Drawing parallels between the economy and a train, Minister of State for Finance Jayant Sinha said the Modi government inherited a derailed passenger train, but has already converted it into a 'Rajdhani' and would soon make it a bullet train. He also expressed confidence that the Indian economy would continue to grow at 7-9 per cent and double in size to $4-5 trillion in a decade. "The economy that the current government inherited had toxic macro-economic parameters and the present government has tried to change those parameters. The train of development which we inherited was a derailed one and we have put it back on track. We have made the passenger train into a Rajdhani train and in some time, we will convert it into a bullet train," the minister said. "The Indian economy today is a $2 trillion economy. All the actions that our government is taking will enable us to be able to get on the path of sustainable growth of 7 per cent, 8 per cent or 9 per cent," Sinha said at an event in Mumbai. "And if we are able to sustain this growth rate... for a decade... our $2 trillion economy will become $4 trillion or 5 trillion economy, making us the third largest economy in absolute terms," he said. The US economy is estimated to be worth $17 trillion economy while the Chinese economy has a size of about $10 trillion. In terms of Purchasing Power Parity at $4-5 trillion, India will be $17-18 trillion economy, he added. "Because we got fiscal deficit under control, because we got inflation under control, RBI has now got the monetary space to be able to cut rates which means that we are going to get the benefits of the cycle of interest rate coming down," Sinha said at the golden jubilee celebration of All India State Bank Officers' Federation. Sinha said looking at the present level of inflation, the fiscal deficit, the current account deficit, the GDP growth, the observers around the world, whether OECD, the World Bank or IMF, are saying this is the economy which is in good health. (PTI)
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India is planning to convert into equity a 50 billion rupee loan extended by state-run Oil and Natural Gas Corp (ONGC) to its overseas investment arm, sources said, to improve the unit's finances ahead of a possible public offering. Prime Minister Narendra Modi's cabinet will soon consider the deal which would also require raising the authorised capital of the subsidiary ONGC Videsh (OVL) by half to 150 billion rupees, said three sources aware of the matter. With an improved debt-to-equity ratio, OVL would be able to independently raise funds on the strength of its balance sheet instead of relying on ONGC's financial status. ONGC's total loans to OVL stand at about 66.14 billion rupees. The 50 billion loan was given by ONGC to help OVL acquire a stake in a Mozambique gas field. Jagannadham Thunuguntla, head of fundamental research at Karvy Group, noted company restructurings often happen before flotations, adding: "It will give more legroom for additional fundraising by OVL to finance future acquisitions." ONGC did a similar loan-to-equity conversion for OVL in 2013, which has invested about $23.8 billion on its exploration and production assets in 17 countries. OVL Managing Director N.K. Verma declined comment on the latest cabinet proposal but said: "In the past we had contemplated converting part of the debt into equity to improve our balance sheet and provide flexibility for financing new acquisitions". The oil ministry has asked ONGC to consider a stock market listing of OVL, though a company executive said in May it would favour delaying such a move given low oil prices. Any listing would help ONGC raise funds from the market and increase payouts to the government, which is looking for 695 billion rupees through stake sales in state companies to help narrow the fiscal deficit to 3.9 percent of gross domestic product from last year's 4 percent. (Reuters)
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India’s massive postal network is likely to turn into payment banks by late next month, reaching out to the unbanked section of the society under Prime Minister Narendra Modi's Jan Dhan programme. Top officials said they expected the Reserve Bank of India to grant a payment bank licence to India Post, reports The Telegraph. A payment bank accepts deposits only. The credit part is handled by other banks on behalf of the payments bank. The postal department has decided to rope in professionals from the private sector for top positions at Post Bank of India (PBI). The Indian postal network has 1,54,822 post offices. Of these, 1,39,086 are in rural areas and 15,736 in urban regions. India Post's entry into the banking space will impact rural banking because of its massive reach in small towns and villages of the country. The proposed PBI may also get listed on bourses to raise funds, according to the Department of Posts (DoP). The postal banks are proposed to be owned by the DoP but with an independent board, governance structure and operations. It will have representation from the ministries of finance and communication and IT. The postal department plans to start 50 bank branches in the first year and scale it up to 150 in five years. In 2014, Modi had set up the task force to leverage the postal network and to enhance the role of India Post in financial inclusion, among other services such as the delivery of goods for e-commerce firms. In December, the task force had submitted its report to telecom minister Ravi Shankar Prasad. It noted that with its Rs 6 lakh crore in deposits, India Post is second only to the to the country’s largest bank State Bank of India (SBI). The postal department, which has been relegated into oblivion by private courier companies and the spread of the Internet, is suffering losses of over Rs 6,000 crore annually. However, post office savings schemes and money order windows remain popular. Rural post offices, which account for nearly 90 per cent of the network, cover large parts of the country where bank branches are absent. According to a report in The Hindu, India Post already runs the post office savings bank account, which handles cash worth Rs 6 lakh crore per year across 28 crore accounts. The service has also been quite successfully handling cash payments in the Mahatma Gandhi National Rural Employment Guarantee Act — nearly 5.6 crore MGNREGA accounts, and wages amounting to nearly Rs. 10,000 crore have been disbursed to beneficiaries through 97,709 post offices across the country. Of the three main building blocks of financial inclusion — cash storage, disbursing payments, and giving credit — India Post has already shown that it is quite capable of handling the first two. Allowing India Post to undertake regular banking functions would serve two objectives. First, it would make the institution more viable than it is at present on account of its being restricted to loss-making postal operations. Second, its unique outreach would equip it to serve social objectives. Internationally, there are a few countries which have tapped the postal institution for extending financial inclusion. For instance, in Brazil, financial inclusion got a boost after Brazil Post formed a partnership with financial institutions.
