Pranab to sell India's growth story on US visit

NEW DELHI: Finance Minister Pranab Mukherjee's two-day visit to Washington beginning Monday will be focused on reassuring foreign investors that India continues to be an attractive investment destination , as its medium and long-term growth story remains intact, officials say.  "The focus is on business. During the two-day stay, the finance minister will hold meetings with business honchos and top US economic policy makers," a finance ministry official, who didn't want to be quoted, told IANS. Mukherjee is scheduled to hold roundtable meetings with chief executives of top US and Indian companies Tuesday. He will also address a luncheon meeting of the India-US CEO forum.  The finance minister will be accompanied by top officials, including his chief economic advisor Kaushik Basu, economic affairs secretary R. Gopalan and Reserve Bank of India Governor Duvvuri Subbaro.

ET

RBI Governor appreciates P. P. Ramachandran for the book review of “I Can Do Financial Planning”

Shri P.P.Ramachandran, Ex-DGM (popularly known as PPR amongst RBIetis) serving the Bank for almost 40 years retired from DBOD in October 1996 only to get retyred just to prove that “It is easy to take a person out of RBI, but very difficult to take RBI out of him/her”. When he joined the Bank on December 4, 1956 the Governor was Sir Benegal Rama Rau - the second Indian Governor. Forty years later when he retired on October 31, 1996 the Governor was Dr C.Rangarajan, who was the 19^th Governor. Having worked under 17 Governors, a septuagenarian veteran PPR has virtually become a walkepaedia (walking encyclopaedia) of the history of RBI. At the age of 76, he is still actively in touch with RBI on various issues like updation of pension, woes of retirees etc. Having flair to read, review and write, PPR has correspondence with great personalities to name a few, Rajaji, Radhakrishnan, Kalam, Khushwant Singh, Paul Gallico and others. He has at his credit 20 RBI related books. “I Can Do Financial Planning” – is a book published by the Reserve Bank during its Platinum Jubilee year, which was reviewed by him.

 had covered this review on April 3, 2011. Click to read it again..................

Dr.D.Subbarao writes..........................

  

Food for thought

Despite having got it so horribly wrong on inflation on so many occasions, government economists are back to predicting that food inflation will slow once more grain comes into the market. RBI Deputy Governor Subir Gokarn argues they’re wrong. At a function in Chennai, he said food prices were no longer as sensitive to the monsoon as one would imagine and that there was sufficient evidence to suggest food prices were driven by more fundamental factors—our columnist Surjit S Bhalla suggested Saturday that it was the global price of oil that was the single-largest explanator of food prices, though it’s not clear if this is what Gokarn had in mind. Look at the data for the past few years and you find that food prices have risen faster than the overall WPI for the seventh successive year now, something unprecedented since the advent of the green revolution; food inflation touched a peak level of 15.6% in 2010, the highest since the start of the reforms in the early nineties. While the gap between food inflation and WPI was under 1 percentage point in 2005-06 (food inflation was 5.4% versus a WPI of 4.5%), this rose steadily to 11.5% in 2009-10 (15.3% food inflation versus 3.8% for WPI); this declined in 2010-11 but was still a high 6%—and this was despite the 5.4% pick up in agriculture growth in 2010-11 and record grain produced in that year. The most recent trends indicate that the current pick up in agriculture prices is not on account of the core products of the food basket like cereals or pulses, it is due to high-value products like vegetables, fruits, eggs, milk, fish and meat whose demand has risen faster than supply, thanks to the sharp hike in per capita income levels. While the record agriculture output in 2010-11, and especially that of food grains, helped slow the increase in price of cereals, prices of high-value goods accelerated even faster. Numbers show that while the price increase of cereals (including rice and wheat) slowed down from 12.6% in 2009-10 to 6.3% in 2010-11 and that of pulses went down from 22.4% to 3.2%, those of vegetables continued to remain at a high 13%; those of fruits surged to 19.8%. For milk, prices rose from 18.8% in 2009-10 to 20.1% in 2010-11, eggs from 13.5% to 15.2%, marine fish products from 9.8% to 38.8% … What’s not clear though is how more rate hikes will help.

FE

RBI's nuanced approach to inflation - C.R.L. Narasimhan

High inflation is being driven by surging global commodity prices

The Reserve Bank of India's annual monetary policy statement in May and its mid-quarter review last week, by many yardsticks, are seen as a break from the past. That only few observers have commented on the new look policy is most certainly due to the fact that the monetary policy, unlike the fiscal policy (the Union budget), hardly evokes the kind of widespread scrutiny or excitement. That remains so despite recent attempts to make the monetary policy more accessible to the common man. There have been a number of other plus points. The policy statements of the day are substantially free of jargon. This is a stupendous achievement. By their very nature, monetary policy documents deal with subjects that do not lend themselves to easy descriptions or analysis that will be intelligible to the man on the street. It is perhaps no coincidence that the annual policy is unveiled by the RBI Governor at a meeting of top bankers. The Governor and other senior RBI officials might address the press and face television interviews subsequently but the basic format of the policy — announced before bankers — rather than television cameras remains.  It should not be forgotten that any policy statement that tries to reach out to wider sections is more difficult to be prepared than one which has as its main constituency, bankers and finance experts. The annual policy statement and the mid-quarter review that followed it fit into the recent mould of policy announcements that strive for transparency and reach out to the common man. One outstanding example is the dissemination of information on what has become one of the core topics in today's public policy discourse, namely, inflation. It is well known that the recent policies have overwhelmingly come out in favour of containing inflation even if that has come at the expense of growth. Practically all policy statements have discussed this trade off but none could have done better than Governor D. Subbarao. In the annual policy statement he had this to say:

