India distracted by ideological considerations, says Nouriel Roubini

While speaking on the monetary policy-related aspects, Roubini also flagged up the issue of RBI autonomy.

Indian policymakers have been “distracted” by ideological considerations, when the economic slowdown deserves the most attention, American economist Nouriel Roubini said on Thursday.

Foreign investors get “worried” by scenes of protests on the streets, the professor at New York University’s Stern School of Business said, warning that economic slump can make a regime unpopular.

The comments from Roubini come at a time when official data showed that GDP growth may to slip to 11-year-low of 5 per cent this fiscal, and amid growing protests across the country against the Citizenship Amendment Act, which critics allege as being discriminatory against the Muslims. “The macroeconomic policies are not where they should be, structural policies are not where they should be,” Roubini said, while speaking at an event organised by CFA Society India.

In a conversation with global brokerage firm Morgan Stanley’s Riddham Desai, Roubini rued that Indian policymakers are focusing on other aspects despite global headwinds like the impacts that can be caused due to a rise in oil prices amidst the US-Iran conflict. x“The attention of the policymakers should have been concentrated on the economy and is instead distracted by political things, ethnic things and other things to do with ideology,” Roubini said.

Uncertainties are not good for the economy, he said and referred to President Bill Clinton’s famous phrase ‘It is the economy, stupid!’ to warn that the policies adopted may not pay political dividends as well. “You may be popular initially because of politics and ideology but if the economy slows down, you will be losing your popularity,” Roubini said.

He said the Indian economy was in a “slowdown” and the declining growth will “probably stabilise” in 2020.He bracketed India among the emerging markets where a growth pick-up is up to two quarters away.

While speaking on the monetary policy-related aspects, Roubini also flagged up the issue of RBI autonomy. "There has been some concern on how much the RBI is independent, than what it used to be," he said... Read More

As banks turn immune to monetary policy, QE may save the day for RBI

If the central bank views asset purchases as a way to influence the waning quantity of money, then it should act now. Doing so may well save the day.

With India’s nominal GDP growing at its slowest pace in 17 years, it’s a given that the central bank will cut interest rates again this Thursday.

What’s the point, though? Commercial bank lending rates have turned immune to monetary policy, so much so that a sixth reduction this year in the benchmark price of money will make hardly any difference. The only medicine that can work is quantitative easing, a remedy authorities aren’t even discussing. QE may not cure the patient, but it may well succeed in bringing India’s economy out of a coma.

To see why the quantity of money is a bigger problem than its price, consider M4. The growth rate of India’s broadest measure of money supply has collapsed to single-digit levels for some time now, and is refusing to budge. New loans automatically create new deposits in the banking system. But until there are creditworthy takers for fresh advances, deposits won’t revive.

Time and demand deposits at banks account for 84 per cent of money supply, so it’s hard for the latter to get a boost without an uptick in the former.

Unconventional asset purchases can make a difference, though not the vanilla Japanese variety in which the central bank buys government bonds from banks for cash, which they stuff into their current accounts with the monetary authority.

This kind of QE does have a couple of advantages. One, it lowers the long-term government bond yield. That reduces loan costs for risky borrowers, since government bond yields act as a benchmark. Two, a more liquid banking system with more low-yielding cash than higher-yielding bonds will be impatient to lend — at least in theory. Yet this type of QE relies on loans being made. If the demand side of the economy is struggling, the impact may be limited because of the one thing it doesn’t do: lift money supply in the broader economy. That’s a point Invesco Asset Management chief economist John Greenwood has made in Japan’s case.

For India, it would help much more for the central bank to buy government bonds from nonbanks, following in the footsteps of the US Federal Reserve, which primarily purchased securities from hedge funds, broker-dealers and insurance companies. Since nonbank sellers of bonds don’t have accounts at the Reserve Bank of India, they’ll deposit any cash they receive with commercial lenders. Money supply would accelerate even without new loans being made.

