Monsoon was less than average for a second straight week but with summer crops such as rice, cane, soybean and cotton well established after swift planting in a heavy start to the season, an early end to the rains should not create problems. Rainfall was 30 per cent below average in the week ending September 4 compared with 29 per cent below the previous week, the weather office's latest data showed on 5 September. The monsoon rains usually start retreating from western India by mid-September, but this year they could lift earlier. Summer crops do not need heavy rains at this stage of growth but just sporadic showers to aid the maturing process. The monsoon, vital for 55 per cent of Indian farmland that does not have irrigation, was the heaviest in nearly two decades during the first half of the season with the fastest ever coverage of the country - almost a month ahead of schedule. The ample rains from the beginning of the monsoon season in June make bumper harvests likely and that will mean higher rural incomes in the world's second most populous country, which could improve retail sales and help rural growth. India, one of the world's biggest producers and consumers of farm commodities, is heavily reliant on the annual monsoon for its huge harvests of rice, sugar and cash crops like cotton.(Reuters)
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Opposition today (5 September) attacked Finance Minister P Chidambaram for blaming his predecessor for the ills facing the economy and told the government to get out if it cannot rescue the country from the "irretrievable" situation created by its "incompetence and corruption".Initiating a discussion in the Lok Sabha on the Supplementary Demands for Grants (General), BJP leader Ananth Kumar dubbed Chidambaram as 'anartha shastri' (expert in creating chaos) and held him responsible for the current economic situation which was "irretrievable"."If they are not capable of leading...govern or get out....The people's dreams of a robust and prosperous economy have been ruined by the incompetence and corruption of this government," he said.While the economy is in a "mess" with high inflation, fiscal deficit and current account deficit, the government has been blaming the opposition, the BJP, as also outside supporters like SP and BSP, apart from the UPA constituents."The UPA had earlier created jobless growth. Now there is no job, no growth. It is in fact negative growth," he said.The Finance Minister had recently blamed his predecessor for the problems in the economy, Kumar lamented, saying Chidambaram "owes an explanation to the country for his comments. ... People have now started calling him 'anartha shastri'".Chidambaram's predecessor was Pranab Mukherjee, who is now the President.The BJP MP attributed the problems facing the economy to the stimulus package announced by Chidambaram in his earlier tenure as Finance Minister in 2008-09, which started "the beginning of the fall of the Indian economy."He also made a strong plea to lower the income tax rate from ten to five per cent to give relief to 3.5 crore households who earned less than Rs five lakh per annum and have been hit hard by rising prices.(PTI)
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Russia and China warned on Thursday (5 September) that the end of the US Federal Reserve's bond-buying programme could have a profound impact on the global economy and urged caution.Speaking ahead of the start of the Group of 20 summit, when economic issues and Syria will top the agenda, host Russia and China, the world's second largest economy, made clear their concerns about the widely expected 'tapering' of the Fed's multi-billion dollar monetary stimulus policy.Zhu Guangyao, China's deputy finance minister, urged the United States to be "mindful of the spillover effects and work to contribute to the stability of the global financial markets and the steady recovery of the global economy."But, briefing reporters ahead of a meeting of the BRICS emerging markets caucus during the G20 talks, Zhu played down the possibility of a bailout for any country in financial difficulty.The country hardest hit, India, has not approached the other BRICS - which include India and South Africa - despite issuing a public appeal last week for joint forex intervention after the rupee tanked, Russia's summit coordinator Ksenia Yudayeva said."We didn't agree on specific measures yet," Yudayeva told a separate briefing, adding that the picture would be clearer when G20 finance ministers meet again in October."The countries that have faced the biggest recent capital outflows also have quite weak fundamentals," she said, suggesting that both domestic and international factors were at play in the most troubled economies.Chairman Ben Bernanke triggered a selloff in emerging market currencies, stocks and bonds and a flight to the dollar when he in May raised the possibility of winding down the Federal Reserve's $85 billion per month bond-buying programme.The Fed is widely expected this month to take its first steps to reduce the extraordinary monetary stimulus, with potentially huge implications for a global financial system that has come to depend on a cheap and abundant supply of dollars.India also expressed concern about the end of the monetary stimulus programme.Arvind Mayaram, economic affairs secretary at India's ministry of finance said: "I think there should be a very strong statement on the G20 having a consensus on the concern about the spillover effects."I think if a strong statement is made on these two points, it will have a major calming impact on the markets in the emerging economies," he told reporters ahead of the summit.(Reuters)
