The rupee was pulled off its highs and ended little changed on 8 October' 2013, tracking Asian currencies as the budget impasse in Washington tempered investor appetite for riskier assets, while greenback demand from private oil firms also hurt. The Reserve Bank of India's decision to cut an overnight interest rate late on Monday, further unwinding extraordinary measures taken to defend the rupee, had little direct impact, traders said. Traders expect the rupee to remain in a range for the time being given the continued global market uncertainty. "I think the weakness in the rupee should continue as lower rates are not good for a depreciating currency," said Ashtosh Raina, head of foreign exchange trading at HDFC Bank. "The gains seen in early trade were just on the back of the stock market rise." The partially convertible rupee closed at 61.7925/8025 per dollar compared with 61.79/80 on Monday. The unit moved in a wide band of 61.6150 to 61.91 during the session. Globally, the dollar edged higher against the Japanese yen after President Barack Obama said he would accept a short-term increase in the nation's borrowing authority to avoid default, although analysts said the U.S. currency would remain under broad selling pressure while a budget standoff continued. At home, traders said dollar inflows to the tune of $200 million were spotted from a corporate during the session, but were all absorbed by the market with large demand being seen from private oil companies. Meanwhile, Indian shares rose to their highest close in nearly two weeks, led by gains in lenders after the central bank cut an overnight interest rate. The bank share index, however, ended up just about 0.6 per cent, trimming most of its 3.7 per cent rise. "I don't think yesterday's unwinding would mean a change in the trend for the rupee. It will remain rangebound between 60.80 and 62.30 during the week with state oil demand remaining off market which limits any significant downside," said Hari Chandramgethen, head of foreign exchange trading at South Indian Bank. In the offshore non-deliverable forwards, the one-month contract was at 62.43, while the three-month was at 63.41. In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed at around 62.12 with a total traded volume of $1.93 billion. (Reuters)
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The US is careening toward what could be a calamitous default on its debt because of political dysfunction in Washington. The US Treasury has said it will hit the nation's $16.7 trillion debt cap by 17 October. Following are some questions and answers about how and when default could happen.How could the US default?Washington takes in about 70 cents in taxes for every dollar it spends, so it must borrow to pay its bills. This would be easy as there are plenty of investors who want to lend America money. The problem: Congress put a ceiling on government debt and lawmakers haven't struck a deal to raise it.So will Washington go broke on 17 Oct?No, but it will be dangerously low on cash. The government has been scraping up against the debt ceiling since May, and now looks set to hit it around mid-month. When it does, the Treasury thinks it will have about $30 billion in the bank. Because it won't be able to add to the national debt, bills will have to be paid with incoming revenues and cash on hand.How long will the money last?Not long at all. The Congressional Budget Office thinks the United States would start missing payments on at least some of its obligations between Oct. 22 and the end of the month. No one knows the exact day because you can't know what tomorrow's tax revenues will look like.The US defaults when the money runs out, right?It depends how you define default. Historically, default is when a country misses a payment to a creditor. The Obama administration says default would include any missed payment, such as payments for public health insurance. The first really big bill due after hitting the debt ceiling is a $12 billion Social Security payment on Oct. 23.When would financial markets melt down?Markets would be alarmed if it looked like bondholders would go unpaid for an extended period, and might even panic if any government checks were delayed. Many analysts think the administration would at least try to prioritize payments on the national debt, but Treasury officials say picking and choosing which bills to pay would be impossible. The first debt payments due after hitting the debt ceiling are on Oct. 17, 24 and 31. The first of those shouldn't be a problem, according the CBO analysis. But there might not be enough money for the payments due on the 24th or the 31st.How would default affect the economy?It would sink like a stone. Once default began, the government would have to slash its spending overnight by about a third. The fiscal drag, if it lasted a full year, would be the equivalent of up to 4.2 per cent of national economic output, according to calculations by Goldman Sachs.That doesn't take into account the potential for a financial crisis. If investors lost their cool, stock markets could tumble, hitting pension funds and leading consumers to spend less of their money. Credit markets could freeze up because investors around