Banking News Dated 11th September 2018

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Banking News: September 11, 2018


Trade-deficit woes drag rupee to new lows

Trade-deficit woes drag rupee to new lows

Gurumurthy K
The Business Line
Published on September 11, 2018

Indicators are also giving negative signal,
suggesting the possibility of a further fall

The free-fall in the Indian rupee continues. The rupee remained under pressure all through the week and tested the psychological level of 72 last Thursday. Though the rupee managed to recover slightly on Friday, it failed to gain momentum. The country’s current account deficit (CAD) data released on Friday came as a spoiler, adding fuel to the fire. The currency tumbled to a new record low of 72.67 on Monday before recovering to close at 72.44, down 1.71 per cent for the week.

Deficit widens

India’s CAD data was released on Friday. The data showed CAD widened the most in five years to $15.83 billion in the first quarter (April to June) of this fiscal. Merchandise trade deficit increasing by 9 per cent (year-on-year) to $45.75 billion in the first quarter of FY19 from $41.93 billion over the same period last year dragged the CAD sharply lower to a five-year low.

With crude oil prices continuing to stay at elevated levels, there is a strong likelihood of the trade deficit increasing in the current quarter (September) as well. This, in turn, may see the CAD widening further. As a result, the deficit concern will continue to weigh on the rupee. As such, the rupee’s strength is likely to be limited in the coming months, and the possibility of it tumbling to further fresh lows cannot be ruled out.

FPIs’ sell-off

Foreign Portfolio Investors (FPIs) seem to have resumed their selling. The FPIs, after buying India’s debt securities worth $7 million and $506 million in July and August, are turning net sellers. FPIs sold $648 million in just the first week of September. If their selling intensifies, it will increase the pressure on the rupee and aid in dragging the currency further lower.

Rupee outlook

The rupee falling over 1 per cent each consecutively for two weeks has intensified the downside pressure on the currency. The region between 72.10 and 72 will now be a key near-term support. As long as the rupee trades below 72, it is likely to remain under pressure.

The indicators on the charts are also giving negative signals. The 55-week moving average has crossed below the 200-week moving average, and is on the verge of crossing below the 100-week moving average. This is a bearish signal indicating that the upside could be capped in the short term.

As such, as long as the rupee remains below 72, a fall to 73 and 73.7 is likely in the short term. Inability to reverse higher from 73.7 will increase the possibility of the rupee extending its fall to even 74.5 in the coming weeks. The currency will get a breather only if it manages to breach 72. Such a break can trigger a short-term relief rally to 71.5 or even 71.


At 8.16%, bond yield
highest since November 2014

The Financial Express
Published on September 11, 2018

The 10-year benchmark bond yield rose to 8.16%, its
highest level since November 28, 2014, or nearly four years.

Mumbai, September 10: The 10-year benchmark bond yield rose to 8.16%, its highest level since November 28, 2014, or nearly four years. The bond yield has seen an increase of almost 40 basis points from the level of 7.77% seen in the middle of June.

Bond markets are nervous as global crude oil prices remain elevated at over $77 per barrel, which together with the weakening currency — which has now lost 11.8% since January — would add to inflation concerns. On Monday, the rupee closed at 72.44 against the dollar after touching intra-day lows of 72.67.

Economists believe an interest rate hike is a textbook defence against a falling currency.

Anticipating higher inflation, the Reserve Bank India (RBI) has raised its policy repo rate in two successive meetings by 25 basis points each, at its last two policy reviews in June and August.

The repo rate is now at 6.5%. A clutch of lenders including State Bank of India, ICICI Bank, HDFC Bank and Bank of Baroda have all raised their marginal cost of funds-based lending rate (MCLR) over the past 10 days. Before that, several lenders had raised their deposit rates.

Experts believe there is a possibility of another rate hike in six to nine months, partly on inflation concerns but also to help arrest the slide in the currency.

According to experts, the forthcoming rate hikes would be taken less from a point of view of rising inflation and more due to the currency depreciation. The headline consumer inflation rose 4.17% in July from a year earlier and is expected to pick up momentum on higher crude prices and the weakening rupee.


RBI issues new guidelines for note refund:
How to reimburse Rs 2,000, Rs 500
and other notes if mutilated

The Financial Express
Published on September 10, 2018

Reserve Bank of India (RBI) on Friday made amendments
to Reserve Bank of India (Note Refund) Rules, 2009.

Mumbai, September 9: he Reserve Bank of India (RBI) on Friday made amendments to Reserve Bank of India (Note Refund) Rules, 2009. As per the rule, people can exchange mutilated or defective notes at RBI offices and designated bank branches across the country for either full or half value, depending upon the condition of the currency.

In November 2016, post-demonetisation, the Reserve Bank of India had introduced Rs 200 and Rs 2,000 notes. Later, it also introduced new Rs 10, Rs 20, Rs 50, Rs 100 and Rs 500 bank notes.

