What would happen Mr.Chidambaram,if foreign institutional investors pull back?Parliamentary panel approves GST bill with changes!Much-touted Food Bill introduced in Lok Sabha!
Palash Biswas
Email: palashbiswaskl@gmail.com
Skype:palash.biswas44
Managers of Indian economy bank on restoring FII confidence. All policies are modified to accomplish the task.Now, holdings by foreign institutional investors (FIIs) have reached an all-time high; data revealed by several brokerages reveal. However, it also raises the potential risk of a major pullout if the market conditions did not favour them.What would happen Mr.Chidambaram,if foreign institutional investors pull back?Raghuram Rajan will be among the youngest to head RBI.It is the latest stake to misuse RBI in foreign interest.Rajan, a former chief economist at the International Monetary Fund, will be 50 years and six months old when he takes over as the 23rd Governor on September 5.When Manmohan Singh became Governor of the Reserve Bank in 1982, he was 10 days short of his 50th birthday. Singh, born on September 26, 1932, took over as the 15th Governor on September 16, 1982. He was appointed by Pranab Mukherjee, the then Finance Minister in the Indira Gandhi government.
http://www.mondaq.com/india reports:
Foreign Direct Investment (FDI) in India is subject to certain Rules and Regulations and is subject to predefined limits ('Limits') in various sectors which range from 20% to 100%. There are also some sectors in which FDI is prohibited. The FDI Limits are reviewed by the Government from time to time and as and when the need is felt and FDI is allowed in new sectors where the limits of investment in the existing sectors are modified accordingly. In order to revise the FDI Limits to attract more foreign investment in India, the Union Government constituted a committee named, Arvind Mayaram Committee headed by the Economic Affairs Secretary. On Tuesday, 16th July, 2013, the Government approved the recommendations given by the Arvind Mayaram Committee to increase FDI limits in 12 sectors out of the proposed 20 sectors, including crucial ones such as defense and telecom.
Some of the important changes made in the Existing FDI Limits are provided below:
FDI Limit in Telecom Sector is increased from 74 per cent to 100 percent, out of which up to 49 per cent will be allowed under automatic route and the remaining through Foreign Investment Promotion Board (FIPB) approval. A similar dispensation would be allowed for asset reconstruction companies and tea plantations.
FDI in 4 sectors i.e. gas refineries, commodity exchanges, power trading and stock exchanges have been allowed via the automatic route. In case of PSU oil refineries, commodity exchanges, power exchanges, stock exchanges and clearing corporations, FDI will be allowed up to 49 per cent under automatic route as against current routing of the investment through FIPB.
FDI in single brand retail is to be allowed up to 49 percent under the automatic route and beyond that shall be through FIPB.
-
In credit information firms, 74 per cent FDI under automatic route will be allowed.
In respect of courier services, FDI of up to 100 per cent will be allowed under automatic route. Earlier, similar amount of investment was allowed through FIPB route.
FDI cap in defense sector remained unchanged at 26%, however higher limits of foreign investment in state-of-the-art manufacturing would be considered by the Cabinet Committee on Security (CCS). Technically, the decision leaves it open for CCS to even allow 100% foreign investment in what the defence ministry will define as "state-of-the-art" segments with safeguards built in to ensure that the technology and equipment are not shared with other countries.
In the contentious insurance sector, it was decided to raise the sectoral FDI cap from 26 per cent to 49 per cent under automatic route under which companies investing do not require prior government approval. A Bill to raise FDI cap in this sector is pending in the Rajya Sabha.
Some of the sectors in which FDI limits were expected to be increased but did not were, civil aviation, airport, media, multi-brand retail and brownfield (existing firms) pharmaceuticals.
-
Despite India's economic woes, it's a bright spot for BRIC-loving ...
Quartz-5 hours ago
Foreign companies are fleeing India, the rupee continues to plumb new lows and the economy is so moribund that officials have named one of ...
+
Show more
*
Cabinet eases foreign investment norms
Livemint-02-Aug-2013
Although India allowed foreign supermarkets to open in India through ... foreigninvestment limit of $100 million, and not the total investment.
+
Show more
*
Why Indian real estate is in dire need of foreign funding
Firstpost-05-Aug-2013
This uncertainty of the quantum and time of returns is the reason why most foreign investors are currently shying away from Indian real estate ...
+
Show more
MCX price fall traps foreign institutional investors
Daily News & Analysis-05-Aug-2013
Foreign institutional investors (FIIs) in commodity exchange Multi Commodity Exchange of India(MCX), promoted by Financial Technologies, ...
*
Regulatory risk on the rise in India
Economic Times-02-Aug-2013
In January 2012, the Securities and Exchange Board of India barred foreign institutionalinvestors from reinvesting their corporate debt limits, ...
*
Indians top foreign investors in Dubai realty
Zee News-31-Jul-2013
Dubai: Indians are top foreign investors in Dubai's real estate market, with transactions of over Rs 132.6 billion made by them during the first ...
*
US FDI Into India, Just $557 Million Last Year
India Spend-22 hours ago
Despite the hardsell (admittedly somewhat delayed), India's foreign direct investment(FDI), or long-term investment commitments by foreign ...
India retailers shares gain; govt eases foreign investment rules
Reuters-02-Aug-2013Share
MUMBAI Aug 2 (Reuters) - Shares in Indian retailers gained on Friday after the government relaxedforeign investment rules in the sector, ...
