Prime Minister Manmohan Singh sought to soothe worries about the economy on Friday, 30 August, telling parliament that the crashing value of the rupee was part of a needed adjustment that would make Asia's third-largest economy more competitive.The speech was the veteran economist's first substantial comment to parliament since the rupee suffered its steepest ever monthly fall in recent weeks, bringing back memories of a 1991 balance of payments crisis that made Singh famous.Reading from a written statement, the prime minister promised his government would reduce the "unsustainably large" current account deficit undermining the currency."Clearly we need to reduce our appetite for gold, economise the use of petroleum products and take steps to increase our exports," he said.But he said that a weaker currency was the natural outcome of several years of high inflation, and although the rupee had overshot in the foreign exchange market its decline would bring some economic benefits."To some extent, depreciation can be good for the economy as this will help to increase our export competitiveness and discourage imports," he said.Singh's deft handling of the 1991 crisis helped launch 20 years of rapid economic growth and he has since been credited as the architect of India's emergence as a serious economic power.Now in his eighties, Singh seems to have lost some of that agility and is often pilloried for staying mostly out of the public eye while the country's economy goes from bad to worse.In response to his parliament speech, opposition leader Arun Jaitley said Singh's track record as prime minister was of populist policies, not reform."If you continue to follow the course, then the legacy that you leave behind will not be the legacy that you left behind as the finance minister. That legacy was different," Jaitley told the upper house.(Reuters)
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Ahead of GDP numbers to be released later in the day, Prime Minister Manmohan Singh said on Friday, 30 August, said the economic growth in the April-June quarter of the current fiscal will be relatively flat. "Growth has slowed in recent quarters. I expect growth in the first quarter of 2013-14 to be relatively flat, but as the effects of good monsoon kicks in, I expect it to pick up," he said while making a statement on the state of the economy in Parliament. The economic growth slowed to a decade low of 5 per cent in the 2012-13 fiscal. The government expects the economy to growth at around 6 per cent in the current fiscal. The GDP figures for first quarter are scheduled to be released at 1730 hrs (local time) Friday. The growth in the first quarter of last fiscal was at 5.5 per cent. In order to boost growth, the government has taken a number of initiatives including setting up of Cabinet Committee on Investments (CCI) for reviving stalled projects. Since January 1, the CCI has cleared projects worth over Rs three lakh crore this year. "The decisions of the CCI in reviving stalled projects will start bearing fruit in the second half of the year. "Exports are also starting to look up as the rest of the world is improving its growth. So I believe, growth will pick up in the second half of fiscal year barring extreme unforeseen eventualities," he said. Listing out the growth friendly measures -- fuel subsidy reform, liberalising FDI norms in various sectors, and resolution of some tax issues of concerns to industry-- taken by government in last six months, Singh said the effects of these will come into play over the year resulting in higher growth, particularly in manufacturing. After growing at over 8 per cent for two consecutive years, the growth slowed to 6.2 per cent in 2011-12 and further to 5 per cent last year on account of poor performance of farm, manufacturing and mining sectors.(Reuters)
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The rupee and Indonesian rupiah led slides among emerging Asian currencies in August as capital flowed out of the region on expectations the U.S. Federal Reserve will soon begin to reduce monetary stimulus. While most regional units scratched out gains on Friday, 30 August, the damage for the month was extensive. The rupee has tumbled 10.4 per cent against the dollar so far this month, which would be its largest monthly depreciation ever if it ends around current levels, according to Thomson Reuters data. The rupiah has lost 5.9 per cent so far in August, which would be its biggest monthly fall since November 2008. The Philippine peso has slid 2.7 per cent, which would be the largest monthly fall since May last year. The Thai baht has fallen 2.4 per cent and the Malaysian ringgit has weakened 1.6 per cent. The Fed is expected to start scaling back its bond-buying programme next month. An upward revision to second-quarter US economic growth bolstered the views. "September will be a rough month for Asian FX, with the potential Fed taper and sustained nervousness towards emerging markets," said Emmanuel Ng, a foreign exchange strategist for OCBC Bank in Singapore. When asked which Asian currencies will be most vulnerable, Ng said: "they are going to be the usual