the world might reassess the value of U.S. debt, which serves as collateral for trillions of dollars in loans and other financial transactions. The Treasury has warned a default could trigger the worst recession since the Great Depression.Is there an easy way out of this?Washington's army of policy wonks have floated all sorts of ideas that could in theory resolve a debt ceiling crisis. Treasury could mint a $1 trillion dollar coin and deposit it at the Federal Reserve, magically topping up government coffers. The Obama administration could unilaterally raise the debt ceiling by invoking the 14th Amendment of the U.S. Constitution, which some scholars read as prohibiting a default.The White House has ruled out both approaches. That they are even being considered speaks to the manufactured nature of Washington's crisis. The United States isn't at risk of default because its economy is failing. Its political system is just increasingly dysfunctional, and the most plausible resolution to crisis would be a deal between the White House and Congress. (Reuters)
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The government will have to rein in spending and cut subsidies to meet its fiscal deficit target, the finance minister said on Monday, 7 October, underlining that an austerity drive will not be blown off course by an election due next year.P. Chidambaram told Reuters ahead of a trip to the US - where one stop will be to woo investors on the West Coast - that he will not allow the deficit to cross a "red line" set at 4.8 per cent of gross domestic product this fiscal year."We've issued austerity instructions, it will bring us some savings," he said.The finance minister's vow to contain the deficit means there will be little room ahead of a tough election to spur growth, which has slumped from a double-digit pace in early 2010 to below 5.0 per cent, its lowest in a decade.The government recently introduced a plan to distribute cheap food for two-thirds of the population, a step widely seen as wooing voters ahead of the election. But - without giving details - Chidambaram pointed to food subsidies as one area where spending would need to be addressed in coming months.Along with pallid growth, Asia's third-largest economy is facing stubborn inflation, companies are struggling and bank asset quality is worsening. But Chidambaram shrugged off the risk of a cut in India's sovereign credit rating, which is one precarious notch above junk status."There is no case for a downgrade," he said in an interview at North Block, the sandstone colonial building that houses the finance ministry in New Delhi. "If any rating agency is looking for candidates to downgrade there are half a dozen other countries."The Indian rupee was one of the hardest-hit emerging-market currencies recently amid alarm in financial markets about an imminent "tapering" of the U.S. Federal Reserve's monetary stimulus, falling by about 20 per cent at one point from May.It has recovered somewhat recently, and Chidambaram said the central bank may now be able to consider reversing some of the liquidity tightening steps it took to shore the currency up."If the volatility of the rupee has been contained and speculation has come to an end, the central bank may want to unwind some of the measures it took earlier, he said.On Monday the Reserve Bank of India cut a key overnight interest rate, further dialling back an emergency measure it had imposed in mid-July in order to defend the rupee that had tightened market liquidity and pushed up borrowing costs.Chidambaram said there would be some impact when the Fed's tapering - which was put on hold - does eventually come, but it was now mostly factored into the market and he was confident that speculators had been put in their place."We think we have sent a message to everyone - don't speculate on the rupee," he said."Don't Write Us Off"Chidambaram said the economic downturn was no reason to think that his Congress party, which has been weakened by years of fractious coalition rule and a string of corruption scandals, would be ousted in a national election that must be held by May."Don't write us off so easily," he said, adding that the next leader of the Congress party would be Rahul Gandhi, scion of the Nehru-Gandhi dynasty that has ruled India for most of its 66 years since independence."I am glad you acknowledge prime minister Rahul Gandhi, but that is a question you should put to him," Chidambaram said, when asked if he would serve again in a government led by the party's heir apparent if Congress wins a third straight term in office. "The time has come for the torch to be passed on to a new and younger generation."Chidambaram dismissed the dazzling emergence of opposition figurehead and candidate for prime minister Narendra Modi on the national political stage as "largely media created".He conceded that the Hindu nationalist leader had united the rank and file of the Bharatiya Janata Party and "gained some traction among urban youths", but said the rising political star was someone with a "very, very chequered track record".Modi is widely credited with bringing investment, regular electricity supplies and infrastructure to the state of Gujarat, where he has