The Reserve Bank of India (RBI) is expected to raise its key policy rate by a further 25 basis points next week after inflation quickened in June and may hike once more by the end of the year, before pausing its long tightening campaign, a new Reuters poll shows.Expectations that the repo rate will peak at 8 percent by end-2011 are largely unchanged from a previous forecast in mid-June, and hinge largely on whether persistently strong price pressures in Asia's third-largest economy will soon begin to abate.India's wholesale price inflation quickened in June to an annual 9.44 per cent from 9.06 per cent in May, driven by higher prices for manufactured goods and fuel, even as the economy showed signs of cooling.Of the 23 analysts polled, 11 respondents expect the repo rate to rise by a total of 50 basis points (bps) by the end of the year, peaking at 8 percent.Nine of the respondents expect the Reserve Bank of India to pause its rate hike cycle after raising the repo rate to 7.75 percent in July. Only 4 expected the RBI to take a break in September and raise rates again by December."We should start seeing signs of inflation stabilising in the next 2-3 months because there will be a lagged impact of the global commodity price correction," said Sonal Verma, a Mumbai-based economist at Nomura who expected the RBI to pause after a 25 bps rise next week."And of course the slowdown we are seeing in India will also have some positive impact," she said.The RBI projects inflation will moderate to 6 per cent by end-March 2012. It said in May that it expected inflation to cool down after September, adding to analysts' expectations that the policy tightening cycle will end this year.The RBI has raised rates 10 times since March 2010 as it battles stubborn price pressures, including a quarter-point increase last month, ranking it among the most aggressive central banks in the world.Still, India's most widely watched inflation reading has remained elevated and well above the RBI's comfort zone of 4.0-4.5 percent since the beginning of the year, cementing the need for more monetary tightening despite signs of a slowdown in the economy.India's industrial output rose at its weakest pace in nine months in May, the latest sign that growth was cooling.While the most likely scenario is for the RBI to raise rates by another 50 bps before hitting the pause button, two analysts expected the RBI to raise rates by another 75 to 100 basis points by June."Local fundamentals - still elevated inflation amidst some signs of growth moderation - validates the case for further rate hike by the RBI," said Anubhuti Sahay, economist at Standard Chartered Bank."However, global uncertainties need to be watched out closely as a significant deterioration therein can force a reassessment of monetary policy response," she said.Another Reuters poll last week showed that analysts have scaled down their growth expectations and raised inflation forecasts for the Indian economy, compared with their outlook just 10 weeks ago.The median estimate of more than 20 economists for 2011/12 growth eased to 7.9 percent from 8.3 percent in the previous poll in May. Their inflation forecast is now at 8.5 percent for 2011/12 from 7.7 percent in the previous poll.Still, they expected rates to peak at 8 percent by end-2011, noting that more than a year of tightening was already crimping investment and consumption.(Reuters)
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The Swiss Central Bank has estimated the total liabilities of Swiss banks toward Indian accout holders at about $2.5 billion in 2010 as against the $1.5 trillion figure projected by some political parties and non-governmental organisations."The Swiss National Bank can only say that liabilities of Swiss banks toward Indian holders according to our annual statistics... were Swiss francs 1.945 billion (USD 2.5 billion( in 2010," the spokesperson for the Swiss National Bank President, Walter Meier, told PTI.He said the liabilities of the Swiss banks toward Indian account holders was 1.965 billion Swiss francs ($2.7 billion) in 2009 and 2.4 billion Swiss francs (about $3 billion) in 2008.In the aftermath of the financial crisis that engulfed the West after the collapse of Lehman Bank in the United States in 2008, Swiss private banks, particularly their largest bank UBS, had suffered huge losses.Subsequently, there were substantial withdrawals of funds from Swiss banks.Several legal cases against Swiss banks, especially UBS, for parking funds illegally subscribed by wealthy US citizens through tax evasion, as well as growing international pressure from the Paris-based OECD (Organisation for Economic Cooperation and Development) and G-20 financial regulations forced the Swiss government to considerably relax confidentiality provisions for numbered accounts.In an attempt to ward off possible censure by the G-20 leaders, the Swiss government has gradually relaxed its banking secrecy laws that provided the extreme forms of client confidentiality until two