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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