What an irony that Pinning hopes on higher farm growth in view of good monsoon spell, Planning Commission Deputy Chairman Montek Singh Ahluwalia today said the economy is likely to grow at 5.5 per cent this financial year! Montek led the destroy agrarian India fully cooperated by politicians like sharad Pawar. Industrial growth rate zeroed down.Service sector deciles. Now Montek highlights the farming cause and result while everything has been done to kill the rural India and Indian economy is handed over to foreign institutional investors!
"It will be a good year for agriculture but there is no evidence yet of significant turnaround in industry. I guess that somewhere better, good outcome for India will be that India will better than last year, better than 5 per cent, may be 5.5 per cent (this fiscal)," Ahluwalia told reporters.
On the other hand,much-touted Food Bill introduced in Lok Sabha,which proposes to give the country's three fourth population the right to highly-subsidised food, was introduced in the Lok Sabha today with the government rejecting apprehensions that it would impinge upon the rights of states.Montek redefined the poverty line to introduce the bill,mind you.
Food Minister K V Thomas introduced the fresh Bill after withdrawing an earlier one along with the ordinance which was promulgated on July 5.
Moving the National Food Security Bill, 2013, which promises to give right to the country's 80 crore people to get 5 kg of foodgrains every month at Rs 1-3 per kg, Thomas said there is nothing in it against the states.
"It does not impinge upon the rights of states. It protects the Constitution," he said to allay apprehensions expressed by Tamil Nadu parties -- AIADMK and DMK -- over the new law.
He said any concern could be debated upon when the bill comes up for discussion in the House.
Earlier, AIADMK member M Thambidurai opposed introduction of the bill saying it is against the Constitution and federal system.
"It is not Food Security Bill, it is actually Food Insecurity Bill," he said, adding it should brought only after consultations with states.
Contending that the bill has "several flaws that have created serious apprehensions", he said the legislation amounts to "interfering with state governments".
Thambidurai, whose party is in power in Tamil Nadu, said the bill will affect his state where a universal scheme for providing subsidised food is already being implemented "successfully" by the state government.
He said the bill would result in additional financial burden of around Rs 3,000 crore to the state exchequer.
DMK leader T R Baalu also said his party has issues with the bill in its present form and would move amendments.
"It should not be detrimental to the state's off-take (of food)," he said, noting that the proposed legislation will have far-reaching implications.
Steep learning curve ahead for next RBI Governor Raghuram Rajan,Economic Times reported.
Meanwhile,Parliamentary panel approves GST bill with changes!Seeking to expedite implementation of Goods and Services Tax (GST), a Parliamentary panel today gave approval to the legislation while suggesting amendments to provisions relating to tax structure and dispute resolution mechanism among others.Headed by senior BJP leader Yashwant Sinha, the Standing Committee on Finance said the GST Bill should not include specific aspects relating to tax rates, exemptions, exclusions, thresholds, administrative arrangements etc. Among other suggestions, the panel said that a monitoring cell be created to oversee impact on key aspects like growth, inflation, hoarding, compliance cost for tax payers and price of end products. It also pitched for suitable amendments in the bill to provide for a permanent compensation mechanism to address revenue concerns of states.
Implementing the GST, which seeks to subsume indirect levies like excise, services tax and sales tax, has been pending for past several years. Under the GST regime, both the Centre and states will have powers to tax supply of goods and services right from primary stage to final consumption.
As regards the GST dispute settlement authority, the Committee suggested that the proposal should be omitted and the GST Council be empowered to deal with differences among stake holders.
Holdings by foreign institutional investors (FIIs) in the Indian market has touched an all-time high of 22.4 percent, data provided by many institutional brokerages reveal. Out of the current USD 220 billion Indian equity free float, 48 percent is from the FII community, CNBC-TV18's Nimesh Shah.However, it also points out the negative risks for the market in the near-term. With concerns of global risk-off, worries on rupee and likely tightening by the Reserve Bank (RBI), it poses threats of a major impact if these decide to walk out of the bourses.
-
India FII pullout at initial stage, more downside seen: Pro
Moneycontrol.com-22 hours ago
In an interview to CNBC-TV18, Patrick Legland, Societe Generale spoke about trajectory of rupee and improvement in Eurozone economies.
*
Not too pessimistic on mkt; FIIs selling pvt banks: IIFL
Moneycontrol.com-6 hours ago
Given the way macros are shaping up, the market continues to face near-term headwinds and there is a threat of the Nifty falling below the key ...
*
FII interest will be muted, say insurers
Business Standard-06-Aug-2013
With the Bharatiya Janata Party (BJP) putting a 23% foreign institutional investors (FIIs) condition for raising the foreign direct investment (FDI) ...
Strides Arcolab rallies on shareholders nod to hike FII limit
Business Standard-05-Aug-2013
"FII's can now invest upto 74% of the paid up equity share capital of the company under the Portfolio Investment Scheme. The current Fll ...
Even modest FII pullout will topple shaky mkt: Sanger
Moneycontrol.com-06-Aug-2013
The only positive factor for the Indian economy has been the good monsoons. But even increased rural demand won't be sufficient to carry the ...
