Is This a War of Attrition Between FM and RBI Governor?

Business Economics & Services Team


                                Is This a War of Attrition Between FM and RBI Governor?

 A day after the union finance minister Arun Jaitley reported to have told a gathering of industrialists and bureaucrats at a meeting to chart out the future course of the grand Make in India program that the higher interest rate was a stumbling block to pep up the manufacturing sector, he retracted  from that in his twitter. The sum and substance of his tweet was that the media had read too much into his generic comment that a lower interest rate was necessary to kick start the economy. His explanation can mean that at this present juncture, what is generally good for all economies, need  not necessary  be good for India.

Is he trying hard to distance from his statement? Jaitley may not be an economist in strict sense since he comes from a profession of lawyering. His reputation as a lawyer is well known and widely recognized. Also, as an astute politician, he has made his mark so much so that he is the most powerful and incisive spokesperson in the NDA today. Also, the journalists  present at the high profile meeting to cover are not the amateurs, cub reporters or stringers. They are hard core financial journalists, who have been covering  Jaitley and the finance ministry since many of the headline stories come out from the finance ministry. Can they commit an error of this magnitude of misreading the finance minister?
This is not the first time that the erudite finance minister had made such a statement. More than a month ago before the review of the monetary policy announced on 2nd December 2014 also made such a statement. Is Mr Jaitley blowing hot and cold? Possible because he has to gravitate towards the powerful industry lobby, who has been clamoring for a rate cut, as if that is the panacea for  all economic ills in the country. A shrewd lawyer and politician of Jaitley's reputation can easily disrob the veil of the rationale put forward by industry for rate cut.
As the drama unfolds, one should give the due credit to the present RBI Governor for withstanding the pressure from the government. Admittedly, he has a few advantages. One, he does not have a bully finance minister to handle. That way, there can be traces of arrogance in the present incumbent, he is far more  refined and respect the delicate domains of fiscal and monetary policy. While fiscal calibrations are his, he tends to accept the authority of the RBI governor over the monetary policy. That is a good augury.

The second advantage that the RBI Governor  enjoying is his own background. His impeccable background and academic elan have come handy in dealing with the pressure exerted by the finance ministry. For long, barring a few exceptions like Dr Manmohan Singh and Dr Bimal Jalan, we had only senor bureaucrats as the RBI governors. The bureaucracy has been taught to call Sir to people who are one day senior to them. That does not take away the circumspect stands taken by some earlier governors like Dr Reddy and Dr Subba Rao, who did not yield to the bullying tactics and stood their ground.

The third advantage is connected with the second. Being a part of the officialdom, both his predecessors-Dr Reddy and Dr Rao were hamstrung what they  have been taught at Mussorie- that a bureaucrat should work in the background and the public glare should be on the elected  representatives in a parliamentary system of government. That way they shied away from the media nor they have tried obtusely to create direct contacts with the media. They had met media when it was  important to meet them to announce the RBI stands and policies. In these days, one can easily make out that the RBI governor is getting wider exposure ever enjoyed by any of his predecessors. I suspect even more than the finance minister. It may be incidental or the governor would have made this as a policy to hob know with the media. If he has done so there is nothing wrong in that.

 I have a feeling that there is a well laid out scheme by the RBI to counter some of the opinions expressed by industry and industry lobby organizations. Along with the clamoring for rate cuts, we get to know that the industry off take of credit has gone up somewhat appreciably negating the claim that higher rate is affecting credit off take. Is it a tit for tat? if it so, there is nothing wrong in that.                     

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Why I will Support Arvind Kejriwal in the Next Delhi Elections?

                             Why I will Support Arvind Kejriwal in the Next Delhi Elections?

I am giving below 10 reasons why I will support Arvind Kejariwal's Aaam Admi Party in the coming elections  in Delhi.
1. I believe Congress and Bhartiya Janata Party (BJP) are both sides of a coin and they are firmly footed in the vote bank politics. Whereas, AAP, though lacks experience in governance, is willing to experiment, without much looking into the outcome. Them abdicating the power in Delhi last time, is a political experiment. Opinions may vary whether that had misfired on them. In any experiment, there can be good and bad results and one has to take them in the right stride.
2. All major political parties have developed vested interest in continuing with the system   and  they have to carry on with them the stakeholders since the money for fighting elections are largely coming from them. Every contribution to them has a string attached to it. They cannot wriggle out of it, however hard they might try. Whereas, AAP being a recent political formation can innovate the funding patterns. They have been organizing dinners, get-together, membership drives, contributions from like -minded people etc., which add up to their kitty. If there is any minor aberrations, I am willing to tolerate them.
3. Mainline parties are surviving on media patronage to a large extent. Media is owned by industrialists and independence in reporting is a long forgone doctrine in India. Of course, media change the stand depending on which side of the toast is buttered.  We can see it every day in newspaper columns how they hawk the their own agenda. AAP being a new party and has shown the courage to ignore media to a great extent. I believe that it is a good augury.
4. Political parties are subordinated to business interests because of the  heavy contributions they have made to all important political parties. We know how the bureaucrats, politicians and business curry favor among themselves. Whatever exhortations they make in public are meaningless since businesses know hot to call their shots at critical times. Their lobbying techniques are far more effective and long lasting.  AAP has shown courage to take on some of the large corporations and to expose their omissions and commissions. I believe that they will continue to do the same by bringing them under the purview of strict surveillance on wrong things they are doing.   
5. My experience is that major political parties make more promises and fail miserably in delivery. Though AAP was in rule only for 49 days in Delhi, they had implemented some of the reforms that had promised in manifesto without any fear or prejudice, particularly in areas like electricity tariff, water charges, eradication of corruption etc. For instance, a national daily had conducted a survey immediately after AAP came into power in Delhi and found that some of the most corrupt departments like Transport division, DDA etc. had shown remarkable progress in containing corruption.
6. AAP had  promised to contain the inflation particularly of  food articles and they were contemplating many steps like allowing farmers selling products directly to consumers etc. But such schemes have been put in the cold storage. There is an all round increase in prices of all food items in Delhi, despite the claim by the government that both wholesale and retail prices have cooled down. They are hiding the fact from the public that the percentage changes are mostly because of the base effect. Prices of medicines also have soared high.
7. Power corrupts and absolute power corrupts absolutely. BJP is in power at Center and in more than 10 states. There should be checks and balances for any political party or affilaitions, lest it would go berserk with power.
8. India needs change in power structure, equations and in articulating its growth strategies. Political parties, which were ruling for so many years have lost the appetite to create new structures. By giving AAP a chance to rule Delhi, we are enabling them to carry out their experiment in a microcosm to be superimposed on a wider canvas later.
9. AAP is a party of youngsters and most of its party members are ordinary people, who have been left out to the fringes by the successive ruling parties. Giving voice to those who have been left out will be the right risk cover against  massive agitations as are happening in other parts of the world.
10. Finally, I believe that AAP is secular in the true sense. That does not mean that its followers should become irreligious. What they have to believe is that faith is a private affair and at  the  macro level we are all proud Indians, irrespective of the religions that we have born into. Polarization in terms of religion is the greatest harm that we can do this country.      
         