suspects, such as the rupee, the rupiah and the ringgit, as markets sniff out the weakest links." Short positions in the rupee and some Southeast Asian currencies hit the highest levels since the global financial crisis in 2008 during the last two weeks as sentiment on regional currencies deteriorated, a Reuters poll showed on Thursday. The rupee and the rupiah are seen as especially vulnerable to an anticipated reduction in the Fed's quantitative easing. Both India and Indonesia are struggling with growing current account deficits, slowing economic growth and strong resistance to implementing much-needed reforms. Despite spreading gloom in South and Southeast Asian currencies, their Northeast Asian peers enjoyed monthly gains. The South Korean won has risen 1.3 percent on capital inflows and exporters' demand for settlements. The Taiwan dollar has risen 0.7 percent. Investors dedicated to emerging Asian markets are betting that Northeast Asian currencies will fare better than their Southeast Asian counterparts due to superior fiscal and current account positions. Their high-tech exports have proved more resilient to the global slowdown, especially China's more recent slowdown, than Southeast Asian economies which are heavily reliant on exports of commodities and raw materials. RINGGITThe ringgit rose as offshore funds covered short positions, but its upside was limited by dollar demand from custodian banks in Malaysia. Those custodian banks bought dollars below 3.3000 to the ringgit, traders said. The Malaysian currency is expected to stay weaker in September as investors are keeping an eye on if the Fed starts winding down quantitative easing. "There are so many uncertainties, such as Syria, U.S. tapering and fund exits from emerging Asia," said a senior Malaysian bank trader in Kuala Lumpur, adding the ringgit is likely to fall further. The ringgit saw some support at 3.3345 per dollar, the 50 percent Fibonacci retracement of its appreciation between 2009 and 2011. But the Malaysian unit may weaken to 3.3640, its weakest level in May 2010, once the retracement is broken, analysts said. PHILIPPINE PESOThe peso gained as overall strength in regional units caused investors to cover short positions. The Philippine currency, however, gave up some of initial gains on dollar demand from local companies, traders said. Despite improvement in sentiment, onshore players including lenders and corporates prefer dollars, they added. "We could see a bit more upside in dollar/peso as it has lagged the bigger rises in dollar/rupiah and dollar/rupee," said a senior Philippine bank trader in Manila. The peso may weaken to mid-45 per dollar in September. Another trader said the peso may find support around 45.50, given increasing remittance inflows in the next coming months. RUPIAHThe rupiah edged up 0.1 per cent to 10,910 per dollar in the interbank market as the central bank was spotted providing dollar liquidity and a day after Bank Indonesia announced further measures to shore up the currency, including rate hikes. Banks in the country, however, still bought dollars above 11,000 for their customers, traders said, indicating investors did not see the new steps as sufficient to halt the rupiah's slide. HSBC said Thursday's actions were constructive, but they may not be enough to support the rupiah. "In our view restoring price discovery is still critical and more policy support will be needed to stabilize the IDR," it said in a note. Forwards markets pointed further depreciation in the rupiah with one-month non-deliverable forwards to dollar weakening to 11,440. BAHTThe baht advanced on exporters' demand for month-end settlements and as some Japanese banks bought the currency. Ten- and 5-year government bond yields also slid. Still, investors hesitated to push the baht stronger than 32.00 per dollar, before July current account and trade data later in the day.(Reuters)
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Trade Minister Anand Sharma said on Thursday, 29 August, the Reserve Bank of India should look into suggestions that it monetise its gold reserves to reduce imports and dollar outflows that have hammered the rupee, but emphasised it was for the bank to decide.India has 557.7 tonnes of gold in its reserves, making it the eleventh biggest holder, according to the World Gold Council. India consumer's appetite for gold has been a drag on the rupee, the worst performing major currency since May."I have not said their should be any mortgaging of the gold, or auction of the gold, that is incorrect. I have just said the RBI should look into...how they can benefit the people, particularly with regard to the bonds or the monetisation," Anand Sharma told parliament."This is a suggestion which has been made by many economists," he said, adding that it a was up to the Reserve Bank of India to decide whether such a measure would bring down gold imports.(Reuters)
