• What is the Situation Today ???
• Inflation Increasing
• Currency Devaluation day by day
• Getting hard & Hectic to survive in the country
• Citizens looking for :
• How the Situation will improve ??
• Impact on Economy:
• Getting Low day by day which as a result
reducing the credibility of the country in the
Major Happenings in past 6 days
1. WPI inflation at five-month high in July.
2. Govt. bans gold coins, medallions imports to
• WPI inflation at five-month high in July
• inflation rose to a five month high in July, pushed up by a
steady increase in fuel prices because of the weaker currency
and double-digit rise in food prices, creating more headaches for
the UPA government that faces elections in about nine months.
• The wholesale price index (WPI) inflation rose to 5.79% in July
from 4.86% in the month before, data released on Wednesday
showed. Inflation for May was revised down to 4.58% from 4.7%
• "Vegetable prices may reverse and demand remains weak, but a
weak rupee and adverse base effects will likely drive WPI
inflation above 6% in the coming months.
Govt. bans gold coins, medallions
imports to curb deficit
• Seeking to reduce the import of gold, the Reserve Bank
today prohibited inward shipment of gold coins,
medallions and dores without license.
• "From now onwards, import of gold in the form of coins
and medallions is prohibited and henceforth all import of
gold in any form or purity shall be subject to a licence
issued by DGFT prescribing 20-80 scheme,"
• The latest measures are part of the series of steps taken to
curb gold import, the single biggest contributor to the
widening Current Account Deficit (CAD).
1. Wall Street posts biggest loss since June
2. Rupee hits an all-time low despite RBI
Wall Street posts biggest loss since
• US stocks had the biggest one-day percentage drop
since late June on Thursday in higher-than-average
trading volume after poor results and outlooks from
Dow components Wal-Mart and Cisco.
• Consumer and technology stocks were among the
biggest decliners after Wal-Mart Stores' shares fell on
a surprise decline in quarterly same-store sales and
• Cisco Systems shares dropped one day after the
network equipment maker announced it was cutting
Rupee hits an all-time low despite RBI
• The rupee on Friday hit an all-time low of 62 versus the US
dollar. The India currency fell after appreciating in the early
morning trade. The fall comes despite, RBI announcing stern
measures to curb forex outflow amid weakening of the US
• The Reserve Bank on Wednesday reduced the limit for
overseas direct investment (ODI) by domestic companies,
other than oil PSUs, under the automatic route from 400 per
cent of net worth to 100 per cent to curb forex outflow. Oil
India and ONGC Videsh are exempt from this limitation.
1. Foreign residency: RBI's capital curbs dashes
green card dreams of rich Indians
2. Re fall will have cascade effect
Foreign residency: RBI's capital curbs
dashes green card dreams of rich
• Rich Indians planning to invest in a business or buy property in some
foreign countries to gain permanent residency find their dreams
shattered, with the central bank reducing the limit for remittances made
by individuals to $75,000 from $200,000 per financial year and banning
the purchase of property outside India.
• Countries such as the US, UAE, Australia, Bahamas, Spain, Mauritius and
parts of Canada offer permanent residency and fast-track green card to
those who invest in businesses or property there. The US EB 5 visa offers
a fast-track green card if one invests $500,000 in a business.
• Buying a property worth $500,000 gets you a permanent residency in the
Bahamas. In Australia one has to invest A$5 million to qualify while in
the UAE, foreign property buyers are automatically given a three-year
Re-fall will have cascade effect
• The constant downslide of the Rupee against the dollar has left industry
leaders jittery. The currency tumbled to Rs 62 against the dollar on
Friday, triggering apprehensions and demands for more stringent
measures by the Union government and the RBI.
• S C Ralhan, northern region chairman of the Federation of Indian Export
Organization and president of the Ludhiana Tools Manufacturing
Association said, "The situation has gone from bad to worse. I don't
think half hearted approach can help now. Strong measures are needed
to promote the industry."
• Despite the overall feeling of anxiety, there are some who see the silver
lining in the cloud. Badish Jindal, national president of the Federation of
Associations of Small Industries of India said, "I do not deny that the
situation is grave. But I feel it is a blessing in disguise as the industry
would be forced to reduce mindless import from China. We are
becoming dependent on China and our exports are limited. The situation
has resulted in a crisis."
1. Prime Minister Manmohan Singh, D
Subbarao spar over RBI's policies
2. Reducing coal imports to help bridge current
Prime Minister Manmohan Singh, D
Subbarao spar over RBI's policies
• Tensions between the government and outgoing RBI governor D Subbarao
came out in the open on Saturday as Prime Minister Manmohan Singh called
for "fresh thinking" on macroeconomic policy and suggested the central
bank narrow its focus.
