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AIPCOC - Press Release dated 26th November 2017

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Dear Friends,

All India Public Sector and Central Government Officers` Confederation has Released a Press Notice regarding waiver of unwarranted and counterproductive clause of affordability so as to facilitate across the board implementation of the 3rd PRC for CPSES


Please follow below circular for more details.....!!!!!!!!!

AIPCOC - Press Release dated 26th November 2017

AIPCOC - Press Release dated 26th November 2017

AIPCOC - Press Release dated 26th November 2017
Thanks and Keep visiting for more updates.........!!!!!!!!!!!!
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Banking News Dated 24th November 2017

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Banking News: November 24, 2017

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State Bank of India to cut staff? See big statement by Chairman Rajnish Kumar

State Bank of India to cut staff? See big
statement by Chairman Rajnish Kumar

The Financial Express
Published on November 24, 2017


SBI chairman Rajnish Kumar on Thursday said the lender is likely to end FY18 with a smaller workforce than what it began the year with

Mumbai, November 23: State Bank of India (SBI) chairman Rajnish Kumar on Thursday said the lender is likely to end FY18 with a smaller workforce than what it began the year with.

“When you have such a vast and diverse client base as SBI, the need for human interface will always be there. But, if you ask me, it (employee count) was 2,78,000 at the beginning of this year, will it remain 2,78,000? It is unlikely,” Kumar said, adding, “Some cost efficiencies have to definitely come in as a result of whatever we are doing on the technology and digital front.”

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Banking News Dated 23rd November 2017

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Banking News: November 23, 2017

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Reliance Payment Bank, a joint venture between Reliance Industries Limited and SBI


A losing game

Purnima S. Tripathi
The Frontline Magazine
Issue: Decembar 8, 2017


With Reliance Payment Bank, a joint venture between Reliance Industries Limited and SBI, set to begin operations in December, there is widespread concern that the new venture will cause the downslide of the country’s largest public sector bank.

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DA slab Increased by 38 slabs from November 2017 - January 2018 | Banking News Dated 1st November 2017

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Banking News: November 1, 2017

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DA slab Increased by 38 slabs


DA slab Increased by 38 slabs from November 2017 - January 2018



The DA slab has increased by 38 slabs from November-2017 to January-2018. The DA increase would be 3.80%. The New rate for DA is 51.60%.


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State Bank of India cuts lending
rates, first time in 10 months

Sangita Mehta
The Economic Times
Published on November 1, 2017


Mumbai, October 31: Country’s largest bank, State Bank of India (SBI), announced a 5 basis point cut in its benchmark lending rates across maturity, which first cut after 10 months.

The bank has pegged its benchmark rate to 7.95% for a term of one year with effect from November 1 against 8% year charged earlier.

Most banks sharply reduced marginal cost of lending rates (MCLR) in January 2017, post demonetisation exercise after they saw huge inflow of deposits.

The reduction in the lending rates also comes within weeks of Rajnish Kumar, taking charge at the helm for a term of three years.

The bank will now pegged MCLR to 7.70% for overnight borrowing and 8.10% for three years. Other largest banks like ICICI Bank and HDFC Bank too may announce a token cut in the lending rates.

The new rates will immediately benefit the new borrowers. However, the existing customers may have to wait for a while since under the MCLR system the interest rates charged to the customers is locked for a fixed term.

For home loans, the interest rates are fixed for a term of one year and thus the existing borrower will benefit at the end of the lockin period.

For salaried women borrower seeking loan of less than Rs 30 lakhs, the bank will now charge 8.30% and for loans between Rs 30 lakhs and Rs 75 lakhs it will charge 8.40%.

For non-salaried women borrower seeking loan less than Rs 30 lakhs the bank will now charge 8.40% and for loans between Rs 30 lakhs and Rs 75 lakhs it will charge 8.50%. For all other borrowers, the bank charges 5 basis points more above the rates charged to women borrower.

The reduction in rates comes at a time when the Reserve Bank of India is revising the formula of pricing the loans. An RBI committee headed by Dr Janak Raj has suggested that interest rate on loans be pegged to external benchmark rates arrived at by market trading rather than leaving it at the discretion of each bank which appear to be coming up with some formula that would defy the best rates for most customers.

While announcing the monetary policy in October 4, the RBI had said, “Arbitrariness in calculating the base rate and MCLR and spreads charged over them has undermined the integrity of the interest rate setting process. The base rate and MCLR regime is also not in sync with global practices on pricing of bank loans.”


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The economics of bank recapitalisation bonds

C Venkat Nageswar, DMD, Global Market, SBI. and
Soumya Kanti Ghosh, Chief Economic Advisor, SBI
The Mint
Published on November 1, 2017


Recapitalisation bonds will lead to an improvement in government finances as it would be able to sell its stake in PSU banks at much higher valuations

The recent issue of recapitalisation bonds by the government is a step in the right direction. Recapitalisation is a tried and tested tactic and has been successfully replicated in many countries, including India, in the past.

With regard to the critiques of bank recapitalisation, there is indeed justification for the use of public funds. This is because the benefits of recapitalizing banks are greater than the costs of broad disruption in the real economy which show up, for instance, in the decline in bank lending. However the benefits from such an exercise are often difficult to quantify as they largely relate to avoiding disruptive effects that are qualitative in nature.

The Rs1.35 trillion package in itself seems largely adequate going by the ministry of finance estimates. The latest figures shown in the ministry presentation put the increase in non-performing assets (NPAs) from financial year (FY) 2015 till June 2017 at Rs4.55 trillion. The increased provisioning in the time period 2014-15 to 2017-18 is pegged at Rs3.79 trillion. So the banking sector recapitalisation to the tune of Rs2.11 trillion seems sufficient for tackling the problem of stressed assets. Additionally, after provision for bad assets and on a conservative basis, even if 50% remains as a residual for growth capital of banks, the multiplier impact may be significant.

India had used this tool before in the FY1986 to FY2001 period, wherein the government recapitalized public sector banks (PSBs) with a total amount of Rs20,446 crore. It borrowed the amount from the banks and issued special non-marketable securities, which were, however, later converted into marketable securities or perpetual bonds. The banks subscribed to these bonds and there was no cash outgo from the budget during the year of recapitalisation. However, it was an addition to the public debt.Consequently, the real impact on the budget was only when interest was paid by the government to the banks on the securities held by the latter. In total, interest paid by the government to the banks on special securities worked out to be Rs7,888 crore or 0.07% of the gross domestic product (GDP) per annum on average. During the period, however, the banks also paid Rs15,222 crore as dividend to the government working out to 0.04% of GDP on average. So, the net impact on fiscal was only 0.03% of GDP.

If the structure of the 1990s was adopted, it would not alter any fiscal maths in the current scenario. An interest cost of Rs8,000 crore per year is only 0.07% of GDP and 1.6% of the total interest payment on revenue expenditure of the government. The impact on public debt is minimal at only 0.8% of GDP.