“Before I close I want to reiterate what I had said earlier, by making a brief comment on the growth-inflation trade off, an issue that has been widely debated in the run up to this policy. High and persistent inflation undermines growth by creating uncertainty for investors, and driving up inflation expectations.  “An environment of price stability is a pre-condition for sustaining growth in the medium-term. Reining in inflation should, therefore, take precedence, even if there are some short-term costs by way of lower growth.” The deleterious consequences of inflation are well known. It will impact adversely on the growth prospects. India's poor with already low living standards will suffer the most. The RBI in its monetary statements has devoted considerable space not just to inflation but also to inflation expectations. The connection between the two has once again been well brought out in the annual policy statement. High inflation is being driven by global commodity prices which have surged in recent months. There is every possibility that they may increase further even in the short-term. So there is a real possibility of inflation getting even worse. Even the most pessimistic inflation projections of recent months have been exceeded; there are serious concerns that inflation expectations may become unhinged. What the central bank is alluding to is the simple fact that rising prices beyond a point feed themselves. For instance, households reeling under high food inflation do not see any respite in the food prices in the year ahead. In the case of petroleum products, nobody expects their retail prices to come down. Notwithstanding last Friday's steep increase in the retail prices of diesel, kerosene and cooking gas, the betting will be on still higher prices. Not only are global petroleum prices high, but domestic prices have by and large remained cushioned by subsidies by the government and to an extent by the losses borne by the oil marketing companies. Certain well known public policy instruments are relevant for conditioning inflation and inflation expectations. The monetary policy should have a clear and stated inflation objective. Second, the central bank must have the appropriate instruments and have the freedom to use them. Finally, there should be an effective transmission of monetary policy. The RBI has recently taken some bold steps: (a) a 0.75 percentage point increase in the repo rate over two policy statements (in contrast to the small ‘baby' steps of previous policies; (b) making the repo rate the sole policy rate; and (c) the creation of the Marginal Standing Facility from which banks can borrow at the repo rate plus one percentage point.  Not only will the RBI be able to manage liquidity better, but it effectively assumes the traditional role as a lender of last resort. Monetary transmission should improve as a result of these changes. The fact that the RBI and the government do not, at least publicly, differ in their assessments of growth indicators is another positive factor.  The RBI's recent action in lowering its GDP forecast sharply has probably made such estimates more realistic. Credibility of official data will certainly help in having a better idea of the price situation both at present and in the future.

The Hindu

In a time warp

The 25-paise coin is going out of circulation from June 30. The RBI has decided to scrap them as the inflation bug has bitten the currency. And a whole generation of teens have not seen the likes of 5, 10 and 20 paises as they ceased to be legal tender more than a decade ago. The Proxy form published in the State Bank of India's Annual Report for 2010 has a provision for affixing 15 paise revenue stamp over which the shareholder has to sign! Yes, 15 paise! Now we have neither the coins of the denomination nor revenue stamps of that value. When one started perusing the annual reports of companies, one came across the same bloomer in almost all! But what is surprising is that the State Bank of India, majority owned by the Government of India and which takes care of the Union Government's treasury operations, doesn't know the Indian Stamp Act 1899, since amended 51 times, has replaced the mandatory 20 paise revenue stamps affixation for documents to Rupee One by an amendment in 1994. The State Bank of Travancore's proxy form also has the same format following the parent, while the IOB requires the shareholder to affix one rupee stamp — obviously, they are alert.

The Hindu

‘There is no black or white money'

The Reserve Bank of India Deputy Governor, Dr K.C. Chakrabarty, has said that the RBI gets nothing by increasing the interest rate. He was responding to queries at the ‘Voice of Tomorrow – Fuel to Excel' lecture series organised by the Indian Chamber of Commerce and Industry, Coimbatore with The Hindu as media partner on Saturday. To a query on rate increases, he said ‘banks do an intermediation between the savings and borrowing rate. If you see, the savings rate is still lower than inflation. By increasing the deposit rates, banks incentivise the saver and all of us save.” Asked how much more interest hikes can be expected, pat came his reply ‘I am not an astrologer.'  When asked if our leaders had the political will to push through the reforms, Dr Chakrabarty replied in lighter vein by stating, “I have the highest respect for our politicians. They are highly efficient and of course, we deserve the Government we elect. None of them work for less than 19 hours a day. If all of us put such efforts and work as hard, we will be somewhere. Unfortunately, we have collectively made them ineffective and we are responsible for this.” On the efforts taken by the RBI to curb black money, the amount of such money in circulation, and money flaunting outside India he said, “for us, there is no black or white money. Everything is money and contributes to inflation. It is up to you to be honest.”  ‘I am not a CBI, nor am I involved in 2G spectrum scam. I know what you know and that too from reports on paper. But you should understand that the rupee has a value only when it comes to India.” He urged youngsters to take informed and intelligent decisions instead of alleging that banks compel them to buy certain products. “Banks offer various products and you have a choice. I can't make you intelligent,” he added.  Dr Chakrabarty perceives the need for more banks in the country to bring everyone into banking fold. While stating categorically that this is his personal view, Dr Chakrabarty said, “at present only around 50 per cent of the population are covered. If we have to look at bringing the rest too, we will need an equal number of banks as at present or even more.” He, however, pointed out that when more new players come into the banking space, there would be other issues. “Some might work very well, grow in size, while others might run into trouble and the exit policy/rule is not an easy one.” He preferred not to talk on the (bank) size matter, reiterating all the while that the subject of having more banks to bring the entire populace into banking fold was his personal view.