been chief minister for more than a decade.But Chidambaram downplayed the double-digit growth enjoyed by the coastal state, referring to a new national development index that gave it a middling "less developed" ranking.Modi was chief minister of Gujarat when deadly communal riots raged there in 2002. He has always vehemently denied charges that he turned a blind eye to the violence, and a Supreme Court inquiry found no evidence to prosecute him.Tackling SubsidiesAn urbane Harvard-educated lawyer now in his third stint as finance minister, Chidambaram is widely seen as a business-friendly reformer.However, the weak coalition government of Prime Minister Manmohan Singh has struggled to push through reforms that might correct underlying economic imbalances, such as loosening strict labour laws and implementing a goods and services tax.Chidambaram said a jump in spending on fuel and food subsidies must be tackled sooner rather than later as part of a series of steps to stabilise the economy. India imports nearly 80 per cent of its oil needs and the rupee's drop has made government fuel subsidies more costly."On the government side, sooner (rather) than later we will have to address the issue of higher subsidies than budgeted, on both fuel and food," he said.Last month, the government shied away from raising diesel prices by close to 10 per cent to offset the financial damage Of the weaker rupee. Oil subsidies are now estimated at more than 900 billion rupees - nearly 40 per cent more than budgeted - for the current fiscal year.The finance minister is unlikely to announce sweeping spending cuts, but he said he may rein in spending by some large government departments and would rigidly enforce rules that make it hard for ministries to fully utilise designated funds.(Reuters)
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Finance Minister P Chidambaram will leave for the US tomorrow to attend the annual meeting of the IMF and the World Bank, during which world leaders will deliberate on prevailing uncertainty in global economy. Discussions will also focus on the much-awaited quota reforms that will benefit emerging economies including India. Chidambaram is slated to return on October 16. Reserve Bank Governor Raghuram Rajan and Economic Affairs Secretary Arvind Mayaram, among others, will also be attending the annual meetings. The main meetings are scheduled from October 11-13, 2013 in Washington, while other events will start from October 8. Sources said Chidambaram will meet US Treasury Secretary Jacob Lew on October 13. The Finance Minister will, among other things, pitch for more overseas investments into India, which is facing tough economic conditions. India's economic growth fell to a decade low of 5 per cent in 2012-13 fiscal. In the April-June quarter of the current fiscal, it has expanded by only 4.4 per cent. In a bid to woo foreign investments, Chidambaram will meet Foreign Institutional Investors (FIIs) and hedge fund managers in San Fransisco on October 14, sources said. As per latest data, FIIs have invested USD 7 billion in the Indian equity and debt markets so far in 2013. The visit comes against the backdrop of external sector pressure with the country's foreign exchange reserves dipping by over USD 15 billion since March, 2013 to USD 276 billion as on September 27. Foreign Direct Investment (FDI) into India rose by 12 per cent, year-on-year, to USD 1.65 billion in July. In the same month of last year, the country had received FDI worth USD 1.47 billion. Reforms for increasing voting shares of emerging markets, including India, are also on the agenda of the global leaders. India currently has a voting share of 2.44 per cent in the Washington-based IMF. US has the highest voting share of 17.69 per cent. Some of the other key issues expected to be discussed at the IMF-World Bank meeting include world economic outlook, euro-zone crisis, poverty eradication, economic development and making aid providing efforts effective. Meanwhile, the US - world's largest economy - is grappling with government shutdown amid political slugfest, raising concerns over the possibility of the country defaulting on its debt obligations. In other parts of the world too, including India, China and many European nations, economic situation remains uncertain. Emerging markets are also gearing up to tackle the situation that will arise after the US Federal Reserve starts tapering its easy money regime. Earlier this year, IMF lowered the global growth forecast for 2013 to 3.1 per cent, from the earlier 3.3 per cent. For 2014 also, the multilateral agency has slashed growth forecast to 3.8 per cent, from 4 per cent. (PTI)
