Nothwithstanding the slow down in economic growth and high inflation, Finance Minister P Chidambaram on Friday said that the Fiscal Responsibility and Budget Management (FRBM) target of reducing fiscal deficit by 0.3 per cent will be met this fiscal. In Budget 2008-09, the Finance Minister has targeted to bring down the fiscal deficit to 2.5 per cent of GDP. Asked about the slowdown in GDP growth in the first quarter of this fiscal to 7.9 per cent, he said, last year, we expected 9 per cent GDP growth and got 9.1 per cent. This year, we expect it close to 8 per cent, the Finance Minister said at a programme.Chidambaram said that there were high degree of savings as well as high level of investment.
Saturday, August 30, 2008
The Agriculture Growth Dropped To 3 Per Cent - 3o Aug 08
Finance Minister P Chidambaram has reiterated that GDP growth for this year will be close to the earlier assessment of about 8 per cent. Earlier, the first quarter GDP growth came in at 7.9 per cent, from 9.2 per cent a year earlier, primarily due to a sharp fall in manufacturing activity. The levels of investment and savings remains strong in economy. During the first quarter, the manufacturing growth saw a big decline to 5.6 per cent, from 10.9 per cent a year earlier.
The agriculture growth dropped to 3 per cent, as compared to 4.4 per cent a year earlier. Electricity grew at 2.6 per cent while mining sector grew at 4.8 per cent. On the positive side, construction witnessed a big jump, increasing to 11.4 per cent year-on-year, as compared to 7.7 per cent in the previous fiscal. Deutsche Bank however forecast a further drop in GDP growth this year. We expect GDP growth at 6%-6.5% by year end.
The agriculture growth dropped to 3 per cent, as compared to 4.4 per cent a year earlier. Electricity grew at 2.6 per cent while mining sector grew at 4.8 per cent. On the positive side, construction witnessed a big jump, increasing to 11.4 per cent year-on-year, as compared to 7.7 per cent in the previous fiscal. Deutsche Bank however forecast a further drop in GDP growth this year. We expect GDP growth at 6%-6.5% by year end.
The First Quarter GDP Growth - 30 Aug 08
The first quarter GDP growth has dropped to its slowest pace since 2004 to 7.9 per cent, from 9.2 per cent a year earlier. The manufacturing growth saw a big decline to 5.6 per cent, from 10.9 per cent a year earlier. The agriculture growth dropped to 3 per cent, as compared to 4.4 per cent a year earlier. Electricity grew at 2.6 per cent while mining sector grew at 4.8 per cent.
On the positive side, construction witnessed a big jump, increasing to 11.4 per cent year-on-year, as compared to 7.7 per cent in the previous fiscal. But analysts still see further monetary tightening by the Reserve Bank of India. We expect further monetary tightening by the central bank, S&P said. Industrialist Adi Godrej said the GDP growth at 8 per cent levels is "still good" for India. Consumer demand has been firm. Deutsch Bank however forecast a further drop in GDP growth this year. We expect GDP growth at 6%-6.5% by year end.
On the positive side, construction witnessed a big jump, increasing to 11.4 per cent year-on-year, as compared to 7.7 per cent in the previous fiscal. But analysts still see further monetary tightening by the Reserve Bank of India. We expect further monetary tightening by the central bank, S&P said. Industrialist Adi Godrej said the GDP growth at 8 per cent levels is "still good" for India. Consumer demand has been firm. Deutsch Bank however forecast a further drop in GDP growth this year. We expect GDP growth at 6%-6.5% by year end.
Friday, August 29, 2008
New IPO Payment System To Be Effective From Sept - 29 Aug 08
Woes of retail investors over refund of payments in IPO are likely to be mitigated as market regulator Sebi on Thursday made alternative payment system for public issues effective from next month, which will ensure that the money of such investors is not blocked unless shares are actually allotted to them.The new system, called Applications Supported by Blocked Amount (ASBA), is based on the system of Self Certified Syndicate Banks (SCSBs).
In this regard, the market regulator has also designated Corporation Bank, HDFC bank and Union Bank of India as SCSBs.These banks will be acting as an SCSB in public issues which open on or after September 1 onwards.The application forms for this payment mode will be submitted to banks which have been selected as SCSBs, the regulator said.Both the current system of payment through cheques and the alternative system would co-exist, the Sebi chairman has said earlier this month.The alternative payment system called the additional mode of payment through applications supported by blocked amount will exempt retail investors from paying advance fees and instead let the amount to be retained in bank accounts till allotment is completed.
Under the new payment process, self-certified syndicate banks would accept applications of retail investors and block the fund to the extent of the bid amount and upload the details in the electronic bidding system of the bourses.They would then unblock the funds once allotments are finalised and transfer the amounts for allotted shares to the issuer.
This mode of payment will apply only to public issues offered under the book-building route and only to those retail investors who bid at the cut-off price as the single option and agree not to revise their bids.The new system is expected to eliminate the process of refunds by companies to the applicants in case of non-allotment of shares
In this regard, the market regulator has also designated Corporation Bank, HDFC bank and Union Bank of India as SCSBs.These banks will be acting as an SCSB in public issues which open on or after September 1 onwards.The application forms for this payment mode will be submitted to banks which have been selected as SCSBs, the regulator said.Both the current system of payment through cheques and the alternative system would co-exist, the Sebi chairman has said earlier this month.The alternative payment system called the additional mode of payment through applications supported by blocked amount will exempt retail investors from paying advance fees and instead let the amount to be retained in bank accounts till allotment is completed.
Under the new payment process, self-certified syndicate banks would accept applications of retail investors and block the fund to the extent of the bid amount and upload the details in the electronic bidding system of the bourses.They would then unblock the funds once allotments are finalised and transfer the amounts for allotted shares to the issuer.
This mode of payment will apply only to public issues offered under the book-building route and only to those retail investors who bid at the cut-off price as the single option and agree not to revise their bids.The new system is expected to eliminate the process of refunds by companies to the applicants in case of non-allotment of shares
Rupee Slips Marginally Against Dollar - 29 Aug 08
The rupee on August 28 closed a tad lower from the previous close. The rupee opened at 43.68/70 and touched a high of 43.65 before closing at 43.78/79, marginally lower from the previous close of 43.76. Expectations that the Reserve Bank of India may step in to support the rupee also kept many traders away, the dealer added. In the forward premia market, the six-month premium closed at 2.93 per cent (3.14 per cent) and the 12-month closed at 2.71 per cent (2.55 per cent).
MP Govt Gets Rs 210 Cr From 12th Finance Commission0 Date - 29 Aug 08
During the current financial year, Madhya Pradesh has got Rs 210 crore from the 12th Finance Commission under various projects against the total portion of Rs 425 crore.
Until now, Rs 210 crore has been received from the 12th Finance Commission while Rs 215 crore is yet to be received. Thus, a total of Rs 425 crore are to be received during the current financial year. During the year 2007-08, the commission has allocated Rs 332 crore to Panchayat and Rural Development Department, Rs 72 crore to Urban Development, Rs 23 crore to Forest and Rs 104 crore to Revenue Departments. Under special schemes, Rs 75 crore were provided to Tourism and Public Works departments and for urban development works in Dewas town. The rural roads which were placed under PWD for construction under Rural Development Scheme would now be given to Rural Development Department. So far, Rs 22 crore has been provided under this head
Until now, Rs 210 crore has been received from the 12th Finance Commission while Rs 215 crore is yet to be received. Thus, a total of Rs 425 crore are to be received during the current financial year. During the year 2007-08, the commission has allocated Rs 332 crore to Panchayat and Rural Development Department, Rs 72 crore to Urban Development, Rs 23 crore to Forest and Rs 104 crore to Revenue Departments. Under special schemes, Rs 75 crore were provided to Tourism and Public Works departments and for urban development works in Dewas town. The rural roads which were placed under PWD for construction under Rural Development Scheme would now be given to Rural Development Department. So far, Rs 22 crore has been provided under this head
MP Govt Gets Rs 210 Cr From 12th Finance Commission Date - 29 Aug 09
During the current financial year, Madhya Pradesh has got Rs 210 crore from the 12th Finance Commission under various projects against the total portion of Rs 425 crore.
Until now, Rs 210 crore has been received from the 12th Finance Commission while Rs 215 crore is yet to be received. Thus, a total of Rs 425 crore are to be received during the current financial year. During the year 2007-08, the commission has allocated Rs 332 crore to Panchayat and Rural Development Department, Rs 72 crore to Urban Development, Rs 23 crore to Forest and Rs 104 crore to Revenue Departments. Under special schemes, Rs 75 crore were provided to Tourism and Public Works departments and for urban development works in Dewas town. The rural roads which were placed under PWD for construction under Rural Development Scheme would now be given to Rural Development Department. So far, Rs 22 crore has been provided under this head
Until now, Rs 210 crore has been received from the 12th Finance Commission while Rs 215 crore is yet to be received. Thus, a total of Rs 425 crore are to be received during the current financial year. During the year 2007-08, the commission has allocated Rs 332 crore to Panchayat and Rural Development Department, Rs 72 crore to Urban Development, Rs 23 crore to Forest and Rs 104 crore to Revenue Departments. Under special schemes, Rs 75 crore were provided to Tourism and Public Works departments and for urban development works in Dewas town. The rural roads which were placed under PWD for construction under Rural Development Scheme would now be given to Rural Development Department. So far, Rs 22 crore has been provided under this head
Thursday, August 28, 2008
Rupee Gains 11 Paise Against - 28 Aug 08
A day after hitting the 44-mark in nearly 17 months against the greenback, the Indian rupee on Wednesday gained 11 paise to close at 43.74/75 on dollar selling by banks.Foreign exchange dealers said the Reserve Bank of India (RBI) heavily sold dollars when the rupee touched the day''s low of 43.93 in late afternoon trade.
The rupee had fallen by about 1.0 per cent in the last two days on hectic dollar purchases by oil companies to meet their month-end payment requirements. Yesterday, the domestic currency touched the 44-mark during intra-day but closed at 43.85/86.Earlier in the day, the rupee traded in a range of 43.6550 and 43.9300 during the day on alternate bouts of dollar buying and selling.The rupee attempted a smart rally at 43.6550 but ran out of steam at the fag end of session in line with weak trends on equity markets. The benchmark Sensex closed the day lower by 185 points
The rupee had fallen by about 1.0 per cent in the last two days on hectic dollar purchases by oil companies to meet their month-end payment requirements. Yesterday, the domestic currency touched the 44-mark during intra-day but closed at 43.85/86.Earlier in the day, the rupee traded in a range of 43.6550 and 43.9300 during the day on alternate bouts of dollar buying and selling.The rupee attempted a smart rally at 43.6550 but ran out of steam at the fag end of session in line with weak trends on equity markets. The benchmark Sensex closed the day lower by 185 points
Inflation To Come Down To 5-6% In A Year - 28 Aug 08
The rising inflation, which has touched a 16-year high of 12.63 per cent, is likely to come down to 5-6 per cent over a period of 12 months, Chief Economic Advisor Arvind Virmani said on August 27. He further said that the Indian economy is likely to see moderation in growth at 7.75-8.75 per cent this fiscal from an impressive 9 per cent in 2007-08 due to a fall in industrial growth and volatility in oil prices.