The Hindu

PSBs mull funding on staff liabilities

RBI wants banks to agree on method for enough margin on pension, related liabilities

After taking a significant hit on net profits in 2010-11, public sector banks (PSBs) may now have to set aside funds for employee benefits such as pension and gratuity on a monthly basis, to avoid piling of liabilities towards year-end. At present, some banks set aside funds on a quarterly basis and others yearly, as there are no norms in this regard. The issue arose after the country’s largest bank, the State Bank of India (SBI), wanted an okay for allowing it to dip into reserves for making pension provisions in the last financial year. To ensure this did not recur, the Reserve Bank of India (RBI) had asked banks to work out a way to create adequate reserves in a phased manner to deal with pension liabilities and avoid approaching the regulator for privileges. In a meeting of the Indian Banks’ Association (IBA) last week, bankers mooted the idea of making pension provision on a monthly basis, with any adjustments needed to be done while finalising the quarterly results. A debate is on regarding how to bring uniformity regarding liabilities among banks. “There is a need for consensus among bankers regarding cost computation on various parameters. Mortality, for example, a key variable for calculating pension liabilities, differs bank to bank. There is a need for some homogeneity regarding actuarial valuation,” said the chairman and managing director of a PSB. Some banks also suggested regulatory fiat to bring uniformity on the provisioning requirement if a consensus is not arrived at. RBI, however, is unlikely to issue a circular on this issue. It wants banks to agree on the the matter between themselves.“Pension provisioning is an ongoing process. Banks are free to make provisions even on a monthly basis if their respective boards decide to,” said a senior IBA official. According to accounting standards, banks are supposed to make ongoing provisions for employee costs but banks provide only when the settlement amount is ascertained close to the settlement date. This issue caught the regulators’ attention when SBI’s net profit dipped by 99 per cent due to a one-time provisioning in the last financial year. RBI said such under-provisioning could lead to systemic risks. In 2010-11, the provisioning had increased sharply because of the pay revisions agreed upon under the ninth bipartite settlement. Wages were raised 17.5 per cent, a second pension option was given to existing and retired employees and gratuity limits were increased from Rs 3.5 lakh to Rs 10 lakh. According to the financial stability report, the expected additional liability was Rs 30,366 crore for 25 PSBs, which constituted 81.9 per cent of their net profit for 2009-10. Since the impact was significant, RBI allowed banks to amortise the liabilities towards existing employees over five years. Hence, PSBs absorbed Rs 4,971 crore towards pension and Rs 1,677 crore towards gratuity in the profit and loss account for the year ended March 31, 2011, while carrying an unamortised expenditure of Rs 16,897 crore for pension and Rs 2,903 crore for gratuity in the balance sheets as on March 31.

BS

'Stop appointing retired officials as regulators'

Moily, who was also chairman of the second Administrative Reforms Commission, has pointed out that in view of the experience of the existing statutory regulators with retired officers and judges, the job of regulators should be restricted to serving officers and judges in order to improve accountability........

Read........... 

BIS sounds the bugle on emerging economies

“If they can heed what perhaps was its most important lesson — that prevention is better than cure — they may be able to avoid suffering their own version of it” is the overly cryptic and prudent note struck by the Bank for International Settlements (BIS), in its annual report released in Basle (Switzerland) on Sunday, ahead of the 81st annual general meeting on June 27......

Click to read.......................

We may not require more tightening, says Y.V.Reddy

The monetary policy transmission will take time and, hence, one has to be careful whether any further tightening is required at this stage, says Reddy