The new amendments enable people to exchange mutilated notes in Mahatma Gandhi (New) series, which are smaller in size compared to the earlier series.

“We further inform that there is a change in the minimum area of the single largest undivided piece of the note required for payment of full value for notes of rupees fifty and above denominations…,” the RBI had said in its statement. These rules have come into force with immediate effect.

Here is how to get your old notes replaced if defective–

For Rs 50, Rs 100 Rs 200, Rs 500:

·       To get a full refund of Rs 50, Rs 100 Rs 200 and Rs 500 notes, a note must be composed of 2 pieces which individually have an area equal to or more than 40% of total area of note in that denomination.

For Rs 2000 notes:

·       The value of a mutilated note of Rs 2000 denomination may be refunded in full or half depending upon the case. For a full refund, the minimum undivided area of the single largest piece of the note should be 88 square cm. For a half refund, the area should not be less than 44 square cm.

According to Reserve Bank of India’s annual report, released in August this year, about 99.40 per cent of specified bank notes (SBNs) of Rs 500 and Rs 1,000 denominations, which were scrapped in the November-December 2016 period, have been returned from circulation. The report said the total SBNs returned from circulation at Rs 15.31 lakh crore.

The Modi Government had scrapped the SBNs to clamp down on corruption and black money, cut off terrorist financing and tackle fake Indian currency notes.


Matter of concern:
Bank deposit growth lags for a year

Shritama Bose
The Financial Express
Published on September 10, 2018

Double-digit growth in deposits has eluded banks for a year now with the rate of growth of households savings moderating and more surpluses finding their way into mutual funds.

Mumbai, September 10: Double-digit growth in deposits has eluded banks for a year now with the rate of growth of households savings moderating and more surpluses finding their way into mutual funds. Data released on a fortnightly basis by the Reserve Bank of India (RBI) showed that bank deposits grew between 3 and 10% year-on-year (y-o-y) in the fortnights between August 18, 2017 and August 17, 2018.

The last time the banking system reported a more than 10% growth in deposits was during the fortnight ended August 18, when the increase was 10.3%. At the same time, deposit growth has recovered from the lows of 3-5% y-o-y growth witnessed during November 2017-January 2018, when the effect of a demonetisation-induced high base came into play.

The latest fortnight for which data is available, ended August 17, saw bank deposits growing at 8.3% to Rs 115.11 lakh crore. As a share of gross national disposable income (GNDI) deposits have fallen to 2.9% in 2017-18 from 6.3% in 2016-17.

In recent months, bankers, too, have flagged the slow growth in deposits. Rajnish Kumar, chairman, SBI, said banks losing savings to the markets is a matter of concern. Addressing an event, Kumar observed that while the previous year had seen current account and savings account (CASA) deposits grow as much as 26%, growth had slipped to 9% in the current year. “Term deposits are not growing as much and the reason is that the rates of interest which banks are today offering on a fixed deposit, when compared to many other competing products, particularly the flow of funds to the mutual fund industry, the growth has slowed down,” Kumar said.

On February 28, SBI had raised interest rates on retail fixed deposits (FDs) for the first time in close to three and a half years. Between February and September, the rate offered by the bank for one-year money has risen 45 basis points (bps) to 6.7% per annum. The savings rate at the bank, as at most of its large peers, stands at 3.5%

Apart from losing retail deposits to mutual funds, some banks, especially those under the prompt corrective action (PCA) framework, have consciously begun to shed bulk deposits. In a recent note, ratings agency Icra said that the lowering of bulk deposits in their PCA banks’ portfolios is reflected in their CASA ratio improving to 37.6% as on March 31, 2018, from 29.6% as on June 30, 2016. Of this, the savings deposits increased to 31.1% (March 31, 2018) of total deposits from 23.7% (June 30, 2016).


₹ 3.4 trillion bank recap since
Great Recession but no end in sight

Tamal Bandyopadhyay
The Mint
Published on September 10, 2018

RBI is firm on bottling the inflation genie, but there seems to be no end to the rise of bad loans—₹ 10.3 trillion in June 2018—in the Indian banking system

Many believe that the 2008 financial crisis that forced the iconic US investment bank Lehman Brothers Holdings Inc. to file for bankruptcy was not a global financial crisis; it was just a Transatlantic financial crisis, perpetrated by the US subprime mortgage calamity. Giving it a “global” tag was part of the propaganda of the developed markets to dilute their responsibility although the rest of the world had nothing to do with it. Be that as it may, could we insulate the Indian economy from its impact?

By sheer coincidence, on the day Lehman Brothers went under, chief executive officers of six large commercial banks in India assembled at Mint’s Annual Banking Conclave at a south Mumbai hotel to debate ‘Should India open up the financial sector?’ Reserve Bank of India (RBI) governor Y.V. Reddy, known for his stance against opening up the sector, had just retired; D. Subbarao was parachuted in as governor from the finance ministry.