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Most of the 400,000 Pentagon staff sent home amid the US government shutdown have been ordered to return to work even as the deadlock over the federal budget between Republicans and Democrats entered its sixth day on 7 October' 2013. US Defence Secretary Chuck Hagel said the decision to recall the Pentagon employees was based on an interpretation of the Pay Our Military Act. A budget row over President Barack Obama's showpiece 'Obamacare' healthcare reform law between Republicans and Democrats has forced the closure of federal services since Tuesday, 1 October. But both sides have now voted to approve back-pay for the 800,000 federal workers sent home without salaries. In a rare moment of bipartisan co-operation, the House of Representatives yesterday approved by 407-0 a bill to pay the federal workers once the shutdown ends. But there is still no sign of any deal on the federal budget or any measure to raise the nation's $16.7 trillion debt ceiling. Neither the House nor the Senate plans to meet again until tomorrow afternoon, meaning the shutdown will have lasted at least seven days. The shutdown has left federal employees on unpaid leave and closed national parks, tourist sites, official websites, office buildings, and more establishments. Congress must act by 17 October in order to avoid a debt default by the US government. The government will run out of cash on that day for the first time in US history unless its debt ceiling is raised. Republicans who control the House of Representatives have refused to approve the budget, saying they would only do so if the healthcare programme was delayed or stripped of funding. Obama and the Democrats have refused, noting the law was passed in 2010, subsequently approved by the Supreme Court, and was a central issue in the 2012 election which Obama won. Obama cancelled his Asia visit because of the shutdown.(PTI)
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Union Finance Minister P Chidambaram justified increase in the prices of rice from the government pool, saying the government paid more to farmers for procuring it. "We pay more for procurement of rice from farmers and naturally the price of rice will go up," he said after inaugurating the 1,459th branch of public sector Vijaya Bank at Tayamangalam near Sivaganga. "Agriculture is the poorvikam (original vocation) of the country and if the farm sector did not prosper...then the country will not prosper," he said. "There is no rule of nature that farmers should remain poor for ever. When the Government provides better price for rice and wheat, naturally their prices will go up," he said. The government was determined to give a good price for the farm produce, he said. Stressing the need to increase food production as per the requirements of the country, he claimed that the agricultural sector had seen excessive growth recently and production of wheat and rice had doubled. He also urged farmers to avail farm loans as it comes at a cheap rate of interest. The UPA government had increased the loans given to farmers from Rs 85,000 crore in 2004 to Rs 7.5 lakh crore in this fiscal to improve the farm sector. The interest on farm loan was just seven per cent and if the principal and interest were paid properly then three per cent rebate was also given, he said. (PTI)
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Indian-American Arun M Kumar has been nominated by President Barack Obama to a key administration post, giving him charge of international trade at a critical juncture when the US is looking to increase its export. Arun M Kumar, till recently a partner and member of the Board of Directors at consultancy firm KPMG, was nominated on 4 October, by Obama to be the Assistant Secretary and Director General of the US and Foreign Commercial Service, International Trade Administration in the Department of Commerce. "The extraordinary dedication these men and women bring to their new roles will greatly serve the American people," Obama said as he announced nomination to several other key administration positions. "I am grateful they have agreed to serve in this Administration and I look forward to working with them in the months and years to come," he said. Kumar joined KPMG in 1995 as a Finance Management Leader. and from 2005 until his retirement in September 2013, he led the firm's West Coast Finance Management Consulting practice. He also led the firm's US-India practice from 2007 to 2013. Kumar received a Bachelors degree in Physics from the University of Kerala in India, and an S M in Management from the Sloan School of Management, Massachusetts Institute of Technology (MIT) in the US. From 1993 to 1995, he was the founder and CEO of Planning & Logic, Inc, a software company. Prior to that, he was co-founder and CFO of Netlabs, Inc from 1991 to 1993; the CFO of Elite Microelectronics, Inc from 1990 to 1991. He also held important positions in several organisations from 1980 to 1990. (PTI)