In a presentation to economic advisers attached to various ministries, Virmani said inflation could come down to 5-6 per cent in a year but it would depend on oil prices. Virmani is marginally scaling down his earlier projection of 8-9 per cent economic growth made in March.Earlier this month, the Prime Minister''s Economic Advisory Council had also revised downwards its forecast for economic growth rate to 7.7 per cent. But Finance Minister P Chidambaram recently said that he expected the economy to grow at close to 8 per cent.Virmani said the economy can achieve an average growth rate of 9 per cent during the 11th Five Year Plan.The economy grew by 9 per cent in the first year of the Five Year Plan, that is 2007-08. The 11th Five Year Plan has targeted the economy to grow at 9 per cent with terminal year clocking a 10 per cent growth rate.
Virmani said he is revising his estimates due to a fall in industrial growth and fluctuation in crude oil prices.Industrial production grew at 5.2 per cent in the first quarter of this fiscal against 10.3 per cent a year ago.Various analysts predict the Indian economy to moderate to sub-eight per cent due to monetary tightening
In a presentation to economic advisers attached to various ministries, Virmani said inflation could come down to 5-6 per cent in a year but it would depend on oil prices. Virmani is marginally scaling down his earlier projection of 8-9 per cent economic growth made in March.Earlier this month, the Prime Minister''s Economic Advisory Council had also revised downwards its forecast for economic growth rate to 7.7 per cent. But Finance Minister P Chidambaram recently said that he expected the economy to grow at close to 8 per cent.Virmani said the economy can achieve an average growth rate of 9 per cent during the 11th Five Year Plan.The economy grew by 9 per cent in the first year of the Five Year Plan, that is 2007-08. The 11th Five Year Plan has targeted the economy to grow at 9 per cent with terminal year clocking a 10 per cent growth rate.
Virmani said he is revising his estimates due to a fall in industrial growth and fluctuation in crude oil prices.Industrial production grew at 5.2 per cent in the first quarter of this fiscal against 10.3 per cent a year ago.Various analysts predict the Indian economy to moderate to sub-eight per cent due to monetary tightening
Insurance Firm Told To Consider Customer''s Plea - 28 Aug 08
The Madras High Court has directed National Insurance Company to consider the representation of a person seeking to know the address of its local branch and demanding that the company print the terms and conditions of insurance policies in the regional language and reimburse his medical expenses, and pass orders in three weeks. Disposing of a writ petition, Justice A. Kulasekaran said that without going into the merits of the case, he was passing the order, given the limited submission of counsel for the petitioner G. Devi and V.S. Suresh. R. Ayyanar, 30, a mason of Annai Sathya Nagar, was injured in a road accident caused by cattle. When he bought a motorcycle on loan, he was informed that the vehicle was insured against accidents and theft. The insurance agent assured him that in the event of an accident, the company would bear the medical expenses
Wednesday, August 20, 2008
Kerala''s Annual Plan Implementation - Aug 20, 2008
The implementation of Kerala''s current annual Plan has so far been better than the accomplishment during the same period of the previous annual Plan, said the Chief Minister, Mr V.S. Achuthanandan. At a review meeting here on Aug 12 of the Plan implementation till July 31 this year, the Chief Minister said the annual Plan spending for 2007-08 was Rs 6,950 crore, which was later revised to Rs 6,693 crore. The total Plan outlay, comprising the Central assistance for Centrally-sponsored schemes, worked out to Rs 7,964 crore.
The total expenditure at the end of the year from State''s share of the Plan was Rs 5,065 crore, which was 73 per cent of the Plan outlay. The outlay for State schemes in the current annual Plan is Rs 7,700 crore and till July 31, the expenditure was Rs 938 crore, representing 12 per cent of the outlay. The allotment for various government departments in the current Plan is Rs 5,822 crore and till July 31, the expenditure was to the tune of Rs 810 crore.
The total expenditure at the end of the year from State''s share of the Plan was Rs 5,065 crore, which was 73 per cent of the Plan outlay. The outlay for State schemes in the current annual Plan is Rs 7,700 crore and till July 31, the expenditure was Rs 938 crore, representing 12 per cent of the outlay. The allotment for various government departments in the current Plan is Rs 5,822 crore and till July 31, the expenditure was to the tune of Rs 810 crore.
Gold Prices Decline - Aug 20, 2008
Gold prices on Aug 19 lost Rs 20 at Rs 11,560 per 10 gram in the bullion market in New Delhi on selling by stockists amidst weak global trends.Selling pressure picked up after the metal fell below $800 an ounce in Asia amid concerns that dollar may gain further eroding the appeal of gold. Traders said strengthening of dollar against yen and euro and a fall in crude oil led to decline in gold prices, They said despite the ongoing festival season retail customers refrained from buying on expectations that the metal might go down further. In Singapore, gold fell by $11.83 to $788.24 an ounce. The metal dropped to $772.98 on August 15, the lowest since October last. Silver also tumbled 2.9 per cent to $12.685 an ounce.
In the domestic market here, standard gold and ornaments lost Rs 20 each at Rs 11,560 and Rs 11,410 per ten grams respectively. Sovereign fell by Rs 50 to Rs 9,650 per piece of eight gram. A similar weakness persisted in white metal prices as silver ready plunged by Rs 460 to Rs 20,200 per kg and weekly-based delivery by Rs 335 to Rs 19,400 per kg respectively. However, silver coins traded around previous level of Rs 27,500 for buying and Rs 27,600 for selling of 100 pieces.
In the domestic market here, standard gold and ornaments lost Rs 20 each at Rs 11,560 and Rs 11,410 per ten grams respectively. Sovereign fell by Rs 50 to Rs 9,650 per piece of eight gram. A similar weakness persisted in white metal prices as silver ready plunged by Rs 460 to Rs 20,200 per kg and weekly-based delivery by Rs 335 to Rs 19,400 per kg respectively. However, silver coins traded around previous level of Rs 27,500 for buying and Rs 27,600 for selling of 100 pieces.
Trade Between India And Pakistan - Aug 20 , 2008
Trade between India and Pakistan can cross $9 billion in the next few years in spite of political differences, industry lobby Associated Chambers of Commerce and Industry of India (Assocham) said. If the two countries conceal political differences, the country can develop strong bilateral ties which can grow from $2 billion to $9 billion. The prospect for collaboration between India and Pakistan has sped up in the fields of banking, freight, transport, tea and rice after the launch of the South-Asian Free Trade Agreement (SAFTA) in January 2006. Bilateral trade has increased from $235.74 million in 2001 to over $1 billion in 2006-07. It said exports from India to Pakistan grew at the rate of 60 per cent and imports at 64 percent during 2002-07, though the balance of trade is still in favour of India.
Tuesday, August 19, 2008
Government To Impose Service Tax On Rental Income From Commercial Properties - Aug 19 , 2008
The Centre on Aug 18 sought the Supreme Court''s intervention in deciding the constitutional validity of the Finance Act 2007 that empowers the government to impose service tax on rental income from commercial properties. A bench headed by Justice B N Agrawal while seeking reply from Retailers Association of India, Confederation of Real Estate Developers'' Associations of India and Multiplex Association of India on the transfer petition filed by the Centre also stayed proceedings before various high courts. The Centre through Department of Revenue has sought transfer of petitions pending before the high courts of Bombay, Madras, Kolkata, Punjab and Haryana and Kerala on the ground that there was a likelihood of conflicting decisions.
According to the petition, retailers, real estate developers and multiplex owners had filed writ petitions before various high courts challenging levy of service tax on leasing, letting, renting or any other similar arrangement in respect of immovable property for use in furtherance of business or commerce. It further said that they had challenged the constitutional validity of the Finance Act 2007 on the ground that it was beyond the legislative competence of the Union and thus Parliament cannot levy such a tax. Pantaloon Retail, Trent Ltd, Aditya Birla Retail Ltd, Archies, CISCO systems India, Citibank NA, DLF Universal, IBM India, ITC Ltd, McDonalds India, Reliance Petromarketing, Reliance Webstore, Bombay Dyeing, Titan Industries, Unilever India Exports, Adlabs Films and Bijli Group are among those who had sought relief contending that lease or license (including renting or letting out) was not a service.
According to the petition, retailers, real estate developers and multiplex owners had filed writ petitions before various high courts challenging levy of service tax on leasing, letting, renting or any other similar arrangement in respect of immovable property for use in furtherance of business or commerce. It further said that they had challenged the constitutional validity of the Finance Act 2007 on the ground that it was beyond the legislative competence of the Union and thus Parliament cannot levy such a tax. Pantaloon Retail, Trent Ltd, Aditya Birla Retail Ltd, Archies, CISCO systems India, Citibank NA, DLF Universal, IBM India, ITC Ltd, McDonalds India, Reliance Petromarketing, Reliance Webstore, Bombay Dyeing, Titan Industries, Unilever India Exports, Adlabs Films and Bijli Group are among those who had sought relief contending that lease or license (including renting or letting out) was not a service.
inflation rate is largely due to increase in food and oil prices - Aug 19 , 2008
British banking giant Barclays has said inflation in India could increase further, as it expects another round of retail fuel price hike among other developments that could feed price rise. Upward pressure on inflation is likely to continue throughout the year, largely due to rising food prices and elevated oil prices...the Indian government recently raised retail fuel prices by around 10 per cent, and we expect there is more to come," Barclays Wealth Research said. The rise in the wholesale inflation rate is largely due to increase in food and oil prices, Barclays said in the latest report titled ''caging the beast''.
Inflation had surged to 12.44 per cent for the week ended August 2. Fruit prices went up by 8.9 per cent, pulses became dearer by 1.4 per cent during the week. While, in the fuel category, the price of diesel oil rose by 16 per cent. The annual rate of inflation for the week ended June 7, was revised from 11.05 per cent to 11.66 per cent. Earlier, the global investment banker had said: "We believe WPI inflation will remain in double-digit territory until May 2009. We expect WPI inflation of 17 per cent by September 2008". Various measures were taken to contain inflation, like export ban were imposed on items such as pulses, wheat, rice, cement and some steel products. Besides, on July 29, the Reserve Bank of India increased both the Repo rate and the cash reserve rate (CRR) by 50 basis points and 25 basis points respectively, taking both to 9 per cent.