Strides Arcolab Ltd increases FII limit to 74%
Equity Bulls-05-Aug-2013
FII's can now invest upto 74% of the paid up equity share capital of the Company under the Portfolio Investment Scheme. The current Fll ...
Strides Arcolab extends gains on shareholders nod to hike FII limit
The New Indian Express-8 hours ago
FIIs can now invest up to 74% of the paid up share capital under the Portfolio Investment Scheme. Shares ofthe companyare trading at Rs 803, ...
Strides Arcolab gets shareholders nod to hike FII cap
Hindu Business Line-05-Aug-2013
In a release to exchanges, company said FII's can now invest up to 74 per cent of the paid-up equity share capital of the company under the ...
Strides Arcolab jumps after getting nod to hike FII limit
Business Standard-04-Aug-2013Share
Strides Arcolab rose 3.07% to Rs 716 at 9:46 IST on BSE after the company said its shareholders have approved increasing the foreign ...
About 1,710 results (0.47 seconds)
Search Results
 * |
|
Times of India-05-Aug-2013
Strides Arcolab - Foreign Institutional Investors (FII) Investment Limit ...Moneycontrol.com-04-Aug-2013 Strides Arcolab Ltd has informed BSE that the Shareholders of the Company at their Extraordinary General Meeting held on August 03, 2013, ... |
 * | MCX price fall traps foreign institutional investorsDaily News & Analysis-05-Aug-2013 Foreign institutional investors (FIIs) in commodity exchange Multi Commodity Exchange of India (MCX), promoted by Financial Technologies, ... |
 * | FIIs raise stakes in 10 companies that have witnessed value erosion ...Economic Times-04-Aug-2013 Foreign institutional investors (FIIs) have steadily raised their stake over the last four quarters in several listed companies, the stock values of ... |
Do not see huge mkt sell-off unless FIIs exit: Religare CapMoneycontrol.com-6 hours ago Q: What are you hearing from your clients because despite all the negative macro news, foreign institutional investors (FIIs) have not been ... |
 * | FIIs pull out $10.5 bn from capital marketEconomic Times-04-Aug-2013 Foreign investors have pulled out a staggering over Rs 62,000 crore (USD ... by foreign institutional investors (FIIs) to continue in the near term. + Show more |
 * | RBI lifts curbs on FIIs buying Maruti Suzuki sharesHindu Business Line-19 minutes ago The Reserve Bank of India (RBI) today lifted restrictions placed on foreign institutional investors (FIIs) buying shares in Maruti Suzuki India ... |
FIIs in wait-and-watch modeCalcutta Telegraph-17 hours ago 6: Foreign institutional investors (FIIs), who pumped in $24 billion into Indian equities in 2012 and in excess of $12 billion so far this calendar ... |
Investment by FIIs/NRI/PIOs under PIS - Removal from the Caution ...Moneycontrol.com-05-Aug-2013 The Reserve Bank of India has today notified that the foreign share holdings in M/s Dena Bank byForeign Institutional Investors (FIIs)/Non ... |
 * | LIC not saving PSU divestment; FIIs major investor: FinMinMoneycontrol.com-29-Jul-2013 LIC not saving PSU divestment; FIIs major investor: FinMin ... fiscal came from foreign institutional investors (FIIs) and that LIC is not salvaging ... + Show more |
Even in terms of sectors, their presence does raise doubts about its downside risks. Currently, they are present in seven out of the ten sectors. Within them, five sectors have a record high of their holdings.
For the last few days and weeks, the key overweight packs for the FIIs have been banks, autos, consumer discretionary and cement. Bank stocks, consumer discretionary names have already been seeing selling pressure.
Rotation cycles from overweight to underweight have been taking place too. Brokerages point out that buying has been observed into information technology (IT), rupee oriented stocks like pharmaceuticals and IT.
In the assets under management (AUMs) segment, India-dedicated funds have seen a huge shrinkage. These have corrected 50-60-70 percent from the peak.
The government has initially projected a growth rate of 6.5 per cent for the current fiscal, but has lowered it in view of global and domestic factors. RBI recently in its quarterly review has scaled down the growth projection for the current fiscal to 5.5 per cent from its earlier estimate of 5.7 per cent and asked the government to undertake policy measures to improve investment climate.
The RBI in its annual policy in May had projected the economy would grow at 5.7 per cent. The country's economic growth hit a decade low of 5 percent in the last fiscal on account of poor performance in the farm, manufacturing and mining sectors.
Last month, the Asian Development Bank lowered its growth projection for India to 5.8 per cent in calendar 2013 from 6 percent estimated earlier, citing the slow progress of economic reforms. International Monetary Fund outlook projects India's economic growth at 5.6 percent this year.
Attributing the decline in the rupee to a host of global and domestic factors, the government informed Parliament it has taken a slew of steps to check forex volatility and is monitoring the situation.Despite RBI defence activated by FM,after two days of gains, the rupee tumbled 53 paise to a fresh closing low of 61.30 against the dollar amid bearish local stocks and renewed dollar demand from importers. The local currency was also dragged lower by indications that the US Federal Reserve would taper its bond-buying programme. Fresh capital outflows added to the negative sentiment on the rupee, a dealer said. The rupee opened at 61.15 a dollar from the previous close of 60.77 at the Interbank Foreign Exchange Market. While it regained some ground to 60.94 on the back of a recovery in local equities, the currency again turned negative in line with a drop in stocks to a low of 61.45.