Internationally, governments have recapitalized banks through various means. These can be mainly divided into direct capital infusion, issuance of public debt into banks either as a swap for bad assets or unrequited, and by assuming the bank’s liabilities.

In fact, such capital infusion has been done directly in many cases like the Maiden Lane LLCs created in the US to bail out AIG (American International Group) in 2008. In many cases, like Argentina (1994-95), Finland (1991), Hungary (1994), etc., long-term loans were extended to banks. Often, such bonds were given as a swap for bad loans, though that is not the case in the recapitalisation programme announced in India. Unrequited bond issues, similar to what seems to have been announced in India, have taken place in many cases like Poland (1993-94), Hungary (1993-94), Latvia (1994) and Ghana (1990). Internationally, such bond issuances have seen the government keep principal payments out of the budget, while interest payments were included in the expenditures (though Chile in 1984 did not record even the interest payments).

There is generally little to gain by issuing such bonds through an agency rather than the government itself, except in the case where the agency may have the necessary infrastructure, thereby separating bank restructuring costs from other government activities. The government may thus look into the P.J. Nayak committee recommendations, according to which the government may set up a Bank Investment Company (BIC).

What about the maturity and interest rate structure? In most such cases, recapitalisation bonds have had long maturities as early repayment would lead to a burden on government finances. Short maturities are also undesirable as a large amount of debt, if rolled over, could create uncertainty in markets. A range of maturities may also be desirable to establish a yield curve.

Keeping a market-related rate makes sense, but whether such an option could be the ideal one in the current circumstances in the Indian context is highly debatable. The argument for a higher market yield is that in the current situation when the banks are underperforming, a lower than market rate may not help the bank in generating a healthy interest margin that is already under pressure given that interest rates are on a declining path. This could thus defeat the very purpose of recapitalisation.

The counterargument could be that if such bonds are covered under held-to-maturity (HTM), these would not be sensitive to interest rate risk and hence will not attract any capital charge. These could be then a clear attractive option for banks. Keeping such bonds under HTM would also solve the typical problems of such dated maturities like mismatch, loss exposure and higher risk premium. In hindsight, we believe that the duration of such bonds should not be too long. This will avoid the likely lack of matching long-term liabilities if any and also to mitigate any market volatility in valuation of long-dated bonds.

The moot question is what will be the impact on yields? The initial reaction of the market has been a bit negative, possibly reflecting the uncertainty. The good thing is that AT1 (additional tier-1 bonds) rates have declined by as much as 150 basis points on expectations of a stronger bank post recapitalisation. Further, as the bonds are cash-neutral and can be categorized under HTM over and above the permitted cap, the current liquidity conditions being benign, the demand for new investments would be sustained. Both these factors will have a sobering impact on bond yields as well.

Ultimately, this recapitalisation will lead to an improvement in the government’s finances as it would also be able to sell its stake in public sector banks at much higher valuations (market capitalization went up Rs1.2 trillion in a single day). Even on the demand side, some banks who were not investing their extra cash into debt securities due to capital shortage may now be able to do so instead of placing them with the Reserve Bank of India’s reverse repos.

C. Venkat Nageswar and Soumya Kanti Ghosh are, respectively, deputy managing director (global markets) and group chief economic adviser, State Bank of India. These are their personal views.


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Credit card use up but
balance due surges by 39 per cent

George Mathew
The Indian Express
Published on November 1, 2017


In fact, card outstandings have shot up by 77.74 per cent in
the last two years, from Rs 33,700 crore in September 2015

Mumbai, November 1: Nearly A year after demonetisation, credit card usage has seen a sharp rise with outstandings rising 38.7 per cent during the 12 months ended September 2017. The total credit card outstandings — money spent by card holders and not repaid to the card company or bank — surged to Rs 59,900 crore at the end of September 2017, against Rs 43,200 crore in the same period last year, according to data released by the Reserve Bank of India (RBI) on Tuesday.

In fact, card outstandings have shot up by 77.74 per cent in the last two years, from Rs 33,700 crore in September 2015. The rise in card usage was more pronounced in the last 12 months as the banking system witnessed a shortage of cash during the November-January period of fiscal 2016-17, after the government and RBI withdrew Rs 500 and Rs 1,000 notes from circulation.

According to the RBI, the number of credit cards also rose sharply from 26.39 million in August 2016 to 32.65 million in August 2017. Banks normally charge an interest of 3.49 per cent per month (41.88 per cent per annum) on card outstandings. This means banks should earn an interest of close to Rs 2,090 crore on the outstanding amount of Rs 59,900 crore. Besides this, banks also charge 18 per cent GST on the amount. Interest rates are high on card outstandings as incidents of defaults are very high in the segment, said a bank official.

A recent survey indicated a clear increase in credit card usage among urban Indians over the last 12 months — 57 per cent of credit card holders reported they were using their credit cards more often now than they did a year ago. “Survey respondents reported various reasons for using their credit card. When asked to select all the ways they have used credit cards in the last 12 months, 59 per cent of the survey participants said that they used their credit cards to pay bills; 53 per cent said they used them for large purchases; and 45 per cent used them over other forms of payment to gain discounts and other rewards,” TransUnion Cibil said in the survey.

It said credit card usage varies demographically in India. The most common reason young adults in the age group of 18-24 years use credit cards over other forms of payment is because they don’t like to carry cash, as almost one quarter (24 per cent) noted in the survey, compared to 14 per cent of credit card holders aged 45 years and older.

Comparatively, the most common reason older adults (45 years and above) use credit cards is because it enables them to make the payment later (33 per cent). Only 13 per cent of card holders in the 18-24 years age group listed this as the primary reason for using credit cards.

A general perception is that making the minimum credit card payment each month will have a positive effect on their credit score. In fact, making only the minimum payment can have a negative effect on credit, as an increase in the current balance on the card over time is an indication of an increased repayment burden.


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12 large defaulters case:
Banks want 3 more months from NCLT

Shamik Paul
The Financial Express
Published on November 1, 2017


Mumbai, October 31: With about four months having gone by since insolvency proceedings were initiated for a clutch of 12 companies under the National Company Law Tribunal (NCLT), the committees of creditors have requested for additional time to come up with a resolution plan for these beleagured businesses. Banks, including State Bank of India, Punjab National Bank and IDBI Bank, which are part of the committee of creditors for the 12 large assets, have asked the NCLT to extend the period for finalising a resolution plan by an additional three months, persons familiar with the development said. Under the Insolvency and Bankruptcy Code, once a case is admitted by the NCLT, a resolution plan must be in place within 180 days of admission. This is extendable by up to 90 days. In case there is no plan or the committee does not agree on one, the company will go into liquidation.

Senior officials at large state-run banks said for some of the cases, it might take more than nine months for the resolution plans to be finalised. Bankers are seeking additional time to firm up a resolution plan since the due-diligence process is time-consuming and negotiations are protracted, people close to the development explained. Given that the insolvency process is new to most stakeholders, including resolution professionals (RPs), this is not surprising, they added. “These are large companies, and we are hopeful they won’t be pushed into liquidation immediately after the nine-month period is over,” a senior official from a large state-run bank said. “The due-diligence is taking a lot of time,” he added.