Inflation had surged to 12.44 per cent for the week ended August 2. Fruit prices went up by 8.9 per cent, pulses became dearer by 1.4 per cent during the week. While, in the fuel category, the price of diesel oil rose by 16 per cent. The annual rate of inflation for the week ended June 7, was revised from 11.05 per cent to 11.66 per cent. Earlier, the global investment banker had said: "We believe WPI inflation will remain in double-digit territory until May 2009. We expect WPI inflation of 17 per cent by September 2008". Various measures were taken to contain inflation, like export ban were imposed on items such as pulses, wheat, rice, cement and some steel products. Besides, on July 29, the Reserve Bank of India increased both the Repo rate and the cash reserve rate (CRR) by 50 basis points and 25 basis points respectively, taking both to 9 per cent.
Rupee Ends Against Dollar - Aug 19, 2008
The rupee lost nearly 60 paise against the greenback on Aug 18, following heavy dollar purchasing by oil companies and other corporates. The rupee which opened lower at 43.28 traded at an average level of 43.30 for the major part of the day. Towards the end of the trading session, heavy dollar purchasing pulled it down to close at 43.59/60, against Aug 14 close of 43.01. The rupee is 1.33 per cent lower than Aug 14 close.
Monday, August 18, 2008
PM : India''s Inflation Is Imported - Aug 18, 2008
Prime Minister Manmohan Singh on August 15 said a major challenge before his government is to control inflation while ensuring that the current boom in the Indian economy, with a target of 10 per cent growth, is not compromised.
For the first time in our history, we have had four years of nearly 9 per cent economic growth. India is among the world''s fastest growing economies, the prime minister said in his 42-minute Independence Day speech.But there are new challenges that we face. We have the challenge of inflation. I know how much each one of you is concerned about the recent rise in prices, he said in the address to the nation from the historic Red Fort.
Describing the current trend in price rise, which has seen the annual rate of inflation climb to a 14-year high of 12.44 per cent, as imported, the prime minister said steps were taken to ease pressures on the average citizen."But while making these efforts we should avoid doing anything that hurts growth," he said. "Our economy must grow at the rate of at least 10 per cent every year to get rid of poverty and generate employment for all."
The prime minister said his government had worked hard to ensure that inflation was not as high as in many countries and taken special steps to insulate the poor from the full impact of rising food and fuel prices.
He said that while his government had kept the prices of kerosene, fertilisers, wheat and rice unchanged, the full impact of the rise in fuel prices had also not been passed on fully to consumers.The prime minister also said that in ensuring the overall development of the Indian economy some key measures had also been taken in the past four-and-a-half years to spruce up the country''s physical infrastructure.
For the first time in our history, we have had four years of nearly 9 per cent economic growth. India is among the world''s fastest growing economies, the prime minister said in his 42-minute Independence Day speech.But there are new challenges that we face. We have the challenge of inflation. I know how much each one of you is concerned about the recent rise in prices, he said in the address to the nation from the historic Red Fort.
Describing the current trend in price rise, which has seen the annual rate of inflation climb to a 14-year high of 12.44 per cent, as imported, the prime minister said steps were taken to ease pressures on the average citizen."But while making these efforts we should avoid doing anything that hurts growth," he said. "Our economy must grow at the rate of at least 10 per cent every year to get rid of poverty and generate employment for all."
The prime minister said his government had worked hard to ensure that inflation was not as high as in many countries and taken special steps to insulate the poor from the full impact of rising food and fuel prices.
He said that while his government had kept the prices of kerosene, fertilisers, wheat and rice unchanged, the full impact of the rise in fuel prices had also not been passed on fully to consumers.The prime minister also said that in ensuring the overall development of the Indian economy some key measures had also been taken in the past four-and-a-half years to spruce up the country''s physical infrastructure.
Govt Allows Private Pfs To In Stock Markets - Aug 18, 2008
Nearly a fortnight after ending the monopoly of SBI in managing EPF accounts, the government on Aug 14 allowed private provident, pension and gratuity funds to invest up to 15 per cent of their corpus in stock markets, a step seen as a financial sector reform. Besides, norms regarding investment in securities have also been relaxed. Under the revised investment pattern, these can invest up to 15 per cent of investable funds in shares of companies on which derivatives are available in the Bombay Stock Exchange or National Stock Exchange, said a Finance Ministry notification.
Guidelines, which would be applicable with effect from April 1, 2009, have been issued following public feedback on draft proposals released last year.A senior finance ministry official had earlier said that government would impress upon the Employees Provident Fund, which has a corpus of over Rs 2,40,000 crore, to follow these investment guidelines. Earlier on July 30, the government allowed private players HSBC, Reliance Capital and ICICI Prudential to manage the incremental funds of EPFO, subscribed by over four crore employees, thus ending the monopoly of state-run State Bank of India.
Government has also allowed private funds to invest up to 55 per cent of their money in central and state government securities and gilt mutual funds.Private funds operated to provide social security to employees can now invest in term deposit receipts of not less than one year duration issued by scheduled commercial banks subject to specified financial criteria. A new category of instruments such as rupee bonds of multilateral funding agencies, money market instruments have been provided under the revised investment pattern. Besides, funds have been provided a flexible ceiling for various category of instruments instead of fixed investment ceiling as at present.
Guidelines, which would be applicable with effect from April 1, 2009, have been issued following public feedback on draft proposals released last year.A senior finance ministry official had earlier said that government would impress upon the Employees Provident Fund, which has a corpus of over Rs 2,40,000 crore, to follow these investment guidelines. Earlier on July 30, the government allowed private players HSBC, Reliance Capital and ICICI Prudential to manage the incremental funds of EPFO, subscribed by over four crore employees, thus ending the monopoly of state-run State Bank of India.
Government has also allowed private funds to invest up to 55 per cent of their money in central and state government securities and gilt mutual funds.Private funds operated to provide social security to employees can now invest in term deposit receipts of not less than one year duration issued by scheduled commercial banks subject to specified financial criteria. A new category of instruments such as rupee bonds of multilateral funding agencies, money market instruments have been provided under the revised investment pattern. Besides, funds have been provided a flexible ceiling for various category of instruments instead of fixed investment ceiling as at present.
Gold Rates Decline In The Last Few Days - Aug 18 , 2008
Gold rates have seen a precipitous decline in the last few days and indeed in the last four weeks, taking most gold bulls by surprise. Speculators on strength of whose support the yellow metal reach seemingly unsustainable heights have deserted it in search of better prospects elsewhere. The gravity of the situation can be estimated from the price movement. In the cash market, the yellow metal traded on July 17 at $957 an ounce. By August 7, the market had already gradually fell to $873/oz; and on August 14, the spot rate was $807/oz. Investors and investment funds, who had betted on an increase in gold prices, had to quit the market in a hurry to limit their losses.
Thursday, August 14, 2008
Gold Recovers On Fresh Seasonal Demand - Aug 14 , 2008
Gold prices recovered sharply by Rs 230 to Rs 11,620 per 10 gram in the bullion market on Wednesday on emergence of buying by stockists and jewellery fabricators influenced by firming global trend. The precious metal, which experienced an intra-day free fall by losing over Rs 900, recovered sharply due to spurge in buying activity by jewelers and stockists on heavy marriage and festival demand.
Market sentiments turned bullish on reports that gold has rebounded from a seven-month low in London due to revival in jewelry and investment demand after the fresh fall, traders said.They said fresh pick up in demand for current festive season also boosted the market sentiment to some extent.
Gold in London rose by 8.47 dollar to 820.80 dollar an ounce. It fell to 802.34 dollar on Tuesday, the lowest since December as dollar strengthened to the highest in 6 months.
In the domestic market, standard gold and ornaments rose sharply by Rs 230 each to Rs 11,620 and Rs 11,470 per 10 gram, respectively. A similar firmness was extended to Silver. Silver ready rose by Rs 860 to Rs 21,460 and weekly-based delivery by Rs 730 to Rs 21,160 per kg respectively. Silver coins also gained Rs 200 at Rs 27,400 for buying and Rs 27,500 for selling of 100 pieces.
Market sentiments turned bullish on reports that gold has rebounded from a seven-month low in London due to revival in jewelry and investment demand after the fresh fall, traders said.They said fresh pick up in demand for current festive season also boosted the market sentiment to some extent.
Gold in London rose by 8.47 dollar to 820.80 dollar an ounce. It fell to 802.34 dollar on Tuesday, the lowest since December as dollar strengthened to the highest in 6 months.
In the domestic market, standard gold and ornaments rose sharply by Rs 230 each to Rs 11,620 and Rs 11,470 per 10 gram, respectively. A similar firmness was extended to Silver. Silver ready rose by Rs 860 to Rs 21,460 and weekly-based delivery by Rs 730 to Rs 21,160 per kg respectively. Silver coins also gained Rs 200 at Rs 27,400 for buying and Rs 27,500 for selling of 100 pieces.
Rupee Gains 27 Paise Against Dollar - Aug 14 , 2008
The rupee gained by 27 paise against the greenback on August 13 because of sustained demand for dollars from corporates. The domestic currency opened weaker at 42.56/58 and fell further to touch an intra-day low 42.77/78. The rupee closed at 42.64/65, against the previous close of 42.37/38. Dollar-buying by big corporate houses and the 119-point fall in the Sensex pulled the rupee down to its day''s low. The rupee partially recovered after the two foreign banks were seen selling dollars, added the dealer. The global strengthening of the dollar against other major currencies is likely to adversely impact the rupee as well. In the forward market, the 6-month premium closed marginally lower at 4.20 per cent (4.26) and the 12-month ended at 3.36 per cent (3.40).
Wednesday, August 13, 2008
WTO Director General Pascal Lamy On Tuesday - Aug 13 , 2008
Undaunted by the collapse of the ministers'' meeting in Geneva last month, WTO Director General Pascal Lamy on Tuesday said a global trade deal is possible by the year-end but members, including India and the US, must bridge differences at political level.
"The good news is that there may be still a possibility to move this forward and conclude these negotiations within the time-frame which all the WTO members had agreed since last year, that is end-2008," WTO Director-General Pascal Lamy said at a CII meeting.
The talks "flopped" last month after a number of countries, led by the United States and India, failed to agree over operationalisation of "special safeguard mechanism", that would have enabled the developing countries to raise tariffs to protect poor farmers to counter surge in imports.