"The government is continuously monitoring the emerging external sector developments leading to higher CAD and rupee depreciation.
"(The government) has taken a slew of initiatives to boost exports and reduce imports, encourage capital flows to facilitate financing of CAD and stem the volatility in the exchange rate of the rupee," Finance Minister P Chidambaram told the Rajya Sabha in a written reply.
The Indian banking sector is unlikely to recover in the next 18-24 months due to slow economic growth and deteriorating loan portfolio, said a report by global rating agency Standard & Poor's.
"We base our view on slow economic growth that is constraining the corporate sector, the chief recipient of banking credit," report titled 'Slack Economic Growth Dents Recovery Prospects For Indian Banks' said.
Deteriorating asset quality and earnings are likely to constrain the credit profiles of Indian banks over the next two years, it said.
"We no longer expect the corporate sector to mildly recover in fiscal 2014, given slower-than-expected GDP growth, heightened currency volatility, and high interest rates," it said.
The report expects the banking sector's nonperforming assets (NPA) ratio to surge to 3.9 per cent of total loans in 2003-14 and to 4.4 per cent in 2014-15, compared with 3.4 per cent in fiscal 2012-13.
The return on assets should also remain depressed, at about 0.9 per cent, it said.
Banks have restructured 5.7 per cent of their aggregate loan balances as of March 31, 2013. The Reserve Bank of India allows banks to exclude these loans from their reported NPAs until 2014-15.
"We expect restructuring to remain high in the next two years because of the weak economy and the regulatory allowance," it said.
S&P has revised its forecast for India's GDP growth to 5.5 per cent for 2013-14 from 6 per cent.
"The corporate sector's weak performance, combined with high interest rates and a weak rupee, is likely to weaken debt servicing for these companies," it said.
"We believe that the infrastructure (power and road), metals and mining, construction, and capital goods sectors are particularly at risk," it said.
The appointment of Raghuram Rajan as the 23rd governor of the Reserve Bank of India will help the country's economy to pull out from the current economic slowdown and also bring better coordination between the central bank and the North Block, feel analysts.
"The timing of Rajan's appointment, by distracting attention from recent developments and offering the market hope of greater clarity, is good," Robert Prior-Wandesforde, director (Asian Economics Research), Credit Suisse said.
Rajan, who is currently the chief economic advisor at the Ministry of Finance, will succeed current governor D Subbarao, whose term gets over on September 4, 2013.
"His (Rajan's) experience at the Finance Ministry should enable better co-ordination between the RBI and the government," said Sonal Varma, economist at Nomura Financial Advisory and Securities.
Varma feels that Rajan's knowledge of the financial sector, global economy and emerging markets should be of great advantage to the country at this time of difficulty.
Rajan, the former chief economist at International Monetary Fund (IMF), is considered as one of the first to have predicted the 2008 financial crisis three years before its coming.
The confidence of the market in Rajan, as the new RBI governor, was evident from the fact that rupee which touched a lifetime low of Rs 61.80 on Tuesday recovered after the announcement and closed at 60.77 against the dollar, experts said.
"The rupee had touched a fresh record low against the dollar around 61.80 Tuesday before gaining substantial ground soon after the announcement," Radhika Rao, economist at DBS Bank, said.
Rajan will be facing challenging tasks of slower growth, high inflation, depreciating rupee and widening current account deficit.
ET reported:
Raghuram Rajan might have won the intellectual debate with his likely US counterpart Lawrence Summers who termed his 2005 prediction of the financial crisis "luddite", but he will find navigating India's bureaucracy and resisting the government a lot tougher.
In an era when the credibility of almost every institution here has been eroded, Rajan has the unenviable task of leaning against the government to protect India's central bank. Despite its flaws, the RBI is still seen as an institution that is uncompromising — be it with interest rates, banking regulation, currency or even bank licences. Rajan, who will be India's youngest central bank governor, will take over at a time when the communication between the government and Mint Street's top man has almost broken down. Only a rupee collapse helped a patch up.
Finance minister Chidambaram and Governor Subbarao have had public spats in the past few months, which has not helped anyone's cause. The foremost task is to be on the same page, but that will be inviting trouble for Rajan's credibility if the government continues with its imprudent policies.
"Rajan has strong and uncompromising intellectual standards, but is pragmatic in his approach to the practical challenges of policymaking,'' says Eswar Prasad, Tolani Senior Professor of Trade Policy at Cornell University and Senior Fellow at the Brookings Institution, who has co-authored research papers with Rajan. "His understanding of financial markets and macroeconomics, along with their international dimensions, make him an ideal choice to head the RBI.''
What's on the table? Bank licences and the government's perceived effort to usurp RBI's authority by providing executive powers to the Financial Stability and Development Council.
Subbarao and his predecessor YV Reddy — the master bureaucrats that they were — pushed back in their own way. Purists may expect the same from Raja. There is near unanimity (a rarity among economists) when it comes to Rajan's ability and knowledge of economic difficulties of the country and what needs to be done to fix them. But where he will be tested is in navigating the RBI bureaucracy and also in maintaining the fine balance with the government.
