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India’s surprising economic strength last quarter will only renew debate over how much its unprecedented cash ban has curtailed growth and how quickly activity will bounce back.

While the Reserve Bank of India and the government are backing a sharp V-shaped recovery, analysts including those at the local unit of Moody’s Ratings predict a slower turnaround after Tuesday’s growth estimates showed India shrugged off the impact of the sudden withdrawal of 86 percent of its currency with only a breif slowdown.
The Reserve Bank of India has already signaled an end to its interest rate easing cycle and with growth set to gather pace it’s likely to boost inflationary pressures in the coming months. And as newly-printed bills hit the banking system, replacing the old 500 and 1,000 rupee notes that were voided overnight on Nov. 8, the government is expecting a quick rebound.

Indian sovereign government bond yields appear to have bottomed out and are headed higher as investors and analysts including those at Morgan Stanley expect a rate hike most probably in 2018. Expectations of higher rates from an inflation-fighting central bank are also helping the rupee, which has recovered after hitting a record low in November.

Still Smarting

Yet India’s economy is still smarting over Prime Minister Narendra Modi’s shock currency withdrawal that saw India’s vast shadow economy stall and forced millions to spend days lining up to withdraw cash or exchange their worthless notes.
The costs have been huge, especially for the informal sector which does the bulk of its transactions in cash. There was a sharp dip in consumption towards the end of 2016, highlighted by a contraction in overall auto sales in December. Industrial growth was hit and demand for loans from companies remains at a record low. Along with uncertainty over the introduction of a nationwide sales tax due later this year, there are few signs that much-needed private sector investment will spearhead a recovery.
Some economists and lobby groups say official growth figures do not account for job and revenue losses at small companies.

Aditi Nayar, principal economist at ratings agency ICRA LtdBSE -0.58 %. said the overall numbers may not capture the full impact of the note ban because growth data relied heavily on the formal sector, which weathered the effects much better than the informal sector. "Subsequent estimates that draw from wider data sources may well revise third-quarter growth downward" she said.

News source: Economic Times

Posted On Wednesday, 01 March 2017 06:55

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Economist Viral Acharya spent nearly two decades studying banking crises around the world. Now, as a deputy governor at India's central bank, he is turning his attention to one that may be developing at home.
At issue is what to do with $133 billion in stressed assets accumulated by banks after years of reckless lending, a problem that has bedevilled regulators and stalled loans that India needs to revive private investment.
Acharya has put the issue back in the headlines.
In a speech last week, the Reserve Bank of India official proposed creating "bad bank"-type institutions to buy and restructure stressed loans, along with an approach to banks and defaulters that he called "tough love."
With the government ambivalent towards the creation of "bad banks" to take on toxic debt, Acharya's comments made markets sit up, and were seen by some economists as a signal of intent to tackle the issue.
Colleagues who have worked with him believe Acharya can bring urgency to the debate about India's banking woes, sparked when a boom in lending after 2009 backfired.
"He is very professional, very, very driven," said K. V. Subramanian, an associate professor of finance at the Indian School of Business who has written papers with Acharya and known him for 12 years.
"He is continuing Raghu's practice of calling a spade a spade," he added, referring to former RBI Governor Raghuram Rajan.
"The banking sector is actually incredibly distressed. So, it is good to have someone who will not brush the problems under the carpet."
SHADOWS OF JAPAN, ITALY?
Acharya entered academia after graduating from New York University in 2001 with a Ph.D. in Finance. His career took him to London Business School and back to NYU in 2008. He started at the RBI in January.
Although he has been careful to note that India's banking woes are not at crisis levels, Acharya warned that failure to act could see the country follow Japan's financial stagnation in the 1990s or Italy's troubles today.
His proposals call for the creation of private and public institutions to buy stressed assets and restructure them, although he says he dislikes the term "bad banks" and argues his plan provides only for narrow mandates to deal with bad debt. And he took aim at defaulters who he said in his speech were having "somewhat of a field day" by avoiding repayments, and at bankers who were "kicking the can down the road." Acharya calls his proposals "incentives," but any restructuring plans refused by bankers and defaulters could be forced upon them. The RBI said it had no further comment on banks' bad debts beyond what Acharya said in his speech.

CAN IT WORK?

Acharya's idea could be tough to implement. Fitch Ratings warned it was unlikely to work unless the government was prepared to inject some $10.4 billion it believes the sector needs by March 2019, given banks would need to cover for haircuts. Acharya has acknowledged the need for recapitalisation, including in a 2015 paper in which he called on the government to undertake "radical" reform in the banking sector.
But he has been reluctant to specify a number, acknowledging the government's fiscal constraints.
It also marks a departure to Rajan's thinking. Acharya and Rajan have had a close relationship over the years, and collaborated on several research papers. Acharya was once mistaken for the former RBI governor, and, in recounting the anecdote, described himself as a "poor man's Rajan". Yet Rajan long eschewed the idea of a "bad bank" and sought instead to provide flexibility to bankers by making it easier to write down bad debt. Bankers are also opposed to a "bad bank" and are urging the RBI to allow existing programmes to work. "They should try making modifications to the existing system and not come out with a new strategy every time a new person comes on board," said a senior banker at a state-run lender, referring to regulators.

