Measure Monetising Gold The government has introduced a gold monetisation scheme that will allow investors in gold deposit schemes and gold loan schemes to earn interest. The government is also trying to structure a sovereign gold bond that could act as an alternative to physical gold
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Reserve Bank of India (RBI) Governor Raghuram Rajan Wednesday said "sorry" for a "misleading" comment that he never made with regard to the central bank's stance on interest rates. Addressing students of Guru Nanak College here on Monday, Rajan had said India is witnessing an "avalanche" of capital flows as central banks around the world are reducing interest rates to very low levels but the RBI is unable to cut interest rates very quickly to the bone due to "high" inflation in India. He was speaking at an off-media event, but his comments found their way to the news reports and were construed by some analysts as an indication that RBI was not going to cut rates. After RBI surprised with a cut in the interest rate this morning, Rajan was asked during an analyst conference call on Wednesday about "sudden change in his stance as one day ago he was quoted by the media as saying that RBI is unable to cut interest rates very quickly due to high inflation. To this he replied with a "sorry", while quickly adding that he was quoted "out of context" and he did not "mislead" the markets while speaking to students at a "closed-doors" event about inflation and interest rates in general. Earlier on Monday, Rajan had said that many central banks around the world were printing money and reducing interest rates to very low levels to deal with the global financial crisis. With countries like India offering high interest rates, significant foreign inflows have been witnessed in debt, he had said. (PTI)
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Moody's Investors Service said on Wednesday that its assessment of India's credit ratings will be determined mainly by the extent of its fiscal reforms, not recent revisions to its economic growth data. The comments come a day after rival Standard & Poor's said India must boost growth, cut its fiscal deficit and fulfil promises of financial and fiscal reforms in order to justify an upgrade in its credit rating. The government on Saturday will present its fiscal budget for the new fiscal year starting in April amid high hopes that it will find a way to boost capital spending while exercising fiscal restraint. "The upward revisions of India's GDP growth based on methodological and base year updates -- highlight the strength of the economy, but do not impact Moody's overall assessment of the sovereign's credit profile," the agency said. "Rather, fiscal and structural reform policies will determine the extent to which accelerating growth will buttress the sovereign credit profile." Moody's added that rising private external debt levels and banking sector challenges will also continue to pose sovereign credit risks. India this month changed the way it measures Asia's largest economy and said under the new methodology the economy expanded 7.5 percent year-on-year during the last quarter, higher than 7.3 percent growth recorded by China in the latest quarter. As a result, Moody's said it now expected 7.5 percent growth for the year ending in March 2015. However, the new government readings have left economists confused as it is at odds with other indicators such as industrial production, trade and tax collection figures, which suggest the economy is still suffering from slack. Moody's rates India at "Baa3", the lowest investment grade rating, with a "stable" outlook. That is in line with S&P and Fitch Ratings. (Reuters)
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There are costs involved in increasing the country's foreign exchange reserves as the interest rate earned on such foreign exchange is low, deputy governor of the Indian central bank, H.R. Khan, said on Monday. "Foreign exchange reserves act as the first line of defence but acquisition of reserves has its own costs," Khan said in a speech to students at a management school in Pune. India's foreign exchange reserves rose to a record high of $333.17 billion as on Feb. 13, compared with $330.21 billion a week earlier, data from the Reserve Bank of India showed on Friday. In the previous week, the reserves had increased by $2.33 billion to $330.21 billion. The latest accretion to the reserves can help India cover its import bill for almost 10 months now, according to analysts. The foreign currency assets (FCAs), a major constituent of overall reserves, increased by $2.3 billion to $307.26 billion in the reporting week. The gold reserves remained unchanged at $20.18 billion, reflecting a tepid movement in prices of the yellow metal. Boosting Balance SheetA fall in global oil prices provides India with the opportunity to strengthen its balance sheet, a deputy governor of the RBI said on Monday, alluding to the need to use savings to invest, build reserves and cut subsidies. India imports nearly two-thirds of its oil requirements and a lower oil import bill is likely to help slash the country's current account deficit, as well as help ease inflation. The government's annual