RBI and the finance ministry had put up a united front to tackle the crisis. Money flooded the financial system and the policy rate was brought down to a historic low to 3.25% (less than the savings bank rate, regulated at that time) from 9% over the next few months; the cash reserve ratio or the portion of deposits that commercial banks need to keep with the central bank was nearly halved from 9% to 5%; and the floor for banks’ government bond holding was cut from 25% to 24%. The primary job of the central bank at that time was to restore confidence in the financial system by infusing liquidity even as the banks were encouraging consumers to spend by paring loan rates.

Indeed, Reddy—credited by many for saving the Indian financial system—had sensed the trouble ahead of others and did the ground work by discouraging banks’ exposure to certain “sensitive” sectors and shutting the door on the use of exotic derivatives. (Nobel laureate economist Joseph E. Stiglitz has said, “If America had a central bank chief like Y.V. Reddy, the US economy would not have been such a mess.”)

The Indian economy kept its chin up. Growth slowed below 5% (to 3.5%) for only one quarter—March 2009—and soared to 11.4% in a year by next March while the rest of the world struggled with the Great Recession. But an ultra-loose monetary policy which helped India achieve the fastest recovery among all emerging markets had also sown the seeds of inflation. The central bank cut the rates with electrifying speed but when the rates needed to be raised, Subbarao took “baby steps” in the face of stiff resistance put up by the government.

Also, repeated loan restructurings and a combination of banks’ eagerness to build their loan books without understanding the risks and the government’s push for infrastructure financing led to creation of bad assets.

Subbarao’s successor, Raghuram Rajan, launched a war against double-digit inflation five years after the Lehman Brothers collapse, in the thick of taper tantrums. The central bank, under Rajan’ssuccessor Urjit Patel in 2016, put in place a new monetary policy framework for flexible inflation targeting by a six-member committee.

RBI is firm on bottling the inflation genie, but there seems to be no end to the rise of bad loans in Indian banking system. The gross bad loans of India’s public and private banks were to the tune of ₹ 10.03 trillion in June 2018. A few government-owned banks have at least one-fourth of their loan assets turning bad; 11 of them are being restrained by the regulator from expanding their balance sheets and at least two in this pack cannot give fresh loans. Heavy losses recorded in past few years, primarily on account of massive provisions that the banks needed to do for bad assets, have eroded their capital and not too many Indian banks are in a position to support economic growth.

In the wake of the Lehman Brothers collapse, in October 2008, the US launched a $700 billion bailout package under the Troubled Asset Relief Program to rescue the banking system (the entire corpus was not used). The big banks have been saved and the government has even made money on its investments in banks’ equities. India has pumped in close to ₹1.29 trillion in the state-owned banks in the past decade and an additional ₹2.11 trillion is in the process of flowing in. Forget return on capital, there is no sign of the banking system returning to health.


Power NPAs: Relief to One project,
Four more join SC plea

Anupam Chatterjee
The Financial Express
Published on September 11, 2018

Resolution under insolvency route for 34 power projects with exposure of Rs 1.75 lakh crore could result in hefty haircuts of up to 70% for banks.

New Delhi, September 10: The Madras High Court on Monday gave temporary impunity to RKM Powergen’s 1,440 MW stressed power unit at Chhattisgarh from any action under the Reserve Bank of India’s February circular that seeks to fast-track insolvency process for defaulting projects.

The day, however, also saw four firms— Essar Power, GMR Energy, KSK Energy and Rattan India Power — withdrawing their petitions from the Allahabad High Court, seeking similar relief; these companies may now join a group of firms that had approached the Supreme Court earlier, seeking joint hearing of their cases of similar import. The apex court is slated to hear the matter on Tuesday.

The RBI circular requires lenders to file insolvency petitions against several stressed power units before the National Company Law Tribunal (NCLT) by Tuesday.

The Allahabad HC had on August 27 refused to set aside the circular. The Allahabad HC said the Centre may direct the RBI for a special dispensation for the sector.

A large chunk of the 34 projects — with a combined capacity of about 39 gigawatts and banks’ exposure of Rs 1.75 lakh crore — are now set to take the insolvency route. Analysts estimate resolution under this process could result in hefty haircuts of up to 70% for banks.

An earlier bid by State Bank of India (SBI) to undertake loan recast of some of these projects under the so-called Samadhan scheme had failed as the lenders could not reach a consensus. As a result, these projects with partial power purchase agreements and fuel linkages could also enter the insolvency arena.

Sources said that RKM’s case is scheduled to be heard by the Madras HC on September 24. A senior official from one of the companies told FE that it decided to pull out from the proceedings as the Allahabad HC wanted all the lenders to be present in the subsequent hearings, which would have delayed the whole process.