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Streamlining Financial Sector -Biggest Stumbling Bloc are Players

         
 Business Economics & Services team (BEST)



                    Streamlining Financial Sector -Biggest Stumbling Bloc are Players


 At least, regulators are taking cognizance of some of the anomalies in the financial system in the country, which is a good augury. The foremost is the report that capital market regulator - SEBI-  is proposing to bring down cost of investing in mutual funds. It is reliably known that the market regulator is toying with the idea of capping cost of asset under management (AUM) managed by a mutual fund to 1.5%,. Presently, mutual funds are allowed to charge upto 2.5%, which is steep as compared to existing rate prevalent in the developed markets. The advisory committee set up by SEBI has recommended that the total expense ceiling should be reduced to 1.5% of daily net assets in case of equity oriented schemes and in case of closed-ended schemes the cap  should be at 1.5% with an extra 30 basis points for inflows flows from beyond tier 2 and tier 3 cities.
Another important development in the financial sector is the norms evolved by the Banking Codes and Standard Board of India (BCSBI), which has made the onus of proof on the banks to prove e-frauds, which was earlier cast on the customers. BCSBI is an autonomous institution set up by the RBI in 2008 to evolve codes and standards for banking operations in the country.
Both these developments have created consternation among mutual funds and banks. The mutual funds feel that cap in the administrative expenses will hit them badly. According to them, many mutual funds are loss making ones and with the cap on expenses, many will have to fold up their operations. But what is forgotten is the likely impact the norm will have on the retail investors, who are still shying away from the capital market, after they have burnt their fingers during the capital market crises that had happened at regaualr intervals. While some of  the large mutual funds are seemingly hopeful of a revival of  interest by the retial investors, many do not think so. The small mutual funds operators feel that with the capping of the expense, they will not be able to sell mutual fund products in tier 2 and tier 3 cities, where they have to spend more for capturing the market by gigging attractive doles to distributors.
However, retail investors are happy about the development. If the proposal is implemented, they feel that it will rein in funds from charging exorbitant expenses. Fixation of 1.5 % as the cap, thy point out is in tune with the cap prevalent in other countries. In many situations, they point out that mutual funds rake in a lot of money of the customers as expenses towards cost of management. They also want the  SEBI to come out with norms for more disclosures by the mutual funds, since many of them hide the facts from customers, particularly, commissions paid to the distributors. it may be noted that high commission paid to the agent was a bone of contention in the insurance industry. For some of the schemes like unit linked insurance, the percentage of commission was high as 40%. Now, that system has been replaced and the agent has to get the commission from the customer.
Significantly, banks through their lobby organization Indian Bank Association (IBA) has voiced their concern about the BCSBI norm. They want the earlier regime should continue so that teh onus of proof of any e-frauds should lie with the customer. There is an argument is that many of the frauds are happening with the complicit understanding of the customers and they share  their password   with the fraudsters and once the fraud happens they try to pose as innocents. It may be noted that the new norms will be applicable only to cases where the amount involved is Rs 10,000. For amounts, higher than this, the onus is still on the customer.
It is a good augury that the government and the regulators are taking cognizance of these anomalies in the financial sector. Undoubtedly, this will shore up the confidence of the people in the system, which will have many positive spin offs.          

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Are You taken for a Ride by Bankers while Availing Housing Loans?

  Are You taken for  a Ride by Bankers while Availing Housing Loans?