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The patriotism of wealthy overseas Indians has helped the country avert economic crises in the past and it is little surprise that embattled policymakers are turning to them again to plug a record trade gap that is battering the rupee.This time, though, big investors among the more than 25-million overseas Indian community - the world's second-largest diaspora - are staying away as the economic outlook darkens and political instability looms ahead of national elections.Shoring up inflows from the overseas Indians is a key weapon in Finance Minister P. Chidambaram's arsenal to prop up the rupee that has lost 20 percent against the dollar so far this year and which dropped to a record low on Wednesday.The rupee's crash has boosted remittances, mainly from blue-collar workers overseas - particularly in the Gulf - who can get more rupees for hard currency. However, it has not triggered a surge in high-value investments in real estate, private equity funds and stock markets, bankers and wealth managers said.Underlining the hesitancy, flows from non-resident Indians (NRIs) into bank deposits in the April-June quarter dropped to $5.5 billion from $6.6 billion a year earlier, Reserve Bank of India (RBI) data shows.Investments in real estate by overseas Indians dropped about 30 percent in the fiscal year that ended in March, according to the Confederation of Real Estate Developers' Associations of India (CREDAI), an umbrella group of local property developers."People feel like there are too many unknowns. The most recent government has been ghastly, and nobody quite knows what comes after it. I haven't been optimistic about India for quite a while," said Vasant Prabhu, chief financial officer of Starwood Hotels & Resorts Worldwide Inc <HOT.N> in New York."What makes it hard, you don't know what the bottom of the rupee is," he said in comments underscored by a rupee that stumbled from 63 per dollar on Friday to almost 69 per dollar on Wednesday - a sharp move over such a short period of time for a currency.His comments were echoed by wealth managers and bankers in Britain, the United States and India who said non-resident Indian clients saw too many uncertainties despite the tantalising prospect of buying assets with a record-low rupee.Economic growth is at its weakest in a decade and seen slowing further, New Delhi is struggling to close a record deficit in the current account - the broadest measure of a country's international trade - and a national election that must be held by May could tempt the government to spend to win over voters and so undermine its fiscal discipline.In addition, emerging markets are losing favour with investors generally as the prospect of the United States reining in its economic stimulus draws cash into U.S. assets.In a bid to attract funds, India liberalised bank deposit schemes and some banks raised rates for overseas Indians this month. They could secure interest rates of more than 8.5 percent on one-year rupee deposits and as much as 10 percent on three-year accounts, a relatively high return compared with many other countries where rates remain near historic lows."All these folks always had this strong belief that India is the safest country to invest and four, five years back when the rest of the world was collapsing India was still growing," said Anil Behl, head of wealth and strategy at lender IndusInd Bank <INBK.NS>, referring to the global financial crisis."That mood has changed now," he said. "I can certainly feel that some NRIs are looking at dollar-based products from international stables ... they are very wary of pure rupee products."Large HitThe government goes out of its way to tug at the heartstrings of white-collar expatriates, such as those in Silicon Valley and at top investment banks in London, to raise funds and cushion the impact of slowing institutional inflows. There is even a ministry for Overseas Indian Affairs which has NRI investment as a core goal.New Delhi has managed to lure them in the past with attractive deposit schemes and bonds. It issued a five-year Resurgent India Bond in 1998, raising more than $4 billion, and in 2000 it raised $5.5 billion through a deposit scheme.India, Asia's third-largest economy, was the top recipient of remittances from diaspora in 2012 with about $70 billion, followed by China at $66 billion, World Bank figures show. India received about $63 billion in remittances in 2011.Banks, including RBS, Barclays and Morgan Stanley, beefed up their teams in cities such as New York, Singapore, Dubai and Hong Kong in recent years to advise overseas Indians on investment opportunities back home.But many investors are now staring at losses as the rupee's plunge since May has wiped out gains they made on investments in private equity funds and mutual funds in the last few years."For people who are dollar-invested, that's a large hit," said Ajay Kaisth, principal of New Jersey-based Kai Advisors, which has $30 million under management, of which more than 60 percent is from Indian clients.After trading broadly around 45 per dollar in 2010 and 2011, the rupee has dropped more than 30 percent.Losing FaithThe economy is likely to grow even more slowly in fiscal 2013/14 (April-March) than the decade-low of 5 percent struck the previous year, as investment will stay weak due to a dearth of reforms and uncertainty ahead of