Earlier, the RBI had sought the transfer of all the insolvency cases pending before the high courts of Delhi, Allahabad and Madras to the SC on the grounds that there is a likelihood of conflict of decisions if the petitions are decided independently and that would lead to “confusion and uncertainty for lenders, borrowers, defaulters and other involved parties”. SBI chairman Rajnish Kumar told a TV channel over the weekend that about Rs 17,000 crore of power non-performing assets with SBI were heading to the NCLTs.


India: A glass half full or half empty?

Nirvikar Singh
The Financial Express
Published on September 11, 2018

It may be that double-digit growth can
only be achieved with greater inclusiveness

India is managing to grow reasonably quickly, despite global challenges (such as trade wars and high oil prices) and self-inflicted wounds (such as demonetisation and corruption). Continuing to grow at just above 7% a year, with population growth rates having come down, is as good in per capita terms as 8% aggregate growth rates would have been in the past. According to international organisations like the IMF, and global financial analysts such as Bloomberg, growth indicators such as exports, vehicle sales, and demand for bank loans are strong. Bloomberg even refers to “animal spirits” being alive in India. This is the half-full-glass view of India’s economy, one which the ruling coalition will project strongly as the election pre-campaign heats up.

Alternatively, one can point to some degree of fragility in the public finances, a continuing problem of bad debts in the corporate sector, and struggles in the informal sector. Investment rates remain below their peaks earlier in the millennium, foreign direct investment has slowed, and initiatives such as Make in India and Digital India have not yielded obvious and measurable payoffs in economic growth. Growth rates closer to double digits still seem to be needed if India is to achieve significant progress on an East Asia-type economic path, but how to get to those double-digit growth rates is not clear. From this perspective, India’s economic glass is half empty, or maybe worse than that, if growth is insufficient to meet aspirations, and social unrest increases as a result.

It will be interesting to see how the electorate in next year’s national polls weighs the different perspectives on India’s economic progress. Macroeconomic indicators do not necessarily translate into broadbased improvements in perceived well-being, and from those to voting choices, as previous Indian elections have demonstrated. Indeed, Donald Trump, the subject of my last column, is a good example of manipulating voter perceptions by playing on their fears and anxieties, mixing economic factors with a kind of tribalism that breeds social divisions. It is possible that emotions can be triggered in ways that swamp the perception of economic realities. The composition of Trump’s cabinet matters as well, leading to narrow and biased perspectives on policy making.

Economists have been making progress in building evidence for the possible success of different kinds of policies, such as bank accounts to encourage saving, or monitoring teachers to reduce their classroom absences. Recently, Jean Dreze has pointed out that evidence is necessary but not sufficient for good policy making: experience of context and what it is to like to be in someone else’s shoes matter for understanding and for policy design.

Recent work by Anjali Adukia of the University of Chicago illustrates the themes of evidence, understanding, and perspective. She researched the impact of school latrines. Well before the toilet-building programme of the current government, the Indian government launched a School Sanitation and Hygiene Education programme in 1999. Adukia analysed data for 2003 from over 1 lakh schools, some of which had latrines built under the programme, and others which didn’t. School latrines had positive impacts on enrolment and educational outcomes, especially for girls, but also for boys.

They were good for younger children as well as older ones. Readers should study the evidence in detail at www.ideasforIndia.in—the results are interesting and important.

What is also interesting, though, is Adukia’s revelations on perspective. The children and parents she interviewed (aside from the data she analysed) were very clear on the benefits of school latrines for attendance and educational performance. But of 140, mostly male, headmasters she interviewed, only three admitted that lack of sanitation facilities at their schools was a problem. These people in power were ignorant of what their constituents needed and what they would benefit from. There are larger Indian and even global lessons about gender and class inequalities of this kind of research on access to sanitation facilities in schools. But the even broader lesson is about perspective and power inequalities.

Donald Trump’s government is remarkable in not only turning a blind eye to the real needs of those left behind by globalisation and technological change, but in manipulating the emotions and perceptions of those citizens so that they are unaware of what policies will actually help them. Indian policy making has been a mixed bag in this respect—some politicians and bureaucrats have identified the real needs of the poor, and tried to address them. But many have been closer to the Trumpian ethos, offering trinkets and handouts at election time, or playing on fears, while ignoring the real problems of the disadvantaged.

On this point, also, it is not clear if India’s glass of policy making is half empty or half full. More inclusive growth is more like what East Asia managed, and that went with higher growth in the aggregate. It may be that double-digit growth can only be achieved with greater inclusiveness—understanding the needs of village girls who want to go to school but cannot do so in safety and comfort; small farmers for whom loan waivers are no substitute for more equal treatment from officials, suppliers and traders; or any number of marginalised groups in Indian society.

Author is Professor of Economics,
University of California, Santa Cruz


Can the rupee fall be controlled?