budget, due to be presented on Saturday, is widely expected to include cuts to subsidies, but not by as much as some investors had hoped for. "The oil price going down is an opportunity which should not be wasted and we should be bolstering our balance sheets," Khan said. India's fuel subsidy comprises about a quarter of the total subsidy amount of nearly 2.6 trillion rupees ($41.81 billion) and the fall in oil prices provided the government room to impose an excise tax which is expected to earn an additional of around 200 billion rupees. Most analysts expect oil prices to stay within $70 a barrel, which will enable the government to save on its fuel subsidy as well as mop up more revenue through excise tax. India has also strengthened its foreign exchange reserves to record highs, preparing for possible shocks including any adverse impact from an increase in U.S. interest rates. "The big risk as all of us know is of U.S. (Federal Reserve) action -- the scope, the speed and the size of the rate hike," Khan said on Monday. (Agencies)
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Pitching for disinvestment in public sector behemoths like LIC, Air India and BSNL, top industry leader Deepak Parekh has said it can unlock huge funds worth "lakhs of crores of rupees" and shares should be given to retail investors without depending on the overseas entities. However, one of the major requirements for such large-scale disinvestments is a government thinking on those lines, as lack of political will and union pressure have been halting such proposals for a long time including during the tenure of the previous UPA government, said Parekh, chairman of financial services giant HDFC. Giving examples from during the UPA regime, Parekh said he has been part of many important government panels, including those on BSNL and Indian Railways, but nothing moved on the suggestions made by those committees. "If you run down a company to that level in the public sector that no private sector entity will want to take it, then what will you do?" he said. Parekh also hoped the first full budget of the Narendra Modi government will focus on reforms without much populism and pitched for incentives for the companies to launch new projects and give a boost to the 'Make in India' campaign. He said the government's finances are in a much better position to go ahead with reforms, following steps like reduction in subsidy and checking of wastages and leakages, but it would have to remain within its means. Economic ReformsWhile echoing Finance Minister Arun Jaitley's assertion that reforms can happen through 365 days a year, rather than being only on the Budget day, Parekh said that the BJP's defeat in Delhi elections was unlikely to result into any kind of populist measures at the cost of reforms. He also flagged a continuing fear among bureaucrats of being hauled up as a major reason for inordinate delays in the decision-making process, saying things can change for better if they are assured of protection. Parekh, a leading industry voice who has been always vocal with his frank views on the issues faced by the companies and investors from India and abroad, said that the prime minister has been time and again assuring the bureaucrats that they should not worry and "act without fear or favour". "This is the right thing to do (assuring the bureaucrats), but seeing what has happened to some of their ex-colleagues, bureaucrats are still not hundred percent sure that if they take a call and it goes wrong, will they be investigated or will they be treated like they made money or it was vested interest and all that," he said. Parekh made these remarks in an interview to PTI, wherein he had also talked about steps that are required to improve ease of doing business in the country and to convert prevailing optimism into investments on the ground. Parekh said a lot of decisions have been taken by the Modi government, "but it is the process... Fast-tracking these processes will ensure improvement on the ease of doing business front". He rejected the perception that the prime minister was controlling everything and this was reason that was delaying the processes. Parekh also said that the private sector investments were key to economic growth and there should not be too much dependence on government spending. With so many new fund-raising options available including private equity, sovereign funds and overseas bonds, he said financing should not be a problem for the corporates. Ease Of Doing BusinessFor the ambitious 'Make in India' campaign to succeed, Parekh said, the government needs to ensure that commitments made to the infrastructure firms are duly honoured and a right atmosphere is created for local as well as foreign investors. On stalled projects, he said that many of the projects that were stalled were infrastructure projects and most of them were predominantly in the power sector. "I personally feel that we need to have more aggressive thrust towards improving ease of doing business. After a gap of few years, India is again being talked about at in the international board rooms. That is because we are a massive market," Parekh said. The eminent banker said further that the prime minister rightly says that it is "demand, demography and democracy" that makes India a right place to invest. "These are the positives India has. The demand is here, so every multinational, every company they want to have their sales or business or operations here. But processes have to be? reduced and made easier," he added. Asked how much money can be generated from big divestments like Indian Railways, LIC and Air India, Parekh said: "It'll be huge. It'll be lakhs of crores of rupees." (PTI)
