Académique Documents
Professionnel Documents
Culture Documents
New Delhi: The Business Confidence Index (BCI) declined by five points to 48.6 during the October-December quarter, a survey by industry body CII said. The BCI stood at 53.6 in the previous quarter (July-September). "It is obvious that industry's outlook during the (December) quarter has been poor, but hopefully 2012 would improve sentiments and outlook," Director General Chandrajit Banerjee said. The BCI survey, conducted on 250 companies, revealed that majority (37.2 per cent) of the respondents expect Gross Domestic Product (GDP) growth rate to moderate to 7-7.5 per cent for the fiscal, while 23.4 per cent expect it to be less than 7 per cent. On inflation, 46.8 per cent of respondents expect average inflation to be above 9 per cent and 35.8 per cent expect it to be in the range of 8-9 per cent in 2011-12. "...as we start seeing some positive developments, including moderating inflation, a more accommodative monetary stance and hopefully a growth... oriented budget (is expected)," Banerjee said. The survey said the global economic crisis has taken a toll on exports from the country. It added that a dominant 75.9 per cent of the respondents experienced an increase in input cost as a consequence of the fall in the value of the rupee. High fiscal deficit, followed by surge in imports, inadequate skilled labour and stagnancy in reforms are the top business concern of most firms, it said. The government has pegged the fiscal deficit target at 4.6 per cent of the GDP for the current fiscal....
"But obviously the RBI wants to hold back until it's absolutely sure," he said. Ahluwalia added that as far as the fiscal deficit is concerned, there is no doubt in anyone's mind that one cannot expect to get soft interest rates purely through monetary policy if the fiscal situation is not supportive. "So that's not new and what the (RBI) governor is saying is that he hopes that the Budget will signal a process of fiscal consolidation and that will certainly give him more room to act. "No doubt that the room that the RBI has on interest rates is very powerfully affected by what the fiscal stance is and we will only know that when the Budget is presented," he said. Ahluwalia, however, argued that reducing the subsidy numbers will not have any impact on inflation. "I am not aware of anyone anywhere in the world who believes that subsidies are the way of controlling inflation. Subsidies are a way of controlling a particular price, so the proposition that if you do something on subsidies is going to have a harmful effect on inflation, I don't buy that. "What will happen if you do something on subsidies is one price might go up, but to the extent of which the subsidy reduces the fiscal deficit, there will be less pressure in the system on prices in general," he said. Ahluwalia added that food inflation is "likely to cool off and stabilise at 5-6 per cent." He further said: "As far as inflation as a whole is concerned, obviously what you are seeing in food inflation is a very low level. I would expect, by the way, that you should not think that food inflation is going to remain negative. "In a well-functioning system, if you are targeting 5-6 per cent inflation for the country as a whole, then on balance, most prices should move in the 5-6 per cent range." Food inflation has been in the negative zone since mid-December and stood at (-)1.03 per cent for the week ended January 14, the latest date for which numbers are available. Headline inflation fell to a two-year low of 7.47 per cent in December, 2011. In its review last week, the RBI said that inflation is likely to moderate to around 7 per cent by Marchend. It, however, warned that high international commodity prices are still a concern. "We are also getting out of what people would call the very uncomfortably high single-digit range, which is above 8 per cent, and we are getting into a more comfortable range. Time will tell, but so far, if you have to make a summary statement, the most important thing is the news on inflation has turned very significantly positive. "Now this doesn't mean that things can't deteriorate, hundreds of things could happen, but the bottom line, your breaking news on inflation has to be that things have eased," Ahluwalia said.
As per the Quick Estimates, the transport, storage and communication sector expanded by 14.7 per cent in 2010-11. The sector had grown by 14.8 per cent in the previous fiscal. The GDP at constant prices at market prices during the year 2010-11 has grown at 9.6 per cent, as per the data
This is likely to translate into higher purchases of crude and a slight recovery in rates during the first half of the year. However, the increase in rates may not be sustained over the entire year in the absence of a meaningful revival in global industrial activity. With charter rates remaining low and bunker fuel costs expected to remain firm in 2012, Fitch believes that operating margins of shipping companies will be under pressure. A revision in the outlook to stable is unlikely in the next two years given the overcapacity that is expected to persist in the medium term, Fitch said.