Indeed, Rajan has been warning Indian policy makers well before the Indian crisis began. Though he was abroad for the best part of his professional life, he was no less informed on what's plaguing India. On the disproportionate number of billionaires in India, Rajan in a 2008 speech at the Bombay Chamber of Commerce said, "I do want to argue that the numbers are alarming — too many people have gotten too rich based on their proximity to the government.
If Russia is an oligarchy, how long can we resist calling India one?'' Rajan is too aware of the attitude of civil servants, investors and politicians in taking for granted the great India growth story. "I see signs of complacency, whether it be a lazy acceptance of straight line extrapolations by Goldman Sachs indicating that India is destined to become a great economic power, or the willingness of some Indian corporations to pay unconscionable prices in making trophy foreign acquisitions,'' Rajan told an audience at the Forum of Free Enterprise in January 2006.
"With the right policies and some luck, we will become a middle-income constitutional democracy in my lifetime. But inaction coupled with bad luck could make us an unequal oligarchy or worse, far sooner than we think.''
Prime Minister Manmohan Singh did not face any battle with the finance ministry this time as Chidambaram, too, backed Rajan. But the new governor should be mindful of the fact that expectations were high from the government when Subbarao was appointed. A year later, the script went awry and hopes were belied. With a poll-bound government, Rajan's learning curve will be relatively short.
The rupee hit a record low of 61.80 to the dollar in afternoon trade today, while the S&P BSE Sensex declined more than 300 points. The currency has lost over 16% since April.
Referring to the measures taken by the government to support the rupee, Chidambaram said they include "raising the rate of interest subvention from 2 to 3 per cent that will benefit exporters and small and medium enterprises, hike in import duty on gold, liberalisation of FDI, etc." Regarding the current account deficit (CAD), the Minister said it has declined to 3.6% in the January-March quarter from 6.5 per cent in the previous quarter of 2012-13.
For the full fiscal 2012-13, the CAD worked out to 4.8% of GDP, or $88.2 billion.
The rupee ended at 61.30, a fall of 53 paise, or 0.87 per cent. The previous closing low was 61.10 on Friday. In the past two days, the rupee had gained 33 paise or 0.54 per cent.
"It witnessed a slight recovery in anticipation of government measures to curb the fall in the currency," said Abhishek Goenka, CEO of India Forex Advisors. "The finance ministry and the RBI were to meet on Wednesday to discuss what more measures can be taken to address the problem. Any positive announcements from them will help rupee to erase its losses."
The benchmark S&P BSE sensex declined over 68 points, or 0.36 per cent, after plunging 2.34 per cent on Tuesday. FIIs sold a net Rs 350.93 crore of shares on Wednesday, according to provisional data with the stock exchanges.
Most stock indices globally ended lower after a US Federal Reserve official indicated on Tuesday it could start tapering the bond-buying programme as early as next month.
The Reserve Bank on Thursday did not give any time-frame for roll-back of liquidity tightening measures and said that they would remain in force till stability is achieved in the foreign exchange market.
"Reserve Bank is as anxious as everyone to roll back the cash tightening steps sooner than later. However, the measures taken will be in place until volatility in the foreign exchange market is controlled. I do not want to give any time frame in that," RBI Governor D Subbarao said while delivering the 5th R Venkataraman Endowment Lecture here.
In order to contain Current Account Deficit (CAD) and arrest value of declining rupee, the RBI last month had raised the cost of borrowing for banks and reduced availability of funds to curb speculation in the forex market. RBI did not roll back these measures in its first quarter monetary policy which was unveiled earlier in the week.
Prime Minister Manmohan Singh and Finance Minister P Chidambaram had said that the measures announced by the RBI were not indicative of firming up of interest rates in the long-term and would be withdrawn once stability was achieved in the forex market.
Responding to general criticism that RBI ha not been paying enough attention to growth, Subbarao said inflation cannot be tamed without some sacrifice on the growth front.
"Some sacrifices in growth is inevitable when you are trying to bring down inflation. But that sacrifice of growth is only in the short term...it is somewhere incorrect to see it as the tension between growth and inflation as hundreds of millions of people are hurt by inflation," he added.
"There has been some criticism in this context that RBI is obsessed in controlling inflation regardless of growth concern. I don't agree with that at all. I don't agree with the contention that RBI is obsessed with inflation. RBI believes in price stability, RBI believes in growth, RBI believes in financial stability," Subbarao said.
He further said though wholesale price-based inflation had come down from double digits to below 5 per cent, retail inflation is still close to double digits, mainly because of some cyclical reasons and distribution problems.
The dilemma before the RBI, he said, is to achieve three objectives --controlling inflation, promoting growth and ensuring financial stability -- at the same time.
It is also the job of the RBI to listen to "silent voices of poor people" who are impacted the most by rise in inflation, particularly of food items.
"It is the responsibility of the Reserve Bank as a public policy to be sensitive to the silent voice of the poor people in the country. And that's my most important argument in support of controlling inflation," said Subbarao who will be demitting office in about five weeks.
Replying to questions on rising non-performing assets of the public sector banks, he said, "It is a growing concern...
we have put in some measures. We are going to put in more measures to see that NPA level is controlled across the asset quality of banks. It is very important for credit to continue to (flow) to productive sectors."
On passion of Indians for gold, Subbarao said: "We have to provide people access to formal financial system that offers returns comparable to gold...There was no asset in the country, that provided real return comparable to the return on gold".