the election, a Reuters poll showed.The rupee has become the worst performer by far among Asian emerging-market currencies tracked by Reuters, despite frantic attempts by the government and central bank to support it.Lalit Kumar Jain, chairman of CREDAI said property purchases by Indian expatriates were now needs-based rather than speculative, reducing what has been in the past a key type of demand.As a portfolio investment destination, India also faces daunting competition as developed markets, including the United States, show signs of finally emerging from the global financial crisis, said Bundeep Singh Rangar, who advises individuals as well as companies on India investments as chairman of London-based IndusView Advisors."And that's a cause of concern because the biggest champion of India is its diaspora, and if they are losing faith you can imagine how much the non-Indian investor would be losing faith."(Reuters)
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The rupee trimmed its initial gains against the US currency, but was still quoted higher by 120 paise to 67.60 per dollar in the late morning trade on selling of dollars by banks and exporters in view of steps taken by Reserve bank of India yesterday (28 August) . The battered rupee recovered after the Reserve Bank of India (RBI) yesterday said it has started a facility to meet the daily dollar requirement of the country's three state-run refiners. The rupee resumed higher at 66.90 per dollar as against the previous closing level of 68.80 per dollar at the Interbank Foeign Exchange (Foerx) Market and firmed up further to a high of 66.85 per dollar. However, it trimmed its initial gains and was quoted at 67.60 per dollar at 1040 hrs. It moved in a range of 66.85 per dollar and 67.71 per dollar during the morning deals. Banks and exporters preferred to reduce their dollar position in view of recovery in the equity market. The benchmark Sensex rose by 201 points or 1.12 per cent to 18,197.33 at 1050 hrs. However, in New York market, the dollar yesterday (28 Aug) rose against major currencies, including the pound, as investors continued to worry about a possible military strike in Syria. Sensex Gains More Than 200 Points The BSE Sensex and the Nifty are up around 1 per cent, tracking a rebound in the rupee from a record low after the Reserve Bank of India's move to provide dollars directly to oil companies. The BSE Sensex fell 3 per cent while the Nifty slumped 3.5 per cent over the previous two sessions. Traders say continued foreign selling and expiry of August equity derivative contracts later in the day may increase volatility in the second half of trade on Thursday, 29 August. Foreign institutional investors sold about $1.12 billion worth of shares in the previous nine sessions through Wednesday, 28 August. State-owned oil companies gain after the central bank's move on Wednesday to provide dollars directly to these companies. Indian Oil Corp, Hindustan Petroleum, and Bharat Petroleum each gain more than 1 per cent. Financial shares gain after steep losses in the previous two sessions are seen as overdone. Housing Development Finance Corporation up 6 per cent. (Reuters)
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RBI on Wednesday, 28 August, opened a special window to help the three state-owned oil marketing companies needing about $8.5 billion every month meet their daily foreign exchange requirement in a bid to check the rupee's free fall. "On the basis of assessment of current market conditions, RBI has decided to open a forex swap window to meet the entire daily dollar requirements of three public sector oil marketing companies (IOC, HPCL and BPCL)," the central bank said in a statement. The PSU oil companies are the biggest buyers of dollars, requiring $8-8.5 billion every month for the import of an average 7.5 million tonnes of crude oil. The RBI decision is aimed at curbing volatility in the forex market. Under the swap facility, the RBI said, it will "sell/buy USD-INR forex swaps for fixed tenor with the oil marketing companies through a designated bank." The swap facility gets operationalised with immediate effect and will remain in place until further notice, the RBI said. The rupee today (28 Aug) collapsed to a lifetime low of 68.85 against the dollar and closed at 68.80, registering its biggest single-day loss of 256 paise, as global oil prices jumped, deepening concerns about the current account deficit and capital outflows. According to analysts, consistent dollar demand from banks and importers, mainly oil refiners, following higher crude oil prices, kept the rupee under pressure. India's oil imports during July were valued at $12.7 billion, which was 8 per cent lower than $13.8 billion of oil imports in the corresponding period a year earlier. During April-July, oil imports were valued at about $54.6 billion, which was 2.65 per cent higher than $53.2 billion in the corresponding period last year. (PTI)