Rangarajan further said: "We, however have to bear in mind that the rationalisation process in the pricing of petroleum products is still to be completed and, as and when this happens, it will impact overall inflation". On the fiscal deficit target of 4.6 per cent for this fiscal, he said "perhaps this is difficult to achieve," adding "to gain credibility, it is important that fiscal deficit remains close to this level". Over the medium term, the government should draw up an appropriate road map to reach the FRBM (Fiscal Responsibility and Budget Management) target of three per cent of GDP, he said. "We must focus particularly on reducing the overall level of subsidies as a proportion of GDP," Rangarajan added. The industrial output measured on IIP has been below 5 per cent in July, August and September and in the following month contracted by 5.1 per cent. While there was an uptick in November IIP, the data for December will be released in the second month of February. Rangarajan further said the mismatch between Current Account Deficit and capital flows has put pressure on rupee, which has weakened against the US dollar. "The current account deficit in the current year may turn out to be higher than last year...Efforts must be made to keep the CAD around the manageable level of 2.5 per cent of GDP," Rangarajan said. Taking up the issues of sectoral constraints witnessed by the economy, he said "the two sectors which pose a major challenge are the farm economy and the power sector". He said it is imperative that India aims at GDP growth led by agriculture and allied activities growing at 4 per cent per annum. On power sector, he said a more aggressive path of capacity creation must start immediately. "Constrains such as the availability of coal, land acquisition and environmental issues need to be tackled so that the desired growth in capacity expansion can be achieved," Rangarajan said. He also pointed out that besides the sectoral constraints, good governance is critical for economic growth. "That good governance is at the very heart of economic growth and poverty reduction, and even political legitimacy is now part of conventional wisdom," he said. Talking about the country's increasing integration with the rest of the world, Rangarajan said, "it (India) will be increasingly affected by what happens externally".
While the slowing down of India's growth in the current year cannot be attributed solely to external factors, some segments of Indias economy have been directly influenced by the external factors, he said. "Since India's growth is largely propelled by domestic demand, we must on our own steam be able to grow at 8 per cent," he said adding "if the world situation improves, we should be able to achieve the goal of 9 per cent sooner".
As per the Quick Estimates, private final consumption expenditure (PFCE) in the domestic market at current prices was estimated at Rs 43,59,792 crore in 2010-11, as against Rs 37,22,036 crore in 2009-10. At constant (2004-05) prices, the PFCE stood at Rs 30,87,047 crore in 2010-11, as against Rs 28,52,301 crore in the previous fiscal. "In terms of GDP at market prices, the rates of PFCE at current and constant (2004-05) prices during 2010-11 are estimated at 56.8 per cent and 58.9 per cent, respectively, as against the corresponding rates of 57.6 per cent and 59.7 per cent, respectively, in 2009-10," the data said. The per capita PFCE in the domestic market in 2010-11 stood at Rs 36,760 at current prices and Rs 26,029 at constant (2004-05) prices, as against Rs 31,812 and Rs 24,379, respectively, in 2009-10. Gross Domestic Saving (GDS) stood at Rs 24,81,931 crore in 2010-11, as against Rs 21,82,970 crore in 2009-10, constituting 32.3 per cent of the GDP at market prices, as against 33.8 per cent in the previous year. "The decrease in the rate of GDS has mainly been due to the decrease in the rates of financial savings of the household sector from 12.9 per cent to 10 per cent and the private corporate sector from 8.2 per cent in 2009-10 to 7.9 per cent in 2010-11," the estimates said. Gross Domestic Capital Formation, however, increased from Rs 23,63,670 crore in 2009-10 to Rs 26,92,031 crore in 2010-11. At constant (2004-05) prices, it increased to 19,74,172 crore last fiscal from Rs 18,38,870 in 200910. "The rate of gross capital formation at current prices is 35.1 per cent in 2010-11 as against 36.6 per cent in 2009-10. The rate of gross capital formation at constant (2004-05) prices is 37.7 per cent in 2010-11 as against 38.5 per cent in 2009-10," the Quick Estimates said. It further said that the change in stocks of inventories, measured as additions to stocks increased at current prices, stood at Rs 2,54,970 crore in 2010-11 as against Rs 1,74,310 crore in the year-ago period.