Potential investors including large corporates such as Tata Steel, JSW Steel as well as global private equity and stressed assets funds such as Oaktree Capital Management, AION Capital, Blackstone and others are believed to have shown interest in acquiring stakes in the companies but would like to cut sweet deals. Bankers, for their part, are trying to recover as much of their dues as possible.

Bankers said they expect the resolution plans to be finalised only by the end of Q4FY18 or in Q1FY19. “Expressions of interest has already been called for 8 of the cases. Whatever EOI has been received, they are in the process of being evaluated by the respective interim RPs and then they will be sent to the committee of creditors of the respective companies. The process is on. We can expect certain resolutions in Q4 and maximum in Q1FY19,” a senior official of a state-run bank, that has an exposure to 11 of the 12 large accounts, said.


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Insolvency and Bankruptcy Code: Why creditors panel must act in best interest of all stakeholders

M S Sahoo
The Financial Express
Published on November 1, 2017


A corporate is an amalgam of stakeholders. It is expected to maximise the value of its assets and consequently the interests of all its stakeholders. However, it may not always have the motivation to maximise the value of a corporate and/or promote the interests of all the stakeholders simultaneously or equitably. Therefore, the law prescribes governance norms to ensure that a corporate maximises the value of its assets, today and tomorrow, and balances the interests of all the stakeholders, and assigns the responsibility for compliance with those norms primarily to a professional, the company secretary, and a custodian, the board of directors. A corporate (other than a financial services provider) has broadly two sources of funds, namely ‘equity’ and ‘debt’. Usually, the equity owners control and run the corporate. The Insolvency and Bankruptcy Code (IBC), 2016, however, envisages that if they fail to service the debt, the corporate in default undergoes the corporate insolvency resolution process (CIRP). An insolvency professional (IP) carries on business operations of the corporate as a going concern until the Committee of Creditors (CoC) draws up a resolution plan that would keep the business of the corporate going on forever. The IBC, as stated in the long title, requires a CIRP to (1) maximise value of assets of the corporate, and (2) while doing so, balance the interests of all the stakeholders, and assigns the responsibility primarily to the IP, and the CoC comprising non-related financial creditors. The IBC maximises the value by striking a balance between resolution and liquidation. It encourages and facilitates resolution in most cases where creditors would receive at least as much as they would in liquidation. This would happen where the enterprise value is sufficiently higher than the liquidation value. In such cases, resolution preserves and maximises the enterprise value as a going concern. In the remaining cases, the IBC facilitates liquidation as that maximises the value for the stakeholders.

The IBC enables initiation of a CIRP at the earliest, even at the very first default, when the enterprise value is usually higher than the liquidation value and hence the CoC has the motivation to resolve insolvency of the corporate rather than liquidate it. It mandates resolution in a time-bound manner to prevent decline in the enterprise value with time, reducing motivation of the CoC to opt for liquidation. It facilitates resolution—makes a cadre of professionals available to run the corporate as a going concern, prohibits suspension or termination of supply of essential services, enables raising interim finances required for running the corporate, etc. In contrast, the IBC prohibits any action to foreclose, recover or enforce any security interest during a CIRP and thereby prevents creditor(s) from maximising his interests. It expects creditors to recover their default amounts collectively from future earnings of the corporate rather than from the sale of its assets. In the matter of Prowess International Pvt Ltd vs Parker Hannifin India Pvt Ltd, the National Company Law Appellate Tribunal (NCLAT) reiterated: “It is made clear that Insolvency Resolution Process is not a recovery proceeding to recover the dues of the creditors.”

Further, the IBC enables a financial creditor to trigger a CIRP even when the corporate has defaulted to another creditor and thereby prevents any preferential treatment to a creditor over others. In the matter of Prowess International Pvt Ltd vs Parker Hannifin India Pvt Ltd, the National Company Law Tribunal (NCLT) observed: “The nature of insolvency petition changes to representative suit and the lis does not remain only between a creditor and the corporate debtor.” Resolution maximises the value of assets of the corporate and enables every stakeholder to continue with the corporate to share its fate. All stand to gain or lose from resolution, though one may gain or lose relatively more than another. In contrast, liquidation allows satisfaction of their claims one after another. If there is any surplus after satisfying the claims of one set of stakeholders fully, the claim of the next set is considered. On both counts, maximisation of value of assets and balancing the interests, resolution triumphs over recovery as well as liquidation in most cases.

Balancing interests under CIRP assumes significance as every corporate may not have enough resources at the commencement of a CIRP to satisfy the claims of all the stakeholders fully, while resolution provides an opportunity to the CoC to consider and balance their interests. In fact, the IBC prescribes several balances in a resolution process—repayment of at least liquidation value to operational creditors, repayment of interim finance in priority, approval of resolution plan by 75% voting power, etc. The CIRP regulations also provide for several balances. They allow a dissenting financial creditor to exit at the liquidation value and thereby protect its interests. Many creditors, however, may not like to exit at the liquidation value. And those who exit leave the enterprise value behind. This balances the interests of financial creditors inter se, while tilting the balance in favour of resolution. The regulations also require a resolution plan to include a statement as to how it has dealt with the interests of all the stakeholders, including financial creditors and operational creditors, of the corporate debtor.

The judicial pronouncements require consideration of the interests of all the stakeholders in a resolution. Again, in the matter of Prowess International Pvt Ltd vs Parker Hannifin India Pvt Ltd, the NCLAT held: “In the circumstances, instead of interfering with the impugned order, we remit the case to the Adjudicating Authority for its satisfaction whether the interest of all stakeholders have been satisfied…” And in the matter of Prabodh Kumar Gupta vs Jaypee Infratech Ltd and Others, the NCLT observed: “…the position of present petitioner is undisputedly of stakeholders. Therefore, the IRP appointed by this Court in respect of the corporate debtor company is equally expected to consider and take care of the interests of the petitioner…” When the fundamental aim of the IBC is to facilitate recasting a corporate faltering in its debt obligations, it needs to take care of the interests of all the stakeholders with equity. The CoC, which is placed in a unique position of the custodian of a corporate under a CIRP, has the duty to strive for resolution, and through resolution maximise the value of assets of the corporate and balance the interests of all the stakeholders.


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Currency Change: The world and us

Sucheta Dalal
The MoneyLife Online
Published on October 31, 2017


India continues to grapple with the aftershocks of demonetisation. The latest problem is that of soiled and tattered currency notes of small denominations (Rs10, 20, 50 and Rs100) not being withdrawn by the Reserve Bank of India (RBI). As anger begins to boil over soiled notes, RBI has assured Moneylife of quick action, when we took up the matter at the highest level.

Now, consider how other countries do it. Last year, the United Kingdom changed the one pound coin from a round coin to an 8-cornered one. First, the UK ensured enough of new coins were available and the public was given six months to exchange coins. The same was done when the five-pound polymer note was introduced. In India, we have 25 billion pieces of soiled notes in need of destruction, including 12 billion which were put back into circulation last year, when the trauma caused by demonetisation was at its peak. These notes have affected small traders and the poor the most. Similarly, groups working with the blind have had to start an online petition in despair over confusing currency sizes across denominations. It will be another four months before the problem ends with the withdrawal of older currency notes.