It is claimed that the banking sector is regulated and controlled by RBI. But how far that control is effective is a question being asked by many. RBI has come out with a dictum that no bank can charge per-payment penalty for early repayment of housing loans. Banks claim that they have adhered to the terse warning by the regulator. But reality is different. They may not be charging a  pre-payment penalty and the procedure for extracting money from the customers are packaged in different forms and hues. I shall explain a few situations, where customers are taken for granted.
Situation one.
One is availing a loan at a specific rate of interest, say 10%. The interest rate falls and the bank announces that the lending rate for housing loans have been brought down to say 9%. Many innocent customers, who must have availed the loan either would not have seen the report or must have thought that it is an automatic process, wherein banks will slash the rate of interest chargeable on the housing loan. To his or her great surprise, the banks continue to charge the same interest rate.
Situation 2
The customer goes to the bank and complain that he is not been given the benefit of reduction in interest rate. He or she is been told that unless they ask for the reduction in writing and signed by the loanee, such requests cannot be acceded to. When the customer asks why, the stock answer is that it is in the contract signed. It is true that such clauses are tucked in some corners, which the borrower overlooks at the time of  contracting the loan. His main concern at that point is to get the loan sanctioned since he must have already paid advance to the builder.
Situation 3  
The borrower applies for the change in interest rate in writing.  He goes by the presumption that there is no  charge payable. He is wrong. The bank charges an amount, which is calculated on the basis of a table and the borrower can switch over to the new rate only after payment of that one time charge, which varies in accordance with your outstanding loan amount. If you argue with the banker, stock comes the answer that it is a part of the contract. Mind you, this amount you have to pay every time you move from one interest regime to the other. On the other hand, if the interest rate goes up, banks without informing you will raise the interest rate.  And if we have to move into a new interest regime, a new contract is signed. I still do not understand why then we have the fixed  and moving rates and options are sought from the customers.
Situation 4
Have you ever calculated how the banks calculate the   equated monthly installments (EMI). You will be in for a heart attack. Of course, the EMI amount is depending on the loan amount and the length of the repayment period. How it is calculated is the most surprising factor. Assuming that you have taken loan of Rs 30 lakhs for 20 years and you are happily paying the monthly installments without default. After an year or so, you may like to check as to how much capital you have paid off. To your surprise, you find that your capital amount has diminished by a fraction. You might ask the banker why it is  so? He will explain how that has happened. The initial years installments component is heavily tilted towards the quantum of interest. To put in simple language, the banks would have realized their interest component in less than  10 years if the your loan repayment period is 20 years.
Situation 5
Irked by the high handedness of the bank, you raise some money to repay the loan amount either in part or in full. There also you will not have an easy walk. You have to do some paper work. The banks will have to know from where you have mobilized the fund. You have to give your pass book photostat copies and an application for reapayment. Also, the amount has to go from the same account of the loanee. On the top of t, the banks charge an amount which they say to cover up the interest rate for a period if the repayment is partial. Assuming that you are repaying the amount on 8th of a particular month, banks will calculate the interest falling due between 1  and  8 of the said moth. I am not sure what will await a person who wants to repay in full. There may be some charges levied by the banks, as it was the case earlier.
Situation 6
Any mistake on your part either due to cheque  bouncing or any other technical error is penalized by charging more from you. Even if the mistake has happened on account of the goofing up of bank officials, you have to bear the brunt. And with every passing day, you have to pay more penalty.

Hello, is the regulator hearing all these? Bankers have their lobby to take up the issues such as Indian Banks Association (IBA), which is presently resisting the norms issued by the Banking Codes and Standard Board of India  (BCSBI) putting  the  onus on   banks to prove e-frauds. Earlier, the onus of proof was on the customers. They want the status quo to follow and harass the customers for the omissions and commissions  committed by them or their staff in complicity with the fraudsters.
When we are talking about shunning corruption, it also takes in its fold corrupt practices, which have been created to protect some interests at the cost of others. Banks should be the center of focus for our drive to banish corruption.        

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It is Time for Modi to be Firm on Development Agenda

Business Economics & Services Team (BEST)


                            It is Time for Modi to be Firm on Development Agenda

Modi Administration is making the right noises both in India and abroad. But the trillion dollar question is whether it will help fructifying the results. Admittedly, the administration's effort is to make India a happening place and is going all out to launch a host of programs, policies and legislation to convey that message loud and clear. Those who are criticizing the government that there is no original thinking  in its polices should admit that Modi administration has succeeded in sending strong message to the bureaucracy that it should shun lethargy and delay tactics  and getting on to its business. At least, the signals that are coming from the corridors of power stand testimony to that. Not many officials are on junket abroad so also the ministers who in the earlier dispensations used to travel abroad and that too  in chartered aircraft. They used to take plane loads of journalists along with them in a surrogate manner, seeking the help of business associations to foot their bill and later reimbursed to them much more than the expenses incurred by them. Also, the lower bureaucracy is dot on time to the office  to mark their attendance and shun taking French leaves for fear of being caught.

These are cosmetic changes and often dubbed as the handiwork of a headstrong headmaster, who knows how to control the pupils at the tip of a cane. It will be a good augury if the bureaucracy develops a new mindset and should make 'work hard' as a habit and not when they are compelled to that. But what they are doing during the work hours are not known much. Many corporate honchos privately confide that not much has changed in the way in which the government decisions are taken. They complain that  even some of the senior ministers  are scary of taking decisions since they feel that they are often upstaged by PMO or being questioned by them even for minor decisions that are taken. Their interactions with media and the stakeholders like industry, pressure groups etc are infrequent and they often try to evade important questions posed to them. Those ministers who spoke out of turn and without being circumspect are pulled up.

The other important stumbling bloc that Modi administration is facing is the lack of cohesiveness in its articualtion. While the prime minsters office and council of ministers, barring a few, are trying their best  to put across development before all other goals, the splinter groups within the party are creating a well orchestrated campaign to downplay the development agenda. They are ferreting out all issues except the development ones and trying to taking the country back to the 18th century. Many feel that the development agenda will be de railed when there is a preponderance of social unrest, law and order problems and insecurity among various sections of the society. For instance, they feel that  the perceived or alleged stand against  Muslims and Christians can send wrong signals to the Middle East and the developed world, which can considerably affect the flow of investments and businesses from these regions, which are rich in capital. For instance, they point out that despite the forward looking polices of the government in many areas, there has not been any appreciable flow of investment, during th last months or so. On the other hand, there has been drop in investment from countries like Japan, which are  taking a wait and watch approach before committing  their funds. Also, the investment by FIIs and private equity funds can take a negative turn once the interest rate in the US  increases, which is quite possible in the coming  days.

Not that Modi Administration is not aware of these developments. But it is buying time to use the stick against these sections within its party fold. Now it is time to take the inevitable step since the next election to the assembly is in 2016, except that in Delhi, where such forces cannot upset the election calculations. Even if Delhi elections adversely affect its election prospects, it should act fast, for lack of action will be interpreted as thumps down to  development agenda, a plank on which the Modi government has been elected to the office.         