Black Money
The government has maintained that there are no reliable estimates of black money generated held within and outside the country. It says the different estimates of the quantum of black money range between $500 to $1,400 billion. A study by the Global Financial Integrity Group has estimated the illicit outflow at about $462 billion. Will the government be able to bring back black money from abroad?
reasons to believe that the Indian economy is on a path of cyclical upswing, Basu said that speeding up policy reforms and good governance were paramount for high growth. "First of all we will have to improve our governance and do better on reforms which, I believe we will begin to do very very soon..," he said. Basu said given the global economic scenario and domestic factors, the GDP growth this fiscal would be less than 7.5 per cent (+,- 0.25 per cent) projected earlier. "We had said it will be 7.5 per cent with a small band around it. I am afraid we will be at the bottom end of the band...the growth rate will be less than 7.5 per cent for sure, may be just a little above 7 per cent," he said. The CSO is scheduled to release the Advance Estimates on GDP for the current fiscal early next month. The global economic climate too should improve for high economic growth, he added. He further said that though the economic growth may continue to remain lower than the growth achieved in the previous year, there are certain positive signs which indicate a continuing momentum in the industrial sector, particularly in the manufacturing sector. There was a sharp improvement in industrial performance in November and overall growth bounced back to 5.8 per cent against a contraction of 4.7 per cent in October. Credit growth in the manufacturing sector in November was at 21.8 per cent year-on-year. HSBC's seasonally adjusted Purchasing Managers's Index also had an upward movement in the sector during December. Basu said another factor that could lead to resurgence is the positive outlook for inflation. "With the recent moderation in the WPI and expected decline in the months to come with attendant implications for monetary policy, the investment could pick up momentum," Basu added
According to the agency, while inflation is on a downward trend, the month-on-month fall in January is not likely to be as steep as was witnessed in December, 2011. Headline inflation fell to a two-year low of 7.47 per cent in December from 9.11 per cent in November. The moderation was mainly on account of cheaper food items. Food inflation has been in the negative zone since mid-December on the back of a steep decline in prices of vegetables, particularly potatoes and onions. "We were honing in on a March rate cut, but this latest inflation cooling may give the RBI sufficient reason to move before then. The Indian economy is slowing sharply and with inflation coming off its peaks, there's no reason for the RBI to continue sitting on their hands," Moody's said in its report. "Look for an initial rate cut in February," it added. The central bank had hiked interest rates by 375 basis points between March, 2010, and October, 2011, to deal with persistently high inflation. However, in its last review in December, the RBI pressed the pause button on its monetary tightening strategy and said that it might go for rate cuts in the future if inflation moderates further. At the same time, the RBI is confronted with a moderation in economic growth. The government has cut its FY'12 growth projection from 9 per cent to about 7 per cent for the current fiscal. The central bank is scheduled to conduct its third quarterly review of the monetary policy on January 24. However, experts feel RBI will refrain from cutting rates this time. The RBI need not wait for the March mid-quarter review for announcing a change in the monetary policy and can go for a rate cut at any time. "... There are still pipeline pressures that need watching, as indicated by the solid rise in non-food prices," Moody's said. Inflationary pressure continues in manufactured items, which which have a weight of over 65 per cent in the WPI basket. Prices of manufactured products went up by 7.41 per cent year-on-year in December, as against 7.70 per cent in the previous month.
Between January 2-20, foreign investors infused $1.16 billion, or Rs 6,007 crore, into the Indian equity market, but were more bullish on the debt market, making a net investment of Rs 15,933 crore during the same period, according to data from market regulator Sebi. Market experts believe that rupee strengthening and easing concerns over inflation and economic growth have helped foreign investors step up buying in recent sessions. Analysts said the weak earnings outlook is only a matter of concern in the short-term, as conditions may improve in line with changes in the domestic and global macro-environment. FIIs purchased gross equities and debt securities worth Rs 55,902 crore and sold shares and bonds to the tune of Rs 33,962 crore during the period, translating into a net investment of Rs 21,940 crore, Sebi added. This is the third straight week of inflows into the Indian stock and debt markets by overseas investors. Buoyed by sustained FII inflows, the stock market barometer BSE Sensex has gained around 1,284 points, or 8.30 per cent, so far in January. In the last trading session, the key BSE index finished at 16,739.01, up 95.27 points from its previous close. In the year 2011, FIIs purchased stocks and bonds worth Rs 8 lakh crore, but sold securities worth Rs 7.9 lakh crore, resulting in a net investment of Rs 17,480 crore during the year. Investors flocked toward the debt market in 2011, making an investment of Rs 20,293 crore, but stayed away from the equity market, pulling out Rs 2,812 crore.