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British citizens enjoy the widest range of visa-free travel in the world, being able to visit 173 countries with just a passport, while Indians get visa-free or visa-on-arrival access in 52 countries. The UK citizens are at par with those from Finland and Sweden for visa-free access, according to Henley & Partners Visa Restriction Index. Nine out of the top ten in the index are European Union countries, with the tenth being the United States. India figures 74th on the list while Afghanistan comes at the bottom of the table, with only 28 countries available for entry without visa. Iraqi passport holders can go to 31 countries while Pakistan and Somalia are tied at the third from the bottom with 32. According to passport information from the International Air Transport Association ( IATA), 52 countries and territories provide visa-free or visa-on-arrival access to holders of Indian passports. Twenty-eight countries and territories are accessible visa-free. Where visa-free access is permitted, such access is not necessarily a right, and admission may technically be at the discretion of border enforcement officers. Visitors engaging in activities other than tourism, including unpaid work, may require a visa or work permit. Indian citizens do not need a visa to travel and work in Nepal or Bhutan. The country of residence is a factor in determining the visa requirements for Indian passport holders when visiting some countries. For example, an Indian citizen residing in the US holding a permanent resident permit (Green Card) does not need a visa to travel to Canada, Mexico and many countries and territories in the Caribbean. Indian citizens resident in Japan with valid Alien Registration Cards can travel to the Republic of Korea (South Korea) for tourism and short business trips. (PTI)
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Indian employers tend to agree. Many say graduates from homegrown universities are often unemployable because job seekers do not have the skills they want, one reason why New Delhi is trying to fast-track legislation to allow foreign colleges, until now largely shut out of India, to open their own campuses in the country.On the cusp of a boom in its working-age population, India is racing against time to raise the quality of its education to prevent a demographic dividend turning into a demographic curse."It is absolutely urgent," said Tobias Linden, the World Bank's lead education specialist in India. "The people who will make up the youth bulge have already been born. This is not a hypothetical situation. They might just be one, or two, or three years old now, but taking action to help them when they become 18 - those moves have to start now."Over the next two decades, Asia's third-largest economy will add up to 300 million people - the equivalent of almost the entire population of the US - to its workforce.That prospect offers hope that India, struggling now with its weakest economic growth in a decade, can finally follow in the footsteps of the likes of China and the Asian Tigers.A generation ago these countries made good use of their growing workforces, training young people and putting them to work in export-orientated manufacturing, to generate economic growth that was the envy of the world.Best ChanceIndia's working-age population will not peak until 2035, in contrast to China, where the working-age population topped out this year, brokerage Espirito Santo Securities says. Labour forces in South Korea, Taiwan and Singapore will peak in the next five years.Such demographic factors offer India "the most compelling conditions for economic growth the country will, we argue, ever have", the brokerage said in a report. "Yet demographics are not destiny."Attracting foreign colleges to open campuses in India is one solution for a university system that India's planning commission says is "plagued by a shortage of well trained faculty, poor infrastructure and outdated and irrelevant curricula."Despite a surplus of workers, employers across sectors say local universities do a poor job of preparing graduates for working life. None of India's universities feature in the world's top 200, the 2013-14 rankings by the London-based education group Quacquarelli Symonds show, versus seven from China.Many homegrown universities rely on rote-learning and fail to teach the "soft skills" that are increasingly important in India, where the services sector has driven the economic growth of the last two decades, recruiters and students say."We don't learn here - we are just taught to mug up, so it's hard for us when we go out to find jobs," said Singh, an undergraduate at one of the country's largest private colleges, Amity University, referring to the teaching style across India."I'm worried that when I get to my first internship, I won't know how to do anything."Foreign universities have been largely shut out of India, allowed only to open research centres, teach non-academic courses or offer degree courses with a local partner.Now, the government wants to offer them the more lucrative option of opening their own campuses.Catch-UpIndia's ministry of human resources and development is trying to issue what is in effect an executive order, which would leapfrog a bill stuck in parliament since 2010, one casualty of a legislative logjam that has paralysed Indian policymaking over the last two years.Despite scepticism from many institutions that India will be able to change its game with elections looming by next May, some foreign universities are keen to push ahead with campuses."A campus in India has always been our vision and that is our plan," said Guru Ghosh, the vice-president for outreach and international affairs at Virginia Polytechnic Institute and State University, known as Virginia Tech.It is due to launch a research centre near Chennai in spring 2014 and hopes to set up a campus within 3-5 years if the rules change, Ghosh said.Under the proposed rules, non-profit