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The Great Indian Digital Divide

Business Economics & Services Team (BEST)



                                           The Great Indian Digital Divide

Earlier Indian society was divided  on two counts: haves and have nots.  Presently, the division is more in terms of those who are net connected and not. In a way these two divisions are  curiously linked. The net users are mainly those who are aligned with the mainstream. And the penetration of net and telephony is relatively low among those who are underprivileged and off the mainstream.

Will India  tackle this isue in the near future? Admittedly there are various schemes to connect India launched long back. At least 10 years back, a massive drive was  started to connect the district headquarters with the states and Center administrative apparatuses. Also,  a massive scheme was launched to connect courts, universities, research laboratories, colleges, schools, Panchayats etc. There has been progress towards that but not commensurate with the desired goals. In India, there is no district or Panchayat, which can claim cent percent connectivity. It is a laborious process especially when it comes to digitizing land records since many such records are caught up in disputes. The next impossible task is digitizing court records. Though India  is the most litigant country, the money spent on courts at various layers are hardly 4% of the gross domestic product. A massive modernization of justice delivery system needs outlays much more than that. The result is that undue delays take place in getting the justice,sometimes the cases are  dragged  for some 50 years or so, causing great hardships to the people.

The next area that needs close attention is education. many grant schemes are drawn up for connecting universities, colleges and schools, many such schemes are still in paper. The main reason pointed is the lack of finance to funds such schemes. There was a talk about outsourcing such projects to highest bidders. Many  large corporations from India and abroad have shown interest in undertaking such schemes. But the problem pointed out was the security concerns , since some of the technologies and gadgets may contain malware and spyware.
The recently launched schemes are mostly net based such as financial inclusion scheme, clean India, direct transfer of subsidies etc. But it has to be seen how soon such  schemes  can be  introduced since the backbone on which such schemes can work is Adhar, the digital account of each citizen and household. Unfortunately, the exercise to complete the project is still on and it is lingering on for quite sometime.

One has to introspect why India is lagging behind in connecting domestically despite its head start  in the ICT sector. The reasons are not far to seek. India has put its best efforts to cater to the digital needs of other countries, ignoring the domestic segment. That too it happened in an unplanned manner. Even the government sources admit that ICT sector in India has grown despite government support. The only aim till date is to maximize its export to bridge the gap in the merchandize exports and imports. Whereas China, the next door neighbor focused first on the domestic connectivity rather than exporting its products and solutions. That enabled the country to modernize its manufacturing sector. Whereas, in India manufacturing and agriculture sectors are not in sync with its capabilities in the ICT.
The future lies in focusing on ICT applications in the domestic sector. That is possible only when a strong digital backbone is created to spread the infrastructure to areas, regions and people who are bypassed by digital era. That is the basic objective of Digitizing India. But it is to be seen how far India will succeed in that in the near future since the priorities of the government is shifting from development agenda to vote bank politics. That is the least expected from the new dispensation, which has come into power on its development manifesto.     

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Indo-US Trade War Hots Up Before Obama Visit

Business Economics & Services Team (BEST)


                                   Indo-US Trade War Hots Up Before Obama Visit

One month before the visit of President Obama to India, the US Inc. has upped its charter of demand to gain market access to India and suggested ways to clean up India's  system to attract more investment. The report prepared by US International trade Commission (USITC) has flag marked several grey areas that India should conform to to better its economic relations with the US.

For a long time, the US has been complaining about the balance of trade which is in favor of India by about US$ 17 billion or so. But India's position is that one should not attach too much importance to balance of trade since the bilateral trade volume is only US$ 62 billion, which pales into insignificance going by the volume of trade turnover with China and the EU. In its assertion, India has maintained that  once the bilateral trade volume picks up, the US exports to India  also will go up significantly, an argument that did not cut ice with the US. The other assertion is that balance of payments, which is the aggregation of all fund flows between the two countries should be the barometer to assess the position, which is reportedly is in favor of the US. In this category, one has to take into account major heads like defense imports, services exports, royalty, tourism, medical, education expenses etc.

The US argument is that unreasonably high tariff coupled with customs procedures  that India has, considerably affected its exports to India for items like food products, certain manufactured products etc. Over 60% of the US companies which are doing business with India have to make strategic changes and diverted their business including investment  from India, the US trade body alleges. It maintains that it is in the interest of India to make changes in its tariff policy to attract more investment.
The rest of the concerns expressed by the US trade body seems to be a reaffirmation of whatever they have been airing for long such as weak protection of intellectual property rights, such a stiff rules for local value addition, indigenization clause, compulsory licensing etc.
Importantly, India is in a precarious position to respond to some of these concerns. For instance, some of these decisions are not administrative and stem from judicial pronouncements, such as the recent one Bayer, which the Supreme Court of India has upheld the decisions of the lower courts to compulsorily license its products sold in India for kidney and cancer ailments. Also, the US has to bear in mind  that there is a strong public opinion building in India against hike in medicines and higher treatment charges. This can disrupt as a strong public outcry that will affect the image of the government. In a country, where medical insurance covers barely 6 to 7 % of population any increase in prices of medicines will have  political backlash. 

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Will India Pip China?

