10 ISSUES for the economic meltdown in India:
- Leadership crisis
- High fiscal deficit(200% rise in subsidy since 2007-08)
- High Current Account deficit(likely at 4% of GDP in the current fiscal)
- High Inflation(at 7.23% as on 02.06.2012 and still rising)
- Rupee depreciation(20% drop since 2011)
- Stalled reforms: lack of political will
- Higher interest rates
- Drop in Investments
- Power sector crisis(underutilized capacity)
- Decline in portfolio inflows
Forex reserves slipped by $1.7 billion on currency revaluation and stood at $288.26 billion as on 25.05.2012
BANKS are free to trade in shares, bonds & currencies. However, section 8 of Banking Regulations Act prohibits them to trade in goods. Now Govt. backs banks to trade in goods by amending the Act(2nd June 2012)
New private banks outshine nationalized banks in performance with regard to RETURN ON ASSETS(ROA), NET INTEREST MARGIN(NIM), GROSS NPA(GNPA%) AND COST TO INCOME RATIO in 2011-12
Risk management practices in New Private sector Banks are more robust than their nationalized counterparts as they focus more on Retail unlike the latter who focus on large corporate
As many as 45 companies have skipped paying dividend for the year 2011-12 financial year with the slowing economy causing a strain on earnings & cash flow. The circumstances prompt them to conserve resources for the future
General Insurance Corporation (GIC) has posted a loss of Rs.2469 crore in 2011-12: the first in its history, as it has to pay out huge sums due to natural catastrophes in countries like Japan and Thailand. While yield on investment and inflow of fresh business is hit on account of global economic slowdown, companies like GIC have to be on their knees!
Central Banks (like RBI in India) usually stimulate a slowing economy by cutting interest rates, which encourages people to spend by borrowing more. But with rates in the developed economies already close to zero, that option also not working well. So, Central Banks pump money (purchasing power) directly into the economy: A PROCESS KNOWN AS QUANTITATIVE EASING.
India’s backward states like UP, Bihar, Madhya Pradesh, Rajasthan, Odisha, Chhattisgarh and Jharkhand are growing fast with a GDP growth in the range of 6%-14% proving that GOOD ECONOMICS CAN BE GOOD POLITICS AS WELL!
RBI has directed Banks to waive levy of pre-payment charges for floating rate Home loan facilities (6th June)
The Govt. plans to make it mandatory for the corporate to report their efforts for sustainable development under Indian Companies Act. The concept in this context include environmental, social and economic performance of the firms
As European leaders grapple with how to preserve their monetary Union, Greece is rapidly running out of money. Govt. coffers could be empty as soon as in July, 2012. In the worst case, it has to temporarily yet indefinitely stop paying salaries/pensions along with imports of fuel, food and pharmaceuticals. Officials say they face resistance to more tax collection, an essential element of the recovery plan
SENSEX surges 434 points, the highest in 2012 till date, on expected Govt. action on deficits & infra developments; anticipation of a RBI rate cut and a likely liquidity injection decision from EURO zone(7th June)
One of the most troubling features of today’s global economic crisis is the lack of political leadership anywhere. No one has the courage to tell their people the truth. And the truth, alas, is that four of the pillars of today’s global economy: Europe, America, China and the Arab world have each in their own way , squandered huge dividends they enjoyed in recent decades. And now they have to dig out of their respective holes with fewer resources, less time and almost certainly with more pain. There is no easy way out as confronting these hard truths becomes unavoidable(Thomson L Friedman in New York Times)
So for Europe, the Arabs, China and America, in different ways, these have been the years the locusts (short headed grasshoppers who eat away & destroy resources) ate. Getting healthy again will be wrenching for all of us in the globe irrespective of geo-political location
Supermarket chains and Malls like Mark & Spencer Plc, Wal-Mart and J Sainsbury offer banking services in their stores
Warren Buffet is the Chairman & CEO of Omaha, Nebraska based Berkshire Hathaway Inc. He earned his fortune and reputation by investing in out of favor stocks, transforming his firm from a failing textile mill into a $200 billion seller of Insurance, Energy & Freight hauling. He has pledged almost all of wealth to charity
4 years ago, Wendy Atkinson Navarro, 36 had a job, a husband and a home. Now, she is divorced, out of work and living with her mother near Madrid. This shows the grave casualty of Spain’s double-dip recession that has driven unemployment above 24% and is unnerving young people
China delivered twin surprises on interest rate on 10 June 2012, cutting borrowing costs to combat faltering growth while giving banks additional flexibility to set competitive lending & deposit rates in a step along the path of liberalization. It is warranted in the backdrop of worldwide concern Euro Zone’s deepening debt problems threatening economic growth
India’s woes of external weaknesses reflected in:
1. Shrinking current accounts 2.Declining trade balance & Rupee
3.Slumps in Exports
4. Diminishing competiveness vis-à-vis China
5. Traffic decline in Ports and
6. Choked ports (11 June)
Five things the Finance Minister is counting upon for a India turnaround story are:
1. Pick up in investment growth as gross fixed capital formation
