Subbarao for revisiting subsidy regime in farm sector



The RBI Governor, Dr D. Subbarao, addressing the 25th annual conference of the Indian Society of Agricultural Marketing, in Hyderabad on Tuesday



Hyderabad, Nov 22:  The Reserve Bank of India Governor, Dr D. Subbarao, on Tuesday said there was a case for revisiting the subsidy regime in the agriculture sector, as it exerted pressure on food inflation. “Paradoxically, in India we subsidise both agricultural inputs and outputs — subsidies on inputs such as fertiliser, electricity and irrigation to incentivise production and subsidies on output for the PDS system entail a large fiscal burden,” he said in a lecture on ‘Challenges of Food Inflation' here. He pointed out that if the amount spent on subsidies could be diverted to augment capital formation in agriculture, higher productivity will raise the income of farmers while lowering prices for consumers. In the same vein, he said higher minimum support prices also led to higher inflation. Dr Subbarao felt that the direct role of monetary policy in combating food price pressures was limited. But in the face of sustained high food inflation, monetary action would still be warranted to anchor inflation expectations. “The outlook on food inflation in short to medium term will be determined by the speed and quality of a supply response by the Government,” he said. Shift in dietary habits toward more protein foods, pressure on food inflation stemming from inclusive growth and large increases in MSPs of food grains were the major factors driving food inflation, according to Dr Subbarao. “The possible trade off between inclusive growth and inflation has not received much attention,” he pointed out. The Mahatma Gandhi National Rural Employment Guarantee Scheme which guarantees at least one hundred days of wage employment to rural labour, has pushed up rural wages, exacerbating the wage-price inflation spiral. “Admittedly, increase in wages need not be inflationary provided it reflected higher productivity, but that is not currently the case,” he said. Dr Subbarao advocated raising agricultural productivity as a way to respond to the challenge of food inflation. During 2010-11, Punjab, with the highest yield in rice of 3.8 tonnes per hectare, was lower than the world average of 4.3 tonnes.  Prof Abhijit Sen, Member Planning Commission, said agricultural growth was expected to be between 3.2 and 3.5 per cent in the current Plan Period, lower than the targeted 4 per cent. He said a thrust should be given to more decentralised agriculture.

HBL

Reserve Bank of India to issue Rs 100 notes with Rupee symbol

MUMBAI: The Reserve Bank will shortly issue Rs 100 notes which will have the rupee symbol.  The Rs 100 notes will be of the Mahatma Gandhi-2005 Series bearing the signature of Reserve Bank of India (RBI) Governor D Subbarao and with the year of printing mentioned on the back of the banknote, the apex bank said in a statement.  The design of the notes to be issued is similar in all respects to the existing Rs 100 in Mahatma Gandhi Series-2005 issued earlier except for the rupee symbol.  However, all the Banknotes in the denomination of Rs 100 issued by the RBI in the past will continue to be legal tender.  Last week, the RBI had announced that it will soon introduce notes of Rs 1,000 and Rs 10 denomination featuring the rupee symbol.  The Indian rupee got an unique symbol -- a blend of the Devanagri 'Ra' and Roman 'R' -- last year joining currencies like the US dollar, euro, British pound and Japanese yen in having a distinct identity. The new symbol, designed by Bombay IIT post-graduate D Udaya Kumar, was approved in July 2010.

ET

RBI asks banks to report fraud cases to regional office of DBS

MUMBAI: Looking to check banking fraud, the RBI has directed banks to report fraud cases of between Rs 1 lakh and Rs 50 lakh to the regional office of the Department of Banking Supervision. "Fraud cases involving an amount more than Rs 1 lakh and up to Rs 50 lakh... (should be reported) to the R.O. (regional office) under whose jurisdiction the branch where the fraud has taken place is located," the RBI said in a circular. Such instances should also be reported to the regional office of the Department of Banking Supervision that administers to the head office of the bank where the fraud has taken place. However, in case the bank falls under the supervision of the Financial Conglomerate Monitoring Division (FCMD), the fraud report should be submitted to the FCMD, which comes under the Department of Banking Supervision, it said. The FCMD under the Department of Banking Supervision monitors 12 large banks, namely SBI, ICICI Bank, Canara Bank, Punjab National Bank, Bank of Baroda, Bank of India, Axis Bank, HDFC Bank, Kotak Mahindra Bank, Citi Bank, HSBC and Standard Chartered Bank. With regard to fraud cases involving amounts of Rs 50 lakh and above, banks need to only report to the regional office under whose jurisdiction the branch where the fraud has taken place is located. In the case of the banks under FCMD, the fraud case will be reported to Department of Banking Supervision. The central bank's latest notification comes a few months after it directed public sector lenders to promptly report cases of cheating involving Rs 1 crore and above to the CBI and of lesser amounts to the police.