Madan Sabnavis
The Business Line
Published on September 10, 2018

Hedging oil contracts and addressing export finance hurdles
will help. The RBI should articulate its view on the rupee

The fall of the rupee has been quite sudden in the last few months and honestly no one is sure how the currency will move in future. There have been some signs of weakening of fundamentals, though admittedly the external factors are dominant. A stronger rupee vis-à-vis the other currencies, especially the euro, has led to systematic depreciation of global currencies. Nations like the East Asian economies are buffered by being export oriented. What can India do to stem the rot?

The first thing that comes to mind is that the RBI can start supplying dollars in the market to cool down the exchange rate. Up to June, the RBI had sold around $14 billion. Further, there were forward contracts purchased for $10 billion. Forex reserves have declined by $23 billion since March-end and is at around $400 billion now.

Realistically speaking, selling dollars is not practical as this can assuage the market only for a few trading sessions after which other factors will continue to drive the rupee down. Therefore, this is a short-term solution.

The second measure which can be taken is to talk the market down.

In the current situation there is a tendency for importers to rush in to buy dollars and exporters to hold back remitting their earnings on the expectation that the rupee will depreciate further. This exacerbates the demand-supply matrix for foreign currency and drives down the rupee further.

RBI steps

The RBI can ensure that export earnings come back to the country on time while importers should be urged not to rush in to buy dollars in advance. Alternatively, asking the importers to hedge can be attempted though it cannot be made mandatory. Making such statements will help lower the speculative element which comes into the picture every time the rupee keeps falling.

Third, the government should focus on exports and to the extent possible, especially on the tax credit/refund part, clear the coast for exporters. SMEs (small and medium enterprises) which are dominant in the export market have had tax refund issues and this needs to be sorted out.

Also, export finance is another problem which has been bothering exporters and impediments on this front too need to be removed. But this will work only in the medium term and cannot deliver result immediately because export markets tend to be relatively inelastic and are driven by demand factors.

Fourth, as oil is the major import component, and whose prices are rising, a separate window needs to be opened for selling dollars. Also, hedging processes must be put in place to ensure that the purchases are in order. OMCs (oil marketing companies) do take forward contracts to buffer against price changes, but to the extent there are open positions hedging should be made mandatory.

Fifth, the RBI would have to monitor the other components of demand for dollars — like it did previously, which was five years back — to ensure that there are limits to the drawal of dollars for other purposes such as travel, investment, and education. This could become a pain point where corporates may be taking dollars out for investment overseas, as opportunities within the country are limited.

Sixth, the channels for external commercial borrowing should be looked at judiciously. While urging companies to explore the market makes sense, it should be noted that un-hedged positions can put on pressure on debt servicing. Nevertheless, in these conditions, such borrowings would be helpful.

Seventh, the channel for considering a sovereign bond or any such scheme for getting expatriates to invest in such bonds should be planned in advance — which may not be required if conditions stabilise. We need to look at our forex reserves and import-cover position and have thresholds below which such bonds or NRI deposits schemes may have to be explored.

Such a policy would be worth having internally as there should be triggers that are known that would lead to such possibilities being looked at.

Capital flows

Eight, the capital flows need to be monitored proactively and this is where FPIs (foreign portfolio investments) matter. The strong inflow of FPIs has the power to rein in the rupee.

The recent issues regarding KYC norms can hold back such flows and regulators should look at minimising hurdles given the pivotal role played by this constituent. Further, while the RBI’s monetary policy target is primarily inflation control, the currency is also a secondary variable that is tracked and increasing interest rates could help in drawing in FPI flows to the debt segment.

While these options need to be a part of the list that the central bank and the government need to keep on the radar, the causes for depreciation are important. When fundamentals drive the rupee down — and here oil imports are relevant — the authorities can work on improving them by addressing various components on the capital and capital accounts.

However, when the prime driving force happens to be external factors like US’ trade war with China and Turkey, which results in the dollar strengthening, there is little that can be done to hold back the rupee.

Making affirmative statements will help to steady the rupee so that the speculative element lays low. In the market there is always a view that the country is better off with a weaker rupee as it helps to increase exports. Whether or not this premise is right, the market looks to the RBI on its view on the rupee.

While the RBI maintains that it has no view on the rupee value but is interested only in its orderly play, it is interpreted as the central bank being satisfied with the depreciation. This is a good reason to trigger further depreciation. By expressing a view, the RBI can send signals to the market, which will work better than direct intervention as the ‘sentiment’ factor is addressed. While Rs. 69.5-70 to a dollar looks to be fair in normal conditions, the length of the volatile phase can pull the rupee down substantially until equilibrium sets in. In the very near term though, Rs. 72-73/$ cannot be ruled out.

The writer is Chief Economist, CARE ratings.