"This week will be eventful as well as volatile for the markets since Reliance results will influence Monday's trading sentiments," said Shanu Goel, Research Analyst at Bonanza Portfolio. Analysts said the buyback will also influence the market. "Moreover, the week will be shortened on account of holiday on January 26. Monetary Policy on Tuesday and F&O expiry on Wednesday will provide the next trigger for the market," she added. Broadly, experts gave an outlook with upward bias for the market. Sensex has recently recorded smart gains, closing in the positive terrain for the third week in a row on the back of better-thanexpected earnings of some companies and improved sentiment in global markets. "There was lot of positive news for the market last week. The Supreme Court's verdict in the overseas transaction tax case against Vodafone is likely to boost the foreign investor sentiment in India. Also, market leader RIL's buy back offer came in-line with expectations. "Markets should extend the gains but, with a limited upside," IIFL President (Retail Broking) Prashanth Prabhakaran said. Analysts said global markets look supportive and some investors expect the Reserve Bank to start cutting lending rates in view of dip in inflation at the monetary policy review meeting on January 24. If RBI reduces interest rates, then there will be more upside to the index, but there may be some profit-booking in case it doesn't effect any major change, experts said. Gradual easing of funding problems in the euro-zone, improvement in the jobless claim data in the US, the appreciation of rupee against the US dollar and earnings results for the October-December quarter helped markets see smart gains last week.
The Reserve Bank is scheduled to conduct its next mid-quarterly review of the monetary policy on March 15. Pointing out that liquidity pressures are still there, Gokarn said the central bank would undertake Open Market Operations (OMOs) to pump more funds into the system. The new CRR came into effect from January 28. "Yesterday was the first day of the new CRR. Call rates are around 9 or 9.1 (per cent)... These are indications of pressures (on liquidity). Based on that, obviously, we will consider OMOs," he said. As part of OMOs, the RBI buys government securities from banks, thereby injecting funds into the system. When asked if the RBI would prefer OMOs over a CRR cut, Gokarn said the last policy has already given a signal of liquidity easing as interest rates have already peaked. "When we did CRR cut, we did it recognising that it would be seen as a signal on the monetary stance as well and the signal essentially is that the interest rate cycle has peaked," Gokarn added.
The rupee recovered slightly against the pound sterling to settle at 78.07/09 from Monday's close of 78.10/12 and also recouped against the euro to 65.28/30 from 65.35/37. It also rebounded against the Japanese yen to 64.76/78 per 100 yen from last close of 65.00/02.
Budget 2012: Excise, service tax rates headed up as RBI makes it precondiiton for monetary easing
NEW DELHI: Policymakers have begun talks on raising indirect taxes and withdrawing the last remnants of the 2008 stimulus, as the government comes under fire for not tackling the rising fiscal deficit.
"There is a thinking within some sections in the finance ministry as well as other senior policymakers that the budget needs to send strong signals on fiscal prudencea hikes in excise duty and service tax rates are under consideration," said a government official. The official said a two percentage point increase in both excise duty and service tax, which would take the Cenvat and service tax rates to 12%, was being considered though a final decision would be taken at the highest political level. The government had cut excise duties and service tax rates in 2008 as part of a stimulus package to tackle the global economic slowdown. While some of these cuts were partially rolled back in last year's budget, the ballooning subsidy bill and lower-than-expected revenue collections have resulted in government overshooting its deficit target for 2011-12 by a wide margin. The Reserve Bank of India has made fiscal consolidation a pre-condition for monetary easing and the head of the Prime minister's economic advisory panel has also called for indirect taxes to be restored to their 2008 levels. "In the wake of international financial crisis, we brought down the indirect tax rates to provide a stimulus. We don't have that space anymore. Therefore, we should go back to the rates that prevailed before the financial crisis," said C Rangarajan, chairman of the Prime Minister's Economic Advisory Council, in an interview with ET in December.
The Reserve Bank of India had in its recent monetary policy review, put out a red flag on the lack of fiscal consolidation measures being taken by the government. After the numbers were released C Rangarajan, chairman to the Prime Minister's Economic Advisory Council, said that government will not be able to stick to its budgeted fiscal deficit target. The centre has managed to raise 5.2 lakh crore in revenue during the period, which is 61% of the budgeted target for the entire fiscal. With only three months left in the current fiscal the government is unlikely to meet its revenue target of 8.4 lakh crore. Net tax revenue collections stood at 4.2 lakh crore, 63.3% of the budgeted target while total expenditure was at 8.96 lakh crore during the April-December period. Net tax revenues were up by 12.2 % in December with corporate tax showing a meagre increase of 6% for the first nine months compared to the corresponding period last year, while personal tax showed a higher increase of 16.4%. Excise collections were up by only 8.12% during the period.