Commerce and Industry Minister Kamal Nath, who was also present, said, "We are at a point where a lot has been accomplished" and the deal is possible.
WTO members, which met in Geneva from July 20-29 failed to reach a consensus on agriculture and industrial goods.
"The good news is that there may be still a possibility to move this forward and conclude these negotiations within the time-frame which all the WTO members had agreed since last year, that is end-2008," WTO Director-General Pascal Lamy said at a CII meeting.
The talks "flopped" last month after a number of countries, led by the United States and India, failed to agree over operationalisation of "special safeguard mechanism", that would have enabled the developing countries to raise tariffs to protect poor farmers to counter surge in imports.
Commerce and Industry Minister Kamal Nath, who was also present, said, "We are at a point where a lot has been accomplished" and the deal is possible.
WTO members, which met in Geneva from July 20-29 failed to reach a consensus on agriculture and industrial goods.
Technology-Specific Special Economic Zone - Aug 13 , 2008
Even the ground-levelling work has not begun at the site proposed for the Information Technology-specific Special Economic Zone here, creating doubts among citizens about the status of the ambitious project. A senior ELCOT official, however, said work would begin soon.
The magnesite-rich area spread over almost 66 hectares includes 31.37 hectares for which Burn Standard Company, a public sector undertaking engaged in open-cast mining, has been seeking an extension of lease by another 20 years. The State has, however, turned down the request: the lease expired in June 2001. Chief Minister M. Karunanidhi laid the foundation stone for the zone a year ago.
The magnesite-rich area spread over almost 66 hectares includes 31.37 hectares for which Burn Standard Company, a public sector undertaking engaged in open-cast mining, has been seeking an extension of lease by another 20 years. The State has, however, turned down the request: the lease expired in June 2001. Chief Minister M. Karunanidhi laid the foundation stone for the zone a year ago.
Economy Are Getting Stronger - Aug 13 , 2008
The signs of slowdown in the economy are getting stronger. After car sales fell 1.7% in July, the first quarter figure of industry''s performance revealed another gloomy picture. In April-June 2008, industrial growth crashed to 5.2%, against 10.3% in the same period last year.
In June, industrial growth slowed down to 5.4% from 8.9% in the same month last year as manufacturing decelerated to 5.9% from 9.7% and electricity generation to 5.4% from 8.9%. However, the June figure is an improvement over 3.8% registered in May.But, the slowdown in the industrial growth will have a direct impact on GDP growth. Industry chamber Assocham''s president Sajjan Jindal who is also MD of Jindal Vijaynagar Steel, said, it is now a matter of serious concern. We would be lucky if India achieves a GDP growth of 8% in the current fiscal as industrial production has suffered heavily.
Citigroup Global Markets, said slowdown in industrial growth in Q1 is similar to trends seen during late 1990s and given the impact of monetary tightening, GDP growth estimates will be revised downwards to 7.7% for 2008-09 and 7.9% for 2009-10. Goldman Sachs also said the June data suggests weaker industrial production has set in.A worrying factor is the slowdown in capital goods growth, which is crucial for future industrial growth. Capital goods production growth in June 2008 has declined to 5.6% from 23.1% in the same period last year. In April-June, the growth came down to 6.5% from 19.1% in the same period last year. This clearly suggests a slowdown in the investment in the industrial sector.
The growth in consumer goods sector is encouraging, considering the rise in interest rates. As RBI tightened the monetary policy to contain inflation, which pushed up the interest rates, the demand for consumer goods are likely to be affected very badly. But, the trend in June has belied that apprehension as the growth in these sectors has revived.Economists feel the revival in consumer goods'' demand is mainly on account of good monsoon and high procurement prices fixed by the government for wheat and rice. But, the high interest rate has affected investment in the infrastructure sector, which is clearly visible by the substantial decline in the production of capital goods. Growth in six core infrastructure industries, which account for 26.68% of industrial production expanded at a sluggish pace of 3.5% in April-June against 6.4% last year. Among infrastructure industries, crude production fell by 0.2% in Q1 against 0.7% a year ago.
In June, industrial growth slowed down to 5.4% from 8.9% in the same month last year as manufacturing decelerated to 5.9% from 9.7% and electricity generation to 5.4% from 8.9%. However, the June figure is an improvement over 3.8% registered in May.But, the slowdown in the industrial growth will have a direct impact on GDP growth. Industry chamber Assocham''s president Sajjan Jindal who is also MD of Jindal Vijaynagar Steel, said, it is now a matter of serious concern. We would be lucky if India achieves a GDP growth of 8% in the current fiscal as industrial production has suffered heavily.
Citigroup Global Markets, said slowdown in industrial growth in Q1 is similar to trends seen during late 1990s and given the impact of monetary tightening, GDP growth estimates will be revised downwards to 7.7% for 2008-09 and 7.9% for 2009-10. Goldman Sachs also said the June data suggests weaker industrial production has set in.A worrying factor is the slowdown in capital goods growth, which is crucial for future industrial growth. Capital goods production growth in June 2008 has declined to 5.6% from 23.1% in the same period last year. In April-June, the growth came down to 6.5% from 19.1% in the same period last year. This clearly suggests a slowdown in the investment in the industrial sector.
The growth in consumer goods sector is encouraging, considering the rise in interest rates. As RBI tightened the monetary policy to contain inflation, which pushed up the interest rates, the demand for consumer goods are likely to be affected very badly. But, the trend in June has belied that apprehension as the growth in these sectors has revived.Economists feel the revival in consumer goods'' demand is mainly on account of good monsoon and high procurement prices fixed by the government for wheat and rice. But, the high interest rate has affected investment in the infrastructure sector, which is clearly visible by the substantial decline in the production of capital goods. Growth in six core infrastructure industries, which account for 26.68% of industrial production expanded at a sluggish pace of 3.5% in April-June against 6.4% last year. Among infrastructure industries, crude production fell by 0.2% in Q1 against 0.7% a year ago.
Tuesday, August 12, 2008
Rupee Against US Dollar At 42.16 - Aug 12 , 2008
The Indian rupee on August 11 depreciated by nine paise to close at 42.16/17 against the green back following sustained capital outflows. In a fairly active trade at the Interbank Foreign Exchange (Forex) market, the domestic unit resumed higher at 41.95/96 a dollar and touched a high of 41.91 a dollar on the back of sustained rally in equity markets.
However later in the day, it fell back to a low of 42.22 before concluding the day at 42.16/17 a dollar from previous close of 42.07/08.Traders said short-coverings of dollar by exporters on expectation of further rise in the US currency pushed the rupee downwards.Dollar rose against the major rivals in overseas market, which pulled the rupee downwards.Some large corporates bought dollars for their requirements which weighed on the rupee, dealers said.Meanwhile, the stock market benchmark Sensex on Monday rose by 336 points while most of the Asian indices displayed a mixed trend at close.The Reserve Bank, however, fixed the reference rate for the US dollar at Rs 42.00 and for the single European currency at Rs 62.82.
However later in the day, it fell back to a low of 42.22 before concluding the day at 42.16/17 a dollar from previous close of 42.07/08.Traders said short-coverings of dollar by exporters on expectation of further rise in the US currency pushed the rupee downwards.Dollar rose against the major rivals in overseas market, which pulled the rupee downwards.Some large corporates bought dollars for their requirements which weighed on the rupee, dealers said.Meanwhile, the stock market benchmark Sensex on Monday rose by 336 points while most of the Asian indices displayed a mixed trend at close.The Reserve Bank, however, fixed the reference rate for the US dollar at Rs 42.00 and for the single European currency at Rs 62.82.
Raising The Interest Rate Cap On ECB - Aug 12 , 2008
The government is looking at raising the interest rate cap on external commercial borrowings (ECB) to ease difficulties faced by companies raising funds overseas. The move follows after the Ministry received representations from the industry.However, there will be no change in ECB policy in the near future.
Inflation Control No Bar To Growth - Aug 12 , 2008
I frankly cannot figure out the frenzied excitement of the commentariat (the new buzz word denoting the entire community of commentators) every time the Reserve Bank of India Governor, Dr Y V Reddy, periodically busies himself with the limited repertoire of rates repo, cash reserve ratio, statutory liquidity ratio at his disposal.For instance, a Wharton College paper says, for a banker who is supposed to make his moves sedately and soberly, Reddy has always surprised the market. Whether it is the size of hikes or their timing, the RBI Governor has habitually done the unexpected.
This is a bit of overplaying for effect. Dr Reddy has always had a penchant for doing the expected and has never sprung a surprise. In fact, even in the second half of 2006-07 itself, he raised the main lending rate five times and increased the CRR three times to drain liquidity from the system.There are confident assertions by observers of another hike before the year ends.
A research report by Merrill Lynch, prepared after the most recent hikes loftily proclaims: Actually, to me, the RBI looks like a maestro who has a piano with only three keys to play upon, and who, for all it is worth, keeps pounding them, producing only loud clanging noises and no music.Ever since the rate of inflation started climbing in February, Dr Reddy has been notching up those rates by assorted slabs of basis points (the glamorous present-day coinage looking numerically more impressive than old time percentage equivalents) to halt the march of inflation.
For all the convoluted explanations accompanying every such grand performance to full audiences in the cavernous hall of the soaring RBI building in Mumbai, inflation is proving to be unstoppable and has now crossed the dreaded double digit and threatens to move further North.
This is a bit of overplaying for effect. Dr Reddy has always had a penchant for doing the expected and has never sprung a surprise. In fact, even in the second half of 2006-07 itself, he raised the main lending rate five times and increased the CRR three times to drain liquidity from the system.There are confident assertions by observers of another hike before the year ends.
A research report by Merrill Lynch, prepared after the most recent hikes loftily proclaims: Actually, to me, the RBI looks like a maestro who has a piano with only three keys to play upon, and who, for all it is worth, keeps pounding them, producing only loud clanging noises and no music.Ever since the rate of inflation started climbing in February, Dr Reddy has been notching up those rates by assorted slabs of basis points (the glamorous present-day coinage looking numerically more impressive than old time percentage equivalents) to halt the march of inflation.
For all the convoluted explanations accompanying every such grand performance to full audiences in the cavernous hall of the soaring RBI building in Mumbai, inflation is proving to be unstoppable and has now crossed the dreaded double digit and threatens to move further North.
Monday, August 11, 2008
IPO Activity In The Asia Pacific Region - Aug 11 , 2008
The IPO activity in the Asia Pacific region has nearly halved in the first half of this year, with two of the fastest growing economies - India and China - reporting a drop of nearly 18 billion dollar in mobilisation of such deals.The total capital gathered by India Inc through IPO in the first half of 2008 stood at $4.07 billion as compared to $7.68 billion in the same period in 2007, global accounting and consulting firm Grant Thornton said.