The finance ministry, which runs the coin mints, is even more callous. Despite innumerable media reports about Rs10 coins not being accepted in many parts of the country, it has made no attempt to stop minting them or to clear the confusion through a public awareness campaign. Compounding the problem is the fact that the Rs10 coin is minted in two different designs. Consequently, several people are sitting on genuine coins, which they think are fake, while banks have lakhs of coins that nobody will take. RBI says it commissioned an awareness campaign that may finally clear the air in a few months. That is how we handle currency changes in India!


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Elusive targets: No appreciable drop
in J&K militancy or fake money

The IANS News Service
Published on October 31, 2017


New Delhi, October 31: Demonetisation appears to have failed to meet two of its most hyped objectives in Jammu and Kashmir -- dealing a severe blow to militancy and curbing fake money.

In contrast to long queues of exasperated people waiting to exchange high value currency notes seen outside banks in other states, no bank in J&K witnessed such queues.

"Due to violence all around, the average Kashmiri never keeps large amounts of cash at home. This is the reason that when people outside the state were losing sleep to get currency notes exchanged, Kashmiris did not rush to the banks here", said Elizabeth Maryam, a teacher of economics in Srinagar.

One of the objectives of demonetisation was to ensure that cash resources for militants would dry up. Ironically, Kashmir has witnessed more incidents of militancy after demonetisation than before it.

"We do not believe demonetisation has seriously affected militancy in the state. Logistics like shelter, passage and cash are mostly routed through over ground workers and sympathisers of militants and those who could arrange high value notes in the previous system are doing so presently as well", said a senior intelligence officer here who did not want to be named.

When asked about the fake currency the militants were believed to carry and circulate before demonetisation, the officer said that distinction needed to be made between fake currency circulated by ordinary fraudsters -- who use photocopying or equally shoddy crude methods -- and militants.

"Fake currency notes carried by militants come from across the border. It would be foolish to believe that sophisticated forgers would not use finer methods and better technology to fake Indian currency notes. If they made 'good looking' fakes of old high value currency notes, they can also do so with the new issues", the officer said.

One indicator suggesting the impact of demonetisation on black money was the initial slump in real estate trading in J&K. The hiccup, it appears, had been because of fear and confusion. "The prices of real estate have been rising here while these have fallen or remained stagnated outside", said a real estate dealer who did not want to be named.

Interestingly, there were no major raid or recovery of unaccounted high value currency notes in Kashmir after November 8.

Big business houses carried on their commercial activities as usual, although the cash crunch did affect their daily operations to a limited extent.

"No big business house in Kashmir showed signs of panic as happened in other states where laundering of black money was needed to keep a business afloat", said a prominent hotelier.

Militancy related incidents did not reduce, although stone pelting incidents came down due to anti-militancy operations, according to intelligence officials. "The theory that stone pelting and militant activities would take a beating has not been proved right," said an intelligence officer.

"Security forces have been battling stone pelting incidents as sporadic outbursts -- those are either spontaneous or sponsored, but believing that money has been the main motivation for such acts is stating too much", said the officer.

The state government too says as much about militancy in the state. In reply to a question by a BJP MLA in the state legislative assembly on whether demonetisation had affected unrest, Chief Minister Mehbooba Mufti said the government had received no report that would indicate that demonetisation had affected the unrest.

The chief minister had also said in her reply that no case had been registered indicating that fake currency had been used to stoke unrest.


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Bank credit to all major sectors
 continues to slow down

Gayatri Nayak
The Economic Times
Published on November 1, 2017



Mumbai, October 31: Even as India’s rank in getting credit for doing business improved 11 notched to 29th from 44th, bank credit to all major sectors continue to slowdown, underscoring the rising importance of non-bank sources of funds for doing business in India.

Credit to industry contracted by 0.4 per cent on a year-on-year (y-o-y) basis in September 2017 as compared with an increase of 0.9 per cent in September 2016. “I think the projects will have to be bankable, they will have to be structured properly and that is where the capital will participate in growth” said Chanda Kochar, CEO, ICICI Bank in a panel discussion at the recently concluded ET awards function.

Credit growth to major sub-sectors such as ‘infrastructure’, ’all engineering’ and ‘vehicles, vehicle parts & transport equipment’ contracted. However, credit growth to ‘basic metal & metal products’, ‘textiles’ and ‘food processing’ increased.

Credit to the services sector increased by 7.0 per cent in September 2017, down from the increase of 18.4 per cent in September 2016.

Credit to agriculture and allied activities increased by 5.8 per cent in September 2017, lower than the increase of 15.9 per cent in September 2016, according to the data released by the Reserve Bank of India.

Personal loans increased by 16.8 per cent in September 2017 vis-à-vis the increase of 19.7 per cent in September 2016.

Overall on a year-on-year (y-o-y) basis, non-food bank credit increased by 6.1 per cent in September 2017 as compared with an increase of 10.8 per cent in September 2016.

Data on sectoral deployment of bank credit collected from select 41 scheduled commercial banks, accounting for about 90 per cent of the total non-food credit deployed by all scheduled commercial banks.


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How the Great Recession Changed Banking

Christian Edelmann & Patrick Hunt
The Harvard Business Review
Published on October 31, 2017


Just over 10 years ago, French bank BNP Paribas froze U.S. mortgage-related funds. Defaults on sub-prime mortgage loans mounted. The market panicked. There was a run on British bank Northern Rock. Over the next year, many banks fell. Investment bank Bear Stearns collapsed. Lehman Brothers toppled. Many other financial firms including AIG, Fannie Mae, and Freddie Mac needed bail outs. The Great Recession of 2007 to 2009 was under way.

It may feel as though the financial system hasn’t changed much in the decade since the downturn, but it has. The recession transformed investment banks and created a deep divide between banks that quickly remodelled their business and those that failed to move rapidly.

A dramatic expansion of regulation drove most of the change until now. Most of the regulation was meant to safeguard the financial system, and the taxpayers who had to bail it out, from another crisis. We expect investment banks to embark on an even more fundamental makeover during the next decade. This second transformation will be triggered not by regulation but by rapidly evolving technology. The banks that have nearly completed their regulatory agenda have a head start, since they can free up more financial and human resources to address evolving technology. The race is open and the gap between investment banks will widen even further as they race to adopt technological innovations and reconfigure their workforces to satisfy changing customer demands.

The New Face of Investment Banks

The regulation with the most profound effect on banks over the past decade requires them to hold more capital against the risks they take. That strengthened investment banks’ balance sheets by forcing them to scale back and to change the nature of the risks they take. Investment banks used to trade using their own capital. Now they are banned from such proprietary trading activities, and focus more on facilitating client trades. As a result, their balance sheets are half as large on a risk-adjusted basis, and the capital they hold against trading positions has doubled over the past decade, our research shows.