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For the first time, the Finance Ministry has started sending letters to service tax, customs and excise duty defaulters asking them to come clean on certain dubious transactions carried out by them.The letters are being issued by two lead intelligence agencies under the Finance Ministry -- Directorate General of Central Excise Intelligence (DGCEI) and Directorate General of Revenue Intelligence (DGRI) -- and Commissionerates of Service Tax and Central Excise, spread across the country, officials said.The DGCEI is sending the letters to service tax and excise duty defaulters and the DGRI is issuing these correspondences to suspected customs duty evaders, they said.The letters are being sent to an entity or an individual to seek clarification on a financial transaction, red flagged by economic intelligence agencies as black money or seen as an attempt to dodge authorities from paying taxes, carried out by them, they said.The number of letters issued to the entities were not immediately known.It is for the first time that such letters have been issued to indirect tax defaulters, a senior Finance Ministry official said, adding that the Income Tax department has been issuing such letters to direct tax dodgers.The Finance Ministry has decided to go after about 12 lakh service tax assesses who had stopped filing returns. The Ministry officials are also focusing on top 100 excise duty assessees in the country to ensure that there is no evasion towards the indirect tax collection kitty.There are 1.2 lakh excise duty assessees across the country. Whereas, there are 17 lakh registered assesses under the service tax.The aim behind sending such letters is to remove bureaucratic hassles and develop faith in people about tax authorities, the officials said.Under this process, those getting the letters need not to appear in person before the tax authorities but need to furnish information on the queries sought from them.Chidambaram had advised DGCEI and DGRI to consider issuing polite letters to entities, reported in a Suspicious Transaction Report (STR) issued by the Financial Intelligence Unit (FIU)-- an agency tasked with analysing and disseminating information relating to dubious transactions.An STR involves a transaction of Rs 10 lakh and above, which gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime and black money.The officials said a person or company on receipt of such letters can attach relevant documents as proof against a suspected transaction, earmarked by FIU or other intelligence agencies, while writing back to the authorities.The Finance Ministry feels that sending these letters will help in checking tax evasion and result in more voluntary filing of returns by such dodgers.The Finance Ministry had from May this year implemented one-time amnesty scheme--Voluntary Compliance Encouragement Scheme (VCES)--for service tax defaulters to pay their dues without any penalty or late payment charges.The Finance Ministry has set indirect tax collection target of Rs 5.65 lakh crore for 2013-14, up from Rs 4.73 lakh crore in the last fiscal.The idea to send such "polite letters" is the brain child of Finance Minister P Chidambaram, they said. (PTI)
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The rupee slumped to a record low near 69 to the dollar on Wednesday, 28 August, on growing worries that foreign investors will continue to sell out of a country facing stiff economic challenges and volatile global markets.The pummelling in markets sent the rupee reeling 3.7 per cent to an all-time low of 68.85 with the unit closing just a touch off that, at 68.80/81 per dollar, its biggest single-day fall since October 1995.It closed on Tuesday at 66.24/25.In absolute terms too, the 256-basis-point fall in the rupee was the biggest ever.An assault on the psychologically key 70 level now appears imminent, as intervention from the central bank seen mid-morning only gave the rupee a brief respite.In the stock market, state-run Life Insurance Corp, which was spotted buying shares, allowed the domestic benchmark index to erase steep early losses and end the day stronger."If steps are not taken to implement the reforms necessary to tackle the structural issues, the government will be left with the so-called '3D options': debt default, devaluation, deflation," said Angelo Corbetta, head of Asia equity for Pioneer Investments in London."In India, devaluation is happening now and deflation could be about to start. The good news is that the debt default is highly unlikely."Foreign investors have sold almost $1 billion of Indian shares in the eight sessions through Tuesday - a worrisome prospect given stocks had been India's one sturdy source of capital inflows in the first half of 2013.If more foreign investors throw in the towel, traders fear it will put the country in a vicious cycle in which the hit to confidence in turn slams shares and the currency even harder.Policymakers have consistently struggled to come up with steps that can convince markets they can stabilise the rupee and attract funds into the country despite extraordinary measures last month by the central bank to drain liquidity and action to curb gold imports and cut India's huge oil import bill.Rising Oil Prices, Fed Fears Amplify PressureIndia badly needs foreign capital as it struggles with a record high current account deficit, growing fiscal pressures and an economy growing at the slowest in a decade.The failure to address India's economic challenges is becoming an increasing source of tension at a time when fears of a possible U.S.