• The PM on Saturday seemed to throw his weight behind finance minister P
Chidambaram who has been insisting that RBI must not interpret its
mandate solely in terms of inflation control and needs to be more attentive
to the government's growth priorities.
• "I would venture to think the time has come when we should revisit the
possibilities and limitations of monetary policy in a globalized economy, in a
fiscally constrained economy," Singh said at a function to release a history of
the RBI, where the governor was in audience.
• Interestingly, Subbarao used the occasion to stoutly rebut criticism of being
insensitive to growth, saying it is "inaccurate and unfair" to contend RBI was
"obsessed with inflation, oblivious to growth concerns".
Reducing coal imports to help bridge
current account gap
• A reduction in coal imports by increasing domestic production would help in bridging the
current account deficit, according to Planning Commission member B K Chaturvedi.
• Despite the country having substantial coal reserves, demand for the dry fuel is much higher
than domestic production resulting in increased imports.
• According to Chaturvedi, the domestic production of coal has to be increased to meet the
demand of various segments, especially power sector.
• "The government is very keen that domestic production (of coal) improves. The policy is to
maximise production of coal so that imports of coal is reduced.
• "And if they (imports of coal) reduced to that extent, your CAD will improve," he told PTI.
• Current Account Deficit, which indicates imports of goods services and transfer are higher than
their exports, touched 4.8 per cent (or USD 88.2 billion) of country's Gross Domestic Product
(GDP) in 2012-13 period.
• 1. Commerce Ministry wants easier gold
import norms for exporters
• 2. India does not need an IMF credit line
Commerce Ministry wants easier gold
import norms for exporters
• Describing recent restrictions imposed by RBI on import of gold by
jewellery exporters as "onerous", the Commerce Ministry has pitched for
relaxation of norms for inward shipments of the precious metal.
• "The present requirement of their (exporters) being able to import the
next consignment of gold, only after proof of export has been submitted
is quite onerous...", Commerce Secretary S R Rao said in a letter to
Economic Affairs Secretary Arvind Mayaram.
• Rao suggested that the condition of providing proof of export before
allowing import of next consignment of gold should be done away with
for the exporters of gems and jewellery.
• In order to contain current account deficit (CAD), the Reserve Bank last
month imposed restrictions on gold imports by banks and other
India does not need an IMF credit line
• India does not need to seek a line of credit from the International
Monetary Fund (IMF) to help fix the economy, World Bank chief
economist Kaushik Basu said in New Delhi on Monday, on the same
day the rupee fell to another record low.
• "I don't think that we are in a situation where there is any need for
that," Basu told reporters after giving a lecture in the Indian capital,
when asked whether India should ask the IMF for money. "India has
enough foreign exchange reserves, so the question of having to turn
to the IMF is not there."
• The rupee fell despite a series of measures unveiled last week to try
to stall its decline. The rupee has been the worst performer in Asia
since late May, when the US Federal Reserve first signaled that it
may begin tapering its monetary stimulus this year, sparking an
exodus of cheap money from emerging markets worldwide.
1. FDI cap in asset reconstruction companies raised to 74%
from 49% with a rider
2. Axis Bank raises base rate by 25 bps to 10.25%
3. Rupee futures weaken in New York trade; down 13% so far
FDI cap in asset reconstruction
companies raised to 74% from 49%
with a rider
• RBI has increased the ceiling for FDI in asset reconstruction
companies (ARCs) from 49% to 74% subject to the condition that no
sponsor may hold more than 50% of the shareholding in an ARC
either by way of FDI or by routing through an foreign institutional
• The foreign investment limit of 74% in ARC will be a combined limit
of FDI and FII. Hence, the prohibition on investment by FII in ARCs
will be removed.
• The total shareholding of an individual FII shall not exceed 10% of the
total paid-up capital, an RBI release said. The limit of FII investment
in securities receipts may be enhanced from 49% to 74% of the paid-
up value of each tranche of scheme of security receipts issued by the
asset reconstruction companies.
Axis Bank raises base rate by 25 bps
• Brace up to pay more on your loans as banks begin to hike lending rates as
the rupee continues to fall and liquidity in the banking system gets tighter.
Axis Bank the country's third largest private sector bank, on Monday raised
its base rate, the minimum lending rate, by 25 basis point to 10.25%. One
basis point is equal to one hundredth of a percentage.
• The increase in lending rate follows the Reserve Bank of India's liquidity
tightening measures last month to check the rapid depreciation in the
rupee, which affected short-term rates. The currency has dropped 15%
against the dollar since end of May.
• To provide strength to the falling rupee, the RBI capped banks' borrowings
under liquidity adjustment facility (LAF) and increased the marginal
standing facility (MSF) rate by 200 basis points to 10.25%. It also imposed
capital controls last week by curbing outflows from companies and
individuals which has affected debt and equity markets.
