on its rolls. "The aircraft-engineer ratio worldwide is 1:4 meaning we have over 3,000 excess engineers, who will now be utilised in a better way and would be an additional source of revenue," an official said.
AI is tying up with hotels, malls, restaurants as part of its frequent flyer program and has signed an agreement with a prominent hotel group.
AI would for the first time since its merger in 2007 be EBIDTA positive this year. "In the current fiscal we will have a cash surplus of Rs. 25 crore and in the next fiscal the figure would be over Rs. 1,000 crore," the official said. AI will get a discount of Rs. 5,300-per-kilolitre of fuel bought from Indian Oil and HPCL to help cut down its fuel bill of Rs. 8000 crore by 10%, the official added.
The airline is likely to make a loss of Rs. 5,198 crore in the current fiscal, down from the Rs. 7,559 crore loss it made the previous year. It plans to trim losses further to Rs. 3,500 crore next year.

ARUSI SINGH
PGDM 2nd SEM

The reasons for a rate cut by RBI

As core inflation trends down and economic activity remains sluggish, the signs point to a rate cut next week 

 

RBI governor D. Subbarao. The central bank has, on several occasions, made the point that while increases in artificially low administered prices may raise inflation in the short run, they lead to long-term benefits. Photo: Hemant Mishra/Mint  

                     The bad news about wholesale price inflation for February was that it came in a bit above expectations. The good news is that much of it is due to higher fuel prices, and core inflation continues to trend down. The Reserve Bank of India (RBI) has, on several occasions, made the point that while increases in artificially low administered prices may raise inflation in the short run, they lead to long-term benefits.

Lower core inflation indicates businesses have reduced pricing power, which is also indicated from RBI’s survey on capacity utilization during the September quarter of FY13. Capacity utilization was much lower than during the same quarter in the previous three years. With gross domestic product (GDP) growth falling further after the September quarter, it’s very likely that the pricing power of Indian businesses has worsened. The spare capacity will comfort the central bank, since any pick-up in activity as a result of a rate cut will not immediately translate into higher prices.

What of the argument, made earlier by RBI, that high food prices could spill over into higher wages? Won’t the rise in consumer price inflation hold back any monetary policy easing? In a recent speech, RBI governor D. Subbarao said that if “the supply shock is structural in nature and will persist, monetary policy has to respond since persistent inflation, no matter what the driver, stokes inflation expectations.” But he went on to say the government’s embracing of fiscal responsibility will “act as a self-limiting check on the wage-price spiral.” The RBI governor also said that commodity price shocks are unlikely to persist. Crude oil prices are now lower than where they were at the end of January, at the time of the last monetary policy statement.

True, he argued in the same speech that “inflation above 6% would… justify, indeed demand, tightening of the monetary policy stance,” but he obviously looks at the flagging growth momentum too, otherwise he would not have reduced the repo rate in January 2013.

He also argued, in an address at the London School of Economics, that, in the context of sluggish growth, a rate cut need not increase the current account deficit. In fact, he said that a rate cut may lead to higher capital inflows into equities, because investors would see it as “a signal of lower inflation and better investment environment.” Note that there has been an improvement in the February trade deficit.

Economic growth hit a nadir in the December quarter and the latest data do not show much progress since then. RBI data show that bank credit to industry went up a mere 0.8% in January, compared to the preceding month. Bank credit to the services sector declined by 1.1% in January. That indicates economic activity remains extremely sluggish.

In short, the signs point to a rate cut next week. Unfortunately, the rate cut in January and reduction in the cash reserve ratio hasn’t been transmitted to borrowers and some banks have instead increased deposit rates.

Inflation, of course, is far from being merely an indicator of monetary policy—it hits the most vulnerable sections of society the most. The main problem, one that has become entrenched, is high food prices. It’s not just the price of onions, which is a seasonal affair. What about the price of cereals, up 19.2% from a year ago, or pulses, up 15%, or eggs, meat and fish, up 12.9%? This hurts the poor the most, at a time when the growth of the construction industry, the largest generator of jobs for unskilled labour in the recent past, has slowed sharply. But there’s nothing the central bank can do about that.

 

TOUHID HUSSAIN

PGDM 2nd SEM