The rupee is falling and India should let it

Ila Patnaik
The Mint
Published on September 10, 2018

The Reserve Bank of India’s stated policy is to reduce volatility, rather than target a specific level for the currency. Should the RBI intervene to strengthen the rupee?

New Delhi (Bloomberg Opinion): The Indian rupee has been sliding against the US dollar in recent days as emerging markets come under pressure. That’s made the currency one of Asia’s worst performers, losing 12% this year. The rupee’s latest moves have sparked a debate in India. The Reserve Bank of India’s stated policy is to reduce volatility, rather than target a specific level for the currency. Should the RBI intervene to strengthen the rupee? If so, what precisely should it do and what would the impact be?

A number of factors are pressuring officials to act — not least among them, that the rupee has become both a badge of national pride and a tool of political brinkmanship. But so far the government and the RBI have been unruffled by the fear-mongering. They shouldn’t lose their nerve.

Some of the loudest complaints have come from companies fretting about the likely impact currency depreciation will have on corporate balance sheets. Those who bet RBI would step in when faced with depreciation pressure borrowed heavily in international markets. Yet India’s currency-derivative markets, with many restrictions and limited liquidity, make hedging quite expensive, so these companies are now exposed.

Another pressure point is the price of oil, which quickly becomes a matter of unhappiness among the middle class. India imports about 80% of its petroleum needs, a factor only complicated by the country’s exorbitant domestic taxes on fuel—almost 100% on petrol and 60% to 70% on diesel. This means that when the rupee depreciates, the exchange rate pass through to fuel prices and, as a result, the rest of the economy, is high.

The RBI does have a number of instruments it can use to support the currency. The most obvious is to intervene in foreign exchange markets by selling dollars: the central bank has more than $400 billion in reserves at its disposal. Alternatively, it could raise interest rates, a move justified by the currency weakness, higher oil prices and the latest above-target inflation data. Third, it could raise dollars by borrowing from non-resident Indians, which has become a go-to in times of currency stress.

The RBI has used these instruments in the past—and the results haven’t been pretty. The central bank moved to prevent rupee depreciation in May 2013, after then US Federal Reserve chairman Ben Bernanke’s taper talk. Intervention continued through September, as pressure continued to mount on emerging market currencies. The result? The rupee fared worse than all other emerging market currencies.

Every move—from tightening liquidity and raising interest rates to discussion of non-resident borrowing and restrictions on derivatives—was interpreted as a panic reaction that only confirmed the rupee was under pressure. Foreigners felt it was better to take money out of India sooner rather than later, and the fall of the rupee became a self-fulfilling prophecy. Currency and derivatives markets, money and credit markets, and high costs of borrowing all hurt the economy in subsequent months.

In the years that followed, RBI continued to manage the rupee carefully. It mostly achieved this by reducing the size of the rupee-dollar derivatives market, which made its intervention more effective, and then buying rupees forward.

To some extent, the approach worked: currency volatility settled. While the real exchange rate of the rupee appreciated, the currency didn’t weaken in line with India’s higher inflation. Yet some could argue this merely set the stage for the current rout, which can be seen more as an overdue recalibration than a flash in the pan.

To be sure, there are some segments of the economy that gain from rupee depreciation. A weaker currency helps export growth, which has been weak in recent years. Companies—many of which are small and labour-intensive—have struggled with the transition to a goods and services tax, and several have had a hard time getting credit. A weaker rupee would also offset competition of cheap imports from countries like China, which could give domestic industries a much-needed boost.

The RBI and India’s government, at present, are calm. This is a strong posture that must withstand the daily news, media pressure, lobbying and political taunting. In 2016, RBI had been given a new mandate to meet its inflation target and maintain growth. Defending the currency at all costs isn’t part of the brief. This latest weakness will test its resolve.

Ila Patnaik is an economist and professor at the National Institute of Public Finance and Policy in New Delhi. She previously served as principal economic adviser to the government of India.


The truth behind genetically
modified food imports in India

Vivian Fernandes
The Financial Express
Published on September 11, 2018

CSE is wrong—import of GM food is allowed, and it isn’t
unregulated. The GEAC IS Empowered to regulate Such Imports.

Are the regulators sleeping on the watch while processed food containing genetically-modified (GM) plant material is being imported into the country? In a study released at the end of July, the Centre for Science and Environment (CSE) said it had detected GM material in 21 of 65 food samples it had tested from Punjab, Gujarat and the Delhi region. Of these, 16 samples were of imported food.

CSE’s director general Sunita Narain said in a press release that the imports were happening despite “our government says it has not allowed the import of GM food products.” Its deputy director general Chandra Bhushan blamed the regulatory agencies. “(T)he FSSAI has not allowed any GM food on paper, but has failed to curb its illegal sales.”