Meanwhile, data by another deal tracking firm Dealogic said IPOs by Chinese issuers have raised $15.5 billion through 103 deals so far this year, nearly half of the amount raised in the corresponding period a year-ago ($29.5 billion)."This mirrors the wider Asia Pacific trend where issuance decreased 47 per cent to $28.2 billion by way of 330 deals," Dealogic added.
The slowdown of the IPO activity should be seen in the light of the fact that equity market across the world corrected sharply. While the Shanghai Stock Exchange Composite Index plunged 47.82 per cent, the Bombay Stock Exchange benchmark index Sensex lost as much as 29.23 per cent in the first half of this year.
Around 66 per cent of Chinese issuers have opted to list domestically via the Chinese A share market in 2008 so far this year as compared to 46 per cent in the corresponding period of the previous year.Interestingly Grant Thornton''s latest report also highlights the fact that the number of IPOs by corporate India during the half year ended June 2008 has also witnessed a decline, falling to 29 IPOs from 59 issues made during the first half of 2007.The top five IPOs of 2008, accounted for around 85 per cent of the total capital raised during the period between January to June this year.
The top five IPOs of this year include Reliance Power, which raised 2,565 million dollar, Rural Electrification Corporation that mopped up 409.82 million dollar, IPB Infrastructure developers raised 236.14 million dollar, Future Capital grossed 122.84 million dollar, while OnMobile Global raked in 119.91 million dollar.
Around 77 per cent of the total capital raised in India in the first six months of this year was from the power and energy sector, followed by real estate and nfrastructure management which accounted for 9 per cent of the total amount raised. While, in case of China, the initial public offering of China Railway Construction Corp was the largest IPO this year and the sixth largest on record. It priced its 5.7 billion dollar IPO in March via CITIC Group, Citi and Macquarie Group.
Meanwhile, data by another deal tracking firm Dealogic said IPOs by Chinese issuers have raised $15.5 billion through 103 deals so far this year, nearly half of the amount raised in the corresponding period a year-ago ($29.5 billion)."This mirrors the wider Asia Pacific trend where issuance decreased 47 per cent to $28.2 billion by way of 330 deals," Dealogic added.
The slowdown of the IPO activity should be seen in the light of the fact that equity market across the world corrected sharply. While the Shanghai Stock Exchange Composite Index plunged 47.82 per cent, the Bombay Stock Exchange benchmark index Sensex lost as much as 29.23 per cent in the first half of this year.
Around 66 per cent of Chinese issuers have opted to list domestically via the Chinese A share market in 2008 so far this year as compared to 46 per cent in the corresponding period of the previous year.Interestingly Grant Thornton''s latest report also highlights the fact that the number of IPOs by corporate India during the half year ended June 2008 has also witnessed a decline, falling to 29 IPOs from 59 issues made during the first half of 2007.The top five IPOs of 2008, accounted for around 85 per cent of the total capital raised during the period between January to June this year.
The top five IPOs of this year include Reliance Power, which raised 2,565 million dollar, Rural Electrification Corporation that mopped up 409.82 million dollar, IPB Infrastructure developers raised 236.14 million dollar, Future Capital grossed 122.84 million dollar, while OnMobile Global raked in 119.91 million dollar.
Around 77 per cent of the total capital raised in India in the first six months of this year was from the power and energy sector, followed by real estate and nfrastructure management which accounted for 9 per cent of the total amount raised. While, in case of China, the initial public offering of China Railway Construction Corp was the largest IPO this year and the sixth largest on record. It priced its 5.7 billion dollar IPO in March via CITIC Group, Citi and Macquarie Group.
Income Tax Department Witness A Seven-Fold Increase - Aug 11, 2008
The Income Tax department has witnessed a seven-fold increase in the number of people using the paperless facility since last year. While 8.85 per cent tax payers filed their returns through the electronic payment facility this year, it was only 1.16 per cent last year. The facility is also secured against possible data loss.
Additionally, the number of e-returns went up by 12 times as 12.49-lakh tax payers chose the electronic medium to pay their taxes as compared to a mere 1.46-lakh tax payers during last year. Maharashtra topped the list of e-returns with 278,112 returns while Delhi contributed 153,992 and Karnataka with 144,287. Tamil Nadu registered 118,354 e-returns and 115,798 filed e-returns in Gujarat till July 31 this year. The tally comprises both voluntary returns (individuals and non corporate) and mandatory returns(corporates &large firms). Transmission of data through this facility is processed through a fully encrypted website and has a Secure Socket Layer (SSL) authentication. The servers of the department received 31,740 returns per hour at peak rate, utilising a peak bandwith of 53 mbps of the internet to recieve the same data. The e-returns are filed in a one-page ITR-V form which also bears acknowledgment and verification details along with the PAN number of the tax payer.
Additionally, the number of e-returns went up by 12 times as 12.49-lakh tax payers chose the electronic medium to pay their taxes as compared to a mere 1.46-lakh tax payers during last year. Maharashtra topped the list of e-returns with 278,112 returns while Delhi contributed 153,992 and Karnataka with 144,287. Tamil Nadu registered 118,354 e-returns and 115,798 filed e-returns in Gujarat till July 31 this year. The tally comprises both voluntary returns (individuals and non corporate) and mandatory returns(corporates &large firms). Transmission of data through this facility is processed through a fully encrypted website and has a Secure Socket Layer (SSL) authentication. The servers of the department received 31,740 returns per hour at peak rate, utilising a peak bandwith of 53 mbps of the internet to recieve the same data. The e-returns are filed in a one-page ITR-V form which also bears acknowledgment and verification details along with the PAN number of the tax payer.
Saturday, August 9, 2008
Oil dropped to a three-month low - Aug 09 , 2008
NEW YORK: Oil dropped to a three-month low on Friday as the dollar surged and concerns about global economic growth weighed on demand expectations. The fall came even as Russia sent forces into Georgia, a key energy transit region, to repel a Georgian assault on the breakaway South Ossetia region.
US light crude fell $3.84 to $116.18 a barrel by 22:30 pm IST, after hitting $115.61, the lowest level since early May. The drop added to losses that have sent prices down from a record high over $147 a barrel on July 11. London Brent crude traded down $3.90 to $113.96.
“It seems that we’ve got a lot of selling based on the stronger dollar,” said Peter Beutel, president of trading consultants Cameron Hanover. “Energy demand destruction and the dollar return have formed a quiet alliance to bring the oil market down, and today the louder of the two is the dollar.”
Strong demand from emerging economies like China sent oil on a six-year rally, with prices up seven-fold at their peak. More support came from investors rushing into commodities as a hedge against inflation and the weak dollar.
US light crude fell $3.84 to $116.18 a barrel by 22:30 pm IST, after hitting $115.61, the lowest level since early May. The drop added to losses that have sent prices down from a record high over $147 a barrel on July 11. London Brent crude traded down $3.90 to $113.96.
“It seems that we’ve got a lot of selling based on the stronger dollar,” said Peter Beutel, president of trading consultants Cameron Hanover. “Energy demand destruction and the dollar return have formed a quiet alliance to bring the oil market down, and today the louder of the two is the dollar.”
Strong demand from emerging economies like China sent oil on a six-year rally, with prices up seven-fold at their peak. More support came from investors rushing into commodities as a hedge against inflation and the weak dollar.
Oil Prices Turn Bearish, But Bulls May Yet Return - Aug 09 , 2008
NEW YORK: In less than a month crude oil, which some saw hitting $200 a barrel by year-end, has plunged $32 but a rebound could happen, for example, over the Iranian nuclear crisis, analysts say.
From a record-high $147.27 on July 11, the New York futures contract slid to about $115 on Friday, losing almost 22 per cent in the course of four weeks.
In its wake, most other commodity prices, which were driven higher by the oil market surge, have fallen from their peaks: an ounce of gold has dropped to 800 dollars from 1,000; farm commodity prices are between 25 and 40 per cent lower and gasoline prices have dropped about 6.0 per cent.
"Oil is at a tipping point. It is an exaggeration to cry that a bubble has burst. It is a break," said Ellis Eckland, an independent analyst based in Chicago who insisted the "oil market was not in a bubble."
For James Williams at WTRG Energy, the law of supply and demand reins. "The market is simple reflecting the fundamentals of supply and demand. Markets participants are considering the world slowdown, the deterioration in expectations for the growth worldwide," Williams said.The slowdown in economic growth has a significant impact on energy consumption, analysts say.
Case in point: US drivers, known as huge consumers of gasoline, drove a third less in May compared with a year ago. Motor fuel consumption fell more than 2.0 per cent.
This trend is expected to extend to the emerging market countries where the increasing weakening of fuel subsidies is going to force consumers to fill up their tanks less.
By contrast, petroleum inventories which had slumped early in the year, are rebuilding. The world's largest energy consumer, the United States, has witnessed an increase in its crude oil reserves in recent weeks.
"When investors realised how much demand was increasing, they bid up prices. and when they realised how much inflation was increasing ... they bid up prices further," said Daniel Katenberg, an analyst at Oppenheimer.
"Now growth rates are declining throughout the world, the market overreacts to that, too," he said.
From a record-high $147.27 on July 11, the New York futures contract slid to about $115 on Friday, losing almost 22 per cent in the course of four weeks.
In its wake, most other commodity prices, which were driven higher by the oil market surge, have fallen from their peaks: an ounce of gold has dropped to 800 dollars from 1,000; farm commodity prices are between 25 and 40 per cent lower and gasoline prices have dropped about 6.0 per cent.
"Oil is at a tipping point. It is an exaggeration to cry that a bubble has burst. It is a break," said Ellis Eckland, an independent analyst based in Chicago who insisted the "oil market was not in a bubble."
For James Williams at WTRG Energy, the law of supply and demand reins. "The market is simple reflecting the fundamentals of supply and demand. Markets participants are considering the world slowdown, the deterioration in expectations for the growth worldwide," Williams said.The slowdown in economic growth has a significant impact on energy consumption, analysts say.
Case in point: US drivers, known as huge consumers of gasoline, drove a third less in May compared with a year ago. Motor fuel consumption fell more than 2.0 per cent.
This trend is expected to extend to the emerging market countries where the increasing weakening of fuel subsidies is going to force consumers to fill up their tanks less.
By contrast, petroleum inventories which had slumped early in the year, are rebuilding. The world's largest energy consumer, the United States, has witnessed an increase in its crude oil reserves in recent weeks.