Investment banks are also required to have a more stable funding base, with enough liquid assets to survive longer periods of stress. They are subject to more rigorous stress testing by regulators and have to develop plans aimed at ensuring that they can recover from a crisis. In the United Kingdom, reforms have gone so far as to require banks to separate their investment banking activities from their retail divisions in the near future to protect depositors.

We don’t know yet if these regulations will protect the financial system and taxpayers in a full-blown crisis; it hasn’t been tested. But it is clear that these changes have diminished the profitability of investment banks. Combined revenues are down 25% — the equivalent of $70 billion. On average, their returns on equity have been halved, to just 10%.

Those declines reflect changes in strategies and the basic business model of investment banks, post-crisis. Clients can see the shift in how banks rely more on electronic channels than phones to arrange trades. They can also see it in the reduction in the size of individual trades that banks are willing to make and in the increase in the proportion of derivative contracts that are being cleared at external “central clearing houses” rather than facilitated through bank balance sheets.

Less apparent to the outside world is how much banks are also investing in controls, especially in their compliance, risk, and finance divisions. Investment banks now spend an average of $300,000 per year on these functions per “front office” employee who works with clients, such as sales and trading personnel. A decade ago, that figure was lower than $200,000.

As a result of the remodelling, banks’ earnings are much less linked to the potentially volatile value of the assets underlying their trades. This is most apparent in the credit markets, where revenues have shrunk by more than 40% from pre-crisis peaks. As these parts of the business have shrunk, others have grown. Fees earned from advising companies and helping them issue debt are up 25%, and now account for one-quarter of the industry’s earnings.

Layoffs, particularly in sales and trading, have accompanied lower profits. Total expenditures on front-office activities have been slashed by more than 30% over the past decade. Expenditures on control functions related to implementing new regulations such as compliance, risk, finance, operations, and technology have been cut — but only by 10%.

As with all periods of disruption, the effects of these alterations have been uneven across the industry, and the competitive landscape has been reshaped on three fronts.
First, American investment banks as a group have gained 10 percentage points of market share — rising from 40% to 50%, primarily at the expense of European competitors.

Second, the gap in shareholder returns earned by the group of investment banks in the top quartile compared with the average of those in the bottom quartile has grown from 30% in 2007 to more than 100% in 2017. The average returns generated by the group of banks in the bottom quartile have fallen by two-thirds, to just 6%. The strong have gotten stronger and the laggards have had to fight harder not to fall further behind.

Third, a new breed start-up is making inroads. They are technology-savvy fintech shops. In some parts of the financial markets, particularly in more liquid asset classes such as foreign exchange, new entrants offer products and services, such as market making, that directly compete with banks and offer clients more choice and often better customer experiences. Other startups seek to partner with banks in areas where they, as specialists, can offer better solutions to challenges such as cybersecurity.

A Deepening Technological Divide

These divisions will only deepen as investment banks focus more exclusively on the need to integrate new technology. To stay ahead — or even keep up — will require substantial reengineering and very different skills from those required to manage regulatory reform programs. The top investment banks will reconfigure their workforces to more closely match those of technology firms.

In the future, technologists who can turn technological architecture and tools into more-attractive customer propositions and foundations for investment banks to reach faster decisions will join traders and sales people as the highest-paid people in investment banks. Technology specialists will play a greater role in allocating investments, working alongside senior management from a more traditional background, who currently drive much of the decision making but have limited technological expertise. Investment banks will automate manual tasks and processes to increase efficiency, move services to the cloud, and improve the quality of data analysis, in part by using artificial intelligence to better anticipate evolving customer needs.

The resulting technological reinvention of investment banks is likely to reshape the industry once again. Banks hampered by tight technology budgets, overly rigid organizational structures, and competing internal visions of the future will risk stagnation — or worse. While there is no doubt the Great Recession and its aftermath left the industry reeling, the next phase of technological disruption may actually lead to a more fundamental transformation of the industry. Investment banks, and the clients they advise, will need to keep up.

Christian Edelmann is a London-based partner in Oliver Wyman’s financial services practice, and heads the global corporate and investment banking practice.

Patrick Hunt is a London-based principal in Oliver Wyman’s financial services practice.


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India's growth slump: No easy answers

Sujan Bandyopadhyay & Anmol Agarwal
The Business Standard
Published on November 1, 2017


Critics of fiscal stimuli cite inflation risks while
supporters hail its role in economic revival

“We should be very careful lest fiscal actions undercut macroeconomic stability,” said Reserve Bank of India (RBI) Governor, Urjit Patel, in response to a journalist’s query on fiscal stimulus packages during the monetary policy conference on October 2017. The Prime Minister’s Economic Advisory Council (PMEAC) has also recently expressed its reservations about a mid-term fiscal stimulus package by the government to revive India’s economic growth.

While critics of a fiscal stimulus cite macroeconomic stability -- most notably upside inflation risks -- as a key reason against a fiscal stimulus, advocates routinely talk about the famed fiscal multiplier and how it would spur a much-needed economic revival.

Fiscal multipliers were first introduced to the world by John Maynard Keynes during the Great Depression of the 20th century. Keynes had argued that a recession could be curtailed by an increase in government expenditure, fuelling savings and capital formation. For instance, a rise in the government expenditure of $100 would raise the real GDP or gross domestic product of a country by more than $100 and bring it back on the path of economic growth.

Keynes and his policies began to be followed by policymakers all over the world until the advent of Milton Friedman, one of the most influential economic thinkers of the 20th century. Friedman challenged ‘naive Keynesianism’ (as he put it) and argued that a fiscal expansion is highly inflationary even as the neoclassical school argued that fiscal deficits brought about by an expansionary fiscal policy would result in rising interest rates, and a subsequent crowding out of private investment.

These ‘non-Keynesian’ effects of government spending were fist empirically documented in the 1990s in a series of researches published by the National Bureau of Economic Research (NBER), a leading economic research organisation in the US. The authors – Francesco Giavazzi of the NBER and Marco Pagano of the University of Naples Frederico II – studiedthe impact of fiscal contractions and expansions in Organisation for Economic Cooperation and Development (OECD) countries, and analysed their impact of private investment, consumption, and economic growth. The OECD is an intergovernmental economic organisation with 35 member countries, most of whom are high income and can be considered as being developed.

Interestingly, they found that spending cuts in Denmark (1983-86) and Ireland (1987-89) actually lead to an increase in aggregate demand and private consumption, stimulating economic growth. On the other hand, the Swedish fiscal expansion -- where Swedish Government Debt to GDP jumped from 25 per cent in 1990 to 67.8 per cent by 1994 -- counterproductively led to a fall in private consumption and investment. The authors called the events in Denmark and Ireland as ‘expansionary fiscal contractions’, while the events in Sweden as ‘contractionary budget expansions’.

Simply put, the impact of the fiscal multiplier in these cases was negative. These events were not anomalies as further studies have gone on to show several such outcomes from budgetary changes.