Business Economics & Services Team (BEST)



                                                      Will India Pip China?
There is an undercurrent of competition between India and China in many fronts. The competition is hotting up with every passing year. To a discerning watcher, China is far ahead of India in many fronts. It has  had the advantage of a sustained higher growth for almost more than a decade, that has transformed its economic landscape considerably and no country in the recent history can match up with that pace of development it has achieved. It has it gradually grown from a communist country to one that heeded to market forces, from  a closed economy to  an open one attracting investment from all corners of the world,  from averse to investment abroad to one looking for all opportunities to spread its foothold everywhere. On a macro-scale, these are remarkable feats.
India could have a head-start in liberalization, but it was slow in implementing them from a policy perspective. India had a ticking private sector, though it was in the  back burner in a mixed economy which kept its policy framework in an equivocal manner.  It never swayed from one extreme to the other with the accompaniment merits and demerits. Therefore, its growth might not been spectacular but more balanced. The strong democratic institutions, it has built over the years, might have slowed down the decision making, but did not give powers in a platter to anyone. There were checks and balances and inefficiencies and corruptions were dealt more democratically in the  vote bank politics and not through any bloody upheavals. Even the most dictatorial regime during the emergency days was defeated only through   a democratic process and not otherwise. Even the switch over to market economy was more through consensus and not through a top down process of imposition.  Every important legislation however trivial or important they may be was implemented through a democratic process and that trend is still continuing.

For the developed western economies, both India and China  are important since both the continental economies can make or break the world economy. Along with the combined population of close to over three billion, the combined economies can overshadow the rest of the economies put together. Also, these are the two countries where people with aspirations, drive and entrepreneurship live. Of course gaining market access  is one thing and more importantly the gains that these countries can lend to every country for absorbing their technologies, funding their investment and also to a very great extent gainfully absorbing their investments and cash flows is another one.
While the rest of the world is clamoring to keep their foot both  with  India and China for their economic ends, a silent competition is breaking open between the two largest and most populous countries. What are the dynamics of that competition? Both China and India want to check each others growth prospects. For instance, China is far ahead of India in manufacturing, infrastructure and agriculture. India wants to close the ranks with China by embarking massive focus on manufacturing through its Make in India. India is ahead of china in IT segment and it wants to close the ranks with India by indulging in a panoply of tricks and manoeuvrings including sending large number of students to the US for picking up English and getting themselves oriented to the technology developed there. It is also investing heavily in research and development (R&D). It is also carefully nurturing world class ICT companies such as Xiaomi, Huweai and Heir. These are reckoned as world class companies. Importantly, these companies are mostly workers cooperatives unlike companies elsewhere in the world.
Unfortunately,   India lags behind in many such areas. Till date, it has not evolved a single world class company or brand as powerful as any developed by China. Its investment in R&D is deplorably low so also its type of management control. Almost all its well known companies are either with multinationals or private sector. Workers cooperatives are laggards in India with some exceptions like Amul. Also, being a democratic country, decision making in India is slow and lethargic. Any attempt to streamline them meet with stiff resistance. So also is corruption, which is deeply rooted in Indian psyche.
Now the question of India piping China to the number one slot among the comity of nations, it is something that has to wait and see. Perhaps,  the advantage is now with China.                     

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Indian Growth Story -Upside and Downside

Business Economics & Services Team (BEST)

              Indian Growth Story -Upside and Downside

It is a mental game for economists and policy makers to debate on future contours of growth. They can throw up all types of opinions and perceived rationales to drive home their points of view. Some three years back, in the peak of slow down, we heard from the top government functionaries, acclaimed analysts and newspaper editors and columnists   that  slow down would  get bottomed  out by early 2014 and the growth will be stabilized and consolidated by the end 2014. But such predictions still remains as wishful thinking as the economies around the world are trying to come out of the low growth trend even now.

Yesterday, the union fiance minister said that the government will take all efforts to go beyond the growth of 5% to keep the economy rolling, even while some of the opposition parties are alleging that the finance minister is frustrated. I think it is too early for him to get frustrated since he is there only for the last six months or so. His frustration can be there or even more pronounced, if the economy refuses to budge and continues to falter on one count or the other.

That is possible looking at the scenario he is confronted with. First, the governance apparatus is slowly loosing sight on the prime minister's mantra-vikas (growth). The reason is that a cohesive approach eludes the ruling party. Exhortations made by the prime minister and responsible ministers in his council either directly or indirectly, for shunning the path of confrontation as far as the non-developmental issues are concerted, are falling on deaf ear. Let the left hand know what  the right hand is doing. The prime minister and the party apparatus should convince the people across that development is the only issue before them and that is the basic agenda that r runs across its  manifesto. Anything other than that can lead to an implosion and the party will not be able to resurrect from that.
Secondly, the government should introspect on the real progress that it has made so far. Doling out schemes with grat fanfare  may get media headlines  but that also will hike up the expectations from the government. Delay or non-fulfillment of promises will slowly get convoluted into a negative syndrome. That is a universal phenomenon.  In that case, should the government contemplate setting aside the number game? Whatever growth or inflation figures that are coming out from the government, people are increasingly getting aware are because of the base effect. To put in a layman's language, it  means that if the growth figures for a quarter of the year is high, it can so happen that   the related figures for the same period in the last year can be very low. That also can happen to rate of inflation. You can have inflation at zero level and still have a higher absolute  price level, even higher than the prices in the previous quarter. The policy makers tout these figures to suit their  conveneince.
Also, it can happen that the growth figures can be misleading. Sometimes, higher growth may not get translated into higher employment and income. Especially in the case of manufacturing, higher growth does not lead to higher employment and income since whatever investment that goes into the manufacturing sector is mostly in capital and many such capital investment   can replace  labor.
Therefore, the growth strategy should not be denominated in terms of investment, capital and money disbursed. It should audit the real life situations. There should be a monitoring system to gauge the effectiveness of schemes at the grass roots level. Whatever initiatives started by the previous regimes should not be discarded purely on account of the political reasons. There are merits in programs like NRECA, self-employment schemes etc. They have to be implemented more intensely and wahtever pitfalls they have suffered earlier should be plugged.
Also, the government should not expect the good auguries to last long. For example, the sharp decline in the oil prices. It is mostly on account of the oil politics played out by certain vested interests. Somewhere down the line, the oil politics may get subdued or totally eclipsed, then the prices of oil will start rolling up. That will have manydeleterious impact  on an oil importing country like India. The recent spurt in import of gold and other luxurious items have to be curbed. A strong monitoring authority should be set up to weed out de-merit imports, to save the precious foreign exchange. Also, the decline in oil prices should not be an alibi to reduce the intensity of oil exploration and tapping alternative sources of energy.
Exports have to receive more importance. The reasons behind the fall in exports have to be analyzed. Also, service exports have to be stepped up since the foreign exchange outgo on account of services is almost nil or minimal unlike items in merchandize exports like gems and jewelery, where most of the imports are for re-export purposes with value addition, threshold limit of  value addition has been incrementally brought down. Equally significant  are the steps fro augmenting electronics production in the country since estimates do indicate that foreign exchange outgo  in terms of electronics imports is going to vault to US$ 400 billion in the foreseeable future,surpassing the oil import bill. Atleat the domestic production has to be somewhere in the region of US$ 100 billion to partially offset the huge imports that will be necessitated.          