years ago.Following the Paris-based Organisation for Economic Cooperation and Development's (OECD) report about a list of "uncooperative" countries such as Switzerland, Luxembourg, Austria and Liechtenstein, among others, to the G-20, there was a panic reaction.The OECD formulated a set of strong rules and standards to curb banking secrecy laws in offshore tax havens, including the Isle of Man, Hong Kong, and Singapore, along with Switzerland, Liechtenstein Monaco, Austria and Andorra.Unconfirmed reports suggested that several Indian companies and private holders have moved funds from Switzerland to Singapore following the financial crisis in 2008.But the recent trends suggest that Switzerland continues to attract funds on a huge scale. The Swiss franc and its banks are now in robust health even as other industrialised countries are drowned in unprecedented fiscal crises."The strengthening of the Swiss frank against all major currencies over the last one year is a clear sign that funds are coming back to the Swiss banks," said an Indian banker in Geneva, preferring anonymity.Walter Meir said the Swiss government is holding negotiations with the governments on the proposal of having a "withholding tax" on assets held by foreign entities in Swiss banks, suggesting that he doesn't have any information about India looking at a similar arrangement.(PTI)
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Tutorial services provider Career Point Infosystems saw a dream market debut on Wednesday as investors bet on robust growth outlook for the Indian education sector, though analysts viewed it as an expensive buy.Shares in Career Point more than doubled on listing, to end almost 104 per cent up at Rs 632.35 in a Mumbai market that rose 0.66 percent. Nearly 15 million shares changed hands, making it one of the most active stocks on the Bombay Stock Exchange.Rajasthan-based Career Point provides tutorial services for various entrance examinations, including the highly competitive engineering and medical exams for admission into India's premier colleges.Although the company has a niche play in terms of service offering, it is focused only in a particular region, which may hurt its growth avenues in the near term, Angel Broking analyst Shristi Anand said.The company's revenue outlook of Rs 830-840 million and Rs 250 million in profit this year makes its 12-month forward price to earnings ratio "very high" at about 40, Anand said."Tutorial services business is too localised. For them to go pan-India, it will take some time to establish leadership. So we would suggest exit by taking the listing gains," she added.Career Point, which raised Rs 1.15 billion through the public issue, intends to utilise the proceeds to meet costs of construction and development of an integrated campus facility and to build classroom infrastructure.VVLN Sastry, country head, Firstcall India Equity Advisors, said companies like Career Point and Firstobject Technologies Ltd enjoy a lot of attention due to "an e-education buzz,", but there was definitely some profit-taking risk with the stock.Analyst Krupal Maniar of ICICI Securities said despite people's inclination towards "recession-free stories," Career Point is "definitely expensive" at this level."There is always some fancy valuation attached to these stocks, specially when the market is moving up and you are flooded with liquidity," Maniar, who also advises profit taking on the stock, said.IPO AppetiteCareer Point follows in the wake of successful listings by Microsec Financial Services on Tuesday and movie distributor Eros International Media on Wednesday, both of which debuted at significant premiums, underscoring a revival in investor appetite for Indian share sales.Foreign funds have bought a record $20.1 billion of Indian equities so far this year, with more than one-third of that having come in since the start of September. Dealers expect foreign fund inflows to maintain pace at least until end-October.A swarm of Indian companies plan IPOs in the next few weeks, tapping a market trading at 33-month highs, and rushing to get out of the way of many jumbo state-run offerings expected over the next couple of months."There is big appetite from all the funds in Singapore, Hong Kong for education stocks in India, and we believe there are very few companies where they can invest," Naushil Shah, an analyst with Anand Rathi Securities, said.Since Career Point has a franchise-based business model, it will not require significant money to be invested upfront, which will raise profitability, Shah said.(Reuters)