Though things would depend upon gold prices, he said, there was a need to give attractive investment options to people to dissuade them from investing in gold.
New RBI governor Raghuram Rajan won't get to be his own man
By Swaminathan S Anklesaria Aiyar, ET Bureau | 7 Aug, 2013, 05.00AM IST
In 2008, the new RBI governor, Raghuram Rajan, detailed his idea of the right agenda for India as head of the Committee on Financial Sector Reforms. Of its many recommendations, the key one was that RBI should have a single policy focus - low, stable inflation. Corollary: it should not focus on targeting the exchange rate or stimulating GDP.
Noting that historically RBI sometimes targeted inflation, sometimes the exchange rate, and sometimes economic growth, the report said "by trying to do too many things at once, RBI risks doing none of them well".
Will Rajan put this vision into practice as RBI governor? Not a chance. Indian politics will not permit an inflation-only focus for RBI. After his spell in the finance ministry, Rajan must be well aware of the limits to the independence of any RBI governor.
As the IMF chief economist in 2008, he based his committee recommendations on global experience. He said anchoring inflationary expectations was the key task of central banks: if they targeted and achieved a particular rate, all other economic actors would fall in line with that inflation rate. He argued there was no trade-off between long-run growth and inflation - they went together. So, stable and low inflation was good for growth, and also good for equity (since the poor were worst hit by inflation).
However, the theory of a single-minded focus on inflation has been eroded even in the West. The US Federal Reserve has always sought both growth and inflation control, and is currently focused overwhelmingly on growth. The European Central Bank tried to focus on inflation alone during the Eurozone crisis, but that approach proved disastrous, and was abandoned when Mario Draghi became ECB chief. In Japan, Prime Minister Shinzo Abe is unabashedly using monetary policy to boost GDP growth.
Besides, central banks understand globally that mone-tary policy cannot control fuel and food prices, and so they target core inflation (which excludes these two items). But in India these two items dominate consumer inflation, especially food. So, RBI's monetary tools can be pretty powerless for tackling Indian-style inflation arising from food and fuel, something many past RBI governors (including Duvvuri Subbarao) have discovered.
Indian politics simply does not allow real independence for the Reserve Bank of India - the finance minister reigns supreme. Rajan will already have seen this from his position in the finance ministry.
P Chidambaram wants to check inflation, stabilise the rupee, and accelerate GDP all at the same time, even if economists tell him all three are impossible.
Whatever Rajan's personal inclinations may be, the finance ministry will force him as RBI governor to attempt many things at the same time. This will raise the risk of doing none of them well, something he warned of in his committee report.
Will Sensex hit 23,000 by year-end riding the IT wave?
By ECONOMICTIMES.COM | 7 Aug, 2013, 06.56PM IST
The economy is cloaked in uncertainty and the investor is refusing to buy the government's growth story. Bulls or bears? That is the question on everyone's mind. Perhaps 2014 elections will throw up a clear winner, butt till then, here's something that raises hope.
The markets could rally as much as 23,000 by the end of 2013, says Morgan Stanley, at the same time adding that this is a possibility only in a bull market; though the global financial services firm gives a 5 per cent probability for such a scenario.
Given the current state of affairs, the one sure-shot bet that can take the markets to highs of 23,000 by the end of this year (2013), of course amid a somewhat collective rally, is the IT space. Experts are very bullish on the sector which is one of those that is insulated from whatever happens to the India growth story.
In a latest, it is the mutual fund (MF) industry that has been betting big on software companies; with the industry's equity exposure to the sector rising to a three-month high of Rs 18,430 crore at of June-end. In fact, the MF industry's investment in software stocks stood at Rs 18,430 crore as on June 30, accounting for 10.21 per cent of their total equity assets under management (AUM) of Rs 1.80 lakh crore, according to Sebi data.
"The MF industry have been investing in the software shares because of the smart quarterly numbers posted by companies such as TCS, Infosys and Wipro, among others ... and a falling rupee," Geojit BNP ParibasBSE 2.89 % Financial Services Research Head Alex Mathews was quoted as saying by a news agency.
The falling rupee, which on Wednesday hit its all-time closing low of 61.30 - the lowest close for the Indian currency was 61.10 - and a day before on Tuesday it an intraday all-time low of 61.80 saw, is a big welcome news. IT companies earning most of their revenues in dollars is too old a hat to be taken further. Though not a big impact given the demand side for the IT space is under pressure, it no doubt throws up smiles.
"Growth rate, albeit at a lower level, seems to be slightly more visible in businesses like IT, pharma, consumption and oil & gas ... IT clearly does stand out right now purely because you are playing a developed market proxy and emerging market weakness through IT," says Nikhil Vora of IDFC Securities.
"It is a challenge to reverse the trend across broad markets. IT as a pack, right now, is fairly insulated from the pain that we are dealing with," he added.
Among other experts who are bullish on the sector include Vibhav Kapoor, Group Chief Investment Officer at IL&FS: "IT and pharma sectors have been seeing gains largely because they are immune to the Indian economy, and going forward these two sectors are going to do well because the US economy is doing better and the rupee continues to depreciate."
He however feels that waiting for a correction to happen will yield better gains for the investor: "At some point, valuations in the IT sector as well as others will put a cap on how far these stocks can go and you could see some decent corrections. That would be a good time to get into these stocks if you get a 10-15% correction."