-led military strike against Syria are knocking down Asian markets, with the prospect that the Federal Reserve will soon end its prolonged period of cheap money further raising concerns.At the same time, rising domestic bond yields threaten to raise borrowing costs across the already slowing economy, while global prices of oil and gold - the country's two biggest imports - have surged this week."The end game for the current decline would be the day the rupee stops falling, alongside government measures like a substantial diesel price hike," said Samir Arora, a fund manager at Helios Capital in Singapore.BNP Paribas on Wednesday slashed its economic growth forecast for India for the fiscal year to March 2014 to 3.7 percent from its previous 5.2 per cent - the weakest growth since 1991-92 when India buckled under a balance of payments crisis that required a loan from the International Monetary Fund."India's parliament remains toxically dysfunctional with little, if any, business conducted," BNP said."And, with next year's general election looming ever nearer, the government's willingness to instigate a politically unpopular fiscal tightening is close to nil."India is due to post April-June gross domestic product data on Friday, with analysts estimating the economy grew at an annual rate of 4.7 per cent, roughly in line with the previous quarter. It will also post July federal fiscal deficit figures.Lacking ConfidenceThe rupee has plunged more than 20 per cent this year, by far the biggest decliner among the Asian currencies tracked by Reuters.India's main National Stock Exchange index fell as much as 3.2 per cent, although suspected buying by LIC led the index to recover in the afternoon.Foreign investors are paring equity positions, having sold a net $3.6 billion in stocks since the start of June, but still their net purchases so far this year total nearly $12 billion.Among the blue chips that fell the most on Wednesday were Axis Bank Ltd and ICICI Bank Ltd, a concern given foreign investors had so far largely held on to their investments in lenders, owning more than 40 per cent of each.In bond markets, foreign investors have sold more heavily, with outflows reaching nearly $4.6 billion so far this year.Yet the government has so far failed to provide a coherent response, analysts said. Its approval of infrastructure projects on Tuesday was trumped by concerns about the fiscal deficit after India's lower house of parliament this week approved a Rs 1,35,000 crore ($19.6 billion) plan to provide cheap gain to the poor.In its latest initiative, the government late on Tuesday proposed setting up a task force to look into currency swap agreements, a measure analysts said could bring some relief if carried out in time by reducing market demand for dollars or other major currencies."Let's see what the authorities do, but if the government can come out with some really big currency swap arrangement with some countries, that can be a strong positive," said Uday Bhatt, a forex dealer with UCO Bank in Mumbai.(Reuters)
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Gold prices zoomed to a record high of Rs 34,500 per ten gram with a biggest ever single day surge of Rs 2,500 in opening trade in bullion market on Wednesday, 28 AUgust, amid the rupee hitting historic low of 68.75 a dollar.The current upsurge surpassed its record price of Rs 32,975 per ten gram, set on November 27 last year, with its biggest ever single day surge as panic-striken investors rushed to purchase gold as a safe haven during current financial crisis when forex and equity melting fast.The rupee has been witnessing an unprecedented plunge in its value as it dropped to an all-time intra-day low of 68.75 per dollar today, while the BSE benchmark Sensex also declined sharply."The bullion demand has got a boost as the rupee hit fresh record low and equities tumbled, leaving no place for investors but to park their funds in gold as a safe-haven," Surender Jain, Vice President, All India Sarafa Bazar told PTI.He said the yellow metal climbed to over three-month high in global markets as speculation that the US could lead military action against Syria within days spurred investors' demand for a haven.A Delhi-based bullion merchant Rakesh Anand said the outlook for gold is bullish as dollar-priced metal moving hand-in-hand with forex market and shifting of investors funds from melting equities."Gold will have more upward strength in coming days keeping in view the approaching festival and marriage season," Anand said.The gold in Singapore, which normally set price trend on the domestic front here, dropped by 0.3 per cent to 1,419.55 dollar an ounce.Traders said a steep rise in gold prices on the Multi Commodity Exchange in early trade today further supported the uptrend, indicating more demand for the precious metals in coming sessions.(PTI)
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