"When investors realised how much demand was increasing, they bid up prices. and when they realised how much inflation was increasing ... they bid up prices further," said Daniel Katenberg, an analyst at Oppenheimer.
"Now growth rates are declining throughout the world, the market overreacts to that, too," he said.
India Achieve An Average Of 8-9 Per Cent Growth - Aug 09 , 2008
In the next 12 months, India will achieve an average of 8-9 per cent growth, and in the remaining four years of the 11th Plan, it will clock 9 per cent, Arvind Virmani, Chief Economic Advisor of the Union Finance Ministry, has said. Delivering his keynote address at a session on the ''State of the Indian Economy'' organised by the Confederation of Indian Industry (CII) here on Thursday, he said: "Don''t get confused by the cyclical trends and projections. We have not revised the range. After the release of the Index of Industrial Production (IIP) figure, we may revise it.
At present, our priority is to control inflation. However, I am confident that the growth will be in the bottom range of 8 per cent for the current year and an average of 9 per cent will be met by the 11th Plan Period. In the next 12 months, inflation will be in the range of 5-6 per cent"
At present, our priority is to control inflation. However, I am confident that the growth will be in the bottom range of 8 per cent for the current year and an average of 9 per cent will be met by the 11th Plan Period. In the next 12 months, inflation will be in the range of 5-6 per cent"
Friday, August 8, 2008
Rate Of Inflation Breached The Psychological Barrier Of 12 Per - Aug 08 ., 2008
The rate of inflation breached the psychological barrier of 12 per cent for the week ended July 26, mainly on account of higher prices of certain edibles such as pulses, spices, eggs, fish and meat and some manufactured products.However, even as the wholesale price index (WPI)-based inflation peaked to a new high of 12.01 per cent - the highest level in over 13 years - from 11.98 per cent a week earlier, the Finance Ministry maintained that the rate of price rise was "stable" on a week-on-week basis. The WPI data released here on Thursday said that while the prices of most food articles inched up, some other items such as fruits witnessed a moderation in prices. As for iron and steel, the prices remained unchanged while that of cement went up marginally.
Rupee Ends Steady Against Dollar - Aug 08 , 2008
The rupee on August 7 closed at 42.07/08 against the greenback, as selling by investors in the equities market washed away the nearly 0.19 paise gains notched by the Indian unit.In fairly active trade at the Interbank Foreign Exchange (Forex) market, the domestic unit resumed higher at 41.96/97 a dollar from previous close of 42.07/08.It touched a high of 41.88 initially.
Thursday, August 7, 2008
Net Direct Tax Mop Up Rise 47-Pc - Aug 07 , 2008
The net mop up of the Centre''s direct tax revenues witnessed a 46.95 per cent rise in the first four months of the current fiscal. The net direct tax collections was Rs 71,648 crore during April-July 31 this year as compared with Rs 48,756 crore collected in the same period last year. While corporate tax collections rose 50.08 per cent to Rs 41,598 crore (Rs 27,718 crore), personal income tax (including FBT, STT and BCTT) grew 42.82 per cent to Rs 29,982 crore (Rs 20,993 crore).
The strong growth in personal income tax collections has come in the backdrop of an increase in the threshold exemption limit of taxation from Rs 1.10 lakh to Rs 1.5 lakh and also an increase in the tax slabs in budget 2008-09. Growth in direct tax collection has been driven by a growth of 44.56 per cent in tax deducted/collected at source (TDS/TCS), which stood at Rs 45,935 crore as against Rs 31,776 crore in the earlier year. Growth in corporate TDS/TCS was particularly high at 60.6 per cent. Among regions, tax growth in Mumbai and Delhi was 36.33 per cent and 76.40 per cent, respectively.
Other regions with high tax growth are Nagpur (77.80 per cent); Kochi (58.08 per cent); Kolkata (49.87 per cent); Hyderabad (40.69 per cent) and Bangalore (40.25 per cent).
The strong growth in personal income tax collections has come in the backdrop of an increase in the threshold exemption limit of taxation from Rs 1.10 lakh to Rs 1.5 lakh and also an increase in the tax slabs in budget 2008-09. Growth in direct tax collection has been driven by a growth of 44.56 per cent in tax deducted/collected at source (TDS/TCS), which stood at Rs 45,935 crore as against Rs 31,776 crore in the earlier year. Growth in corporate TDS/TCS was particularly high at 60.6 per cent. Among regions, tax growth in Mumbai and Delhi was 36.33 per cent and 76.40 per cent, respectively.
Other regions with high tax growth are Nagpur (77.80 per cent); Kochi (58.08 per cent); Kolkata (49.87 per cent); Hyderabad (40.69 per cent) and Bangalore (40.25 per cent).
Rupee Up 17 Paise Against US Dollar - Aug 07 , 2008
The Indian rupee inched closer to below 42-level by gaining 17 paise on August 6 to close at 42.07/08 against the greenback as the demand for the US currency from oil companies weakened amid a fall in crude prices in global markets and softening of dollar.In a volatile trade at the Interbank Foreign Exchange (Forex) market, the local currency resumed at 42.08/10 per dollar from Tuesday''s close of 42.24/25.
It rallied further to breach the 42-mark at 41.92 on the back of strong surge in Indian benchmark Sensex at early stages, which was up by over 460 points, and also on firm Asian stock markets.The domestic unit however pared its early gains in line with the equity market to close at 42.07/08, still higher than overnight close by 17 paise. It moved in a range of 41.92 and 42.13 a dollar.The local currency had gained 25 paise on August 5.
It rallied further to breach the 42-mark at 41.92 on the back of strong surge in Indian benchmark Sensex at early stages, which was up by over 460 points, and also on firm Asian stock markets.The domestic unit however pared its early gains in line with the equity market to close at 42.07/08, still higher than overnight close by 17 paise. It moved in a range of 41.92 and 42.13 a dollar.The local currency had gained 25 paise on August 5.
Wednesday, August 6, 2008
Rupee Ends At 42.25 Against Dollar - Aug 06 , 2008
The rupee increased by 24 paise against the dollar on Aug 5 due to gains in the stock market and oil prices falling below $120 per barrel. The currency opened higher at 42.36/38 and ended at 42.24/25, stronger than the previous close of 42.48/ 49. In the forward market, the 6-month premium closed substantially lower at 3.93 per cent (4.22) and the 12- month ended at 3.23 per cent (3.54).
Japan To Expand Rs 4,100cr Soft Loans For 5 Projects - Aug 06 , 2008
Japan has assured to extend soft loans totaling to more than Rs 4,100 crore for five projects, including the Chennai Metro project and Hyderabad Outer Ring Road project (phase II). The Japanese Government has assured almost Rs 870 crore for the Chennai Metro project, which will establish a mass rapid transport system of about 45 km in both the metro and elevated rail form. The Japanese Government has also assured about Rs 1,600 crore for the outer ring road project (Phase II) in Hyderabad which will be spread over 33 km in the north-east part of the outer ring road project. The other projects for which the Japanese Government has pledged loan comprise the Punjab biomass power plant which will see small-size power plants, which consume biomass as the fuel coming up in the state.
Gold Tumbles By Rs 395 Per 10 Grams - Aug 06 , 2008
Gold prices on Aug 5 dipped by Rs 395 to close at Rs 12,355 per 10 gram on the bullion market in Mumbai on heavy selling sparked by weak global trends after crude oil declined to a three-month low, easing inflationary concerns. Silver too nosedived by Rs 890 to Rs 23,950 per kg on reduced demand. Traders said gold, considered as a hedge against inflation, settled lower due to stockists selling triggered by falling global trend and shifting of funds towards surging equity markets. In London, gold dropped by $9.75 to $885.05 an ounce after touching a low of 882.16, a lowest since June 25.
They said a weak trend in the US markets, which set price trend in Asian markets, continued to influence trading and forcing stockists to reduce their holdings. Standard gold and ornaments plummeted by Rs 395 each at Rs 12,355 and Rs 12,205 per 10 grams respectively. Sovereign also lost Rs 50 at Rs 10,550 per piece of 8 gram. Silver ready fell by Rs 890 to Rs 23,950 per kg and weekly-based delivery by Rs 870 to Rs 23,720 per kg respectively. Silver coins fell by Rs 200 each at Rs 27,900 for buying and Rs 28,000 for selling of 100 pieces.
They said a weak trend in the US markets, which set price trend in Asian markets, continued to influence trading and forcing stockists to reduce their holdings. Standard gold and ornaments plummeted by Rs 395 each at Rs 12,355 and Rs 12,205 per 10 grams respectively. Sovereign also lost Rs 50 at Rs 10,550 per piece of 8 gram. Silver ready fell by Rs 890 to Rs 23,950 per kg and weekly-based delivery by Rs 870 to Rs 23,720 per kg respectively. Silver coins fell by Rs 200 each at Rs 27,900 for buying and Rs 28,000 for selling of 100 pieces.
Tuesday, August 5, 2008
Rupee Ends At 42.49 Against Dollar - Aug 05 , 2008
The rupee ended about 13 paise lower against the dollar on Aug 4, due to dollar purchasing by oil companies and news of Iran going ahead with its nuclear programme. The rupee opened at 42.45/46 and reached a high of 42.34. However, following this, the rupee fell continuously and ended at 42.48/49, lower from the previous close of 42.35/36. The forward premia also moved lower with the six-month closing at 4.22 per cent (4.6 per cent) and the 12-month closing at 3.54 per cent (3.88 per cent).
India Announces $450mn Package For Afghanistan - Aug 05 , 2008
A month after the deadly blast in its Kabul mission which was accredited to Pakistani secret service agencies, New Delhi Aug 4 declared an additional $450 million package for development and reconstruction of the war-ravaged Afghanistan. In making this declaration after his talks with the visiting Afghan President, Hamid Karzai, Prime Minister Dr Manmohan Singh attempted to send a firm message to Islamabad that India would continue to pursue its relations with and support Kabul. The two leaders said their negotiations were being held against the backdrop of serious threat posed by terrorism to security and stability of Afghanistan, India and the region.
Gujarat Mulls Performance Budget - Aug 05, 2008
The state government has determined to take into account the quality of expenditure rather than mere physical numbers while preparing the budget for the year 2009-10.
The government has determined to treat the budget as an instrument for reforms at grassroots level or in other words linking outlays with outcomes at grassroots level. The challenge before the government is to determine what outcomes citizens value the most and rethink the manner in which the department and agencies go on to attain the results. It likely to be noted that the state will be celebrating its Golden Jubilee Year on May 1, 2010.