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The Commodity Participants Association of India (CPAI) says that the proposed merger of the Forward Markets Commission (FMC) with the Securities and Exchange Board of India (SEBI) will boost the prospects of commodity market in India. “Commodity volume will rise after the merger and India can be a commodity hub,” V.D. Aggarwal, founder president of CPAI said on May 30. He was speaking at CPAI’s fourth international conference in the capital. The merger of two regulators was proposed by the finance minister as part of the Budget. The government is already in the process of finalising the formalities for the merger of commodity derivatives market regulator FMC and SEBI by September. Last month the FMC authorities met representative of three leading commodity exchanges MCX, NCDEX and NMCE and asked them to complete pending work relating to auditing of members and other procedures. "Consumers, traders and brokers will also benefit in this process and it also will play a role in ‘Make in India’," Aggarwal said. The CPAI has emerged as the only registered member organization of all the commodity brokers of national commodities exchanges, recognized by the FMC as the "voice of commodity futures market and its participants". The association reaches out to all the participants of commodity futures market and involve them in the growth and development of the commodity market to fulfil its mission of “Transforming Rural Economy Into Global”. The CPAI wants to develop sound business practices, maintain an ethical code of conduct and help implement standard principles for commodity broking activities. It hopes to play the role of an intermediary between government, regulators and members in the interest of industry as a whole. At present, more than 2,000 commodity brokers with their reach in more than 1,000 towns and cities of India serve agricultural producers, consumers and market participants through 200,000 online terminals. Coal minister Piyush Goyal, who attended the event, described the one year of NDA government as a systematic approach towards sustainable development. He said, “The prime minister doesn’t believe in quick-fix populist measures and was laying a foundation stone for strong India.” He said the world is looking towards India as a safe destination for investors, businessman and tourists.
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The Reserve Bank of India is set to cut interest rates on Tuesday for the third time this year as inflation has eased enough to allow the central bank to provide more help for an economy seen struggling with patchy economic growth. India is the fastest-growing major economy in the world, outstripping China, but economists say the data is not consistent with other indicators showing slack in Asia's third largest economy. "There is a possibility of recalibration of (policy) rate as inflation is in the negative territory," Indian Banks' Association Chairman T.M. Bhasin told PTI. Echoing similar views, United Bank of India MD and CEO P Srinivas said: "I expect a 0.25 per cent rate cut as retail inflation is better now. If they do not cut rate now, it will be very difficult for them later once El nino effect comes in. There is a need for a rate cut to boost growth." A Reuters poll showed 35 of 48 economists expected the RBI to cut the repo lending rate by a quarter percentage point to 7.25 per cent after lowering it by the same amount in January and again in March. Three expected a 50 basis point cut. A rate cut would need to be accompanied by steps to boost liquidity, according to bankers who say tight cash conditions are preventing them from lowering lending rates. Still, the RBI could temper any action with measured language, given concerns about lower-than-expected rainfall in the monsoon season and uncertainty about when the U.S. Federal Reserve will start raising interest rates. The RBI has also made rate cuts contingent on government action to deliver substantial reforms, such as fixing the country's creaky infrastructure. That has sparked uncertainty now that Prime Minister Narendra Modi's administration is struggling to pass major measures through parliament. "We expect the RBI to cut the repo rate by 25 basis points, but the tone of the statement will be cautious on the inflation trajectory," said Soumya Kanti Ghosh, State Bank of India's chief economic adviser. Since the RBI held rates steady at its last policy review in early April, consumer price inflation has eased to a four-month low of 4.87 percent, in line with the RBI's mid-term targets. Analysts argue inflation data should give the RBI enough comfort to cut rates again and reverse the three rate hikes delivered by Governor Raghuram Rajan from September 2013 to January 2014 when India was suffering from double-digit inflation. Instead, economists say bolstering growth should become the bigger imperative given dismal corporate earnings, weak industrial activity, and an elusive recovery in bank credit. India's economy grew 7.5 percent in the January-March quarter from a year earlier - faster than China's 7 percent expansion - but economists have raised questions about the accuracy of a new method to measure economic activity. Further rate cuts would put India in a similar monetary path to China, which earlier this month cut interest rates for the third time in six months. Bankers are also lobbying for smaller measures to free up cash in the financial system, including easing the amount of funds that must be locked up at the RBI every day. Rajan has expressed frustration that banks have yet to substantially cut their lending rates, disrupting monetary policy transmission. (Agencies)