"Of course, the immigration bill in the US could be an overhang for IT, which would need to be watched carefully," he adds as a note of caution.
"Obviously, these sectors (IT and pharma) which are clearly export-led stand to be the biggest beneficiary (of the falling rupee). To back it up you have corporate balance sheet ... So the Eurozone also stabilises, it will be a further boost for many IT companies," Arindam Ghosh, CEO, BlackRidge Capital Advisors, said.
"... IT is clearly something which has made money, and we believe that the sector still holds much more promise as we get into the next 12 months," Taher Badshah, Senior Vice-President & Co-Head ( equities), Motilal Oswal Asset Management, recently said in an interview with ET Now.
Even modest FII pullout will topple shaky mkt: Sanger
The only positive factor for the Indian economy has been the good monsoons. But even increased rural demand won't be sufficient to carry the entire economy and hence a 5 percent GDP growth looks rather optimistic
The RBI's liquidity tightening measures impacted cost of funds for banks and it cannot walk away from increased interest rate now despite the fact that the rupee did not strengthen, saysArvind Sanger of Geosphere Capital Management. He says the economy will feel the pain of the increased rates and the only sectors that are holding the markets right now are the consumer sector, IT and pharma.
Also Read: High rates choking investments; need about 9% growth: CII
The only positive factor for the Indian economy has been the good monsoons. But even increased rural demand won't be sufficient to carry the entire economy and hence a 5 percent GDP growth looks rather optimistic, Sanger told CNBC-TV18.
He feels that the markets are on such shaky grounds that even a modest selling by FIIs in the safe haven sectors could cause a pretty sharp downward correction.
Another issue according to him is the strengthening US economy. As long as the US data is good, emerging markets will continue to underperform, he says. Besides good US data also means Fed will be on course to tapering its bond buying programme.
Below is the verbatim transcript of Arvind Sanger's interview on CNBC-TV18
Q: The Indian data points have been quite awful as you would have noted. Do you think this market will manage to hold out here or could it be looking at sub-5500 levels this time around?
A: As you were saying a little earlier there is nothing magical about 5600 where it should hold. I guess a few weeks back I was among the optimistic, saying that the range would hold and the bias over time could be on the upside, but I think with this Reserve Bank of India (RBI) needing to defend the rupee and I assume they needed to, India is really in a box right now. The rupee has not strengthened.
The RBI cannot afford to walk away from its increased interest rate that they have put on the short end without collapsing the rupee, so they are stuck with that which means that the economy is going to feel the pain for the fret of higher rates flowing through both to corporates and to consumers and I would say if there are two or three sectors that are holding up this market, one of those is the consumer sector, the others obviously are IT and pharma.
IT and pharma are largely foreign facing, but the consumer sector is very much domestic facing and based on the new service data, we already have manufacturing data that is very weak, now the service data is showing significant weakness and you may have said this earlier in the programme, monsoons are not one magic wand that is going to fix everything.
How much rural demand can carry on its back the rest of the Indian economy, not much and therefore I think that at this point 5 percent is looking like an optimistic growth target for the next fiscal year or the current fiscal year and therefore the next down leg in the market could come if some of these consumer stocks that are trading at astonishingly high multiples were to correct to what would make more sense, then that is your downside in the market of getting the next leg down.
Q: Up until now we have not seen any kind of large scale pull out by Foreign Institutional Investors (FIIs) from the Indian market. Do you fear that the next leg of this market will see a big pull out by FIIs, especially in some of these sectors that are holding up that is some of the defensives?
A: The reality is I think the market is so fragile, you do not need to see a big pull out, you need to see even a modest pull out, cash withdrawal by emerging market (EM) investors and if they start selling some of the market leaders in the consumer space or in anything else, if people are hiding they are hiding in consumer and they are hiding in IT and pharma and of those three the consumer sector is the most vulnerable and if it saw some selling I am not sure there are any significant domestic investors looking to buy into these sectors.
India: Liberalization Of Foreign Direct Investment Limits In 12 Sectors
Last Updated: 5 August 2013
Article by Pradhumna Didwania and Yogesh Malhan
 * |  * |  * |  * |  * |  * |
Foreign Direct Investment (FDI) in India is subject to certain Rules and Regulations and is subject to predefined limits ('Limits') in various sectors which range from 20% to 100%. There are also some sectors in which FDI is prohibited. The FDI Limits are reviewed by the Government from time to time and as and when the need is felt and FDI is allowed in new sectors where the limits of investment in the existing sectors are modified accordingly. In order to revise the FDI Limits to attract more foreign investment in India, the Union Government constituted a committee named, Arvind Mayaram Committee headed by the Economic Affairs Secretary. On Tuesday, 16th July, 2013, the Government approved the recommendations given by the Arvind Mayaram Committee to increase FDI limits in 12 sectors out of the proposed 20 sectors, including crucial ones such as defense and telecom.
Some of the important changes made in the Existing FDI Limits are provided below:
FDI Limit in Telecom Sector is increased from 74 per cent to 100 percent, out of which up to 49 per cent will be allowed under automatic route and the remaining through Foreign Investment Promotion Board (FIPB) approval. A similar dispensation would be allowed for asset reconstruction companies and tea plantations.