foreign universities in the top 400 worldwide would be able to open campuses. The rules need a final sign-off from the law ministry, which will take up to three months, according to R.P. Sisodia, joint secretary for higher education at the Ministry of Human Resources and Development.While India has dithered, other Asian countries have moved ahead, with foreign universities in Malaysia and Singapore attracting Indian students.Spokespeople for Stanford University, the University of Chicago, Duke University and the U.K.'s University of Northampton told Reuters they had no plans for a campus in India, even though they all have or plan to have research centres or offer courses on a local campus."The environment has not been a welcoming one thus far and people have looked elsewhere," said Vincenzo Raimo, the director of the international office at Britain's University of Nottingham, which has campuses in China and Malaysia. "Anyone who's going to open there (India) needs to be brave."Foreign colleges would only meet a tiny portion of India's demand for places, but their presence would put pressure on domestic counterparts to improve, higher education experts say.To be sure, India's planning commission has set a target of creating 10 million more university places in the next few years and boosting funds for the top domestic universities to try to elevate them to the ranks of the world's top 200 by 2017.If India fails to harness its population boom over the next two decades, its demographics could be "a disaster - not a dividend", Espirito Santo said."A major shortage of jobs in the economy, or a skills mismatch, would create a young, angry and frustrated population," its report said.(Reuters)
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Remittances to developing countries should swell 6.3 per cent this year to $414 billion, flowing from workers abroad to their home countries and helping to offset volatile capital outflows, according to World Bank forecasts released on Wednesday, 2 October.India and China are the two top destinations for flows, making up a third of the total amount. For India, $71 billion in remittances is nearly triple what it received from foreign direct investment last year."These latest estimates show the power of remittances," said Kaushik Basu, the World Bank's chief economist.Remittances have grown steadily for the past three decades as migration increased, with only a slight dip during the financial crisis. Including transfers to high-income countries, remittances should be $550 billion this year.These funds are particularly important as the US Federal Reserve considers whether to pull back its massive bond-buying programme. Even the possibility of a slower pace of purchases prompted destabilizing capital outflows from many emerging markets as investors bet on higher rates in advanced economies.Remittances can help balance the impact of the Fed's taper, Basu said. They also rise when a nation's currency weakens, acting as automatic stabilisers, he said.For Tajikistan, such funds from abroad make up nearly half of its gross domestic product. And they are a third of the economy in Kyrgyzstan, also a landlocked country in Central Asia. In Egypt, an expected $20 billion in remittances this year dwarfs revenue from the Suez Canal.Remittances can also help promote development, and are often the biggest source of foreign finance for developing economies. This year, such global transfers are expected to be almost three times larger than official development assistance from governments, and also top private debt and equity flows.Transfers are growing to all major regions this year, though growth in remittances to Latin America and the Caribbean has slowed, largely because of Mexico.The World Bank still expects Mexico to receive $22 billion in remittances, the fourth largest destination after India, China and the Philippines. But that is down 2.8 per cent from last year, as Mexico has been hit by an economic slowdown in its northern neighbour the US.The World Bank said it remains concerned about the cost of sending remittances, which hurts some of the world's poorest people. The falling cost of technology should have made transfers cheaper, the bank said.But places like sub-Saharan Africa still have high transaction costs, little competition, and few payout locations.The Group of 20 leading economies pledged to reduce the cost of remittances to around 5 per cent by 2014, but that deadline is unlikely to be met as the global average cost is still stuck at around 9 per cent of the amount being sent, the World Bank said.Some banks have also shut down money transfer services because of concerns about money laundering and terrorism finance, as countries like the United States have pressed financial institutions to better monitor cash transfers.Earlier this year, the issue became particularly acute for Somalia, where annual remittances of about $1.2 billion are the biggest source of foreign currency.Barclays said in June it would stop offering banking services to some Somali transfer firms due to fears funds might end up in the hands of "terrorists." Some other banks have taken similar steps.(Reuters)
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