ET

Recovery after plunge - Rupee closes at new low

... Forex circles saw the RBI’s hand in the recovery of the rupee through the selling of dollars. Besides, remarks by Reserve Bank Governor D. Subbarao and Deputy Governor Subir Gokarn that the central bank will not be comfortable with the sharp fall in the rupee aided in the recovery.....

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India’s Gokarn Says Rupee Intervention Not an ‘Easy Judgment’

Subir Gokarn, Deputy Governor at the Reserve Bank of India, comments on the rupee after it touched a record-low today. He spoke to reporters in Mumbai.  The local currency weakened 0.9 percent to 52.6038 per dollar as of 11:12 a.m. in Mumbai and touched a low of 52.7288, according to data compiled by Bloomberg. “It’s not an easy judgment. It’s not something that we can say we are going to do this or we are going to do that. It’s all being considered. It’s going to be an ongoing process. That’s where we stand.  “The sharpness and the speed of the movement are obviously creating some disruption. We obviously at this point, don’t know where it’s going to go. Any action will have to be viewed in terms of short-term consequences and medium-term consequences.  “As we have been saying, we don’t have a target or a rate in mind, the rupee is moving according to market dynamics. It’s disruptive, there is no question. There’s an impact on companies and it’s a problem. But, any action we take now, if any, has to take into account the fact that these actions might have consequences further down the road. So, we’ve got to balance out actions now with the risks of potential increases in vulnerability later.  “The immediate impact as we pointed out is possibly on the inflation rate and other risks. Actions have to be weighed in terms of their medium-term risks. We should not be looking at the short-term only when we make these judgments. Any action that has been suggested, that has been debated, also has potential adverse consequences down the road. So, we’ve got to balance out these two.” 

http://www.bloomberg.com/news/2011-11-22/india-s-gokarn-says-rupee-intervention-not-an-easy-judgment-.html#

RBI watching situation closely: Subbarao

Hyderabad, Nov. 22:  Without giving any timeline for the Reserve Bank of India to intervene in the foreign exchange market, the RBI Governor, Dr D Subbarao, said the apex bank was watching the situation closely. “The RBI can intervene and we will intervene when it is in consistent with our policy,” he told media persons on the sidelines of a conference here on Tuesday. The rupee fell to a new low during the day, hitting 52.76 against the dollar. “Our policy remains unchanged, which is to manage the volatility in the exchange rate. The foreign exchange rate is being driven by global dynamics and what direction it moves will depend on the credible resolution of the external situation,” Dr Subbarao said. 

HBL

RBI hints at more monetary action to curb inflation

HYDERABAD: Reserve Bank of India (RBI) Governor D Subbarao did not rule out further monetary action to curb inflation.  He said monetary steps may be warranted in the face of sustained rise in food prices.  "The direct role of monetary policy in combating food price pressures is limited, but in the face of sustained high food inflation, monetary action may still be warranted to anchor inflation expectations," he said while addressing the 25th annual conference of the Indian Society of Agricultural Marketing.  The central bank has raised rates 13 times since March 2010, but it recently hinted at pause in rate hikes in the December policy if inflation falls in line with the RBI's projected trajectory.  He felt the solution to high food prices lies in a supply-side response from the government.  "A lasting solution to food price pressures lies in a supply response that raises agricultural production and productivity, improves supply chain management and sets the right incentive framework for both producers and consumers."  "The outlook on food inflation in the short to medium term will be determined by the speed and quality of such a supply response by the government," he added.  He identified large increases in the minimum support prices of foodgrain by the government to farmers as one of the reasons driving food inflation. He said shift in dietary habits towards protein-rich foods, pressure stemming from inclusive growth policies, shocks from global food inflation, and financialisation of commodities were the other factors driving high food prices. "Inflation is a regressive tax and hurts the poor the most. The impact can be particularly severe in a country like India with a population of 1.2 billion, a per capita income of less than $1,500 and a large share of food in the total consumption basket," he said.  Subbarao said that the government's food for work programme and proposed food subsidy bill had the potential to further raise fiscal deficit and inflationary pressures.

ET

The lack of confidence

... RBI can, in the short run, certainly act to stem the panic. But for the direction of the currency to change, what is needed is the return of confidence, both in the global markets and in the prospects for the Indian economy......