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Reserve Bank Governor D Subbarao warned on Monday that the country will not be able to cash in on the demographic dividends if the economy continues its job-less growth pattern for far too long.Stating that now questions are being asked whether the model of services-led growth is sustainable, the Governor said the services sector cannot be the sole engine of growth.Referring to the boastful talk about the huge demographic dividend, Subbarao said, "We forget the most important thing-- demographic dividend is not inevitable. To reap the demographic dividend, we need to find jobs for the 150-200 million people who will be thrown out of the farm sector (in the near future)."The Governor was speaking while releasing a developmental report prepared by the city-based research agency Indira Gandhi Institute of Development Research, at the RBI headquarters.Though the services-led growth has steamed our economy so far, we cannot depend on it to drive growth from here on, he pointed out."The services sector may have been an autonomous engine of growth for the last 20 years, but going forward, it cannot be an engine of growth like it has been. We cannot depend on it to drive our growth. We need to focus on manufacturing and, importantly on agriculture too, for sustainable growth," Subbarao said.The share of the services sector in the $1.7-trillion GDP has gone up to 65 per cent last fiscal, up from about 50 per cent in 1991, when the economic liberalisation bandwagon started rolling. The contribution of services sector to GDP growth is still higher at 70 per cent, the Governor said.Explaining why a services sector-led growth is not sustainable, Subbarao said this sector has very strong forward linkages but weak backward linkages and hence low employment generation potential.Another inherent drawback of the current model of growth is that the services sector cannot find so many productive jobs especially when skill endowment is relatively low, he said."Therefore, we need to focus on manufacturing sector for generating jobs that we need," he said.Talking about the importance of the external sector and the need for rupee float, the Governor said "we need a calibrated approach to capital account convertibility and of course, we need foreign exchange reserves sufficient to buffer against the uncertainties,"Capital account convertibility has been a widely debated issue wherein some pro-liberalisation voices have been asking for a full convertibility rather than the present system where the monetary authority caps it for individuals and corporates separately.The RBI has been steadily increasing the limits and has relaxed it to a level that is adequate for individuals, but not so for corporates which have been demanding full float of the domestic currency.Stressing that the external sector with its increasing contribution to the GDP is very important, Subbarao underlined the need for keeping the current account deficit at a "sustainable level", even while maintaining a market determined exchange rate which does not "militate" against the macroeconomic stability.(PTI)
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Be prepared to pay more every month on your home, auto and other loans, as the Reserve Bank of India on Thursday, for the 10th time since March, 2010, raised key interest rates by 25 basis points in its effort to control spiralling inflation.The RBI has raised the short-term lending (repo) rate by 25 basis points to 7.50 per cent and the short-term borrowing (reverse repo) rate will move up by a similar margin to 6.5 per cent. It kept other rates and ratios unchanged.The mid-quarterly policy initiatives, the RBI said, are expected to contain inflation, which is currently over 9 per cent, much above the comfort level of the central bank."The RBI has sought to maintain an interest rate environment that moderates inflation and checks inflationary expectations," the Finance Ministry said in a statement, adding that this was on expected lines."We need to have price stability for sustaining growth in the medium term," it added.Bankers said the move would put pressure on interest rates and may make loans costlier subsequently.Consumers To Pay For Rate HikeThe rate hike is expected to be passed on to consumers, said ICICI Bank Managing Director Chanda Kochhar."The RBI steps are on expected lines as inflation still remains stubborn and poses a serious threat to growth," Union Bank of India Chairman M V Nair told PTI here.He also said the bank will pass on the rate increase to customers "as credit growth has so far been robust this quarter". However, he refused to specify how soon the base rate hike would be effected."It (RBI's move) will put pressure on short-term deposit rates and subsequently on the lending rates. But rate hike by banks would not be immediate," Indian Overseas Bank CMD M Narendra told PTI.Echoing a similar view, IndusInd Bank Executive Vice-President Moses Harding said the rate hike will push the shorter end of the rate curve with higher inversion into the longer end.Bank of Baroda Executive Director R K Bakshi, too, said the RBI move was expected, as inflation has become a serious threat to growth.Bakshi also hinted at the possibility of a base rate hike by his bank, saying though no automatic hike will be effected, the bank will act according to the liquidity condition, which he termed as comfortable as of now.According to Punjab & Sind Bank Executive Director P K Anand, there will not be any knee-jerk reaction from the banks, as the rate hike was on expected lines.IDBI Bank Executive Director R K Bansal said the market was expecting the hike and this may not result in banks increasing rates immediately.While announcing the measures, the RBI said that tightening of the monetary policy would impact economic growth, which is already under pressure, in the short term.With the rise in the repo rate, the interest rate for the additional lending facility of the RBI under the marginal standing facility (MSF) has gone up by 25 basis points to 8.5 per cent. This facility was introduced in the annual policy that was unveiled on May 3.Anti-InflationaryThe monetary policy stance, the RBI said, "remains firmly anti-inflationary, recognising that, in the current circumstances, some short-run deceleration in growth may be unavoidable in bringing inflation under control."The economic growth rate in the fourth quarter of the last financial year decelerated to 7.8 per cent from 9.4 per cent in the same period a year ago, raising fears of a slowdown.Also, industrial production during April, 2011, moderated to 6.3 per cent from over 13 per cent in the same month last year.The moderation in growth has not deterred the Reserve Bank into taking a pause on its rate hike strategy, as the "challenge of containing inflation and anchoring inflation expectations persists"."Thus, while the Reserve Bank needs to continue with its anti-inflationary stance, the extent of policy action needs to balance the adverse movement in inflation with recent global developments and their key impact on the domestic growth trajectory," the RBI said.Pointing out that the inflation is at an uncomfortable level, the RBI said the present wholesale price figures "understate the pressure because (domestic) fuel prices have yet to reflect the global crude oil prices."Revised RatesIn the last one-and-a-half months, several banks have revised lending and deposit rates following the annual policy announcement last month. Monetary transmission has been quite strong, with 45 scheduled commercial banks raising their base rates by 25-100 basis points after the May 3 policy.Cumulatively, 47 banks raised their base rates by 150-300 basis points during the July, 2010-May, 2011, period, the RBI said, adding that the higher cost of credit is restraining credit growth. However, it still remains fairly high, suggesting that economic activity is holding course.(PTI)
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With the losses of oil firms mounting with each passing day, Oil Minister S Jaipal today met Prime Minister Manmohan Singh to push for an early decision on raising diesel and domestic LPG prices.An Empowered Group of Ministers (EGoM) headed by Finance Minister Pranab Mukherjee, which decides on revising rates of the sensitive products, has not met since June last year even though crude oil prices have spiralled upward by about 50 per cent.Reddy, who last week met Mukherjee to push for a fuel price hike, today discussed with the Prime Minister the Rs 450 crore per day that state-owned oil firms lose on selling diesel, domestic LPG and kerosene at government-controlled prices, sources in-the-know of the development said.(PTI)
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In the Budget 2011-12, the government had announced a gross borrowing of Rs 4.17 lakh crore from the market, lower than Rs 4.47 lakh crore during last fiscal.Finance Minister Pranab Mukherjee on Friday assured the private sector of enough liquidity in the market saying the government, which has Rs 4.17 lakh crore borrowing plans in 2011-12, does not intend to elbow them out."So far the borrowing programme is concerned, always we match it in such a way that the others in the market of borrowing are not elbowed out," Mukherjee told reporters after meeting chief executives of public sector banks and financial institutions here.In the Budget 2011-12, the government had announced a gross borrowing of Rs 4.17 lakh crore from the market, lower than Rs 4.47 lakh crore during last fiscal.Of this, the government has announced to borrow 60 per cent or Rs 2.5 lakh crore in the first half of the fiscal, leaving enough credit in the market for the private players in October-March period to borrow.The net market borrowings, after making re-payments, would total Rs 3.43 lakh crore in the current fiscal.Besides, the government's plan to raise a massive Rs 40,000 crore from disinvestment of PSUs could squeeze liquidity from the capital market.In addition, the Government would be losing Rs 49,000 crore due to cut in customs and excise duties on petroleum products.Cost of credit has increased significantly in the past 16 months because of the tight monetary policy regime followed by RBI since March 2010.(PTI)