The government has indeed allowed the import of food and feed containing GM material subject to the approval of the Genetic Engineering Appraisal Committee (GEAC) in the environment ministry. The GEAC derives its authority from the 1989 rules to give effect to the 1986 Environment Protection Act, which, among other things, governs GM crops.

It is true that the Food Safety and Standards Authority of India (FSSAI) has not allowed the import or manufacture of GM food “on paper” or otherwise, though it is empowered to do so under Section 22 of the FSSAI Act 2006. The health ministry issued a notification in 2007 asking the GEAC to continue regulating GM food as the FSSAI hadn’t framed the necessary regulations nor had the necessary expertise. The GEAC held FSSAI’s powers in abeyance through regular notifications till it decided not to in its meeting in March. It transferred to the FSSAI the nine applications it had for import of herbicide-tolerant and insect-resistant soybean and rapeseed oils from Monsanto Holdings, Dow AgroSciences and Pioneer Hi-Bred Seeds.

These companies sought approval for import of oils from plants containing their “events.” An event is the term for the location on a plant chromosome of a foreign gene that helps produce desirable proteins (for, say, herbicide-tolerance or insect-resistance). The GEAC was not abdicating its responsibility by passing on the import applications. The Supreme Court had, in August 2017, directed the FSSAI to frame regulations and guidelines for GM food articles and get Parliament’s approval for them. It passed the directions on two writ petitions filed by the anti-GM activist Vandana Shiva.

The tests that the CSE conducted to detect GM material in food—Quantitative Polymerase Chain Reaction—is flawed, according to Pradeep Burma, HoD-Genetics at Delhi University. He said it lacked “rigour in experimental design and analysis.” The manual for the testkit used by the CSE in its investigation recommends three control reactions: positive control, negative control and extraction control. Only the first two had been done. (A positive control is a test of the sample with GM DNA fragments, a negative control is one with a sample—say, soybean oil—that does not contain GM DNA material, and extraction control is a test only of the reagents used for testing to rule out contamination). Burma, who studied CSE’s test data, also pointed out other anomalies that were sent to the CSE for comment on August 8 but no reply has been received.

Lalitha Gowda of the Central Food Technological Research Institute (CFTRI), Mysuru, said her team had tested oil samples sent by the GEAC. The first test was in 2007, when the Solvent Extractors’ Association (SEA) had applied for permission to import oil from soybean containing foreign herbicide-tolerance and insect-resistance genes. Gowda recalls centrifuging the samples to obtain a pellet of residue. A PCR was done on the residue sample. “We could not get DNA from refined oil. It was impossible to obtain DNA or protein. We said it was not absent but it was not detectable.” This is recorded in the minutes of GEAC’s June 2007 meeting giving import approval to the SEA. Gowda was CFTRI’s chief scientist till retirement in 2014. Gowda says CFTRI’s tests were rigorous. Apart from the three controls, they would do environment control (to detect the presence of contaminant DNA in the lab’s atmosphere) and template control. And just to make sure that the instruments were not acting up, they would spike a sample with ordinary soy DNA. When the instruments detected it, they were assured they had not obtained false negatives.

Between the health ministry’s notification in 2007 and March, when the FSSAI took over, there were 56 meetings of the GEAC. A review of their minutes shows that the GEAC dealt with import applications, and complaints, quite diligently. Companies that owned the proprietary GM traits for herbicide-tolerance or insect-resistance— most GM crops approved for cultivation globally so far have either or both these traits—filed applications for import of products from plants containing those traits so that importers did not have to individually apply. These applications were filed by Monsanto Holdings, Bayer BioScience, Pioneer Hi-Bred, BASF India and Dow AgroSciences.

In April 2008, the GEAC adopted the final draft for safety assessment of food derived from GE plants. It was prepared by the Indian Council of Agricultural Research. The guidelines were discussed at GEAC’s meeting the previous November. Several objections were raised by a member, PM Bhargava, known for his anti-GM stance. The draft was posted for public comments and the final draft was adopted after addressing them.

In May 2008, the anti-GM NGO, Greenpeace, complained to the GEAC about the import of Doritos Cool Ranch corn tortilla chips made by Frito-Lay, a subsidiary of PepsiCo. It said the presence of herbicide-tolerant soy and maize was detected in them. The GEAC formed a three-member committee. Greenpeace was called for a hearing, but did not turn up. When it was asked to turn in samples of the chips it had tested, it replied that the samples “were damaged” when its office was relocated in Bengaluru. Instead, it submitted a new sample of the same brand. The GEAC observed that Greenpeace had “not behaved very responsibly while making the accusation.” PepsiCo informed the GEAC, in reply to a notice, that it did not use GM produce for manufacturing any of its products in India, nor had it authorised import of its products from abroad.