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The rupee rallied and shares surged on Thursday (5 September) after the Reserve Bank of India chief unveiled a slew of measures to support the ailing currency and open markets, providing a shot of confidence for investors unnerved by the country's worst economic crisis in two decades.The rupee rose as much as 2.3 per cent to 65.53 per dollar, well off the record low 68.85 hit on 28 August.The Nifty rose as much as 3.3 per cent, propelled by lenders such as HDFC Bank, which surged after the new measures included increasing overseas borrowing limits for banks.However, amid the euphoria over RBI Governor Raghuram Rajan's strong Wednesday debut, economists warned he cannot by himself solve the challenges in an economy facing a sharp growth slowdown and a record high current account deficit, which have fueled a 16 per cent slide in the rupee so far this year.The government has failed to push through politically tough reforms needed to fix the economy, and elections due by next May instead raise the prospect of expensive populist spending that could threaten the country's sovereign credit rating, which is one notch above junk status."To a certain extent, the recent rupee tumble and instability in the financial markets, has been a crisis of confidence. To that end, the path of action provided by the new governor and the stress on keeping communications predictable and consistent will be a welcome move," Radhika Rao, an economist at DBS in Singapore, said in an email to clients."Still, the external drivers of the rupee weakness will continue to dictate the momentum, along with the urgent need to address domestic structural pitfalls - fiscal and current account deficits, along with reviving investment activity."At least for Thursday (5 September), Indian markets reflected the optimism placed on Rajan, a former chief economist at the International Monetary Fund who unexpectedly unveiled a flurry of proposals in his first day at the helm of the central bank.In terms of action to prop up the rupee, the measures included providing exporters and importers more flexibility in hedging their forward currency contracts, as trading firms had long complained about regulations that left them unable to quickly cope with rapid currency movements."The statement is impressive and a must-read, in our view," Deutsche Bank said in a note."India's myriad cyclical and structural impediments will continue to hold back the economy for the time being, and risks of a deeper crisis are non-trivial, but (Wednesday's) statement shows a fresh and cohesive vision of monetary and financial sector policy from a newly appointed central bank governor can shine a much-needed light on India's promise and potential."India's defence of the rupee has so far relied on controversial steps taken by the RBI, which have included draining cash from the market, raising short-term interest rates and imposing capital controls on resident Indians.Investors have expressed little faith that the government can push through substantial reforms, such as a hike in subsidised fuel prices, that could help revive confidence in the economy.Asia's third-largest economy is suffering from a dearth of investment and sharp slowdowns in the manufacturing and services sectors.(Reuters)
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The move by the Reserve Bank of India to offer concessional swap rates to banks to raise dollar deposits from non-resident Indians could raise up to $8-$10 billion, Bank of America-Merrill Lynch says, as it removes the currency risk away from banks or citizens abroad.The RBI will swap FX-denominated foreign currency non-resident bond (FCNRB) deposits with tenures of 3 or more years at a fixed hedge cost of 3.5 per cent a year until 30 November.Banks are raising these deposits from NRIs at Libor/swap rate of +400 basis points, which works out to a cost of mobilising FCNRB deposits at about 8.5 per cent and with lending at 11 per cent, it will enable banks to enjoy a 250 basis point spread as these deposits will not qualify for CRR or SLR status for now, BofA-Merrill says.Separately, Morgan Stanley estimates that the measure could raise an additional $5-$10 billion from NRIs.(Reuters)
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Indian Prime Minister Manmohan Singh on Wednesday, 4 September called for an "orderly exit" from unconventional monetary policies being pursued by the developed world for the last few years to avoid damaging growth prospects of the developing world. In a statement before leaving for the 8th G-20 Summit in the Russian city of St.Petersburg, he also underscored the importance of the grouping of industrialised and major developing economies to promotes policy coordination among major economies in a manner that provides for a broad based and sustained global economic recovery and growth. The Prime Minister made a reference to orderly exit from unconventional monetary policies in the backdrop of splits between emerging markets and the US over its winding down of stimulus and the slowing growth of India and other four BRICS countries. Singh said though there are encouraging signs of growth in industrialised countries, there is also a slowdown in emerging economies which are facing the adverse impact of significant capital outflow. "I will emphasise in St. Petersburg the need for an orderly exit from the unconventional monetary policies being pursued by the developed world for the last few years so as to avoid damaging the growth prospects of the developing world," he said. Brazil, India, Russia, China and South Africa--grouped in the informal BRICS bloc seen as an alternative economic powerhouse--all go into the meeting experiencing slowing growth, embattled currencies and huge capital outflows. The Indian rupee has lost one-fifth of its value against the US dollar this year following major capital outflows triggered mainly due to the moves by the Fed Reserve. India is also suffering a decade-low growth and GDP rose just 4.4 per cent in the first quarter this fiscal, the weakest performance since 2009. Singh said he will once again emphasise at the Summit that the G2-0 should ensure primacy of the development dimension in his deliberation, focus on job creation, promote investment in infrastructure as the means of stimulating global growth and create potential in developing countries to sustain higher growth in the medium term. The Prime Minister said it is also important that G-20 encourages and promotes policy coordination among major economies in a manner that provides for a broad-based and sustained global economic recovery and growth. India has been an active participant in this endeavour as co-Chair of the Working Group on the "Framework for Strong, Sustainable and Balanced Growth". "There is also an urgent need to reform institutions of global political and economic governance. I am happy that the Russian Presidency has paid special attention to these issues in the G-20 agenda this year, particularly through a new financing for investment initiative," he said. Singh noted that the Summit comes at a time when India has introduced several reform measures and taken steps to strengthen macro-economic stability, stabilise the Rupee and create a more investor-friendly environment. "At the same time, a stable and supportive external economic environment is also required to revive economic growth. The G 20 Summit, therefore, is an important forum to seek an international climate that is beneficial for all countries," he said. The G20 accounts for 90 per cent of the global economy, 75 per cent of global trade and two-third of the world population. Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, Indonesia, India, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the UK, the US and European Union. India's concern over the rout of the rupee is to some extent reflected by its efforts to seek support from other emerging economies for coordinated intervention in offshore foreign exchange markets. On the sidelines of the St Petersburg summit, the BRICS leaders are expected to work for a consensus on creating a USD 100 billion currency reserve fund to help ease short-term liquidity pressure and safeguard financial stability of major emerging economies. The BRICS bloc is also reported to have agreed on the capital structure for a proposed development bank that aims to reduce their reliance on Western financial institutions. The bank is likely to have 50 billion USD as initial capital. (PTI)
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Gold futures jumped more than 2.5 per cent on Tuesday, 3 September as continued weakness in the rupee made the dollar-quoted yellow metal expensive, while importers remained on the sidelines as they awaited fresh guidelines from the federal government.At 1310 IST, the most-active gold contract for October delivery on the Multi Commodity Exchange (MCX) was 2.01 per cent higher at Rs 33,730 per 10 grams. The contract had struck a peak of Rs 35,074 last week.The rupee, which extended losses to near a record low, plays an important role in determining the landed cost of the dollar-quoted yellow metal.In the physical market, gold traders awaited operational guidelines from the customs department, after a five week halt in shipments, which drove premiums higher."There is no demand from anywhere and imports are zero," said Haresh Acharya, head of bullion desk, Parker Bullion in Ahmedabad.Silver contract for September delivery on the MCX was 2.46 per cent higher at Rs 56,305 per kg.(Reuters)
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The rupee slid a little closer on Tuesday (3 September) to a record low struck against the dollar last week, as share markets weakened and investors remained doubtful whether the government would act decisively to restore confidence in the economy.With crude oil prices rising due to fears about a potential US military strike on Syria, economists have called for an increase in subsidised fuel prices to help address concerns over a record high current account deficit and a fiscal deficit that is among the highest of all the major emerging market economies.Markets are keenly waiting to see how former International Monetary Fund economist Raghuram Rajan will handle the defence of the rupee once he takes over as governor of the Reserve Bank of India on Thursday, having previously beeen an advisor to the finance ministry.As elsewhere, traders were also cautiously waiting for US jobs data due out on Friday (31 August) that could effect expectations about when the Federal Reserve will start tapering its monetary stimulus. The prospect of less easy money from the United States has caused a exodus from many emerging markets over the past few months, but India has fared worse than most because of its precarious deficits.The RBI's rupee defence has so far rested largely on draining money markets, but the rupee has still lost over 19.5 per cent against the dollar since the slide began in early May, and higher short term interest rates have raised borrowing costs for struggling corporates at time when the economy's slowdown has become more acute.The partially convertible rupee traded at 67.20 per dollar by afternoon trade on Tuesday (3 September), weakening from its close of 66.00/01 on Monday (2 September), and not far from the record low of 68.85 hit on 28 August.The rupee was impacted by gains in the dollar on international markets and falling domestic shares.The broader Nifty fell more than 2 per cent on Tuesday (3 September) on profit-taking snapping a three-session winning streak to Monday when it ended at a 2-1/2 week high.Technicals suggest the rupee could fall further after a period of relative range-bound trading since striking the record low last week.Offshore traders see the rupee staying near the record low with one-month contracts for non-deliverable forwards trading at 68.30.India is suffering from a dearth of investment, and the measures taken by the government so far have failed to convince investors to put more money into an economy, which is growing at a dangerously slow pace given India's demographics.SubsidiesWith a national election due by May, there are doubts whether Prime Minister Manmohan Singh's minority government would be ready to take unpopular steps like raising subsidised fuel prices. Earlier this week, lawmakers derided a proposal from Oil Minister Veerappa Moily to close petrol pumps at nights.India has unveiled measures to curb gold imports and announced gradual diesel price hikes, but economists say more are needed."Small hikes in fuel are not going to make up for the losses of oil companies. The government will have to raise prices to send a clear signal to investors, because if they do not meet the fiscal deficit target, it will be negative for the economy," said Rupa Rege Nitsure, chief economist at Bank of Baroda.Data released on Friday (30 August) showed the economy had grown by a worse than expected 4.4 per cent in the April-June quarter, adding to fears that growth this fiscal year will come in below the decade low growth of 5.0 per cent notched in the fiscal year that ended in March.Investors worry the government is more focused on expensive, populist measures that will make it hard for India to meet its target of bringing the fiscal deficit down to 4.8 per cent of gross domestic product this fiscal year.On Monday, the upper house of parliament approved a scheme, that will cost an estimated $20 billion, to provide subsidised grains to the poor."The government is trying to rationalise subsidies on one front, but has also approved the food security bill simultaneously, raising concerns over whether the government is really committed to meeting its fiscal deficit target," Nitsure said.(Rueters)
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