Business confidence in India has declined over the past year, as economic growth slowed from an annual rate of 8.5 per cent in 2010/11 to about 7 per cent, and corruption and policy paralysis discouraged investment in big projects. Just over half of chief executives in India are still very confident of revenue growth in the next 12 months, down from 88 per cent a year ago, according to a recent survey by PricewaterhouseCoopers. The majority of companies surveyed by E&Y were confident in the long-term prospects for investment in India, given sluggish growth in the United States and debt problems in Europe. Almost 70 per cent of 382 international companies surveyed said they plan to increase or maintain their operations in India, said the report, which was prepared for the World Economic Forum gathering in Davos, Switzerland. Just 19 per cent said they had no plans to enter the country or were preparing to withdraw. Robust domestic demand, cost competitiveness and a cheap, ever-growing labour force were cited India's key benefits. Although the ongoing global uncertainty...(has) prompted some discomfort among global investors to make long-term commitments, India's inherent advantages and its proven resilience to counter macroeconomic challenges far outweigh these concerns, Balsara said. Automakers led the way in investing in India last year, boosting spending by 46 per cent, E&Y said. Technology and life sciences companies were other big spenders, while spending by foreign companies on infrastructure and retail projects declined. Ford Motor Co, which said this month it would spend $142 million on its Indian operations, and the Renault-Nissan alliance are among companies that are stepping up investment in India. Other companies, particularly retailers, are not so sure. Sweden's IKEA, the world's biggest furniture retailer, said this week that would be difficult to set up shop in India because of complex government sourcing rules announced this month. Plans by companies such as Wal-Mart were set back in December when the government, under pressure from political allies, abandoned a long-mooted policy to open up the supermarket sector to direct investment by foreign companies
MUMBAI: The Reserve Bank on Monday dispensed with the rule under which banks were required to seek its approval for opening and maintaining vostro accounts by non-resident exchange houses for each new client. Vostro is an account that one party holds for another. "With a view to give more operational leeway to the AD Category-I banks, it has been decided to dispense with the requirement of prior approval of the RBI for opening and maintaining each Rupee Vostro account in India of non-resident Exchange Houses in connection with the Rupee Drawing Arrangements (RDAs) that banks enter into with them," the apex bank said in a circular. RBI said that approved dealer banks can now take its permission the first time they enter into such an arrangement with non-resident exchange houses from the Gulf countries, Hong Kong, Singapore and Malaysia. "Subsequently, they may enter into RDAs, subject to the prescribed guidelines and inform the RBI immediately," RBI said. The circular said, "Once the total number of RDAs reaches 20, the AD Category-I bank may cause a detailed external Audit of their internal system to ensure that it is working satisfactorily. "Based on the satisfactory report, the board of AD Category-I banks may authorise more such arrangements. A copy of the board note together with board resolution in the matter may be filed with the RBI and new arrangements informed to the RBI." In another circular, the apex bank said that it has also dispensed with the old rule under which fresh licences were issued to banks and financial institutions to act as Full Fledged Money Changers on a selective basis based on criteria. Such criteria included provisions for facilitating an increase in outreach and preference was given to branches based locational advantage like being located in border areas or tourist centers and so on. "In view of the recent measures adopted to provide more flexibility to the Authorised Persons in selecting the location for their branches, it has now been decided to remove the criteria relating to increase in outreach and locational advantage while considering the applications for issuance of fresh licenses for Full Fledged Money Changers (FFMC)," the RBI said.
Reserve Bank of India says open to more debt buybacks through OMOs
CHENNAI: India's central bank is open to more debt buybacks through open market operations to address the strain on liquidity, Reserve Bank of India Deputy Governor Subir Gokarn said on Monday. The RBI has bought back about 719 billion rupees ($14.44 billion) of government bonds from the
secondary market since late November to reduce pressure on yields and ease a cash crunch after New Delhi's increased its borrowing plan for 2011/12. Bond yields fell on Monday, as traders picked up bonds on hopes of more debt buybacks from the RBI to infuse liquidity, as the cut in banks' cash reserve ratio had only a marginal impact at easing the cash shortage. The RBI had cut CRR, or the share of deposits banks hold with the central bank, by 50 basis points to 5.5 percent to infuse liquidity. The CRR cut is expected to have released about 320 billion rupees ($6.43 billion) into the banking system on Saturday.