In India, there have always been divergent views about the effectiveness of a fiscal stimulus. An important Keynesian argument to illustrate the effectiveness of the multiplier is that a fiscal stimulus should increase income and eventually spur private savings and investment. Does this hold good for Indian? A look at the chart below suggests otherwise. India’s fiscal deficit as percentage of GDP declined continuously from 5.98 per cent in 2001-02 to 2.54  per cent in 2007-08. But, contradictory to the Keynesian view, domestic savings as a percentage of GDP show a continuous rise, peaking at around 38 per cent in 2007-08 when the deficit was the lowest.

Subsequently, there was a sharp decline in savings in 2008-09 due to the onset of the financial crisis in a situation economists commonly refer to as ‘savings paradox’ -- where individuals desire to save more due to increasing uncertainty in the economy, but end up saving less due to a decline in their incomes as brought about by a crisis. Focusing on years after the crisis, fiscal deficit rose continuously from 2010-11 until 2014-15, but savings have been on a downward trajectory, clearly suggesting an absence of a Keynes style deficit–income-savings correlation in India.

In the Study of State Finances report of 2016-17, the RBI expressed concerns about how increased market borrowings by the states could lead to higher bond yields and costs associated with borrowing. Even a significant part of the central government’s borrowing requirement is taken care of by market borrowings – based on budget estimates net market borrowings for the year 2017-18 stand at Rs 3.48 trillion, or about 64% of the gross fiscal deficit. Since an increased fiscal deficit is likely to be financed with market borrowings, it is likely that bond yields would rise. Theoretically, this can crowd out private investment and have a detrimental effect on the economy, especially at a time when banks are not willing to lend fearing rise in bad debts and many companies have been raising money from the corporate bond market. There have been several studies, which corroborate the relationship between a fiscal stimulus and higher cost of borrowing, including a 2004 study published by Economic & Political Weekly, where an RBI Economist Rajan Goyal, established the relationship for India.

Even those who advocate a fiscal stimulus acknowledge that fiscal multipliers only lead to economic growth when the increased government expenditure is spent productively. A study by the National Institute of Public Finance and Policy, a New Delhi-based economic policy think tank, in 2012 had found that a capital expenditure multiplier was 2.45, while other revenue expenditure multipliers were less than one. However, if one looks at India’s government capital expenditure, the trend is puzzling. In the years when the fiscal deficit was higher, there was a drop in the government’s capital expenditure. This clearly suggests that the quality of expenditure in a fiscal stimulus may not necessarily lead to an economic revival.

A fiscal stimulus will also have a bearing on India’s sovereign rating. It has been stuck at a low level, being upgraded only once in the past 25 years. On 2nd November 2016, the credit rating agency S&P Global Ratings kept the credit rating for India unchanged at the lowest investment grade (BBB-), only 1 grade higher than a junk bond rating, with a stable outlook, citing India’s low per capita income and weak public finances as the major reasons. Moody’s and Fitch Ratings followed the suit, expressing scepticism regarding upgrading India’s rating in the near future.

The issue of consistently low ratings baffles Indian economists. India’s chief economic advisor Arvind Subramanian blamed the agencies for their ‘poor standards’, while India’s Economic Affairs Secretary, Shaktikanta Das, had said that rating agencies were out of touch with India’s reality. Even the OECD threw its weight behind India, suggesting that India deserves a credit rating upgrade. 

Macroeconomic performance, growth prospects, debt position and the state of public finances are some of the key criteria used by rating agencies. With the growth rate sagging, India’s only hope of expecting a better rating in the future is for the government to be fiscally prudent. An untimely fiscal stimulus will lead the government missing the 3.2 per cent fiscal deficit target in fiscal year 2018, dent credibility of the government and ruin chances of upgradation in our sovereign rating. The investment climate continues to be weak – gross fixed capital formation as a percentage of GDP has steadily declined from 34.3 per cent in 2011-12 to 29.5 per cent in 2016-17. In such a scenario, missing the fiscal deficit target may dent the confidence of investors, which in turn, could end up threatening capital inflows. 

When a patient is sick, the doctor will always suggest medicines but some of the medicines have side effects and taking too much of them may end up causing more harm than good to the patient. It’s time India’s policymakers prescribed the right remedy for the ills that have been plaguing the economy. Fiscal stimulus is not the panacea.


Sujan Bandyopadhyay - MSc Economics graduate from London School of Economics and Political Science. Currently, research associate at Centre for Advanced Financial Research and Learning, Reserve Bank of India.

Anmol Agrawal - MSc Economics graduate from London School of Economics and Political Science. Currently, research assistant at Department of Economic Policy and Research, Reserve Bank of India.


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As Opposing Narratives on Demonetisation Clash,
Even Modi Can’t Fool All the People All the Time

M K Venu, The Wire Online
Published on October 31, 2017


The prime minister’s ‘robbing the rich to pay the poor’ narrative is collapsing in the face of devastation in the informal and formal sectors.

The first anniversary of demonetisation is turning out to be a great contestation between two political narratives. The BJP, with all the state propaganda machinery at its disposal, has decided to celebrate it as “anti-black money day”. The 18 opposition parties however will observe it as a “black day” across the country. The Congress leader in Rajya Sabha Ghulam Nabi Azad, while announcing the opposition programme, described it as the “scam of the century”.

The Congress party is cleverly combining the economic after-effects of demonetisation and GST to make its larger point of “Vikas gone crazy”.

In this contestation between the two narratives on the first anniversary of demonetisation, the Modi government is clearly on the back foot insofar as the economy goes. Even the Sangh Parivar and its various allied organisations such as Bhartiya Mazdoor Sangh, Bhartiya Kisan Sangh and Laghu Udyog Bharti, have publicly conceded that the economy is performing well below par and the worst affected are farmers as well as the small and micro industry units. Employment growth is at an all-time low.

The prime minister’s not-so-subtle switch from “achhe din” to the future promise of a “New India” is a ploy to buy more time from voters. In the initial months after demonetisation, Modi managed to successfully push a political discourse, as he did in the UP elections, that demonetisation was more about creating a cleaner economy in which the black money hoarders would be targeted and their wealth would get redistributed among the poor. Remember Modi’s unorthodox promise to the poor Jan Dhan account holders last November that they could appropriate the cash their rich benefactors are depositing into their accounts temporarily. Well, some four-to-five crore Jan Dhan accounts had seen massive proxy funds flowing into them. Some of these accounts holders could be among the 18 lakh notices sent by the I-T department to those who have deposited money in their bank accounts. What is amply clear is that the rich and powerful (and this includes political parties) managed to subvert the entire system to bring back nearly all the Rs 500 and Rs 1000 notes back in the system.

Even today, Modi who led this campaign against black money, does not have the courage to tell the nation how much cash the BJP as a party deposited in the banks. Thus an inherent dishonesty and hypocrisy marks the entire exercise.

Modi’s political narrative of seeing demonetisation as ‘shuddhi yagna’ ( ritual cleansing) seemed to have worked partially in the initial months after demonetisation. The UP election results were held up as proof of this “sacrifice by the ordinary people” who suffered hardships to make the ritual cleansing of the system a success. BJP ideologue Ram Madhav made a tall claim that people are participating in the call of ” self-sacrifice” made by Modi.