FDI in 4 sectors i.e. gas refineries, commodity exchanges, power trading and stock exchanges have been allowed via the automatic route. In case of PSU oil refineries, commodity exchanges, power exchanges, stock exchanges and clearing corporations, FDI will be allowed up to 49 per cent under automatic route as against current routing of the investment through FIPB.
FDI in single brand retail is to be allowed up to 49 percent under the automatic route and beyond that shall be through FIPB.
-
In credit information firms, 74 per cent FDI under automatic route will be allowed.
In respect of courier services, FDI of up to 100 per cent will be allowed under automatic route. Earlier, similar amount of investment was allowed through FIPB route.
FDI cap in defense sector remained unchanged at 26%, however higher limits of foreign investment in state-of-the-art manufacturing would be considered by the Cabinet Committee on Security (CCS). Technically, the decision leaves it open for CCS to even allow 100% foreign investment in what the defence ministry will define as "state-of-the-art" segments with safeguards built in to ensure that the technology and equipment are not shared with other countries.
In the contentious insurance sector, it was decided to raise the sectoral FDI cap from 26 per cent to 49 per cent under automatic route under which companies investing do not require prior government approval. A Bill to raise FDI cap in this sector is pending in the Rajya Sabha.
Some of the sectors in which FDI limits were expected to be increased but did not were, civil aviation, airport, media, multi-brand retail and brownfield (existing firms) pharmaceuticals.
Tabular representations of the key changes proposed under the FDI Limits are as follows :
| Sector/Activity | Before the proposal | After the proposal | ||
% of FDI /Equity | Entry Route | % of FDI / Equity | Entry Route | |
Defense Sector | 26% | Government Route | No Change | Higher limits of foreign investment in "stateof-the-art" manufacturing would be considered by the CCS |
Insurance Sector | 26% | Automatic Route | 49% | Automatic Route |
Telecom Services | 74% | Automatic up to 49% Government route beyond 49% and up to 74% | 100% | Automatic up to 49% Government route beyond 49% and up to 100% |
Tea Plantation | 100% | Government Route | 100% | Automatic up to 49% Government route beyond 49% and up to 100% |
Asset Reconstruction Company | 74% of paid-up capital of ARC (FDI+FII) | Government Route | 100% | Automatic up to 49% Government route beyond 49% and up to 100% |
Petroleum & Natural Gas | 49% | Government Route | 49% | Automatic Route |
Commodity Exchanges | 49% (FDI & FII) + [Investment by Registered FII under Portfolio Investment Scheme (PIS) will be limited to 23% and Investment under FDI Scheme limited to 26% ] | Government Route (For FDI) | 49% | Automatic Route |
Power Exchanges | 49% (FDI &FII) FDI limit of 26 per cent and an FII limit of 23 per cent of the paidup capital | Government Route (For FDI) | 49% | Automatic Route |
Stock Exchanges/ ClearingCorporations | 49% (FDI &FII) FDI limit of 26 per cent and an FII limit of 23 per cent of the paid-up capital | Government Route(For FDI) | 49% | Automatic Route |
Credit Information Companies | 49% (FDI & FII) | Government Route | 74% | Automatic Route |
Courier Services | 100% | Government Route | 100% | Automatic Route |
Single Brand product retail trading | 100% | Government Route | 100% | Automatic up to 49% Government route beyond 49% and up to 100% |
Conclusion
In order to liberalize Foreign Investment in India and to attract more number of foreign Investors the Government attempts to maintain a practice to continuously review the Foreign Investment policy. The acceptance of the recommendations to increase the Foreign Investment Limits in the respective sectors will not only attract Foreign Investment in India but will also provide growth opportunities to Indian Companies who can collaborate with Foreign Companies to start business in various new sectors. The withdrawal of requirement of Government Approval for Investment in different sectors will also act as an incentive to initiate various business prospects and will expedite the launch of new projects.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Do you have a Question or Comment?
Click here to email the Author
Interested in the next Webinar on this Topic?
Click here to register your Interest
Contributor
More Popular Related Articles on International Law from India
Investors' Right Of 'Fair And Equitable Treatment' Under Bilateral Investment Treaty Upheld By ICSID
Nishith Desai Associates
Stamping on the strength of Bilateral Investment Treaties the International Centre for Settlement of Investment Disputes has recently passed awards on two elongated disputes.
Indirect Tax Newsletter - July 1, 2012
JSA Advocates & Solicitors
Mega/ Ultra mega power projects may furnish a fixed deposit receipt or bank guarantee in order to claim customs duty exemption.
FDI In Single Brand Retail Increased To 100%
JSA Advocates & Solicitors
The Department of Industrial Policy & Promotion, Ministry of Commerce and Industry, Government of India has "vide" Press Note 1 of 2012 dated January 10, 2012 increased the threshold limit of Foreign Direct Investment in Single Brand Retail from 51% to 100%.
Recent Developments In India Aim To Encourage Foreign Investment
Goodwin Procter LLP
Appetite for foreign investment into India has cooled since the beginning of 2012, partly due to uncertainties in India's tax regime, and economic activity in general has slowed amidst the government's inability to implement economic reforms and a perceived "policy paralysis."
Hariani & Co.
The Bombay High Court passed a significant judgment in December 2009, which virtually denies foreign law firms entry into India on the basis of the existing laws.
No comments:
Post a Comment