This exercise is being done to ensure that goals for 2009-10 also become Golden Goals for all departments. The target behind this move is not only the convergence of schemes but also the convergence of resources in a more effective manner since inter-departmental issues are likely to come up while setting performance indicators.
The government has determined to treat the budget as an instrument for reforms at grassroots level or in other words linking outlays with outcomes at grassroots level. The challenge before the government is to determine what outcomes citizens value the most and rethink the manner in which the department and agencies go on to attain the results. It likely to be noted that the state will be celebrating its Golden Jubilee Year on May 1, 2010.
This exercise is being done to ensure that goals for 2009-10 also become Golden Goals for all departments. The target behind this move is not only the convergence of schemes but also the convergence of resources in a more effective manner since inter-departmental issues are likely to come up while setting performance indicators.
Monday, August 4, 2008
SEZ Anctioned Formal Approval For Commissioning - Aug 04 , 2008
The Board of Approval for Special Economic Zones (SEZ) sanctioned formal approval for commissioning of a multi-product SEZ in Tirunelveli district, Tamil Nadu spread over an area of 1,020 hectares, besides granting a clutch of 22 formal approvals and six in-principle approvals. The multi-product SEZ in Tamil Nadu is a joint venture between Tamil Nadu Industrial Development Corporation (TIDCO) and AMRL International Tech City Ltd.
The BoA, chaired by the Commerce Secretary, Mr Gopal K. Pillai, considered a total of 34 proposals for setting up of SEZs including three proposals for conversion of in-principle approvals into formal approval. Among the 23 formal approvals granted today include four IT/ITES SEZ in Kerala by the State Information Technology Infrastructure Ltd, two IT/ITES Electronic Hardware SEZs in Andhra Pradesh by Godrej Real Estate Pvt Ltd and S2tech.com Pvt Ltd, two bio-technology SEZs in Andhra Pradesh and one IT/ITES SEZ in Tamil Nadu by DSRK Holding Pvt Ltd.Among the six in-principle approvals granted were multi product SEZ in Madhya Pradesh, airport/aviation sector (including MRO) SEZ in Tamil Nadu by Taneja Aerospace and Aviation Ltd, a free trade warehousing zone SEZ in Tamil Nadu by Vikram Logistics and Maritime Services Pvt Ltd.
The BoA, chaired by the Commerce Secretary, Mr Gopal K. Pillai, considered a total of 34 proposals for setting up of SEZs including three proposals for conversion of in-principle approvals into formal approval. Among the 23 formal approvals granted today include four IT/ITES SEZ in Kerala by the State Information Technology Infrastructure Ltd, two IT/ITES Electronic Hardware SEZs in Andhra Pradesh by Godrej Real Estate Pvt Ltd and S2tech.com Pvt Ltd, two bio-technology SEZs in Andhra Pradesh and one IT/ITES SEZ in Tamil Nadu by DSRK Holding Pvt Ltd.Among the six in-principle approvals granted were multi product SEZ in Madhya Pradesh, airport/aviation sector (including MRO) SEZ in Tamil Nadu by Taneja Aerospace and Aviation Ltd, a free trade warehousing zone SEZ in Tamil Nadu by Vikram Logistics and Maritime Services Pvt Ltd.
Exports See 23.5 Pc Growth In June Amid Weak Global Growth - Aug 04 , 2008
Though the export target for the current fiscal has been set at $200 billion, the country''s exports during the first quarter of April to June 2008 recorded $42.84 billion in the face of weakened economic activity in major markets or anaemic economic growth forecast for the global economy this year.
Provisional figures compiled by the Directorate-General of Commercial Intelligence & Statistics (DGCI&S) and released by the Department of Commerce show that the country''s exports during June 2008 at $14.66 billion were 23.5 per cent higher than the level of $11.87 billion in June 2007. In rupee terms, exports touched Rs 62,790 crore in June 2008 which were 29.7 per cent higher than the value of exports of Rs 48,400 crore in June, 2007. Cumulatively, exports during April-June 2008 at $42.84 billion (Rs 1,78,480 crore) as against $35.03 billion (Rs 1,44,358 crore) in the corresponding months of the last fiscal revealed a growth of 22.3 per cent in dollar terms and 23.6 per cent in rupee terms over the same period last year.
The country''s imports during June 2008 at $24.45 billion were 25.9 per cent higher than the level of imports valued at $19.42 billion in June 2007. In rupee terms, imports rose by 32.2 per cent.
Provisional figures compiled by the Directorate-General of Commercial Intelligence & Statistics (DGCI&S) and released by the Department of Commerce show that the country''s exports during June 2008 at $14.66 billion were 23.5 per cent higher than the level of $11.87 billion in June 2007. In rupee terms, exports touched Rs 62,790 crore in June 2008 which were 29.7 per cent higher than the value of exports of Rs 48,400 crore in June, 2007. Cumulatively, exports during April-June 2008 at $42.84 billion (Rs 1,78,480 crore) as against $35.03 billion (Rs 1,44,358 crore) in the corresponding months of the last fiscal revealed a growth of 22.3 per cent in dollar terms and 23.6 per cent in rupee terms over the same period last year.
The country''s imports during June 2008 at $24.45 billion were 25.9 per cent higher than the level of imports valued at $19.42 billion in June 2007. In rupee terms, imports rose by 32.2 per cent.
Rupee Appreciated Around 20 Paise Against The Dollar - Aug 04 , 2008
The rupee appreciated around 20 paise against the dollar on August 1 due to gains in the domestic equity market and lower oil prices. The rupee opened at 42.56/58 and gained on constant dollar-selling and closed at 48.35/36, against the previous close of 42.5750. The selling in the early part of the day was by foreign banks, while later on public sector banks also began selling dollar. In the forward premia market, the six-month closed at 4.6 per cent (4.73 per cent) and the one-year closed at 3.88 per cent (3.98 per cent).
Saturday, August 2, 2008
Central Bank Is Paving The Way For A Separate Entity - Aug 02 , 2008
MUMBAI: The central bank is paving the way for a separate entity to carry out payment and settlement activities within the country which will bring down transaction costs, including credit card transactions.
The new entity — National Payments Corporation of India (NPCI) — will be set up by the Indian Banks’ Association (IBA) and will be owned jointly by banks. However, no bank or group of banks will be allowed to hold more than 10% of the ownership while 51% of the equity will be held by public sector banks, according to Reserve Bank of India deputy governor V Leeladhar.
Speaking at a conference on Friday, Mr Leeladhar said, “The setting up of this umbrella organisation would bring greater efficiency by way of uniformity and standardisation in retail payments, expand its reach and bring innovative payment products to augment customer convenience.” Further, the NPCI will be a Section 25 company — which will not distribute its profits as dividend, but will plough it back for the improvement and expanding the reach of the retail payment systems.
Also, now that the Payment and Settlement Systems Act 2007 has been ratified by Parliament, it is going to be notified by the government in a week or two, following which it will come into force, the deputy governor said. He also highlighted various other initiatives RBI plans to take in the payments and settlements space like satellite banking and mobile banking.
At the same time, IBA deputy CEO K Unnikrishnan said most of the reservations that various unions had against the setting up of the separate entity have been addressed, and that they are confident of receiving the license for the company by August 15. He added the NPCI will carry out all sorts of financial settlements apart from RTGS settlements which will continue to be under the purview of the central bank. (RTGS or realtime gross settlements are used for all electronic payments over Rs 1 lakh.)
“NPCI will also form a switch for ATMs and point of sale (PoS) terminals and pave the way for the IndiaPay concept,” said Mr Unnikrishnan.
The new entity — National Payments Corporation of India (NPCI) — will be set up by the Indian Banks’ Association (IBA) and will be owned jointly by banks. However, no bank or group of banks will be allowed to hold more than 10% of the ownership while 51% of the equity will be held by public sector banks, according to Reserve Bank of India deputy governor V Leeladhar.
Speaking at a conference on Friday, Mr Leeladhar said, “The setting up of this umbrella organisation would bring greater efficiency by way of uniformity and standardisation in retail payments, expand its reach and bring innovative payment products to augment customer convenience.” Further, the NPCI will be a Section 25 company — which will not distribute its profits as dividend, but will plough it back for the improvement and expanding the reach of the retail payment systems.
Also, now that the Payment and Settlement Systems Act 2007 has been ratified by Parliament, it is going to be notified by the government in a week or two, following which it will come into force, the deputy governor said. He also highlighted various other initiatives RBI plans to take in the payments and settlements space like satellite banking and mobile banking.
At the same time, IBA deputy CEO K Unnikrishnan said most of the reservations that various unions had against the setting up of the separate entity have been addressed, and that they are confident of receiving the license for the company by August 15. He added the NPCI will carry out all sorts of financial settlements apart from RTGS settlements which will continue to be under the purview of the central bank. (RTGS or realtime gross settlements are used for all electronic payments over Rs 1 lakh.)
“NPCI will also form a switch for ATMs and point of sale (PoS) terminals and pave the way for the IndiaPay concept,” said Mr Unnikrishnan.
India Must Devise Its Own Ways To Combat Inflation - Aug 02 , 2008
NEW DELHI: A policy, it’s been noted, is but a temporary creed that’s liable to be changed. And while the policy holds, it could be opined, it has to be pursued with apostolic zeal.
Consider, for instance, the latest monetary policy stance and the upward revision, yet again, of the key policy rate and reserve ratio. It’s clear that the policy design is very much as per the book. More specifically, it’s in line with the determinants of monetary policy that has come to be labelled as the Taylor rule. But should the Taylor rule be applied rather mechanistically in the Indian context? It may well have untoward, multi-year consequences.
Now, the Taylor rule in the domain of monetary policy posits that when a shock causes a shift in the inflation rate, the central bank needs to alter (read rev up) the nominal interest rate by more than one-for-one. The idea is to see to it that real interest rates move in the ‘right direction’, so as to restore price stability and sooner rather than later.
The objective of course is to ‘anchor’ expectations of inflation in the medium-term and beyond, and to policy-induce stable growth in a general scenario of only modest price rises across the board.
The weekly figures do suggest that the wholesale price index, close to 12% on a year-on-year basis, has hit 13-year highs. It is another matter that using the y-o-y WPI figure as the operative number for policy purposes can be problematic. It’s not done abroad. Keeping tab of producer price increases can be relatively easy, but there can be much yo-yoing because of seasonal and base effects in y-o-y estimates.
Next, buoyant commodity prices, be it minerals, metals or oil, can disproportionately affect wholesale prices. Be that as it may, the three-year moving average figure for the WPI is now a shade over 7%. Also, the latest data for most consumer price indices peg the inflation rate above the 7% mark. In tandem, the Reserve Bank of India has hiked the repo rate, the rate at which the RBI lends short-term to banks, to 9%. Additionally, the cash reserve ratio for the banking system is to be likewise raised.