The sheer dishonesty and duplicity of the BJP and Modi becomes so evident in retrospect because at the time of the UP elections, when he was boasting about “shuddhi yagna“, the RBI had enough data to show that the rich and powerful had subverted the system by laundering the entire demonetised currency back into the system. The BJP leadership kept this fact hidden from the people in what would constitute an act of treachery and betrayal of trust.

Subsequent events have shown that Modi stands exposed and his so-called campaign against black money has become a laughable exercise. The great promise of transferring wealth from the rich to the poor also looks like a black joke as the most vulnerable sections of society have suffered the most in the last one year. Farm incomes has received a huge setback post demonetisation as agriculture Mandis have less cash to dispense with. Crop prices across the board saw a 35% to 40% fall during the last rabi harvest and this has forced the government to raise minimum support price recently. This is mere band-aid solution as over 90% of agri produce is not covered by a stable MSP system.

Official RBI surveys show how small industrial units in the first three months of calendar 2017 suffered about 58% decline in sales. CMIE, a reputed data research agency, has found loss of 1.5 million jobs in the first quarter of 2017. Latest data put out by experts suggest other objectives of demonetisation, such as reducing the cash-to-GDP ratio or to substantially increase digitised transactions, have also proved elusive.

Also there is as yet no structured road map to tackle 95% of the unaccounted wealth which is hidden in other assets such as gold and real estate. Total unaccounted wealth as per data provided in a report on black money submitted by the National Instute of Public Finance and Policy to the finance ministry is about $900 billion (40% of GDP). Of this, the cash component of the black wealth is merely 5% or roughly R.3 lakh crore. This data seems to match the income tax department claim that it is investigating some 13 lakh bank accounts for unaccounted cash deposits of about Rs 3 lakh crore.

However, former finance minister Yashwant Sinha has warned that these 13 lakh bank accounts may not be carrying the bulk of the unaccounted cash because many of them are ready to challenge the government in a court of law. While the I-T department employs coercive tactics on these account holders the real holders of unaccounted bulk cash may have gotten away scot free. This is a genuine concern and its impact will play out over the next 2 to 3 years, Sinha said.

There have been other big failures. After executing the longest running income declaration scheme in India’s history in 2016-17, partly coinciding with demonetisation, does the government have something to show in the form of a substantially higher number of taxpayers? Again data shows the increase in the number of taxpayers follows a general trend of the past few years and that there is no unusual departure from recent trends – either for number of taxpayers or the total tax collected.

In fact, a very worrying data point emerged from the GST system last week which showed only a little over 50% of those registered in the GST portal had actually filed the summary returns. Of the 80 lakh existing registered members only about 44 lakh had filed the summary returns in October. Mind you summary returns were introduced as an easy stop-gap arrangement until the full fledged GST return filing system kicks off.

This aspect is important because it was claimed that the number of income tax payers will increase substantially as a larger number of firms would get captured under the GST value chain. Since GST design and implementation is also a big mess today the negative impact of demonetisation is getting further accentuated, especially for small businesses.

So politically, Modi will find it difficult to sustain his “ritual cleansing’ argument in the face of such a devastatingly messy implementation of both demonetisation and GST. He will have to come out with a new narrative. In the past, he has shown a remarkable ability to switch narratives almost effortlessly. This is possibly because his personal goodwill with the people has been intact. However, this too is now slowly coming under question because the fumbling on the economic policy front has come back to haunt him. His ‘rich versus poor’ narrative is also being questioned given the massive bailout being handed out to 50 large corporate groups who owe over Rs 10 lakh crore to public sector banks. Some companies may be declared bankrupt but their promoters’ wealth remains unaffected. Some of these promoters continue to thrive as major partners in Modi’s Make-in-India project in the defence sector which would ensure both captive business and assured future returns.

The people of this country are watching all this happen right under their noses. “You can fool all the people some of the time or some of the people all the time,” goes the first half of a famous saying. What Modi is figuring out is that it is difficult to fool all the people all the time.


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The US is monitoring India's currency –
that alone could hurt the Indian economy

The CNBC News
Published on October 31, 2017


India came under the spotlight after an increase in the "scale and persistence" of its buying up other nations' money, the Treasury said in an October report outlining the foreign exchange policies of the U.S.'s major trading partners.

New Delhi, October 31: India's persistent buying of the U.S. dollar to keep its local currency cheap has caught the attention of the U.S. Treasury, increasing the risk that Asia's third-largest economy could soon face the ill effects of a "currency manipulator" branding.

India came under the spotlight after an increase in the "scale and persistence" of its buying up other nations' money, the Treasury said in an October report outlining the foreign exchange policies of the U.S.'s major trading partners.

But even without the official "currency manipulator" label, being called out by the U.S. Treasury can already limit New Delhi's freedom in managing the rupee, analysts said. To avoid the designation, the Reserve Bank of India may be looking to reduce its foreign exchange purchases. Doing so at a time when capital inflows are still strong, however, could be costly for the economy, as its domestic currency may become expensive and hurt the country's competitiveness.

The RBI did not respond to CNBC's request for comment about the report.

India's net currency purchases rose to around $42 billion, or 1.8 percent of its gross domestic product, in the 12 months from July, 2016 to June, 2017, the Treasury said. Compared to the $10 billion, or 0.4 percent of GDP, net purchases in calendar year 2016, New Delhi has been on a buying spree.

"Over the first half of 2017, there has been a notable increase in the scale and persistence of India's net foreign exchange purchases," the Treasury said, adding that it will be "closely monitoring India's foreign exchange and macroeconomic policies."

The RBI intensified the buying of foreign currencies this year after a surge in capital inflows into India's stocks and bonds sent the rupee appreciating to its strongest in two years against the U.S. dollar. The purchases — to ensure the rupee does not rise to a level that would harm its exporters and other internationally operating firms — also saw India's foreign reserves hitting an all-time high of $402.51 billion in September.

Those currency moves could potentially lead to India's inclusion on the U.S. Treasury's manipulator watch list, and so the RBI may be looking to pull back on its defence of a cheap rupee. That would see the Indian currency jump in relative value, which would cause negative effects for wide swaths of the economy.

And, if India feels limited in its ability to buy up international currencies, that will also affect its efforts to create robust foreign reserves that would protect against economic shocks.

That's something that New Delhi should be doing more of, according to Rajiv Biswas, APAC chief economist at IHS Markit. The country should increase its reserves "significantly further" as its current account deficit makes it particularly vulnerable in the event of a capital flight, he explained.

"Increased FX (foreign exchange) reserves help to reassure global financial markets that India is resilient to external shocks, particularly hot money outflows," Biswas said in an email. "FX reserves are essentially like a fire insurance policy — in good times you complain about the cost, but you only fully understand their value when markets are in meltdown and a currency crisis looms."

But the RBI's options are limited if India wants to avoid further scrutiny by the Treasury. The report, published twice a year, is intended to flag any unfair currency practices, and lists three criteria that define an unfair practice.