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The Reserve Bank of India (RBI) has ordered banks to tighten monitoring of export finance deals after investigators uncovered an invoicing scam they suspect is part of a multi-billion-dollar scheme to exploit Western financial sanctions against Iran. Although the RBI's ruling made no mention of the scheme that targeted UCO Bank, an central bank source familiar with the matter said it was related to a probe into the suspected misuse of up to $3.2 billion in export advances paid out by the bank. "Banks should exercise proper due diligence and ensure compliance with KYC (know your customer) and AML (anti-money laundering) guidelines so that only bonafide export advances flow into India," the RBI said in a circular to banks posted on its website on Monday. Under a provision in U.S. sanctions law, Iran can accumulate oil export revenues with its Asian buyers and use the funds to buy essential imports. According to sources familiar with the investigation by the Enforcement Directorate, a group of nine Iranians who entered India on student visas set up shell companies in a provincial city to tap into these funds held at state-owned UCO Bank. Under Indian rules advances for exports, or for the re-export of goods imported into India, should be covered within 12 months by proof that an actual delivery is made. The shipments, which included purchases of diamonds for re-export to Iran, were never made. "Clearly, the export was not happening," said one source with direct knowledge of the investigation by the Enforcement Directorate, an agency responsible for fighting financial crime. At this stage, the Enforcement Directorate is examining possible violations of India's foreign exchange law and may widen its probe to include money laundering, the source said. Investigators have confirmed 9.25 billion rupees ($150 million) in suspect transactions involving eight firms. The real figure could be as high as 200 billion rupees ($3.2 billion), according to the RBI source. The news comes at a delicate moment for Iran, following the revival of six-power talks on its nuclear programme that seek to bridge a rift with the West dating back to the Islamic revolution of 1979. U.S. Treasury Secretary Jack Lew, whose department oversees sanctions, is due to visit India on Feb. 11-12 after attending a meeting of finance ministers from the Group of 20 nations in Istanbul. A U.S. Treasury spokeswoman had no immediate comment. Tightening UpIndian refiners buy about 220,000 barrels of oil a day from Iran and deposit 45 percent of the cost in rupees at UCO Bank on behalf of the National Iranian Oil Company. The rest is sent in dollar tranches to Iran, on the nod of the Western powers. Iran officially draws on the rupee balances to buy food, machinery, medicines and other goods not covered by sanctions. Purchases from India totalled about $5 billion in the last financial year to March 31, 2014. After being notified by the Enforcement Directorate of its investigation, UCO Bank sent an email to exporters last month, seen by Reuters, saying that it would not facilitate Iran-related transactions by firms that had foreign nationals as company officers. UCO Bank has said that it acted promptly on being informed about the investigation. It has denied any wrongdoing or negligence. "Our role is very limited," UCO Bank Chairman Arun Kaul told reporters last week in Kolkata, adding that the bank was complying with government and RBI guidelines and assisting the Enforcement Directorate investigation. Stricter compliance by UCO will hit India's trade with Iran, said Ajay Sahai, chief executive of the Federation of Indian Export Organisations, adding that he would take the matter up with the trade ministry. India had expected exports to Iran to hit $6 billion in the fiscal year ending March but in the first seven months of the year they reached just $2.4 billion. (Reuters)
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The government is expected to disclose the names of close to 60 Indians and entities as it has recently initiated tax evasion prosecution proceedings against them as part of its crackdown on black money accounts as reported in the HSBC bank's Geneva branch list. Sources said that those against whom legal action has been initiated include some corporates, business houses and other individuals as the Income Tax department has completed its probe and filed prosecution complaints against these entities, on the directions of the Special Investigation Team (SIT) constituted to tackle black money and illegal assets held by Indians abroad. They said the total amount in these accounts is estimated to be to the tune of Rs 1,500-1,600 crore. Sources said the complaints, under I-T laws, have been filed in various courts of the country and