Mumbai: Interest rates may have peaked in the country, though the full impact of monetary tightening by the Reserve Bank of India (RBI) is not felt yet, former governor Y.V. Reddy said.  “The interest rate already has increased and, therefore, we have to see how much more monetary action is required or is it required at all. I will put this as a question mark,” Reddy said in an interview in the Banker’s Trust programme on Bloomberg UTV to be telecast this week. “RBI has acted pretty well. The monetary policy transmission will take time and, hence, one has to be careful whether any further tightening is required at this stage,” he said.  Since its monetary tightening process started in January 2010, the Indian central bank has hiked banks’ cash reserve ratio, or the portion of deposits that banks need to keep with RBI, by 100 basis points (bps) and the policy rate by 425 bps through 10 incremental hikes. After the latest hike on 16 June, the policy rate is now 7.5%. One basis point is one-hundredth of a percentage point. Policymakers and analysts may have overestimated the capacity of the economy to grow and it is inherently a wrong approach to think that economy is slowing because it is now growing at 8-8.5%, Reddy said.  On the contrary, it could be the sustainable growth rate for the economy as 9% growth is beyond its absorptive capacity and something that has led to overheating, the offshoot of which is now evident in the prevailing high inflation. “We should be growing only at 8.5%, and since we allowed us to grow at 9%, we are suffering from inflation now,” Reddy said. “When growth hit 9%, I used the word overheating. Everybody was unhappy with it and I stopped using the word, but I took whatever action was required.” Reddy was RBI governor for five years between 2003 and 2008. He stepped down in September 2008, a week before the collapse of US investment bank Lehman Brothers Holdings Inc. India’s economy grew at around 9.5% for three successive years between 2006 and 2008 and Reddy raised policy rates by 300 bps to 9% to fight inflation that hit a 13-year high of 12.5% in early August of 2008. Reddy, widely credited to keep the Indian banking system safe from the global credit crisis, said notions such as inflation targeting may not be the right approach for a country like India where fiscal prudence is questionable.  “When there is a fiscal dominance, what will just inflation targeting do?” he asked. “Post-crisis, the supporters for inflation targeting are becoming less. The wisdom is not in favour of inflation targeting and the Indian conditions haven’t been changed.”  A proponent of an independent debt office, Reddy was candid enough to admit that he was “immature” in doing so. Referring to the sovereign debt crisis in Greece, he is of the view that any such debt offices can be easily influenced by outsiders and, hence, debt management should be a mandate of the central bank, which is in charge of financial stability and inflation management.  “At one stage I myself was a proponent of this (independent debt management office), but at that time I was immature. I went by the textbook. I went on the assumption that fiscal consolidation will take place,” he said. “Afterwards I realized…that if we have independent debt office, it’s a recipe for problems, especially if you have high debt.” The Indian banking system is shirking its core responsibility, according to Reddy. A “hollow” banking is emerging, he warned, that is taking away banks from their core work of providing credit to agriculture, small and medium enterprises and other productive sectors of the economy. “Everybody encourages banks to do everything other than the core function. There is a hollowing of banking in India,” he said, “and that’s not good for the economy.” However, Reddy is not worried about the “vulnerability” of the banking system, as banks’ balance sheets are “fairly strong”. They have grown some bad assets “but there is enough capital,” he said.

Mint

IMPS is free now, may cost up to Rs 5 in future



                A.P.Hota, MD & CEO, National Payment Corp. of India                     



IMPS is at present confined to person-to-person payment.  We have just got RBI’s approval for merchant payments person-to-merchant and merchant-to-merchant payment

What does National Payment Corp. of India do and what’s the future of payment system in India—cellphone, Internet or ATM?

This institution was set up on a vision of the Reserve Bank of India (RBI) to have an umbrella organization for all retail payments. Umbrella organization means being the central infrastructure for all retail payments other than RTGS (real time gross settlement)—be it cheque clearing, money transfer, electronic clearing service, electronic funds transfer, card payment system, cellphone payment system and the like. The cellphone as a payment system will be the future.

Could you tell us about inter-bank mobile payment system (IMPS) in short?

IMPS is available 24x7 and (fund transfer through the cellphone) happens real time. Both the beneficiary and the sender get an SMS as confirmation of the transaction immediately. IMPS works on the existing infrastructure; therefore, the cost is minimal. Suppose you want to send funds to someone urgently in another city, you can send it immediately using IMPS and the receiver can go and withdraw the money at an ATM. Real-time money transfer is used by large business houses and companies through RTGS. Through IMPS, it’s like taking RTGS to retail customers.

Currently IMPS service is free of cost by banks. Will there be a cost in the future?

We charge 10 paise per transaction to the sending bank. For National Electronic Fund Transfer, banks charge a minimum of Rs5 for up to Rs25,000. With IMPS, the maximum limit (of money transfer) is Rs50,000, so the amount that banks may charge should be Rs2-3. For the first six to seven months, banks would like to offer the service free. How much the banks will charge has not been decided. But if they charge more than Rs5, it will not take off and the banks know it very well. So, it will definitely be less than Rs5.

How long will it be before we can use IMPS for retail payments and through multiple channels?

IMPS is at present confined to person-to-person payment. We have just got RBI’s approval for merchant payments— person-to-merchant and merchant-to-merchant payment. Person-to-person is relatively easy, but person-to-merchant will involve a good deal of work since it has to be integrated with the merchant system also. We will soon start with six pilot banks for person-to-merchant payments.  RBI has given us permission for channel integration too. That’s from cellphone to ATM and from ATM to Internet. Currently, if you want to send money through the Internet or ATM, you will have to punch in a whole lot of details such as bank name, branch name, account number and the like. Now we have permission to use the ATM or Internet channel to use MMID (Mobile Money Identity, a unique number you get when you register for IMPS) and mobile phone number as the identifier of the customer. This facility is yet to be rolled out.

How would it work?

When you go to an ATM, you will see a menu which will have an IMPS option. When you choose the IMPS option, you will have to punch in the mobile phone number, MMID and the amount of the sender, once you press enter, your account will get debited and the receivers’ account credited for the amount. So, (in the near future) you can send money through an ATM, if you do not want to send it using your cellphone through IMPS. This service is for those who are more comfortable with using an ATM instead of a cellphone. Even with Internet banking, you can use IMPS.

Banks are issuing MMIDs to every new customer, but very few of these are active. Will IMPS meet the same fate as no-frills account of not taking off, only active on paper?