The first is that a country has at least a $20 billion trade surplus with the U.S. (meaning the value of goods it exports to the U.S. exceeds the value of its American imports by that much). The second criterion is that a country has net foreign currency purchases of at least 2 percent of GDP over a 12-month period.

And the final characteristic is if a country has a current account surplus that's at a minimum 3 percent of GDP. The current account is a measurement of goods, services and investments that go in and out of a country.

Economies that fulfil two out of the three criteria are put on a monitoring list, which increases the risks of trade sanctions from the U.S. and earning the label "currency manipulator." Five countries are now officially being watched: China, Japan, South Korea, Germany and Switzerland.

India, however, currently meets only one of those criteria: Its trade surplus with the U.S. came in at $23 billion in the 12 months to June — higher than the $20 billion threshold. The country's current account deficit and net foreign exchange purchases of 1.8 percent of GDP are helping it avoid being placed on the monitoring list for now.

"We reckon that the U.S. is paying more attention to India this time around as the economy is very close to meeting (the foreign exchange criterion)," Radhika Rao, economist at DBS Group Research, wrote in a note. "This reflects strong rupee appreciation in the first half of the year, which forced the central bank's hand to intervene to keep real gains in check."

To avoid a place on the monitoring list, India could reduce its trade surplus with the U.S., but analysts said the pressure to do so is low given that countries such as China and Japan have far larger trade surpluses with the world's largest economy. That leaves the RBI with only one possibility: slow down its intervention in the currency markets to keep net foreign exchange purchases below the stipulated 2 percent of GDP.

That is "an important step" to take, even if it could result in the rupee appreciating in the short-term, Biswas said. But DBS' Rao said the central bank will likely face less pressure to buy foreign currencies as much as it did before as capital inflows have slowed in recent weeks.

"Interest in the Asian emerging markets may be cooling off as flows into the region have moderated in recent weeks," she said. "In all, we see little risks that India might be officially included in the list of economies monitored (by the U.S. Department of Treasury)."


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A duty to be tolerant

Soli J. Sorabjee
The Indian Express
Published on November 1, 2017


The rise of intolerance is alarming. Dissent is smothered and
self-censorship takes its place, endangering democracy itself

On January 26, 1950, India became a sovereign democratic republic. Its Constitution guaranteed a wide array of fundamental rights which were also made justiceable. The Constitution originally did not make any specific provision for duties of citizens. However, on analysis, duties are implicit because the Constitution permits reasonable restrictions on exercise of fundamental rights in public interest, which is on the premise that exercise of fundamental rights entails duties.

The co-relation between rights and duties has been recognised by our ancient rishis and in our sacred texts. The Bhagavad Gita teaches us that “Your duty is your right”. Gandhiji summed up the matter admirably: “I learned from my illiterate but wise mother that all rights to be deserved and preserved come from duty well done”. According to Walter Lippman, the renowned American political commentator, “For every right that you cherish you have a duty which you must fulfil”.

The Universal Declaration of Human Rights 1948 (UDHR) recognises the vital link between human rights and duties in Article 29 of the Declaration which states, “Everyone has duties to the community in which alone the free and full development of his personality is possible”. The American Declaration of the Rights and Duties of Man of May 2, 1948 prescribes in Chapter 1 Rights and in Chapter 2 prescribes Duties. It is interesting that one of the duties prescribed is “the duty to pay taxes”. The African Charter on Human and Peoples Rights of June 26, 1981 prescribes along with guaranteed rights some duties, one of which is “every individual shall have duties towards his family and society, the State and other legally recognised communities and the international community”. Again it is curious that Article 29(6) prescribes the duty “to pay taxes imposed by law in the interest of the society”. This duty regrettably is not generally performed in our country.

It was in 1976 during the June 1975 Emergency that a specific Chapter IV-A was incorporated in the Constitution and Article 51-A was enacted which lists certain duties to be performed by a citizen. Unfortunately, because of its timing, this was initially viewed with the suspicion that it was an attempt to curtail fundamental rights by way of enactment of the fundamental duties listed in Article 51-A. These misgivings were misplaced. A dispassionate reading of Article 51-A reveals that the basic premise underlying Article 51-A is that freedom without acceptance of responsibility can destroy the freedom itself, whereas when rights and responsibilities are balanced, freedom is enhanced and a better world order can be created.

Are fundamental duties enforceable? The Supreme Court in its decision in AIIMS Students’ Union v. AIIMS ruled that though “Article 51-A does not expressly cast any fundamental duty on the State, the fact remains that the duty of every citizen of India is the collective duty of the State”. Let us face the painful reality that one cannot effectively exercise fundamental rights nor perform fundamental duties unless tolerance is prevalent in society. Tolerance is not merely a goody goody virtue. It enjoins a positive attitude which permits and protects not only expression of thoughts and ideas which are accepted and are acceptable but which also accords freedom to the thought we hate.

Tolerance is desirable, nay essential, because it recognises that there can be more than one path for the attainment of truth and salvation. A tolerant society protects the right to dissent. If there is pervasive intolerance the inevitable consequence will be violence and that would ultimately pose a serious threat to our democracy.

Intolerance has a chilling, inhibiting effect on freedom of thought and expression. Development and progress in any field of human endeavour are not possible if tolerance is lacking. We know how Galileo suffered for his theory that the sun was the centre of our solar system and not the earth. Darwin was also a victim of intolerance and was lampooned and considered as an enemy of religion for his seminal work, The Origin of Species. Nearer home we have the example of Raja Ram Mohan Roy whose efforts for reform in the Hindu religion, especially for the abolition of Sati, evoked virulent opposition because of menacing intolerance. We must ensure that we do not revert to those dark days.

In its celebrated judgment in S. Rangarajan vs P. Jagjivan Ram, the Supreme Court emphasised that “we must practice tolerance to the views of others. Intolerance is as much dangerous to democracy as to the person himself.”

At present the rise of intolerance is alarming. Even a moderate expression of a different point of view is viewed with resentment and hostility and there are vociferous demands for bans. The consequence is that dissent is smothered and self-censorship inevitably takes place. Healthy and vigorous debate is no longer possible. And when that happens democracy is under siege. Therefore it is of the utmost importance to include the practice of tolerance as a fundamental duty in Article 51-A. The problem is that tolerance cannot be legislated. Hence, we must develop the capacity for tolerance by fostering an environment of tolerance, a culture of tolerance.

The Press and news channels have an important role to play in this. They should incessantly preach the message that no group or body has the monopoly of truth and wisdom and we must respect the point of view of the “other minded”. The Press must unequivocally condemn instances of intolerance without fear of adverse consequences. There should be no dereliction of this duty or practice of tolerance. If this duty is conscientiously performed it would result in a salutary change in our society and also bring about understanding and harmony in relations between the peoples of our vast country. Is this utopian? Maybe. But remember that progress is the realisation of utopias.

The writer is a former attorney general of India.

  Source: Internet News papers and Anupsen articles
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