News source: Business Today

Posted On Wednesday, 01 March 2017 06:53

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US President Donald Trump today pushed for a merit-based immigration system that could benefit high-tech professionals from countries like India. Trump, during his first address to Congress, noted that "nations around the world, like Canada, Australia and many others have a merit-based immigration system". He said that such a system will save countless dollars and raise workers' wages. Trump introduced the idea of a merit-based immigration system after invoking the memory and words of late president Abraham Lincoln, saying, "Lincoln was right and it is time we heeded his words."
"Switching away from this current system of lower-skilled immigration, and instead adopting a merit-based system, will have many benefits: it will save countless dollars, raise workers' wages, and help struggling families - including immigrant families - enter the middle class," Trump said.
Trump said he is going to bring back millions of jobs.
"Protecting our workers also means reforming our system of legal immigration. The current, outdated system depresses wages for our poorest workers, and puts great pressure on taxpayers," he said.
Trump said he believes that real and positive immigration reform is possible as long as it focuses on the goals to improve jobs and wages for Americans to strengthen the country's security and to restore respect for laws.
"If we are guided by the well-being of American citizens then I believe Republicans and Democrats can work together to achieve an outcome that has eluded our country for decades," he said.
Indian IT professionals account for the largest number of foreign nationals coming to the US on H-1B visas. Indians also account for a significantly large number of foreign workers coming to the US as scientists, doctors, engineers and other highly-skilled professionals. During his presidential campaign, Trump had promised to increase oversight of our H-1B and L-1 visa programmes that are used widely by Indian tech companies.

News source: Business Today

Posted On Wednesday, 01 March 2017 06:50

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Banking operations were hit by the day-long, nation-wide strike called by employees of public sector banks to press for their demands, leaving ATMs dry at various places across the country. Operations such as clearing of cheques, money transfer, cash remittances and deposit and withdrawals at branches were paralysed across public sector banks and some old generation private sector banks, the All India Bank Employees Association (AIBEA) claimed.
Karur Vysya Bank and Federal Bank said their staff union and officers associations under the banner of UFBU participated in the strike, which was called by seven trade unions to press for demands of the banking industry. However, branches of new generation private banks like ICICI Bank, HDFC Bank and Axis Bank were functioning as usual. Industry body Assocham said the strike may negatively impact forex and paper clearing transactions worth up to Rs 1.3 lakh crore.
The United Forum of Bank Unions (UFBU), which is umbrella body of nine unions, had called the one-day strike. However, two of Bharatiya Mazdoor Sangh affiliates -- the National Organisation of Bank Workers and the National Organisation of Bank Officers -- did not support the stir. "People could not go to banks to transact anything, deposit money, withdraw money or do any other transaction. Government treasury transactions could not be done, import and export transactions were hit, money market operations were not possible," AIBEA General Secretary C H Venkatachalam told PTI.
He said that the strike became necessary due to "the governments ostrich-like approach in understanding the demands. Even very reasonable demands like payment of overtime wages for extra hours worked during demonetisation period has not been settled".
The strike was to protest against the continued attempts to privatise public sector banks which are the main engine of growth of the economy, he further said.
According to reports from various parts of the country, including major business centres like Mumbai, Kolkata, Chennai, Hyderabad, Bangalore, Ahmedabad, Pune and Jaipur, functioning of banks and ATMs was paralysed due to the strike.

News source: Business Today

Posted On Wednesday, 01 March 2017 06:30

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The Sensex slumped over 80 points to 28,813 today as the March derivatives series began on a subdued note, mirroring a weak trend in the Asian market.
Profit-booking at prevailing levels weighed.
The 30-share Sensex fell 80.09 points, or 0.27 per cent, to 28,812.88. The gauge had gained 737.41 points in the previous six sessions.
FMCG, auto, bank, power and metal stocks were trading in the negative zone, down by up to 0.67 per cent.
The NSE Nifty offered a similar picture, which was down 10.25 points, or 0.11 per cent, at 8,929.25.
A weak trend in other Asian markets cast its shadow as investors stepped back from a recent rally ahead of a speech to the Congress by Donald Trump this week.
The selling came in the face of start of March futures and options series in the derivatives segment.
Hong Kong's Hang Seng was down 0.53 per cent while Japan's Nikkei shed 1.16 per cent in early session today.
Shanghai Composite fell 0.18 per cent.
The US Dow Jones Industrial Average, however, ended 0.05 per cent higher on Friday.

News source: Business Today

Posted On Tuesday, 28 February 2017 07:25
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