Let me not compare IMPS with no-frills accounts. IMPS has been introduced to 10 million customers. You are right in saying that accordingly the volumes should pick up. But you may not have seen any advertisements. Most banks are waiting for a sizeable number of banks to join the system. Once that happens, they would go for an advertisement campaign. At present, 22 banks already offer this service and three more will go live in a week’s time; this will be a critical number for them to start the publicity campaign. Here customer education is the key.

What if there’s a grievance regarding IMPS?

The customer should approach his bank directly.

Mint 

Canara Bank organise CBI officers training

Bosskey adds flavour to humour meet



Encouraging talent:

A young participant Akash (grandson of S.Venugopalan, Ex-AGM, RBI, Chennai) regales the audience at the Besant Nagar Humour Club meet with his jokes as actor Bosskey watches



Besant Nagar Humour Club, in association with the Reserve Bank of India Staff Quarters Residents Welfare Association, conducted its monthly meeting on June 5. The chief guest on the occasion was comedian and TV personality Bosskey. The meeting began with a prayer by Kruthika. Club chairman A. Kumar, in his welcome address, said the club is being run successfully for the past 10 years with the motto "Laughter is the Best Medicine" aimed to provide a platform for people in and around Besant Nagar to relax and enjoy an evening of laughter. He requested the members to attend the meeting in large numbers and also asked them to help in getting more membership by popularising the activities among their friends and relatives. The annual subscription is only Rs.150, which is very nominal, he added. G. Swaminathan, secretary of the club conducted the open Joke Session, in which children and other members participated in large numbers. The children cracked jokes with spontaneity which was well received by the members with loud cheers. While addressing the audience, Mr. Bosskey endeared himself to one and all by asking them to suggest a topic on which he could speak. The members came up with various topics such as cinema, Nagesh comedy, cricket, TV seriels, etc. Mr. Bosskey spoke spontaneously with a humorous touch on all the topics given by the members proving his extempore skill that was well appreciated by the gathering. For membership and other details, contact Mr. Kumar at 9444755430.   

Taming inflation, protecting growth - Hari Shankar Singhania

The central banker of an emerging economy has the unenviable task of striking a balance between growth and inflation. They must not kill growth in the war on inflation. RBI Governor D Subbarao is one such governor. He represents the central bank of a leading emerging economy, where inflation is crawling up while growth is decelerating. On June 16, he made his mind clear when he had observed, “some short-term deceleration in growth may be unavoidable in bringing inflation under control and the RBI needs to persist with its anti-inflationary stance.” What is noteworthy, however, about his ‘anti-inflationary stance’ is the small steps he takes, so that growth is not hurt. For this, he has earned criticism. According to critics of the baby steps, in the last 15 months the repo rate has been increased 10 times, by a cumulative 2.75 percentage points, but with little effect on inflation. There is, accordingly, a suggestion that RBI needs to re-think its strategy. However, such an assessment is misplaced. So far, inflation was being driven largely by food and commodity prices, and RBI action could have had very little effect. Naturally, inflation was inching up, in spite of many hikes in the policy rate. Like central banks everywhere, the RBI had to take small steps to express its concern and readiness to act. While big steps could be damaging, baby steps could be intimidating. Further, so long as inflation was seen as a supply side constraint, there was no point in RBI displaying its killing spirit. The context has changed now. Commodity price inflation has spread to manufactured products and is pushing core inflation. Couple this with food price inflation, and there is the risk of a wage-price spiral. Further, oil prices are posing a serious threat. If the government allows a full pass-through of the rise in oil prices, headline inflation would hover around the double-digit level and seriously cripple growth. Given this, it is time to declare war on inflation, before it spins out of control. It is rightly felt that in the war on inflation, growth can wait. The RBI governor has once again increased the rate by only 25 basis points, but at 7.5 per cent the repo rate is sufficiently growth-constraining. Further hikes will follow if the present action is not seen to be effective enough. However, the question of trade-off between inflation and growth still remains. We cannot ignore the interests of growth, as otherwise there is the risk of stagflation. Growth must wait at a level the economy can live with. What is that level where we can ask growth to wait and not fall further? What is the degree of freedom for the RBI with regard to rate hikes? What is the limit beyond which the rate should not be pushed further? It is difficult to answer such questions, but a realistic assessment of the current situation may be useful. The global economy is once again in crisis, with the advanced economies standing on the precipice of stagnation. We, in India, cannot escape the effect of the crisis. The RBI governor is right in pointing out that “recent global macro economic developments pose some risks to domestic growth.” What he means is that our GDP growth will be affected in any case, and the situation may be worse if inflationary trends remain unabated. The question is, to what extent we can sacrifice growth and still retain the growth momentum? During the crisis of 2008-09, our GDP growth had fallen to 6.8 per cent, but then, with the onset of recovery, it went up to 8 per cent in 2009-10 and 8.5 per cent in 2010-11. The slowdown fever had, however, started, beginning in the second half of the last fiscal. In the fourth quarter of 2010-11, GDP growth declined to 7.8 per cent, from 8.3 per cent in the previous quarter. In the current year, no one, including the RBI, expects growth to be above 8 per cent. But it is imperative that we halt the deceleration, as we also try to contain inflation. It is important that we also provide a cover for the economy to achieve the minimal expectation of 8 per cent growth, or around 8.5 per cent. Take this as the benchmark for the current year. Will this be difficult to achieve, if the RBI goes in for a further rate hike of, say, 25 or 50 basis points? In my view, the RBI can have this leverage in controlling inflation and we can still have more than 8 per cent growth, provided some care is taken to ensure that the business environment is not disturbed and business confidence is boosted. At this moment, when the RBI has to perform its role, the government must ensure that the economy runs smoothly in spite of various anti-corruption drives and civil society movements. All centrally sponsored schemes need to be carried through in earnest so that resources allocated for the purpose are fully utilised. Intelligent fiscal consolidation also helps. It is also important to ensure that infrastructure projects are not hampered due to lack of clarity and uncertainty on matters relating to land, environment, forests, rehabilitation, etc. Such matters have been seriously hurting the investment climate in the country, and are contributing to the slowdown. On their part, commercial banks should be judicious in credit allocations. They may pursue a discretionary policy on supply of credit and lending rates. They have a critical role to play in this moment of crisis. Interest-sensitive but employment-intensive sectors (such as small and medium enterprises) can be spared the full rigours of the credit squeeze and the burden of high lending rates. In the war on inflation, the RBI and commercial banks can work in partnership. While the former controls inflation, the latter can protect growth.