Business Standard

Can Modi reinvent himself a third time and deliver structural reforms?

Mismanagement at home and increasing protectionism abroad have ensured that India has dropped out of that group of fast-growing emerging economies.

Business Standard : It’s now official: The Indian economy is suffering through a major slowdown, and one that shows no immediate sign of easing.

The only surprise is that the estimate for growth in gross domestic product last quarter isn’t even lower than the announced 4.5 per cent. When the Narendra Modi-led government presented its first budget after being re-elected, it expected growth in 2019-20 to be around 7 per cent. A few months later, the Reserve Bank of India slashed that to 6.1 per cent. It is hard, now, to see how even that rate — relatively slow by India’s past standards — will be achieved.

Hidden in the disaggregated numbers is the story of what has gone wrong. Investment has collapsed. It contracted 3 per cent in real terms last quarter, after growing almost 12 per cent in the same quarter last year. What has grown faster is government spending. It may have been responsible for as much as 40 per cent of whatever growth India did have.

Since early in his first term, Modi has largely abandoned his campaign promise to get government out of business. Instead, he’s relied on the public sector to build a welfare state and prop up growth. In the heady years, as falling oil prices flattered Indian growth and fattened the treasury, it looked like his strategy was working.

But the money is rapidly running out. Including spending by provincial administrations, the deficit is approaching 8% of GDP. Claims that public spending would make investment more attractive for the private sector have not been borne out. There simply isn’t enough money to go around — with the government taking the lion’s share of financial savings, private investment has to be content with the meager leavings.

India’s government has nobody else to blame. The economy has slowed in the past — most recently, during the commodity boom and the “taper tantrum” — but on each such occasion there was some sort of exogenous calamity it had to deal with. There hasn’t been a bad monsoon, or sudden commodity price inflation, or a balance-of-payments crisis. The world economy isn’t exactly booming, yet export-oriented economies like Vietnam and Bangladesh seem to be doing fine. Vietnam grew at 7.3 per cent in the last quarter, and Bangladesh may see two successive years of 8 per cent growth.

Mismanagement at home and increasing protectionism abroad have ensured that India has dropped out of that group of fast-growing emerging economies. It’s fashionable in India to worry about slumping consumer demand and blame it for the slowdown.

It will need more than a rate cut to salvage India's sputtering economy

It wasn't too long ago that economic aspirations for India echoed China's. Now this young country of 1.4 billion people is looking more like Indonesia, Malaysia or the Philippines.

BS : Shaktikanta Das has one of the easiest jobs in central banking. He just has to keep doing what he's been doing since becoming governor of the Reserve Bank of India last December: cut interest rates. Fortunately, political will is on his side.

That’s an enviable state of affairs for a central banker these days. Just look at Federal Reserve Chairman Jerome Powell, who has become a constant target of President Donald Trump’s Twitter tirades. It’s also face-saving for Das that politics and economics are pointing in the same direction. He took up this post under a cloud of question marks about the RBI’s independence. Das’s immediate predecessor, Urjit Patel, quit abruptly almost a year ago, just as the government was ratcheting up pressure for the institution to hand over some of its reserves to free up fiscal spending.

The troubling state of Asia's third-largest economy makes Das's task uncomplicated. The country's pace of economic growth is slowing dramatically; government numbers due late Friday may well show the expansion slipped below 5 per cent last quarter, the weakest pace since gross domestic product figures were reconfigured in 2012. Last year, the nation was churning out GDP numbers with an 8 in front of them. Many big economies have been slowing, but it’s hard to think of another where growth has come down to earth so quickly.

For Das to even contemplate taking his foot off the monetary pedal now would be a mistake. He should look past the recent uptick in inflation last month, largely attributed to vegetables such as onions, a staple of Indian cooking. Those price gains helped push the measure beyond the RBI's 4 per cent medium-term target. More important is the slide in core inflation, which strips out volatile commodity prices. This points to a demand problem in the economy, as my Bloomberg Opinion colleague Andy Mukherjee wrote here.