investigations in these cases have been completed by the taxman as these cases will get "time barred" by March 31 after which any legal action against them could not be carried out as the cases pertain to the period of 2008-2009. "The disclosures of these names is part of the government's commitment to curb cases of black money and of illegal funds stashed abroad by Indians. The I-T department aims to get conviction in these cases very fast," they said. The SIT, headed by retired Supreme Court Judge Justice M.B. Shah, had said in its last report to the government and the Supreme Court in December 2014 that the black money holders names in HSBC Geneva list will be taken to their logical conclusion soon. British Bank Admits FailingsThe British bank admitted on Sunday failings by its Swiss subsidiary, in response to media reports it helped wealthy customers dodge taxes and conceal millions of dollars of assets. "We acknowledge and are accountable for past compliance and control failures," HSBC said on Sunday after news outlets including French newspaper Le Monde and Britain’s The Guardian published allegations about its Swiss private bank. The Guardian, along with other news outlets, cited documents obtained by the International Consortium of Investigative Journalists (ICIJ) via Le Monde. HSBC said that its Swiss arm had not been fully integrated into HSBC after its purchase in 1999, allowing "significantly lower" standards of compliance and due diligence to persist. 'Bricks' Of CashThe Guardian alleged in its report that the files showed HSBC's Swiss bank routinely allowed clients to withdraw "bricks" of cash, often in foreign currencies which were of little use in Switzerland, marketed schemes which were likely to enable wealthy clients to avoid European taxes and colluded with some to conceal undeclared accounts from domestic tax authorities. HSBC said the Swiss private banking industry, long known for its secrecy, operated differently in the past and this may have resulted in HSBC having had "a number of clients that may not have been fully compliant with their applicable tax obligations." Its private bank, especially its Swiss arm, had undergone "a radical transformation" in recent years, it said in a detailed four-page statement. HSBC's Swiss private bank was largely acquired as part of its purchase of Republic National Bank of New York and Safra Republic Holdings, a US private bank. HSBC said the number of accounts in its Swiss private bank had fallen from 30,412 in 2007 to 10,343 at the end of last year and it was cooperating with authorities investigating tax matters. The data was supplied by Herve Falciani, a former IT employee of HSBC's Swiss private bank. HSBC said Falciani downloaded details of accounts and clients at the end of 2006 and early 2007. French authorities have obtained data on thousands of the customers and shared them with tax authorities elsewhere, including Argentina. Switzerland has charged Falciani, who Reuters was unable to reach for comment, with industrial espionage and breaching the country's secrecy laws. Falciani has previously told Reuters he is a whistleblower trying to help governments track down citizens who used Swiss accounts to evade tax. Some of the details of the list have been released before. The names of 2,000 Greeks with HSBC accounts was made public in 2010 and dubbed the "Lagarde List" after former French finance minister Christine Lagarde. France passed the names to Greece to help it crack down on tax evasion. (Agencies)
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India's foreign exchange reserves zoomed to new high of $327.88 billion, up by a whopping $5.845 billion, in the week to January 30 mainly on account of robust FII inflows and lower dollar outgo. In the week to January 16, the forex kitty had jumped by $2.66 billion to reach $322.135 billion, according to Reserve Bank of India (RBI) data. For the first time, the forex kitty had crossed $320 billion mark ($320.79 billion) for the week ended September 2, 2011. After the Narendra Modi government came to power in May 2014, foreign funds pumped dollars into Indian equities on the hopes of big-bang economic reforms. In 2014, FIIs pumped in $16.15 billion into Indian equities, while they have exhausted the cap of $30 billion in government securities. They have parked $32.5 billion in corporate bonds, which is 64 per cent of their cap of $51 billion. "We grow more confident of our call that RBI Governor Raghuram Rajan will continue to buy forex reserves to guard against contagion," Bank of America Merrill Lynch (BofAML) said in a report. The RBI Governor in a post-policy meeting with reporters earlier this week had said the country's foreign reserve position has improved substantially to sustain any spillover effect arising out of the policies from advanced economies. "Our reserves are substantially higher even net of forward positions, which today are positive rather than negative last year and therefore I think we are in a much better position," Rajan had said. He said although India cannot be immune from volatility, but it is much better than many of its comparative countries. BoFA-ML said if crude oil price persists at $50 per barrel levels, the RBI should be able to take import cover to 