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Wake up and smell the rupee

The government's helplessness over a falling rupee is very real. Under textbook conditions, monetary policy faces an impossible trinity of keeping both exchange and interest rates free in an environment of unimpeded capital flows. The rupee is in a managed float; India's capital account is not free. Despite this the rupee has plummeted 15% from the beginning of the year as the trade gap widened and international investors fled to the safety of dollar debt. The copybook response to capital flight is monetary tightening, but that option is already nearing exhaustion after a bruising battle with inflation at home. If the Reserve Bank of India (RBI) now starts selling dollars it will have to suck more rupees out of the system, pushing up interest rates further. The Indian economy has lost quite a bit of steam due to the deliberate ministrations of its policymakers. It could begin to sputter if the government tries to prop up the rupee. The other policy response does not hold out great hope either. The financial crisis of 2008 has led to a reassessment of capital controls worldwide. Some degree of control is now being advocated by even the likes of the International Monetary Fund, whose sole mantra till recently was free markets. India, however, already has far tighter capital controls than what is being contemplated in the global arena. A further tightening would be an unfortunate throwback. Our policy towards foreign capital has been easing ever so gradually since India opened up to the world in 1991. This despite the fact that we save less than we invest and import more than we export. These two gaps, adding up to nearly 6% of the gross domestic product, have per force to be bridged by money from abroad. Foreign capital has been persistently financing India's fiscal and trade deficits and our policymakers must heed it when it seeks greater access to our economy. So if interest rates cannot be raised and capital flows cannot be curbed, the Indian economy must learn to live with the prospects of a falling rupee. Unless the government gets serious about controlling its bloated expenditure — particularly subsidised energy, most of which we import — the economy remains vulnerable to hot money flows. As it is, the 2011 capital flight has caught our policymakers on the wrong foot. India's tight monetary and loose fiscal stances are working at cross-purposes. This inconsistency has been allowed to linger since the RBI started on a series of 13 interest rate hikes in March 2010. With the rupee headed further downhill, the government should wake up and smell the coffee.

HT

It's time RBI bit the bullet

... If dealing with high-interest rates and raging costs was not bad enough, corporate India now has a free-falling rupee to battle.....

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Not enough firepower

... The sharp decline in the rupee this month has sent shock waves through the financial markets. The fall has been accentuated by statements from senior policymakers that the Reserve Bank of India (RBI) does not have the firepower to aggressively defend the Indian currency....

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National Food Security Bill will add to inflationary pressure

Mumbai : The proposed National Food Security Bill, when implemented, would add to inflationary pressures, Reserve Bank Governor D Subbarao said here today. "The National Food Security Bill, 2011, is another potential source of pressure on inflation and its inflationary impact will depend on the extent to which it will raise demand for foodgrains relative to the normal increase in supply," he said at the inaugural function of 25th annual conference of Indian Society of Agricultural Marketing. The draft National Food Security Bill seeks to provide a legal entitlement to subsidised foodgrains to 75 per cent of the country's rural population and 50 per cent of urban India.  He said the estimates suggest that 68 per cent of the country's population will get legal entitlement after the bill is enacted. This would create more demand for foodgrains and at the same time production may not increase correspondingly leading to demand-driven inflation. "Furthermore, higher food subsidy burden on the Budget will raise the fiscal deficit, exacerbating macro-level inflationary pressures," the RBI Governor added. Terming the UPA government's flagship programme -- National Rural Employment Guarantee scheme -- as an inflation pusher, he said increase in wages need not be inflationary, provided it reflected higher productivity. "The NREGS has evidently set the floor for the rural wage level, making wage push inflation more visible and prominent. Admittedly, increase in wages need not be inflationary, provided it reflects higher productivity," he said.

NDTV Profit

Rupee: RBI to take required action; may not help much, says Pranab

Even as the rupee fell to an all-time low of 52.73 vis-à-vis U.S. dollar on Tuesday, the government said RBI will take the required action while conceding the central bank’s intervention may not be of much help. “RBI intervention (in the forex market) will not help,” Finance Minister Pranab Mukherjee told reporters while attributing the decline to pull-out of funds by the Foreign Institutional Investors (FIIs) and uncertain global economic situation. He further said the Reserve Bank of India (RBI) is monitoring the situation “closely and will take the required action in light of the international developments as situation unfolds”.  RBI, which described the fall as “disruptive”, said it is yet to decide on intervening in the foreign exchange market. Mr. Mukherjee said, “The increased uncertainty in the euro-zone on account of sovereign debt crisis has led to shifting of capital from Europe to USA which has hardened the US dollar against most currencies.” The rupee is the fourth-most depreciated currency in the world and the most depreciated in the Asian continent. Commenting on fall in rupee, Reserve Bank Governor D. Subbarao said in Hyderabad: “Our policy is that if the macro-economic situation is impacted due to the exchange rate fluctuation or undue volatility, we will have to intervene. We are yet to decide whether to intervene or not at the moment.” RBI, he further said, “will intervene when it is consistent with the policy. But in real terms I cannot tell (when the Reserve Bank of India will intervene).” The intervention in the forex market, he added, would be in accordance with the RBI’s policy. Meanwhile, the rupee after hitting a historic low of 52.73 to a dollar, recovered some lost ground to settle at 52.29/30.