Das says policymakers will keep cutting rates until growth revives. The five reductions he’s overseen haven’t given the economy back its groove; so the mission is clear going into next week’s meeting, when the central bank is expected to cut again. His global peers may have done well to adopt the same approach. It's clear from the Fed’s retreat that the hikes in 2018 went too far in the face of anemic inflation. The European Central Bank had barely curtailed quantitative easing before it had to start all over again.

Lest Das be tempted to sail through, there's the iceberg of India’s banking industry to consider, which is saddled with one of the world's most dangerous loads of bad debt. The trouble is, about 60 per cent of the financial system is controlled by state-run banks that report to the government, so Das’s ability to influence them is constrained. At some point he may well have to challenge entrenched political interests.

GDP growth seen slipping under 5% in Sep quarter; may be in 4.2-4.7% range

A look at six indicators shows all of them have collapsed from positive growth in April to contraction in Sept.

Finance minister Nirmala Sitharaman told the Rajya Sabha on Wednesday the country was not in recession yet, and won’t ever be.A set of data arriving in a day may qualify the statement to some extent. The Ministry of Statistics and Programme Implementation (MoSPI) will release the data on gross domestic product (GDP) for the July to September quarter of the fiscal year 2019-20 (Q2FY20) on Friday.

Raising slowdown concerns, economists whom Business Standard earlier spoke to have concurred on one thing: The growth in GDP in Q2 would be between 4.2 and 4.7 per cent, slower than the 5 per cent achieved in Q1.

The actual data could be more serious as the lowest-ever quarterly growth clocked since 2012-13 (when the new GDP series began) was 4.3 per cent, in the March quarter of FY13, when India was battling high inflation and political turmoil, in addition to pressures from the global economy.

Representative data for the July-September quarter proves their point to a great extent. A look at six indicators — imports, exports, rail freight earnings, electricity and diesel consumption, and overall industrial production — shows that all of them have collapsed from positive growth in April to contraction in September.

These indicators are a collage of manufacturing and services sector indicators in the country, encompassing a substantial part of the economy.

While the growth in Q1 was 5 per cent with positive leading indicators, Q2 has been characterised by all indicators in red. Port traffic too has stagnated, growing 0.4 per cent in the April–October period, entirely brought down by a severe contraction in coal imports.

Growth in consumption of fast-moving consumer goods, such as shampoo sachets and coconut oil, has weakened to 2 per cent in Q2FY20, with the stress concentrated in north Indian states.

Shubhada Rao, chief economist at YES Bank, told Business Standard that except services propelled by the government’s budgetary funding, all the sectors of the economy are a drag on growth in the September quarter.

But she also said that the Indian economy is going through a transition phase, and some near-term impact was expected.

Slowdown due to Centre's failed economic policies, says Amit Mitra

India's GDP growth fell to 5 per cent in the first quarter of the current financial year and is estimated to have dipped further in the second quarter.

Blaming demonetisation and the “ill-implemented” goods and services tax regime for the current economic slowdown, West Bengal Finance Minister Amit Mitra (pictured) on Thursday hit out at the central government for delaying GST compensation to states, claiming it has hurt their finances.

“It is not a cyclical correction but a structural slowdown. The demonetisation decision hit businesses across the country.

A few months later, another blow came in the form of the ill-conceived GST rollout,” Mitra said in a press conference.

India’s GDP growth fell to 5 per cent in the first quarter of the current financial year and is estimated to have dipped further in the second quarter.

Mitra highlighted an increase in the cash in the economy and suspicious transactions after demonetisation, and how the badly implemented GST led to a rise in incidents of frauds, causing leakages.

Suspicious transactions reports (STR) increased 14 times in 2017-18, as compared to the year prior to demonetisation, he said citing government data. He said of over 1.4 million STRs received, only 82,595 were processed.