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Economics & Investment Updates (7)

         Economic & Business Services Team (BEST)


                                  Economics & Investment Updates (7)

1. Spicejet Airline May Survive
There are indications that beleaguered Spicejet airlines may be salvaged from its deep financial with the coming back of its co-founder Ajay Singh. Corporate circles are agog with the rumor that the alumni of the Delhi IIT and Cornell University has the task cut out for pumping oxygen into airlines. Ajay Singh is the man Friday since he is close to the establishment and is often seen in the corridors of power in the recent days holding parleys with ministry officials and airline senior executives. In the meantime, there is also a news floating that  the present owners Chennai based  Marans can pump money for the revival of the airlines. But the catch is that the South based media baron is caught up in many serious cases along with his brother, who was an ex-minister in the UPA 2 cabinet.
2. PMO to fast track investment plans
Buoyed by the inadequate pace in which the cleared projects are implemented, Prime Minister's office is said to have control of the project monitoring works. This experiment was done by the previous government towards the close of the term of UPA 2. It may be noted that several scams that have erupted during the previous governments such as 2G, coal, Commonwealth etc. were on account of the fast rtracking of the project without following rules and regulations.There are also vested interests in operation who want fast tracking based on the premise that: you give us a long rope and we will deliver. They did deliver in all cases but being in the wrong side of the law. Analysts say that since Modi administration has the benefit of knowledge of what that had happened to the previous regime, they will be careful in striking a balance.
3. Gas Allocation
The government has taken a decision to give top priority to companies selling CNG and piped cooking gas while allocating gas.Presently, fertilizer manufacturing plants and liquefied petroleum gas (LPG) companies have a priory over other utilities.
4. SC Turns Down Pleas Against Coal Ordiance
The apex court has turned down pleas against promulgation of coal ordinance. The aggrieved companies has challenged the legality of imposing penalty of rs 295 per tonne on illegally mined coal, which has cast huge liability on the companies. However, the court refused to entertain their pleas. Now it is clear that coal auction will be round the corner.   

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Possible Takeaways from Modi-Obama Parleys Next year

Business Economics & services Team (BEST)
                              

                               Possible Takeaways from Modi-Obama Parleys Early Next Year

If reports have to be believed, the Modi administration is readying a bunch of policy and administrative decisions that will cheer President Obama, when he touches down in India in the coming month to be the chief guest at the Republic Day parade, the annual pageantry to showcase India's military strength along with her cultural richness and diversity.
Initially referred as a confidence boosting exercise, the first visit ever of a US president to attend the  Republic day celebrations,  is now increasingly talked about as  a mission to seal many economic and defense deals with India. Almost all ministries, despite their hectic schedules in Parliament is working over time to hold discussions amongst themselves or with the representatives of the US companies to figure what are the irritants that have to be ironed out before Eagle touches down  the Indian soil. There are some issues that top the pecking order and they are listed below.

1. The government expects that the logjam in Parliament may end in a day or two. By any chance, if it prolongs and affects the passage of the Bill seeking to increase foreign equity participation in insurance sector, the government may come out with an ordinance to that effect. Having regard to the fact that the main opposition- Congress party-is favorably disposed of with the bill, the government may not find difficulty in getting the nod of the house, when the bill finally will  be introduced in the House.
2. A few US based  e-commerce companies invested in India are pressing for allowing FDI in business to customer services (B2C)in the e-retail space to expand their foothold in India. They are willing to expand their operations and up their investment in India once that is allowed. Presently, FDI is allowed only in business to business (B2B) operations, which they point out is an irritant. While many of the Indian e-commerce companies, which are cash starved  are pitching for allowing FDI in B2C format to shore up their bottom lines, there is a stiff resistance from brick and mortar retail companies not to do so, since it will afect tehir long term growth prospects. It is to be seen whether the government will display political courage to go against the powerful Indian lobby that is dead against the entry of foreign companies in B2C space.
3. Closely linked up is the issue connected with the retail opening up, which was allowed by the earlier government and the present government has put it in a limbo since it was a aprt of their manifesto not to allow multi-retail opening up.  Will the government garner the strength to go against the dikat of  allied organization of BJP is something to be seen?
4. Obama administration is pitching for strong legislation and administrative actions against violation of IPR and trade marks acts. They are also of the view that judicial pronouncements, particularly in the case of compulsory licensing, incremental innovation etc. in sectors like pharmaceuticals , electronics, telecom etc are harsh and   go against the interest of the investing companies in India. It has to be seen whether the government has got any maneuverability to out do the opposition to bring them in line with the wishes of the US companies.

