Indian economy


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Indian Economy Current Stage

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Indian economy

  2. 2. • What is the Situation Today ??? • Inflation Increasing • Currency Devaluation day by day • Getting hard & Hectic to survive in the country •
  3. 3. • 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 World
  4. 4. Major Happenings in past 6 days 15th August 1. WPI inflation at five-month high in July. 2. Govt. bans gold coins, medallions imports to curb deficit
  5. 5. • 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% estimated initially. • "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.
  6. 6. 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).
  7. 7. 16th August 1. Wall Street posts biggest loss since June 2. Rupee hits an all-time low despite RBI measures
  8. 8. Wall Street posts biggest loss since June • 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 4,000 jobs.
  9. 9. Rupee hits an all-time low despite RBI measures • 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 currency overseas. • 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.
  10. 10. 17th August 1. Foreign residency: RBI's capital curbs dashes green card dreams of rich Indians 2. Re fall will have cascade effect
  11. 11. Foreign residency: RBI's capital curbs dashes green card dreams of rich Indians • 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 residency permit.
  12. 12. 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."
  13. 13. 18th August 1. Prime Minister Manmohan Singh, D Subbarao spar over RBI's policies 2. Reducing coal imports to help bridge current account gap'
  14. 14. 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".
  15. 15. 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.
  16. 16. 19th August • 1. Commerce Ministry wants easier gold import norms for exporters • 2. India does not need an IMF credit line
  17. 17. 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 authorised agencies.
  18. 18. 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.
  19. 19. 20th August 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 this year.
  20. 20. 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 investor (FII). • 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.
  21. 21. Axis Bank raises base rate by 25 bps to 10.25% • 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.
  22. 22. 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.
  23. 23. 21st August 1. Government takes steps to support markets, rules out capital controls. 2. Indian stock market remains below $1-trillion mark for 3rd day. 3. Onion prices jump back to `80 per kg; Nafed floats import tender to curb prices
  24. 24. 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.
  25. 25. 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 crore). • The rupee today closed at 63.25, down 12 paise over yesterday after hitting a fresh low of 64.13 in intra-day session.
  26. 26. • 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 Securities. • 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 months. • 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.
  27. 27. Onion prices jump back to `80 per kg; Nafed floats import tender to curb prices • 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 other states.
  28. 28. Current Economic Status of the Country • 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 chart. • 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.
  29. 29. • 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 deterioration.” • 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.
  30. 30. 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.
  31. 31. • 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 rupee. • 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.
  32. 32. What was the situation in the year 1991 ?? • 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 imports. • The country had to airlift its gold reserves as a pledge with the International Monetary Fund (IMF) for a loan
  34. 34. THANKS!!! Prepared by: Mohak Agarwal Gaurav Bhattacharya