Following the complaint, the GEAC alerted the directorate general of foreign trade—causing a consignment of Doritos corn chips from Taiwan to be held up at the Nhava Sheva port. The importer told the GEAC at its May 2009 meeting that Taiwan did not permit the cultivation of GM corn, though it allows import of corn and soybean oil from the US, where GM varieties of these crops are cultivated. On the declaration of the importer that the chips did not contain GM material, the consignment was allowed in, but the importer was warned of prosecution (under a foreign trade law) if the declaration turned out to be false. (There is no record of the GEAC asking the CFTRI to test the chips).

In December 2015, Suguna Foods (one of the largest poultry concerns in the country) sought permission for import of GM soybean meal for animal feed. In June 2016, the GEAC deferred a decision on the application pending comments from the FSSAI and the animal husbandry department. There is no mention of the application in subsequent meetings.

Following applications from at least 10 entities, including Godrej Agrovet, Suguna Foods and Shanthi Feeds for import of dry distillersgrain soluble (DDGS) from GM corn (after alcohol is extracted), the GEAC formed a five-member subcommittee. Its guidelines were accepted at the January 2017 meeting and fresh applications were sought.

At the March meeting, the GEAC asked the Review Committee on Genetic Manipulation (RCGM) in the Department of Biotechnology to frame risk assessment and risk management (RARM) guidelines, following an application for import of GM grain. A representative of the plant quarantine agency said the grains should be split or treated with high heat to devitalise them so they do not propagate, if by chance, they escaped into the environment.

The FSSAI has framed draft guidelines for GM food. It has also proposed labelling of food products if they contain more than 5% of GM material by weight.

The “unlawful entry” of food derived from GM plants, as the CSE has alleged, cannot be ruled out. Food inspection departments have not pro-actively checked for GM material in processed food. But the importers run the risk of prosecution if caught—for violation of the law; not putting people’s health at risk, because GM food has been found to be safe. CSE’s brouhaha seems to be just scaremongering.


BJP pushing Citizenship (Amendment) Bill
can ‘only complicate issues’ in Assam

Poornima Joshi
The Business Line
Published on September 11, 2018

ULFA, AGP leaders want party to step back

Guwahati, September 10: The BJP national executive resolution pushing the Citizenship (Amendment) Bill, while promising to deport the ‘ghuspathias’ (infiltrators) from Bangladesh has triggered a wave of resentment and anxiety about radicalisation of sub-nationalist elements in Assamese society.

“It'll strengthen the hands of Paresh Baruah (who heads the armed wing of the banned United Liberation Front of Assam ULFA) and his calls to arms,” Anup Chetia, who heads the moderate section of ULFA, told BusinessLine.

According to Chetia, the BJP is seeking to appease its Bangladeshi Hindu vote bank, a chunk of which has not been included in the final draft of the National Register of Citizens (NRC), by pushing a legislation that goes against the essence of the Assam Accord.

“The BJP is undermining the Assamese identity to help Bangladeshis. They want to separate Hindu and Muslim infiltrators. Over 40 lakh people who are not in the NRC include a large number of Hindus. Through the Citizenship (Amendment) Bill, the BJP is pushing the 1971 cut-off date to 2015 specifically for Hindu Bangladeshis.

“They want to run a parallel process which won't achieve anything except further complicate the issue of citizenship in Assam,” Chetiasaid.

At the BJP's national executive on Sunday, the party passed a resolution hailing the final draft of the NRC in Assam. The resolution underlined the BJP’s intention to identify and deport all infiltrators while simultaneously protecting all Hindus, Buddhists, Christians and Sikhs being persecuted in Bangladesh, Pakistan and Afghanistan through the Citizenship (Amendment) Bill.

While Chetia warned of this move leading to a resurgence of armed insurgency in Assam, the BJP's alliance partner, the AGP, said it will protest against the move. Former Assam Chief Minister Prafulla Kumar Mahanta told BusinessLine that his party will “strongly oppose” the BJP's “divisive strategy”.

“We had told them earlier too that they shouldn't play with sensitive issues for political ends. When the cut-off date for accepting as citizens who came before 1971 has been agreed upon by all stakeholders, where is the need to now say Hindus are exempt from this cut-off?” asked Mahanta.

The feeling among those who were part of the prolonged agitation for Assamese identity under threat from Bengalis and sovereignty, like ULFA, is that the BJP is worried about the exclusion of a large number of Bangladeshi Hindus from the NRC and is trying to reassure them that their interests would be protected through the Citizenship Bill. These stakeholders are also, almost unanimously, of the view that such a move is nearly impossible to implement and would lead to chaos in a diverse society like Assam.

“Anyone who came after 1971 has to go. We're very clear. They can be Hindus, Muslims or anyone else. Assam is for Assamese and we have been more than generous in letting 1971 as the cut-off date. The BJP can't act arbitrarily and push their agenda here," said Samujjal Bhattacharya, Advisor, All Assam Students Union (AASU).

 Source: Internet Newspapers and anupsen articles


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