India is also likely to gain some brownie points from the discussions. The much debated visa problem will be coming up for discussion. The US reply and assurance will likely to be equivocal in the light of  flak drawn by the Obama Administration for its relaxed visa and immigration policies. Also, India accounts for a major share in the H1B visas and all other categories of visas granted to foreign nationals. Analysts are of the view that not much can be gained on the visa front, since US will have to follow a tight policy on account of the general elections, which is not very far off from now.
Policy watchers opine that there can be some talks on totalization agreement, which India has been pressuring the US for quite some time. A positive decision on the issue will enable India to gain a lot of funds struck in the US by way of contribution towards social security by persons who are working on short term visas in that country. Going by the reactions emanating from  some quarters, who have been actively lobbying for  early conclusion of the agreement,  the deal may not go  through, since the revenue loss to the US will be considerable.
The other area  that can come up for discussion is the transfer of state-of-the - art -technologies to India  to facilitate India's Make in India program. It is reliably learnt that the US will be receptive to the idea, particularly in the field of environment,  power and alternative sources of energy.       

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Dedicated Division for Transfer Pricing -Can It Stem Disputes?

Business Economics & Services Team (BEST)


                              Dedicated Division for Transfer Pricing -Can It Stem Disputes?
The government has valiantly announced that it is contemplating setting up a dedicated unit for  redressing grievances related to transfer pricing. It may be soothing to the foreign investors to hear such news since many cases are pending involving crores of rupeees. The assertion of the government to set up such a unit may be an admission that the Revenue has been over aggressive in dishing out over pitched  assessment and with that  appeasement policy  it may be thinking that foreign investors  can be hawkish on India.

Is it an over reaction from the part of the government? Admittedly, a scientific tax regime should be predictable, certain and easy to comply with. That does not mean that one has to bend too much to accommodate all wish lists of investors. Ours is not a tax haven or a banana republic that shut eyes to all omissions and commissions. A look at the facts of the cases regarding transfer cases can be revealing. There are enough proofs to construe that routing of investment through tax havens , doctrine of look in as against look through concepts, definition of  underlying capital assets, preponderance of different views among the jurists and different layers of courts etc are  hinging on myriad ways of   interpretation rather than based on tenets of law. Different courts at different times can come out with varied interpretations, which will make the  issue  more complicated and can create complex situations.
What is therefore important is to have a set of rules and laws which are crystal clear and and above interpretations, which are more subjective rather than based on statutes. India has to closely examine the similar laws in other countries regarding tranfer pricing rulings in complex areas like legal validity of funds flowing from tax havens for investment, flow of private equity funds and their sources, what is the tax liability of a transaction between two parties outside the country on an underlying capital asset in a third country, possible mala fide intentions while routing the funds from tax haven countries, how does it differ from money laundering and the like.
To believe that there is a political mandate to do anything to attract investment into the country is a misplaced pitch, to say the least. There is a  powerful group within the ruling alliance, which looks at undue haste to attract investment with a tinge of suspicion. Their argument is that  domestic industry has to be pepped up and that should receive priority rather than declaring India a hub for all kinds of  investments. It is rather unfortunate that we hear only allurements to the foreign capital. What about nurturing  Indian industry? What is the ultimate objective of Make in India? Could we make a pitch for creating 100 Indian strong Indian brands in a year like 100 smart cities?What about the Indian brands that dominated in the Indian landscape in the 1990's and before that. All those brands had bitten the dust. Nobody is taking about Kelvinator refrigerator or Fiat car. Indian made cars have stopped production, except the Tatas, which the market share indicates is not a big shake.  It is easy to say that they could not withstand competition from outside. But what have the successive governments did to nurture them, spot their sickness in time and take timely action to rectify them. Instead, the successive  government machinery collided with them to bleed the industries and to make a beeline of sick companies, which had considerable stake of the government and that is tax payers money.

Also, the government's initiative to streamline the transfer pricing hiccup should pass the test of judicial intervention. It is not necessary that the government should file against the tax liability of a multitnational company. Any citizen can file a PIL against it  and the court has to take cognizance of it on its merit. Cases can be struck up there also.
What is important for the government machinery to have a balanced approach for inviting the FDI and not a policy: FDI is a be all and end all.             

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Economics & Investment Highlights (6)

Business Economics & Services Team (BEST)

                                Economics & Investment Highlights (6)

1.       1.US Domination Back?

After the meltdown many had written off the US economy and predicted that it cannot return to its predominant position as the number one economy in the world. That belief was reinforced by the fact that China has piped the US as the number one economy in the world. Now, those who held that the US economy will be fading out sooner or later are proving to be wrong. World over currencies are swearing on the US dollar and are converting their assets into the greenback. This had led to steady erosion of values of the local currencies. In India also, the situation is not different. The rupee breached the Rs 63 mark against dollar and feared that with the current account deficit is widening, the rupee will further slide.

2.     2.   Cabinet nod for GST Bill

Cabinet has finally given nod to the long awaited goods and services tax (GST) bill. A constitutional amendment is needed to give effect to the provisions of the bill, which is supposed to bring about a new tax regime. There was stiff resistance from the states since the bill seeks to take away some of the powers to levy and collect taxes by the state governments. The Center before giving nod to the bill prepared by the finance ministry and discussed threadbare in the cabinet has given some major concessions to the states. The bill is likely to be introduced in the Parliament today.

3.      3.  The government is contemplating separate unit for  Transfer Price Cases

Quite likely a dedicated court for hearing and settling cases relating to transfer pricing will be set up to expedite disposal of such cases in a fast track manner. Of late there has been many cases being heard and decided by different layers of judiciary cases relating to this segment. The decision of the government is seemingly governed by two factors. One, to create a pool of judges well versed in the subject: two, for ensuring speedy disposal of the cases of that nature, which will send right signals to the foreign investors.

4.      4. Insurance Bill caught up skirmish

The government effort to pass the much awaited insurance bill has caught up with stiff resistance from the opposition in the upper house of parliament –Rajya Sabha. It seems that the government has to resort to some compromise on its stand to being the sulking opposition.   