Rupee futures weaken in New York
trade; down 13% so far this year.
• The partially convertible Indian rupee weakened in the futures market late in New
York trade on Monday, signaling the currency is likely to find more sellers once Asian
trade opens for business on Tuesday.
• India's rupee is down more than 13 percent in spot trading against the US dollar so far
this year, with the majority of the decline coming after the US Federal Reserve hinted
in May that it would begin slowing its pace of quantitative easing.
• In late New York trade, one-month dollar rupee non-deliverable forwards gapped to a
record high 64.50, albeit on thin volume. Trading in these forward contracts closed in
Europe at 63.50.
• The bid on the rupee was last at 63.12 per US dollar according to Thomson Reuters
data, a record low for Asia's third-largest economy.
• India's central bank has proven unable to stem the rupee's selloff, despite
intervention and curbs on outflows from companies and individuals, which have
dented India's stock and bond markets.
1. Government takes steps to support markets, rules out capital
2. Indian stock market remains below $1-trillion mark for 3rd
3. Onion prices jump back to `80 per kg; Nafed floats import
tender to curb prices
Government takes steps to support
markets, rules out capital controls
• India took steps on Tuesday to support the beaten-down bond market, in moves
also expected to prop up the battered rupee, while a top official said there was no
need to issue sovereign bonds to Indians abroad or bring in capital controls.
• On Tuesday, the Indian rupee fell past 64 to the dollar for the first time and bond
yields spiked to a five-year high before the central bank stepped in to sell dollars.
• Asia's third-largest economy has been hammered by a selloff in emerging markets -
particularly those that have to fund large current account deficits - on concerns
over the impact of the expected winding down of US central bank stimulus.
• Late in the day, the Reserve Bank of India said it would buy long-dated government
bonds worth 80 billion rupees ($1.3 billion) through an open market operation on
August 23 and would decide after that on the amount and frequency of further
operations as warranted.
• A series of liquidity-tightening measures to support the rupee has sent interest
rates surging, prompting many economists to cut their growth outlooks for Asia's
third-largest economy, which grew at a decade-low 5 per cent in the last fiscal year.
Indian stock market remains below
$1-trillion mark for 3rd day
• Amid sustained weakness across categories, the Indian stock market remained
below the trillion-dollar mark for the third consecutive day today, as the total
valuation of all listed companies slipped further to USD 944 billion.
• Besides, the stock market also remained below the `60 lakh crore mark in terms
of total valuation of all listed companies for the second straight day.
• The market's dollar valuation dropped further to USD 944 billion (`59,68,994.64
• The rupee today closed at 63.25, down 12 paise over yesterday after hitting a
fresh low of 64.13 in intra-day session.
• The Bombay Stock Exchange 30-share barometer settled the day at 18,246.04, a fall of 61.48
points or 0.34 per cent. The index has lost 1,121 points in three successive trading sessions.
• "The Indian equity market is passing through an extremely volatile phase, where the broader
trend is down. Clearly the selling pressure in the market is due to weak macros, weaker outlook
on macros, and sharp rise in USD INR," said Milan Bavishi, Head Research, Inventure Growth and
• Indian stock market's valuation had moved out of trillion-dollar league on August 6, but regained
that level on August 8. However, continuing weakness in rupee and stocks once again pushed it
out of this elite global league last week on August 16.
• India had first entered the trillion-dollar club in June 2007, but moved out in September 2008,
amid the global slowdown. It again got back into the elite league in May 2009 and had largely
remained there since then, except for some brief periods including once in 2012.
• The rupee weakness has been a key force behind the dollar -valuation plunge in the recent
• Since the beginning of the current fiscal in April 2013, though the rupee valuation of Indian stock
market has fallen by 6.55 per cent, its dollar valuation has plunged 22 per cent. The rupee has
depreciated by over 16 per cent during this period.
• With India out of this league, only about a dozen stock markets across the world now enjoy a
trillion-dollar status. These include the US, UK, Japan, China, Canada, Hong Kong, Germany,
France, Switzerland, Australia and South Korea.
Onion prices jump back to `80 per kg;
Nafed floats import tender to curb
• Cooperative major Nafed on Wednesday floated a global
tender for import of undisclosed quantity of onions from
Pakistan, Iran, China and Egypt to boost domestic supply and
curb prices, which have again risen back to `70-80 per kg in
most retail markets of the country.
• Retail prices jumped back to `70-80 per kg on Wednesday, up
by `10 per kg from Tuesday's level. Wholesale prices too rose
at the same pace to `45-55 per kg in the national capital and
Current Economic Status of the
• While, crude prices are hovering around 105 dollar per barrel, Indian rupee has breached the
level of 64.6 against the dollar. This has primarily raised risk of higher wholesale price index
(WPI) inflation in the coming months. Furthermore, food inflation will be impacted by higher
crude prices owing to the higher transport costs. This is visible already in skyrocketing
vegetable and food prices.