“GST frauds at least to the tune of Rs 1 trillion have taken place so far, if we include states’ data,” said Mitra. He said discontinuation of invoice matching through GSTR 2 had given rise to incidents of fraud.

Business Standard

At 6%, UN body projects 7-year low GDP growth for India in 2019

The UN body also pointed towards challenges in meeting sustainable development goals (SDGs) at a time when private debts are rising globally.

The United Nations Conference on Trade and Development (UNCTAD) has pegged India’s economic growth rate at a seven-year low of 6 per cent in calendar year (CY) 2019. It also highlighted the pitfalls of shadow banking in countries such as India and China, citing the example of Infrastructure Leasing & Financial Services (IL&FS).

The UN body also pointed towards challenges in meeting sustainable development goals (SDGs) at a time when private debts are rising globally.

India’s economy grew 7.4 per cent in CY18. It grew below 6 per cent in 2012 — called the policy paralysis year — under the UPA 2 government.

“Growth projections for India have been marked down because of a sharp fall to 5.8 per cent in the first quarter of CY19 (relative to the corresponding quarter of the previous CY),” said UNCTAD in its trade and development report for 2019.

It should be noted that UNCTAD did not take into account an over 6-year low economic growth rate of 5 per cent that the country recorded during the second quarter of CY19.

Highlighting the risks of shadow banking, it said such institutions were fragile alternatives to public banks and development finance institutions, as the roles of the latter were reduced or done away with, as part of liberalisation.

Quoting a study, UNCTAD said an example of this development was Infrastructure Leasing & Financial Services (IL&FS), which sourced capital using short-term instruments such as commercial papers (CPs) to fund long-term investments.

This maturity mismatch did not prove to be a problem initially, because of the presumption that being a government-sponsored entity, it enjoyed sovereign guarantee.

Owned one-third by state-owned financial entities, IL&FS was one of the largest issuers of CPs and enjoyed a triple-A credit rating.

However, by August 2018, it suffered a series of bond defaults by group entities, leading to a change in management, legal proceedings, and a painful restructuring of the company that is still in progress, UNCTAD said.

The report also highlighted concerns over SDGs. It said these concerns were compounded by the dizzying rise in debt levels to a scale similar to those seen before the financial crisis.

Business Standard

Every number in Budget is authentic, says Finance Minister Sitharaman

Data given in the Budget is 100% above board, Sitharaman said.

Finance Minister Nirmala Sitharaman on Wednesday said the government was committed to the path of fiscal consolidation without compromising on public expenditure. Sitharaman also said all the data mentioned in the Budget 2019-20 was authentic, allaying the Opposition’s doubts about the numbers.

Doubts have cropped up because the Budget assumed 12 per cent economic growth at current prices, while the Economic Survey, presented a day earlier, implicitly pegged the growth at 11 per cent. All the key numbers in the Budget — be it revenues or the fiscal deficit — are based on the nominal GDP growth rate assumed for the year.

Replying to the general discussion on the Budget, Sitharaman said the assumed gross domestic product (GDP) growth rate for FY20 was on the basis of the first advance estimates for national accounts released on January 7. However, the Economic Survey projected the growth rate based on the first actual numbers released on May 31, she said.

ALSO READ: No question of rolling back surcharge on FPI trusts, says Finance Ministry

“Data given in the Budget is 100 per cent above board. I wish to assure the entire house that there need not be any speculation on the figures which have been given out. Every number is authentic,” Sitharman said.

She added she had given reasons why there were differences between one number in the Economic Survey as opposed to what has appeared in the Budget document. The Survey pegged the FY20 GDP growth at constant prices at 7 per cent. If inflation, as mandated by the Reserve Bank of India at 4 per cent, is taken into account, the growth at current prices comes at about 11 per cent.

The first advance estimates have pegged the GDP at current prices at Rs 190 trillion for FY19. However, it was Rs 188 trillion in the first actual numbers, also called provisional numbers.