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Senior executives in every industry often face dilemmas between what is right and ethical, and what is expedient for business. Unfortunately, resolutions to such dilemmas don't come from outside; they come from within. The prevailing national culture of widespread exploitation, dishonesty and lack of ethical values makes the choice difficult. Volumes written through the ages on morality, ethics and governance have not made it any easier. Naren Kant's conversations with the dramatis personae in this episode raise many points, some of which I will attempt to address from my own perspective.In the prevailing culture, we tend to justify our unethical behaviour on the basis of others' unethical behaviour and the lack of sensitivity on the part of the state to provide services that it is supposed to with the taxes collected. The question then is: how do we clean up the system?Kant's conversation with his masseur, Deepak, reiterates the reality that good and evil are both parts of human nature. Greed (a part of evil) flourishes when there are causes and conditions that allow it to do so. Profiteering occurs because there are either insufficient laws or ineffective implementation of existing laws to deal with the menace. In an age in which being wealthy is more important than being honest, where do we start? In his seminal work, The Anatomy Of Power, John Kenneth Galbraith identifies three sources of power:1. Condign power, through which wrongdoing is punished;2. Compensatory power, through which desirable actions are rewarded; and,3. Conditioned power, by which people are persuaded that what is being proposed is desirable and good for the largest number.In the current situation in India, none of the powers is in play as far as ethics are concerned; wrongdoing need not attract punishment if you are clever, rich or powerful. Compensatory power is not exercised. On the contrary, people of dubious character are frequently given the highest awards and positions. Dishonesty is often rewarded, for example, through amnesty schemes. Conditioned power (trying to convince people to be honest) carries no conviction, because those who propagate it are perceived as crooks. Kant does not have to look far to "...find out what lay at the heart of the desire to thieve...". For undesirable occurrences, causes have to be prevented and conditions have to be created that do not allow the situation to prevail. In India, the government has lost its moral authority and we are using that as an excuse to indulge in unethical practices.Morality is personal. A person who wants to be morally upright neither needs approval from society nor conditions conducive to morality. Anna Hazare is a case in point. By setting a personal example, as Mahatma Gandhi did, he wields moral authority that is more powerful than legal authority. Ethics is all about business and social interactions based on the belief that the self and all others deserve equal consideration. In India we tend to put the self before others. We often do not realise that our behaviour, which may give us short-term advantage, actually harms long-term interests. That is what makes us disregard traffic rules and fiddle with electricity meters. In the book Games Indians Play, V. Raghunathan gives us interesting glimpses into our character and why we often shoot ourselves in the foot.Amish Panday's answer to Kant's question raises the issue of what to do when bad laws are enacted. If people have an institution or a mechanism that can help redress the situation, they would turn to it. But when those very institutions are compromised, or people do not have access to them, then inventive methods are used to dodge the law. Specifically, as far as the industry is concerned, our chambers of commerce generally kowtow to the authorities and do not have the sagacity to put the interest of the poor before that of their members'. On the other hand, perverse laws open the floodgates for illegal gratification for those in authority, who then have a vested interest in the continuance of such laws.I do not think there is any society where people like paying taxes. But the degree of abhorrence for taxes is inversely proportional to the quality of services we get from the government. When any attempt is made to clean up the system, vested interests thwart it. Very few bureaucrats or politicians are interested in streamlining systems to ensure that leakages are minimised. Even the business sector would like to protect its turf, sometimes at the cost of the nation. Remember the Bombay Club at the time of liberalisation?As a microcosm of society, Delana mirrors the helplessness and confusion of a people at odds with society. Even if the rot starts at the top, what Naren and all of us need to understand is that revolutions often start at the bottom. Unless we change, we may be headed for anarchy.Nripjit Singh (Noni) Chawla is an independent management advisor. An alumnus of IIM Calcutta, he has worked for 20 years in ITC and was the managing director at Max India(This story was published in Businessworld Issue Dated 25-04-2011)
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