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The government wants to list ONGC Videsh, the overseas arm of top oil explorer Oil and Natural Gas Corp, a company executive said. "We have received a letter from the ministry on listing of ONGC Videsh," the executive said, adding the divestment department of the finance ministry was pushing for a sale. The executive did not wish to be named as the matter is not public. He added that ONGC executives would favour delaying a listing, given current low oil prices. ONGC said on Thursday it expects current-quarter profit to be boosted by an interim rule change on discounts offered by upstream oil companies to state retailers. ONGC, majority-owned by the government, reported net profit down nearly a fifth from a year earlier to 39.35 billion rupees ($616 million) in its fiscal fourth quarter to March 31, missing analysts' estimates averaging 54.91 billion. India keeps a lid on retail prices of liquefied petroleum gas and kerosene to tame inflation, with upstream companies such as ONGC and Oil India offering discounts on crude sales to help cut the losses of state refiners. For the June quarter, the oil ministry has set interim rules to exempt upstream state firms from giving any discounts on crude and refined fuels if global oil prices average up to $60 a barrel this quarter. Asked if that would help his company post a higher profit for the quarter, ONGC Chairman D.K. Sarraf said: "Definitely yes, because I am assuming a price of at least $60 internationally which is very good." Brent crude oil prices are currently hovering around $61 a barrel. For prices above $60 a barrel the companies will have to give a discount of 85 percent of the incremental oil price increase and the discount will rise to 90 percent for prices beyond $100 a barrel. ONGC did not have to pay any discount in the March quarter as crude prices fell sharply and the government was working on new subsidy rules as part of broader reforms in the sector. Still, its net profit was lower than a year earlier due to higher costs and tax outgoings. (Reuters)
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India's government and businesses are pushing for an interest rate cut next week even though data on Friday may show output is expanding faster than China's, in the latest sign of concerns that the figures are masking weaknesses in the economy. Gross domestic product (GDP) in the three months that ended in March likely grew 7.3 per cent from a year earlier, a Reuters' poll of economists found, outpacing China for the second straight quarter. But New Delhi, worried that companies are not investing enough and that a period of low inflation may be short-lived, is nudging Reserve Bank of India Governor Raghuram Rajan to lower lending rates from 7.5 per cent at a policy meeting on Tuesday. The government's position reflects nagging doubts that a new way of measuring GDP introduced earlier this year, which boosted growth by several points, may have distorted the macroeconomic view. For example, economists say weak corporate earnings and five months of falling merchandise exports - which make up about 16 percent of the nearly $2 trillion economy - are not reflected in the robust GDP figures based on the new methodology. "We are not experiencing a high level of growth if you look at a variety of high-frequency indicators," said Rahul Bajoria, an economist at Barclays. Bajaria said he expected a 25 basis-point rate cut at the June 2 meeting and said the RBI had a short window to help encourage growth. "In the second half, inflation may pick up," he said. For the 2014/15 fiscal year growth is expected at 7.4 per cent, up from 6.9 per cent in 2013/14, using the new series. On Wednesday, Rajan met Finance Minister Arun Jaitley, who has publicly favoured a rate cut, citing falling inflation. The government's chief economic advisor Arvind Subramanian said this week that India needs to take action to keep its currency competitive in view of aggressive rate cut policy of China and other countries. "It is not that everything that China does should be imitated but that's a lesson we need to learn from... Remember China is now cutting interest rates quite aggressively to respond to its growth slowdown and that's going to make its currency more competitive... So we need to respond accordingly," he said. The RBI has already cut rates twice this year after inflation fell within its comfort zone, but it left them unchanged in April. "We expect RBI should cut interest rates by 25 basis points. After that they will probably wait for the monsoon data before deciding whether there is more room for rate cut," Bajoria said. Wait And WatchPrime Minister Narendra Modi, who completed