The author is President, JK Organisation, New Delhi BS

“Education, skill development must be integral to growth process”



High growth : Reserve Bank of India Deputy Governor K.C. Chakrabarty addressing ‘Voice of Tomorrow'

COIMBATORE: Education and skill development should be an integral process of the growth process in the country, according to Deputy Governor of the Reserve Bank of India K.C. Chakrabarty. Speaking at ‘Voice of Tomorrow – Fuel to Excel,' organised by the Indian Chamber of Commerce and Industry, Coimbatore, and The Hindu here on Saturday, he said that youth and entrepreneurs would be the voice of the future. It should be a collective aim for all to enable the country register 10 per cent growth for the next 20 years. India is the only country where the working population will increase for the next 20 years. In such a scenario, education and skill development should be an integral part of the growth process. “If we are not able to create skills of global standards, the demographic dividend will be a demographic disaster,” he said. The education process should be vocation oriented and industry-institute interaction was important for this. Skill gap would be costly for the economy. Infrastructure was another important sector. Energy security and alternative clean energy were needed for the manufacturing sector to grow. Innovation was needed in food and energy. Successful models in a State should be replicated by other States too. Technology should be used more effectively to bring down the cost of production. As the economy grows and with a huge young population, more would aspire for high quality education. After their education and getting employment, the next requirement would be quality shelter. On the lines of food and education for all, the endeavour should be towards shelter for all. There would be tremendous credit demand for education and housing. And education and shelter should be available at affordable costs. “Inclusive growth should be the goal of the entire society,” he said. The RBI plan was to ensure that in the next five years, every individual and household in the country should have access to banking services. This would enable people to participate more effectively in the economy and society. Millions of micro and small-scale entrepreneurs should be created. “High growth is not sustainable with high inflation,” he said. M. Narendra, Chairman and Managing Director of Indian Overseas Bank, said India now offered several opportunities. Hence, it was important to not just prepare for the present but for the future too. The country should be able to achieve the current rate of growth for the next three or four decades. It should address issues such as development of human resource, infrastructure, urban and rural areas and economic reforms. The country had a large youth population and they were the greatest strength. He urged the participants to work hard, aim high, have a broader vision of their endeavours, and break boundaries. Industries should focus on the customer and follow the best management practices. It was important to reach out to every one. Economic inclusion would be a co-ordinated effort. Former presidents of the chamber K.G. Balakrishnan and D. Balasundaram, chairman of the Bharatiya Vidya Bhavan, Coimbatore, B.K. Krishnaraj Vanvarayar, and vice-president of the chamber P.R. Vittal also spoke. M. Krishnan, President of the Indian Chamber of Commerce and Industry, Coimbatore, said in an effort to commemorate 82 years of the chamber's activities here, it was organising 82 programmes with different concepts. The objective was to ensure economic development here and provide a forum for the youth and entrepreneurs to interact with industrial leaders. D. Raj Kumar, Regional General Manager of The Hindu, Coimbatore, said this was the second programme in the ‘Voice of Tomorrow' series. The aim was to enable future leaders to emerge from this platform. D. Nandakumar, secretary of the association, spoke.

Hindu 

Flat of RBI official burgled at Ultadanga Quarters

Cash and ornaments worth Rs 7 lakh have been stolen from the Ultadanga quarters of a senior official of the Reserve Bank of India who has recently been transferred to CAB, Pune.  “One of the residents of the RBI quarters at Ultadanga saw the door of Assistant General Manager Jawahar Lal Sau’s flat ajar around eight last night. We rushed in to find the flat burgled,” a police officer said.  Sau had left for Pune with his family a few days ago. But he was yet to shift his belongings from his fifth-floor Ultadanga flat. He flew down to Calcutta this morning after being informed about the theft.  Sau has said in his police complaint that gold jewellery weighing 300 grams, some silver utensils and Rs 30,000 in cash had been stolen.  “The lock on the flat’s main door had been broken open. The cupboard had also been broken and the flat ransacked,” the officer said.  “There are no CCTVs in the building. We are trying to prepare a list of people who visited the building in the past three-four days,” said an officer of the anti-burglary cell of the city police. The house of a group-D staff of the RBI in Narkeldanga, around 2km from Ultadanga, was also burgled yesterday evening.  Gold ornaments weighing 180 grams and Rs 20,000 in cash were stolen.