However, it needs to be asked whether mechanically applying the Taylor rule makes policy sense. Such rules can doubtless serve as useful benchmarks for the conduct of monetary policy. The real world is surely far too complicated. Monetary policy, of course, ought to aim at maintaining price stability. But the fact remains that the extant inflationary trend is to a large extent supply induced, and especially driven by global commodity price increases.
As the RBI policy review says, on a y-o-y basis about 30% of headline WPI inflation is contributed by minerals oils... It adds that prices of manufactured products have contributed nearly 50% of headline inflation mainly on account of food products, metals and chemicals. And further that primary articles have contributed about a fifth of headline inflation, mainly driven by prices of oilseeds, raw cotton and the like. It’s a moot point whether domestic monetary tightening would by itself bring down headline inflation. More likely that a by and large normal monsoon would dampen the price trend. It is after all hardening import prices, be it of minerals, steel or oilseeds, that are shoring up prices.
Besides, it’s entirely possible that the higher policy rate would jack up interest rates all round. The dearer cost of funds may well affect investment demand and stultify capacity addition, for years. It may not be evident in the immediate period in terms of growth figures. But the quite needless economic damage would nevertheless have been done, thanks to warped policy design.
It is true that there has been the remarkable improvement in both price and output stability observed in the mature economies in the years following the early 1980s. It is also true that the frequency and severity of economic downturns abroad have clearly declined sharply, as has the inflation rate. In parallel, a perceptible shift in the responsiveness of monetary policy did occur at the same time—circa early 1980s. Note that central banks, reflecting much greater focus on inflation, have, generally speaking, been adjusting their policy interest rates in response to inflation by larger amounts and also more readily.
But quite contrary to what dyed-in-the-wool monetarists would have us believe, monetary policy may not have played a particularly large role in achieving the macroeconomic results abroad, sterling though they have been. There’s been much microeconomic change, opening up and reform the world over. It seems quite unlikely that globalisation has played only a minor role in keeping price rises low.
In tandem, there has been much diffusion of information technology and the like that would doubtless have revved up productivity and lowered costs. In any case, just because there has been a seemingly important shift in monetary policy in the mature markets, we need not follow mechanically. Given the weak, underdeveloped financial markets and the poor monetary transmission mechanism here, it’s all the more reason not to do so. Abroad, monetarism is not even considered state-of-the-art, for years. Yet we seem to lap up the monetary-policy equivalent of bell-bottoms.
Consider, for instance, the latest monetary policy stance and the upward revision, yet again, of the key policy rate and reserve ratio. It’s clear that the policy design is very much as per the book. More specifically, it’s in line with the determinants of monetary policy that has come to be labelled as the Taylor rule. But should the Taylor rule be applied rather mechanistically in the Indian context? It may well have untoward, multi-year consequences.
Now, the Taylor rule in the domain of monetary policy posits that when a shock causes a shift in the inflation rate, the central bank needs to alter (read rev up) the nominal interest rate by more than one-for-one. The idea is to see to it that real interest rates move in the ‘right direction’, so as to restore price stability and sooner rather than later.
The objective of course is to ‘anchor’ expectations of inflation in the medium-term and beyond, and to policy-induce stable growth in a general scenario of only modest price rises across the board.
The weekly figures do suggest that the wholesale price index, close to 12% on a year-on-year basis, has hit 13-year highs. It is another matter that using the y-o-y WPI figure as the operative number for policy purposes can be problematic. It’s not done abroad. Keeping tab of producer price increases can be relatively easy, but there can be much yo-yoing because of seasonal and base effects in y-o-y estimates.
Next, buoyant commodity prices, be it minerals, metals or oil, can disproportionately affect wholesale prices. Be that as it may, the three-year moving average figure for the WPI is now a shade over 7%. Also, the latest data for most consumer price indices peg the inflation rate above the 7% mark. In tandem, the Reserve Bank of India has hiked the repo rate, the rate at which the RBI lends short-term to banks, to 9%. Additionally, the cash reserve ratio for the banking system is to be likewise raised.
However, it needs to be asked whether mechanically applying the Taylor rule makes policy sense. Such rules can doubtless serve as useful benchmarks for the conduct of monetary policy. The real world is surely far too complicated. Monetary policy, of course, ought to aim at maintaining price stability. But the fact remains that the extant inflationary trend is to a large extent supply induced, and especially driven by global commodity price increases.
As the RBI policy review says, on a y-o-y basis about 30% of headline WPI inflation is contributed by minerals oils... It adds that prices of manufactured products have contributed nearly 50% of headline inflation mainly on account of food products, metals and chemicals. And further that primary articles have contributed about a fifth of headline inflation, mainly driven by prices of oilseeds, raw cotton and the like. It’s a moot point whether domestic monetary tightening would by itself bring down headline inflation. More likely that a by and large normal monsoon would dampen the price trend. It is after all hardening import prices, be it of minerals, steel or oilseeds, that are shoring up prices.
Besides, it’s entirely possible that the higher policy rate would jack up interest rates all round. The dearer cost of funds may well affect investment demand and stultify capacity addition, for years. It may not be evident in the immediate period in terms of growth figures. But the quite needless economic damage would nevertheless have been done, thanks to warped policy design.
It is true that there has been the remarkable improvement in both price and output stability observed in the mature economies in the years following the early 1980s. It is also true that the frequency and severity of economic downturns abroad have clearly declined sharply, as has the inflation rate. In parallel, a perceptible shift in the responsiveness of monetary policy did occur at the same time—circa early 1980s. Note that central banks, reflecting much greater focus on inflation, have, generally speaking, been adjusting their policy interest rates in response to inflation by larger amounts and also more readily.
But quite contrary to what dyed-in-the-wool monetarists would have us believe, monetary policy may not have played a particularly large role in achieving the macroeconomic results abroad, sterling though they have been. There’s been much microeconomic change, opening up and reform the world over. It seems quite unlikely that globalisation has played only a minor role in keeping price rises low.
In tandem, there has been much diffusion of information technology and the like that would doubtless have revved up productivity and lowered costs. In any case, just because there has been a seemingly important shift in monetary policy in the mature markets, we need not follow mechanically. Given the weak, underdeveloped financial markets and the poor monetary transmission mechanism here, it’s all the more reason not to do so. Abroad, monetarism is not even considered state-of-the-art, for years. Yet we seem to lap up the monetary-policy equivalent of bell-bottoms.
Friday, August 1, 2008
Inflation Stood 11.98 Per Cent - Aug 01 , 2008
As if proving last week''s moderation as an aberration, inflation rose by 0.09 per cent to just a whisper away from the psychological 12 per cent on account of increase in prices of pulses, fruits and spices among other things.
The inflation stood 11.98 per cent for the week ending July 19 as compared to 4.65 4.65 per cent for the same period a year ago. Commenting on inflation figures, a Finance Ministry statement said, out of 98 articles, 15 items have shown a decline in prices as compared to previous week while prices of another 58 articles remained stable.
It, however, admitted that inflation for a group of 30 essential commodities went up to 6.67 per cent from 5.82 per cent in the previous week. Analysts said the Reserve Bank''s measures to curtail demand through increase in interest rates would take some time to bring down prices.Among the food article, prices of moong increased by four per cent, urad by three per cent, arhar by two per cent condiments and spices and gram by one per cent each.At the same time prices of linseed rose by two per cent and raw rubber by one per cent.However, fuel, power, light and lubricants category remained unchanged at the previous week level.To counter inflation, the Reserve Bank on July 29 tightened the money supply by increasing the short-term lending (rep) rate and the mandatory desposits to be parked with it (CRR) by 50 and 25 basis points respectively.
The inflation stood 11.98 per cent for the week ending July 19 as compared to 4.65 4.65 per cent for the same period a year ago. Commenting on inflation figures, a Finance Ministry statement said, out of 98 articles, 15 items have shown a decline in prices as compared to previous week while prices of another 58 articles remained stable.
It, however, admitted that inflation for a group of 30 essential commodities went up to 6.67 per cent from 5.82 per cent in the previous week. Analysts said the Reserve Bank''s measures to curtail demand through increase in interest rates would take some time to bring down prices.Among the food article, prices of moong increased by four per cent, urad by three per cent, arhar by two per cent condiments and spices and gram by one per cent each.At the same time prices of linseed rose by two per cent and raw rubber by one per cent.However, fuel, power, light and lubricants category remained unchanged at the previous week level.To counter inflation, the Reserve Bank on July 29 tightened the money supply by increasing the short-term lending (rep) rate and the mandatory desposits to be parked with it (CRR) by 50 and 25 basis points respectively.
Bad Effect Of Record Crude Oil Price - Aug 01 , 2008
The ill effect of record crude oil price and inflation is finally showing up on India''s economic growth story. The RBI has now climbed down from an earlier projection of 8.5% and says the economy will grow only at 8% for the year 2008-09.
There is more to worry about. RBI says the growth is slower than anticipated in industrial and services sector and this is likely to persist in the short-term. Meanwhile leading brokerage houses have cut India''s growth story even further. Lehman Brothers sees GDP growth slowing to 7.3% in FY09 and UBS have already downgraded the GDP forecast to 7.1% from 7.7%.
But the RBI says the challenging global environment is a bigger source of worry, as record fuel prices continue to strain the government''s fiscal position. The central bank also has a word of caution over the outgo on subsidies and farm waivers, and has in fact called for close monitoring on government''s fiscal situation.
There is more to worry about. RBI says the growth is slower than anticipated in industrial and services sector and this is likely to persist in the short-term. Meanwhile leading brokerage houses have cut India''s growth story even further. Lehman Brothers sees GDP growth slowing to 7.3% in FY09 and UBS have already downgraded the GDP forecast to 7.1% from 7.7%.
But the RBI says the challenging global environment is a bigger source of worry, as record fuel prices continue to strain the government''s fiscal position. The central bank also has a word of caution over the outgo on subsidies and farm waivers, and has in fact called for close monitoring on government''s fiscal situation.
Rupee Slipped Against The Greenback - AUG 01 , 2008
The rupee slipped against the greenback on month-end related dollar demand. The currency opened at 42.46/48 and touched an intra-day low of 42.57. It finally ended the day at 42.5750, against the previous close at 42.36/37. According to the forex dealers, the rupee opened weak as the price of global crude increased to $125 per barrel from $121 per barrel. The stock market also ended on an almost flat note. In the forwards market, the six month closed at 4.87 per cent (4.97 per cent) and the 12 month ended at 4.07 per cent (4.14 per cent).
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