one year in power this week, has taken steps to reduce corruption and opened more sectors for foreign investors -- contributing to a 39 percent jump in foreign direct investment in India last year. A sharp drop in energy prices has brought down retail inflation and freed up government resources to spend on roads, ports and railways - measures aimed at reviving Asia's third largest economy in the medium term. If Friday's GDP number matches the forecast, it will be lower than 7.5 percent growth in the previous quarter, and the lowest in three quarters. For now, consumers are deferring spending. Along with lower rates, corporates, who have not yet pumped much investment in new projects, hope to see labour, land and tax reforms. In May, the MNI India Business Sentiment Indicator, a gauge of the sentiment among companies listed on the BSE bourse, dipped to pre-Modi government levels of 62.3 from 63.9 in April, a Deutsche Borse survey said on Wednesday. Many investors, however, remain optimistic. "We believe that the combination of sustained reforms and our expectation of further rate cuts will help drive a steady acceleration in capex growth," Morgan Stanley said in a note to it clients on Wednesday. (Agencies)
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The Reserve Bank of India (RBI) is likely to cut its benchmark interest rate by 25 basis points to 7.25 per cent when it meets early next week and make a similar move before December, according to the results of a Reuters poll. That would put India on a different path to the United States, where the Federal Reserve is widely expected to begin tightening policy later this year. The RBI has taken the precaution of building up currency reserves in case markets turn volatile amid the impending divergence. The survey found 38 of the 48 economists polled expected the RBI would cut the repo rate at the June 2 meeting, with 35 of those expecting a 25 basis points cut. "Real interest rates remain very high now because of exceptionally low inflation. This gives justification for the RBI to undertake cuts" said Vishnu Varathan, senior economist at Mizuho Bank. The RBI has already cut rates twice this year as inflation fell within its comfort zone but left them unchanged in April as it waited to assess inflationary pressures and to give banks more time to reflect the earlier cuts in their lending rates. Their reluctance to cut has been frustrating for RBI Governor Raghuram Rajan. Happily for the RBI, low oil prices have helped India enter the monsoon season with inflation well below the 6 per cent upper-end of the bank's target range, making it better placed to handle upward pressures in food prices if disappointing rains lead to poor crops. Thanks to a change in statistical methodology, India's economic growth overtook China's in the October-December quarter. But data for the January-March quarter, due to be released on Friday, is expected to show weaknesses that make another rate cut later in the year highly likely. Median forecasts from the poll showed another 25 basis point cut in the repo rate was likely between October and December. Banks' cash reserve ratio - which has been at 4 per cent since early 2013 - was expected to remain unchanged until at least June 2016, the end of the poll's forecast horizon. Reforming RoleWhile Prime Minister Narendra Modi's government has inspired optimism about reforms since sweeping to power a year ago, one of the main reasons why India's growth numbers look better was a statistical revamping of the GDP data series earlier this year. Pinning hopes on adequate food grain stock helping to keep inflation under control even with below-normal monsoon, the government's chief economic advisor Arvind Subramanian on Tuesday pitched for rate cut by the RBI next week to boost growth. Subramanian said the buoyancy in tax collections during April was indicative of GDP growth bettering to about 9 per cent in the current fiscal, from 7.4 per cent a year ago. Drawing parallel with China, Subramanian wanted the RBI to cut interest rates so as to help depreciate the domestic currency to make Indian exports competitive and aid Make in India campaign. Data due on Friday for the final quarter of last fiscal year is expected to show India's economy grew 7.3 per cent, slightly slower than the 7.5 per cent growth in the previous October/December quarter. Growth for 2014/15 is expected at 7.4 per cent, higher than 6.9 per cent recorded for prior fiscal year. Although the GDP growth figures look impressive, economists have noted a lack of investment, subdued growth in bank lending growth, weak capacity utilisation and potential weakness in consumption. However, analysts are confident reforms, such as allowing more foreign investment in insurance and mining, would contribute significantly to growth this fiscal year. When asked, 24 analysts said they were 'confident' and five 'very confident' reforms would bear fruit. Four said 'not confident' and only two said 'not confident at all'. "As reforms continue and monetary conditions turn more accommodative, we expect economic activity to pick up," said Anurag Jha, economist at Citibank. (Agencies)
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