The Telegraph 

Mukherjee to pay three-day visit to United States from June 27

Union Finance Minister Pranab Mukherjee will leave on June 27 for a three-day visit to the United States during which he will hold bilateral meetings wth US Secretary of Treasury Timothy Geithner and interact with business and industry. On Monday evening, Mr Mukherjee will deliver in the keynote address, along with Mr Geithner, at a conference on the theme "US Indian Economic and Financial Parternership". The conference is being organized by the Confederation of Indian Industry (CII) in collaboration with Brookings Institute of US.  The different sessions of this day-long event will also be addressed by Mr R.Gopalan, Secretary, Department of Economic Affairs, Dr Kaushik Basu, Chief Economic Adviser, Ministry of Finance, Mr Subhir Gokarn, Deputy Governor of the Reserve Bank of India (RBI) and Mr U.K.Sinha, Chairman, Securities and Exchange Board of India (SEBI), among others.

http://netindian.in/news/2011/06/25/00014026/mukherjee-pay-three-day-visit-united-states-june-27

BOB convenes meeting of State Level Bankers Committee

The 109th meeting of State Level Bankers Committee functioning under the convenorship of Bank of Baroda was held on 20th June 2011 at Jaipur. Namonarayan Meena, Minister of State for Finance in Govt of India presided over the meeting, which was attended by Rajendra Parikh, Minister of Industries and Economic Affairs, Government of Rajasthan State, M.D. Mallya, CMD, Bank of Baroda, N.S Srinath, ED, R.V Verma, Chairman of National Housing Bank, Deepali Pant Joshi, CGM-I-C, RBI, Shiv Kumar, MD, SBBJ besides other dignitaries of various Public Sector Banks and state government. The committee discussed various aspects of financial Inclusion Policy of Govt. of India and RBI for implementation by Public Sector Banks.

TOI

25 paise coins to go off circulation from June 30

KANPUR: Coins of 25 paise and lesser denominations will be withdrawn from circulation from June 30. They will not be accepted for exchange at bank branches and RBI issue offices.  The Reserve Bank of India has, therefore, appealed to the public to exchange these coins at branches maintaining small coin depots or at offices of the Reserve Bank. Assistant General Manager of the bank J.P.Singh informed that the exchange facility at bank branches or the Reserve Bank offices would be available till June 29.  It is important to mention here that in the exercise of powers conferred by Section 15A of the Coinage Act, 1906, the Government of India has decided to withdraw the coins of denomination of 25 paise and below from circulation with effect from June 30. From this date, these coins shall cease to be the legal tender for payment as well as on account.

TOI

Fuel price hike to add 30 bps to WPI inflation - Oil Secretary

The government's decision to hike fuel prices is expected to add 30 basis points to the country's headline inflation, Oil secretary G. C. Chaturvedi told reporters on Friday.Persistently high inflation, which hovered above 9 percent in May, had prompted the Reserve Bank of India (RBI) to raise key interest rates 10 times in just over a year. The RBI last week signalled more increases to come even as growth in Asia's third-largest economy is slowing down.

Reuters

Growth in banks' earnings may drop: Analysts

Dwindling demand for loans, shrinking margins and higher provisioning requirements are likely to drag the earnings of banks in the coming quarters, industry analysts said, giving more credence to concerns of a slowdown.........

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‘Growth can wait, not inflation’

Bimal Jalan is a former Governor of the Reserve Bank of India (RBI), a former member of the Rajya Sabha and a well-known author on policy regimes. In this interview with Olga Tellis, he urges that inflation be tackled on a priority basis through a coordinated approach in the whole of the government and believes that drop in investment is a cyclical issue that can be dealt with as we have sufficient resilience.

Q. There is a lot of concern about dwindling investments, both domestic and foreign. How do you see these things?

A. Any dip in investment, or in buoyancy in the market is a concern. But the greater concern is that of inflation, and the perception of lack of governance in the wake of the 2G spectrum and other scams. There is a feeling that the government is not as effective as it should be and that there is lack of co-ordination between different parts of the government. These are more fundamental issues. Issues like drop in investment are cyclical issues and can be dealt with. India has the resources with a 35 per cent domestic savings rate and investment at 37 per cent of the gross domestic product (GDP) that is one of the highest in the world. This short-term dip doesn’t mean much. The growth in quarter on quarter terms is not so worrying as the medium-term worries about corruption and non-governance. These are very fundamental issues that are affecting the country and the economy.

Q. What about fall in portfolio and foreign direct investment?

A. I am not worried about fall in portfolio investment as that concerns the stock markets. If the markets go down, it will affect some people. But it is not a priority as we already had excess inflows and added them to our reserves. Direct investment is more important, as also is the climate in the country and whether we will generate a unified voice on issues that affect governance.

Q. There is also concern that government is not going ahead with reforms like the Land Acquisition Act.

A. Land acquisition has been a problem since our Independence. And despite all this India has been recognised as an emerging global power. So, these are not immediate issues. The real question is the confidence, ability and political will of the government to tackle rising corruption at the political level. Now the Supreme Court has entered in the picture with the 2G scam.

Q. Do you feel that the RBI and the government are playing a losing game in tackling inflation? Despite all the rate hikes, inflation is still at over nine per cent.