HBL

The rupee saga is not yet over

....the RBI might just be prevented from an explicitly pro-growth stance if currency depreciation triggers a fresh spurt of inflation; this wouldn’t go down too well with equity markets from where the currency derives its support.....

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Rupee fall disruptive, medium-term goals to guide action: RBI

.....”Volatility is another thing. This is the sharpness and speed of the movement that is obviously creating some disruptions. We don’t know where it is going to go, but it is something we need to watch out for,” Gokarn said......

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Tight liquidity limits RBI role in forex mkt

NEW DELHI: Market talk suggests that the Reserve Bank of India stepped into the foreign currency market on Monday to check a steep fall of the Indian currency, but it could not prevent it from closing at an all-time low. Executives manning some of the largest treasury operations in India said RBI has been intervening in the currency markets for the last few weeks, something it had refrained from doing for nearly a year when the rupee hovered in the 44-45 range to the greenback. Just like during the height of the global financial crisis in September-October 2008, RBI governor D Subbarao has limited ability to dictate how the rupee moves this time too. Whenever RBI asks banks to step in on its behalf, the public sector players supply more dollars into the market, hoping that they would stem a decline . During this exercise, they also buy rupees from the market and end up reducing the supply of the Indian currency. So, with less cash available in the system, there is every possibility that interest rates, even if it is in the shortrun , rise. Given that liquidity is tight with banks borrowing over Rs 1.27 lakh crore through RBI's overnight lending window, the central bank would not like to drain more cash from the system. While RBI remained silent on Monday, the government acknowledged that the authorities had limited ability to intervene and stem the rupee's slide. "The rupee cannot slide beyond a point. Ability to intervene (in the forex market) is also limited," economic affairs secretary R Gopalan told reporters. The Indian currency was the worst performer on Monday , shedding some 2.5% against the dollar, with only the Chilean peso putting up a worse show. During the last one month, the rupee has lost close to 8% against the greenback.

TOI

RBI to manage volatility in exchange rate

Hyderabad: The Reserve Bank of India will manage volatility in the exchange rate but it hopes that the rupee would recover once the European crisis is resolved, the central bank's Governor D Subbarao said on Tuesday. "Our policy remains the same which is to manage volatility in exchange rate and to ensure that exchange rate volatility does not impair on macro-economic stability," he told reporters on the sidelines of a conference. "The exchange rate movement that we have seen over the last couple of weeks, particularly in the last 3-4 days is being driven by global dynamics, and clearly to what extent it moves and in which direction will depend on credible resolution of external situation, particularly the sovereign debt problem in Europe," he said. "We expect that the reverse adjustment will take place when the European situation resolves itself," he said on a day when the rupee fell to an all-time low. The rupee depreciated to Rs 52.73 per US dollar on Tuesday. Finance minister Pranab Mukherjee said on Tuesday in New Delhi that RBI's intervention in the forex market will not arrest the slide as foreign institutional investors' pullout and global reasons were behind the depreciation. 

http://www.newsbullet.in/

All eyez on You: RBI hits out at FX related bank transfers

...“… Banks should exercise due caution and be extra vigilant in respect of the transactions that require residents to make margin payments for online forex trading transactions through credit cards/deposits in various accounts maintained with banks in India,” the Reserve Bank said in a notification.....

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FM to loosen purse strings to give growth a leg up

....“What we have is a world economy in which some parts are caught in a “stag” mode and some in “flation” mode, which may together be referred to as “salad bowl stagflation”, ......

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RBI Report on Air India Turnaround Plan Likely Next Week

The Reserve Bank of India is expected to submit next week a report containing its recommendations on a fresh turnaround plan for loss-making national carrier Air India Ltd., a senior official in the civil aviation ministry said Tuesday.  "The RBI is expected to submit its report next week after which the GoM [group of ministers] will take a final call to send it to the cabinet or discuss it further," the official told reporters. The panel of ministers, headed by Finance Minister Pranab Mukherjee, was set up to look into Air India's turnaround and had sought the views of the central bank on a fresh business plan. The plan includes steps for operational as well as financial restructuring of the carrier. 

WSJ

First Islamic interbank benchmark floated

..The establishment of the IIBR marks an important milestone in the maturation of Islamic money markets by providing an international reference rate for interbank transactions,....

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RBI cancels certificate of registration of M/s Cannan Interational

The Reserve Bank of India (RBI) has cancelled the certificate of registration issued to M/s. Canaan International Creditcap Limited, having its registered office at Nellore in Andhra Pradesh for carrying on the business of a non-banking financial institution.

http://www.newkerala.com/news/2011/worldnews-109313.html