• Since the start of the current fiscal, Indian rupee has depreciated by nearly 10 per cent and
has recently touched an all-time low of 64.6 According to estimates, a 10 per cent
depreciation of the rupee is expected to increase WPI by 0.6-0.8 per cent. Furthermore,
about 35 per cent of the commodities which make up the WPI basket are global commodities
with fuel and power component being a big drag with 14.9 per cent weight in the overall WPI
• The International Monetary Fund (IMF) has recently downgraded India’s growth projection
for the current fiscal by 0.2 per cent to 5.6 per cent which is tad below RBI’s projections of
5.7 per cent.
• Outlining out the weakness in the economic fundamentals, Sunil Sinha, head of economic
research and chief economist at rating agency Crisil, said, “Although Chidambaram has been
the new finance minister for the last 10 months yet his initiatives do not seem to be working
out well. While, on the domestic front nothing has much changed on the ground, globally too
things have not improved for India.” he however, exuded optimism that in the medium to
long term Indian growth story would be intact because of the demographic dividend.
However, in the short term fundamentals are certainly weakening with each passing day.
• Agreeing with the view that Indian economy is going through tough phase. Brinda Jagirdar,
consulting economist (former chief economist at SBI) argued, “It is likely that fundamentals of the
economy could deteriorate in case policy measures are not put in place quickly. There is still time
for us to act. Policy implementation will help the economy to stabilize and prevent the
• In sync with the view, DK Pant, chief economist at India Ratings said, “Yes, no doubt hardening
crude prices (due to political unrest in Egypt) will make some dent on the economy. Although
things are difficult and there are pressures like rupee depreciation yet it is not doomsday for the
Indian economy as of now.”
• However, rupee depreciation has indeed led to upside risks to inflation. According to Crisil report,
if the rupee averages Rs 58 per dollar in 2013-14, average WPI inflation in 2013-14 might rise to
6.0 per cent compared to its baseline call of 5.3 per cent. As per the latest data, WPI inflation fell
to 4.7 per cent in May, 2013.
• Sinha at Crisil said, “WPI may not actually go back to double digits but the declining trend which
we have witnessed in the last few months might halt and it may escalate gradually. Increase in oil
prices will lead to higher fuel prices. This will lead to increase in transportation cost which will
again impact the prices of vegetable and essential commodities. Furthermore, rupee depreciation
will negatively impact the consumer durables as they use lot of imported components.”
• Sinha’s thought got an endorsement from Pant at India Ratings who averred, “As India is a net
commodity importer hence there will be an adverse impact on inflation and overall subsidy bills.”
• Rupee depreciation leaves little room for monetary easing despite the sharp slowdown in GDP
growth. Analyst community agrees with the fact that in order to turnaround the economic
growth rate policy measures should be taken timely.
What the Government Saying ??
• India's present economic woes are not comparable to the problems the
country faced in 1991, World Bank Chief Economist Kaushik Basu said
• "Are we back to 1991? That is completely a non-question because if you
just look at a couple of numbers, then you say there is absolutely no
comparison. Foreign exchange reserves in 1991 was down to USD 3 billion,
India now sits on USD 280 billion foreign exchange reserve," he told
• Basu was the Chief Economic Adviser in the Ministry of Finance
immediately before he took his present assignment with the World Bank.
• "Last year, India's economic growth had slowed down to around 5
percent, that's a very poor performance, however, in 1991, the growth
was much lower than 5 percent," he added.
• Recently, Prime Minister Manmohan Singh had also ruled out the
possibility of India witnessing a repeat of the 1991 balance of payments
crisis and reversing the path to globalization of economy.
• When asked whether India should ask the International Monetary
Fund (IMF) for money, Basu said: "I don't think we are in a situation
where there is any need for that. India has enough foreign exchange
reserve. So, the question of having to turn to IMF is not there."
• On measures taken by RBI to arrest the fall of rupee, he said:
"Supporting the currency is a typical matter. Typically, what RBI has
done is what central banks with floating exchange rates do."
• Last week, the RBI announced stern measures, including curbs on
Indian firms investing abroad and a reduction of outward
remittances, to restrict the outflow of foreign currency and stabilise
• Widening CAD, which touched to a record high of 4.8 percent in
2012-13, is putting pressure on rupee. The government has been
taking a series of measures to increase the inflow of foreign
exchange as well as check its outflow.
What was the situation in the year
• Initially India started having balance of payments problems
• The Govt. was close to default, RBI refused to issue new Credit
• India’s foreign exchange reserves had been reduced to such a
point that India could barely finance three weeks’ worth of
• The country had to airlift its gold reserves as a pledge with the
International Monetary Fund (IMF) for a loan