2. A good monsoon despite a delayed onset
3. Reversal in interest rate cycles in forthcoming RBI review upto 50 bps
4. Decline in price of crude in a falling trend of below $100/barrel
5. Rebound in mining sector with increase in coal production
Weak April IIP data triggered call for cut in policy rates to be soon announced by RBI as contraction in mining & capital goods pull down industrial growth to flat at 0.1%
European finance officials have discussed limiting the size of withdrawls from ATM machines, imposing border checks and introducing Euro Zone capital controls as a worst case scenario should Athens(Greece) decide to leave the Euro
The Finance Ministry has asked the PSBs to put in place a uniform 3-tier public grievance redress system within 3 months to ensure that all customer complaints are resolved within 21 days(10 for branch+6 for RO/ZO+5 for CO/HO). Apart from transparency and accountability, it is suggested to take appropriate action against erring misbehaving officials viz.-transfer to difficult places and adverse performance appraisal
To safeguard the interests of lending banks, RBI has advised to obtain a certificate from the borrower’s auditors on an annual basis that all statutory dues including EPF dues have been settled by the borrower. This must be taken up seriously during the appraisal process
The Govt. is contemplating to exempt PSBs from paying it a dividend as part of its move to set up a single holding company to meet the capital requirements of these PSBs. The retained earnings thus will be ploughed back to service the debt and the interest burden, which the holding structure will raise for PSBs. As per existing norms, PSBs are required to pay a dividend @20% either on paid up equity capital or net profit whichever higher to the Govt.
The Govt. has asked RBI to work out a framework under which funds could be transferred electronically free of charge from one A/c to the other in the banking system. The move, apart from delight to customers would help reduce cash movement/transaction in the banking system
The Finance Ministry plans to bring all Govt. credit guarantee funds under one roof by forming an umbrella company to better administer these schemes across priority sectors such as MSME, Housing, Education and skill development(14 June)
A week after Standard & Poor’s warned that India may be the first ‘fallen angel’ among the BRIC group of economies, FITCH ratings cut its outlook to negative from stable, citing the economic slowdown and high fiscal deficit. It may dent further investor sentiment, weaken the rupee and overseas borrowing costs for India Inc.
The FITCH action compounded problems for India as it came hours after RBI disappointed the financial market by not lowering key rates
“against the backdrop of persistent inflation pressures and weak public finances, there is an even greater onus on effective Govt. policies and reforms that would ensure India can navigate the turbulent global economic and financial environment and underpin confidence in the long run growth potential of the Indian economy”: Art Woo, Director of FITCH’s Asia-Pacific sovereign rating group
India’s annual consumer price index (CPI) went up to 10.36% in May from 10.26% in April though the WPI was 7.55%. Lingering inflationary pressures despite moderating economic activities have raised fears of STAGFLATION: a situation characterized by high inflation, low growth and wide-scale unemployment. A 24.8% depreciation of the rupee against the dollar in the past one year has driven the purchase price of imported items such as crude, vegetable oil and pulses. Moreover, the usual shrinking of fruits & vegetables during the summer means price pressure on food prices will continue
The DGFT is planning to change the deemed exports benefits scheme under the Foreign Trade Policy (2009-14), following its large scale misuse for several years especially by Power companies. In 2010-11, the DGFT had brought to the notice of the Finance Ministry about fake claims made by certain suppliers especially firms that supplied boilers, turbines & generators
A moderation in bank lending to SME sector due to liquidity squeeze has forced the latter to opt for promoter’s money and personal loans to meet funding needs, which is not healthy according to CRISIL
Banks are leaving no stone unturned to grab a larger share of deposits flowing in from NRIs with conducive conditions such as weaker currency, higher interest rates and relaxed regulations
Despite the slowdown in domestic conditions in some of the end-use markets, demand remained firm from sectors like motor vehicles, transport equipments, basic consumer goods and manufacturing which pushed India’s steel imports up to 69% in the first two months of the fiscal 2012-13
India and four other countries of the five nations BRICS block on 19th June 2012 gave a big boost to IMF’s $430 billion bailout fund for the debt-wrecked Euro Zone pledging to contribute $75 billion with India’s contribution being $10 billion
The Finance Ministry report has recommended that the RBI frame a policy for mandatorily providing note sorting machines(NSMs) at all bank branches with average cash receipts Rs.25 lakh & above so that the detection of forged notes can be made at the point of entry at each counter. Banks may not have to file FIRs on detecting fake currency notes due to reported police harassments
Myanmar is opening up and the world is at its doors. India needs to capitalize on its social, cultural & political capital in Myanmar
Bulletin 1: 20 June 2012
No comments:
Post a Comment