A. It cannot be a losing game unless you make it so. Inflation should be tackled effectively as it affects people at large. What is worse is “inflationary expectations”. If people expect inflation to go up, they will automatically buy more than they need if they have the liquidity. The problem is that there are too many voices saying things like “after the monsoon, food prices will come down”, or “after the harvest, prices will come down”, and then non-food prices go up. If RBI measures do not lead to a fall in food inflation, we have the resources to do what we want. We can import.

Q. So far, it is growth that has been going down and inflation has been rising. What does this indicate?

A. How do digits matter — 8.7 or 8.5 per cent etc? We are still a country with high growth rate. If there is a conflict between growth and inflation, there should be a concerted approach to tackling inflation and there should be definitive action, no matter what happens to growth in the short run. India’s resources are much greater than ever. We are adding to our reserves but not using them. There are tradeoffs in the economy. It is not so simple as people think and there must be a concerted effort to tackle what we consider to be the priorities. These are certainly inflation and corruption at the moment. Oil prices are high but we have controls, and we have not raised domestic prices as much as the rest of the world. They should be raised so that there is a one-time effect. There has to be a coordinated approach and action rather than just relying on rain clouds.

Q. Would you say that there is limitation to monetary policy tackling inflation?

A. There has to be a unified view that inflation needs to be tackled and that whatever needs to be done in monetary, fiscal and trade areas will be done. Some dip in growth may be the cost, that if tackling inflation means taking unpopular actions we are willing, we are willing to do whatever is necessary even if it displeases specific interests.

Q. Does this mean that the government is not doing its bit on the fiscal front?

A. I don’t want to blame anyone. In a political system there are multiple centres of power and different ministries have their own focus points. But if there is a national problem, say inflation, we need a consolidated effort and policy overriding the specific interests of different ministries.

Q. So, are you optimistic about the future, or pessimistic? Do you see government taking action where necessary?

A. I am optimistic, but not about the immediate future. I am sort of disappointed with the drift in policy and decision-making. But we have the ability and the capability. Responses are coming in as people are fed up with corruption and inaction on priority issues such as inflation and corruption and priority governance issues. To take a longer-term perspective, we have passed through various crises in the ’70s, ’80s, ’90s and I have no doubt we will overcome the present problems.

Deccan Chronicle

Markets can digest only one more RBI rate hike: Analysts

The stock markets indicate the collective opinion of investors, and they are now indicating nervousness. The markets are reflecting the investor's nervousness on the growth story, and on the inability to control the macroeconomic environment.  The markets are ringing alarm bells that inflation continues to be higher than expected despite a hefty cumulative increase of 325 basis percentage points in the policy rates since early 2010. Also, there are increasing indications of a moderation in growth. The Reserve Bank of India (RBI) embarked on a rate hike programme to control the inflation rate and maintain growth. Interest rates systematically went up throughout 2010 and 2011 but inflation too continued to rise unabatedly . The rates have been hiked to such an extent that now the interest rates are beginning to hurt growth, but the inflation rate is still showing no signs of slowing down.  This is a double whammy, as the stock markets, the basic fabric of the growth story, is being threatened. On the one hand, the RBI is increasing rates but this is not supported by fiscal measures. The government, through its various guarantee schemes, is indirectly introducing a stimulus in the economy which is supporting the demand for goods and services.

ET

RBI fines co-op bank in Bengal

The Reserve Bank of India (RBI) has imposed a penalty of Rs 2 lakh on the Suri Friends' Union Co-operative Bank Ltd located in the Birbhum district of West Bengal for violation of provisions relating to sanctioning of loans. According to a release by the RBI, the co-operative bank was penalised following a show-cause notice issued by the central bank.

Business Line

India's long-term equity story good: Analysts

Analysts believe the long-term market fundamentals are intact, based on the strong prospects of economic growth here. However, investors should remain cautious.......

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SBI chairman to attend bankers’ meet

Top French honour for Maharashtra economist



VITALINFO extends best wishes to Dr. Narendra Jadhav, former Principal Adviser & Chief Economist, RBI



Mumbai, June 24 (IANS) Renowned economist and Planning Commission member Narendra Jadhav has been honoured with the “Commander dans l’Ordre des Palmes Academiques” (Commander of the Order of Academic Palms) award — one of the oldest French civil distinctions, a statement said Friday. The honour will be formally conferred on Jadhav July 14, the French National Day. A former vice chancellor of Pune University, Jadhav is also a member of the National Advisory Council, an academician and a writer. He is the first Indian to be accorded the honour originally founded by Napoleon Bonaparte in 1808 to honour members of the University of France. In 1955, it was established as an order and awarded to eminent acdemicians, authors, artists, scientists and professionals for their contribution in various fields like social movement, culture and education. The Ordre des Palmes Academiques comprises three grades and commander is the highest among them, the statement said. The honour recognises Jadhav’s fight against prevalent discriminations and inequalities in India. In the past few years, he has been actively involved in democratic struggles against caste-based discriminations and socio-economic inequalities in India.

http://www.thaindian.com/newsportal/uncategorized/top-french-honour-for-maharashtra-economist_100545278.html 

Inflation expectations

...........It is highly significant that even when the RBI lowered the growth estimates and increased those of inflation thereby differing sharply from the official position, the government has backed the central bank. More realistic growth and inflation estimates, and greater cohesion between the government and the RBI are all vital ingredients in a well thought ....................

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