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Economics & Investment Updates (5)

  
                                    Business Economics & Services Team (BEST)



                                                Economics & Investment Updates  (5)
1. Capital Market Sheds the Shine
Indian capital market, which has been on a continuous bullish mood, has tanked 538 points. It is widely believed that the  market was responding to unsavory global developments, such as further cuts in oil rices, deep problems confronting Russia, erosion of major currencies including rupee against dollar. It may be noted that rupee has gone further down vis a vis dollar. The preset value of over Rs 63 against dollar, many say, is untenable and is mostly due to outgo of dollar on account of steady increase in imports, particularly  gold. It is an anomaly for a country like India to be in the grip of a current account deficit syndrome when the oil prices dip low, the major importing item.
2.Aviation Ministry for Bailout of Spicejet  
After abetting its closure, now the aviation ministry has come to rescue of the beleaguered airline -Spicejet, which is under a deep crisis. A few days back, the aviation regulator- DGCA- has sent a warning to Spicejet not to book the tickets beyond one month. The general public took the cue and avoided booking in the budget airline, which incidentally also cancelled many flights. Since the booking for the holiday season falling on May - June 2015 starts now, many passengers diligently kept away from the crisis ridden airlines. Now the aviation ministy has extended the time for booking till 31st March 2015. But not many will go for the airline, which is also cancelling many flights on a daily basis. Not left with that, the aviation ministry is cajoling banks and institutions to pump in money into the airlines coffers. It is to be seen how many will come forward to stem the rot in the airline.
3. Russia In deep Problems 
Coming close on the heels of the turmoil in Russia, many Indian companies, particularly pharma companies are facing hardhips. They are already facing severe crunch in their sales with the sanctions  on Russia. Also, they are apprehensive that so they will face payment difficulties. However, the Indian gem and jewelery segment is upbeat that they will  be able to start trading with Russia directly in diamonds, which  are brought into the country trhough middlemen in  Antwerp, Dubai etc.
4. Government Considering Ways to Curb Gold Imports
Cagey on account of the steady increase in gold imports, the government is contemplating many ways to curbs its imports, which is casting its shadows in the widening current account deficit. Gold imports has gone up by more than  five times in the recent months. There are many options with the government including increasing the import duty and also restricting the import of gold for re-export purposes. Since the rupee is steadily eroding its value vis a vis dollar, if gold imports are left to market forces, it will have deleterous impact on the economy.

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Xiaomi Set to Re-start its Sales in India

Business Economics & Services Team (BEST)



                            Xiaomi Set to Re-start its Sales in India

In a major reprieve to the Chinese smartphone maker Xiaomi and its  third party sales partner e-commerce company Flipkart, the Delhi High Court has allowed it to sell the smart phones in India. Earlier, a  single bench of the same court banned sales till the next date of hearing set for 5 February 2015. However, the court has imposed certain conditions for the sale such as:-
1. Handsets should use Qualcomm's chip sets
2.The company also has to deposit with the court Rs 100 after the sale of every 3G technology supporting device till January 5, 2015
Importantly, the court advanced the date of next hearing from February 5 2015 set earlier to 8 January 2015.
A company official of the Xiaomi said that it will resume its sales from 23 December 2014 since it might take sometime to re-start its operations. It may be noted that Xiaomi sells its devices only through its e commerce sales partner Flipkart. Incidentally, within a short time, Xiaomi has become a major player in the Indian market and is said to have sold over 800,000 pieces since July this year.
It may be noted that the entire episode has happened because of the case filed by Ericsson, another telecom major complaining that the Chinese company has violated  its  IPR. Ericsson has pointed out eight instances of ovulation, which has led to the ban. Aggrieved by the single bench's decision,  Chinese company has gone in appeal to the double bench.
There are a few takeaways for the foreign investors in the adjudication of this case.
1.The fast track in which the case has been adjudicated so far. The single bench's decision to ban the sales was only a week back.
2. Indian judiciary and administration are trying their best to revamp the justice delivery systems particularity in cases where foreign investors are involved.
3. Growing number of cases are decided by the Indian courts in the IPR segment. In the last one month or so, at least three high profile cases have been decided by different layers of the judiciary   

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Economics & Investment Highlights (4)

Business Economics & Services Team (Best)

                     Economics & Investment Highlights (4)

1.      1.  Trade deficit Widens

Trade deficit of India has widened to a 16 month record level riding on the back of increased import of gold. Exports for the month of November 2014  grew by 7.2%  after 8.5% contraction in October 2014 mainly due to increased exports of  textiles, garments,  gems and jewelry etc. At the same time, imports were up 26.8% in November 2014 to US $ 42.8 billion , leaving a trade deficit of US$ 16.9 billion. This increased trade deficit will widen the current account deficit of the third quarter of the current fiscal year. At the same time, one has to fact in the steady slide of the oil prices, which the experts predict may continue for some more time, offsetting the increased trade deficit.

2.    2.    New arbitration Clause to inserted in Indian trade treaties

Concerned by increasing number of arbitration cases that the individuals and companies are resorting to, the Government of India is likely to incorporate a provision to the effect that it will not allow foreign companies to drag India to arbitration on issues settled by a judicial authority. A draft cabinet note has been circulated by the finance ministry for changing the draft guidelines for the bilateral investment treaties.

3.     3.   Inflation falls to zero level in November 2014

Triggered by dramatic fall in the whole sale prices of food and fuel, the whole sale inflation has flattened to zero level, according to the government sources. Many feel that it is the ideal time for the RBI governor to revisit the demand of the industry to cut the interest rate to jump starts the economy, when he reviews the monetary policy in the first week of February 2015. But many feel that the RBI governor will have to take cognizance of many factors including inflationary expectation, oil prices at that time, current account deficit and most importantly, fiscal deficit.

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