10 months by March 2016, above the critical 8-month import cover needed for the rupee stability. Market experts believe the rise in the reserves is also due to the buying of dollars by the RBI in the past few months. "We do not intervene to try and target a particular level for the exchange rate. Where we do intervene is to reduce volatility and we have intervened in both directions in recent months and weeks, so we both buy and we sell," Rajan had said. RBI has been net purchaser of dollars for the most part of the current fiscal. So far this fiscal, besides spot purchases, RBI has bought $39 billion in forwards since April. If it consistently buys forex, the BOP can reach 10 months' import cover by March 2016, provided oil at $55 a barrel in FY16. The increase in reserves in the reporting week was on account of higher foreign currency assets (FCAs), which forms a major constituent of overall reserves. FCA rose by $5.814 billion to $303.325 billion, Reserve Bank data showed. FCAs, expressed in dollar terms, include the effect of appreciation and depreciation of non-US currencies such as euro, pound and yen held in reserves. (PTI)
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The junior finance minister on Thursday expressed concern about the rupee's appreciation against all major currencies, except the US dollar. "As of now, we do have to find a zone for the rupee that prevents obviously inflation, etc., in India - which is one of the things that we are concerned about - but at the same time (it) doesn't push out of the zone of competitiveness," Jayant Sinha told foreign investors on Bloomberg TV. Sinha added that the rupee's 60-65 level against the dollar is a "good zone to be in". The rupee fell by 16 paise to 61.91 against the dollar in early trade on Thursday at the Interbank Foreign Exchange due to appreciation of the US currency overseas. The rupee had closed down by eight paise at 61.75 per dollar on Wednesday on fresh demand for the US currency from banks amid fall in stock markets. (Agencies)
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Reserve Bank of India Governor Raghuram Rajan said on Wednesday that inflation was still a concern but added the deflationary global environment gave the central bank some elbow room with monetary policy. "We still have concerns about inflation. Given the deflationary environment elsewhere, it's actually easier for us because we are not fighting inflation in an environment where inflation is picking up elsewhere," Rajan said in a conference call with analysts. "So I think we are still in conventional monetary policy territory." The comments come a day after the central bank held interest rates steady at 7.75 per cent, leaving its next move probably until after the government presents its annual budget at the end of this month. Banking SectorIndia's banking sector was not at risk of a crisis despite the bad loans impacting the sector, Rajan said in a TV interview, adding most problems were at state-run banks backed by the government. "I don't think there's any risk of a crisis from the bad loans in the system, and there is a reason for it, which is bad loans are primarily in the public sector system, which means that the full faith and credit of the government is behind that," Rajan told Bloomberg TV in an interview on Wednesday. "So, it is not going to take down the banks," he added. "Nobody should be worried about it: banks are safe." On Tuesday, Rajan said though the country may get affected by the spillover effects of the loose monetary policies in advanced economies, the economy is well prepared to cope with it. "Will we be immune to volatility? The answer is no. Everyone is affected by volatility (but) we are in a much better position. But after the first wave of volatility when market participants stop to think, I am hopeful that we will look much better than perhaps competitive countries," Rajan told reporters. Late last month the ECB had announced a fresh $1.1 billion bond buying programme even as it kept its interest rates at near zero levels. Similarly, the Swiss central bank had for the first time lifted the 4 per cent cap on franc against the euro, and the Japanese central bank is pumping trillions of yens into the market. Rajan said the country's high foreign exchange reserves, which crossed $322 billion for the first time in the past reporting week, will provide a cushion. In its sixth bi-monthly monetary policy review, RBI said, "Financial markets remain vulnerable to uncertainty surrounding monetary policy normalisation in advanced economies and a possibly weaker growth in China and oil exporting emerging market economies." Rajan said the country has made important strides in a few macroeconomic variables like growth, current account deficit, inflation and fiscal deficit. "Our growth has not plunged as low as some of our comparative countries; the current account deficit has improved, inflation has come down, which is one of the reasons for the stability of the rupee," the governor added. When asked has the market priced in the coming tightening rate cycle of the US Federal Reserve, Rajan said, "I am not sure that we know fully the process the Fed will follow." (Agencies)
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