“Both the projections are consistent with each other,” said Sitharaman. Earlier, experts also pointed out holes in the Budget numbers based on these two projections. A query has been raised about the “missing” Rs 1.7 trillion fiscal hole in India’s financial accounts. This is so because the Budget uses the revised estimates, a projection of how much the government was expected to earn, while the Economic Survey uses the first actual numbers. The RE used in the Budget show earnings of Rs 17.3 trillion in 2018-19, while the first actual numbers in the Economic Survey show that the government had earned Rs 15.6 trillion.

One year of GST: Sowing the seeds for fruits of GDP growth in the future

GST may have had issues at the time of roll out and some creases need to be ironed out but it will help India's GDP grow.

One Year Of GST : A year back when GST was being rolled out, this was a point of time when many state legislatures were in the mode of circumspection. GST was long needed for establishing a robust indirect tax system in the country. It came in at a right time when the 'Digital India' campaign had started to succeed in reaching across the length and breadth of the country.


Let’s check out some of the hits that GST has marked for itself :
GST law functioning under a shelter of a robust technology
Despite GSTN having a tight deadline to prepare a robust system to handle various GST compliances like Migration, Registrations, Return filing and Refund processing, a sound and reliable system was set-up for citizens to operate. At times, system software and hardware failed to take the load and hence crashed. Not only this, despite online filing, a manual submission of form RFD-01A - for GST refunds - continues till today. But a look into the legal structure of GST formulated by the GST council and the lawmakers, a proper technology backing is a must. Nevertheless, GSTN is dedicated towards building a strong GST portal in an ongoing effort to resolve tech issues.


Salute to GST council’s statecraft
Uphill task of decision-making that had a nation-wide impact was managed with strong and principled diplomacy. The statesmanship shown by all the members of the state is appreciable. Timely meetings ( offline and through video conferencing ) to discuss various relevant concerns of trade and industry worked well. Handling of the entire process of simplification in GST return filing to make it taxpayer-friendly in short time is welcome.


The revenue figures for May 2018 of GST collected stands approximately at 940 billion, which is above the monthly average GST collected for any previous month.


Despite GST stabilising with anti-tax evasion measures such as e-way bill mechanism, there are few misses that need further deliberation:

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A welfare scheme for 500 mn Indians: Is this Modi's big plan for 2019?

The government has drafted a bill to extend benefits to all workers, including those in informal employment, by merging and simplifying 15 federal labour laws into one.

Prime Minister Narendra Modi is set to extend a welfare program to India’s 500 million workers as he bids for re-election in 2019, but he has limited time and resources to implement the ambitious plan.
PM Modi aims to initially provide three programs — old age pension, life insurance and maternity benefits, while leaving out unemployment, child support and other benefits — to most working citizens, government officials said, asking not to be identified as discussions are private.


While it could translate into significant political gains to offset the challenges he faces in the lead up to the national poll, it is likely to add pressure on India’s fiscal deficit, already one of the widest in Asia.


The government has drafted a bill to extend benefits to all workers, including those in informal employment, by merging and simplifying 15 federal labour laws into one. It plans to present the bill in July in the upcoming session of Parliament, Labour Minister Santosh Gangwar told Bloomberg News, while remaining non-committal on a full-fledged roll-out before the national poll.


The plan will be one of the largest mass benefit programs in the country of 1.3 billion people and comes after the February announcement of a health protection plan targeted to cover 100 million poor families, dubbed ‘Modicare’.


The government plans to pilot the project in six districts in the months leading up to the federal elections due in May next year, the officials said.


“Nobody can deny the importance of social security for the country’s working class and it is overdue,” said Satish Misra, a political analyst at the Observer Research Foundation in New Delhi. “But the timing suggests it’s political in nature and Modi wants to push it in a hurry so that in election campaign he can claim it’s a game changer for poor.”

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