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Govt’s plans to boost capital inflow may not reverse rupee slide: Moody’s

Press Trust of India

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New Delhi :The five-pronged strategy announced by the government to increase capital inflow into the country is unlikely to reverse the rupee depreciation, Moody’s Investors Service said Monday.
The Indian government estimates that the measures, including exempting investors from withholding tax for offshore rupee-denominated (masala) bonds and allowing Indian banks to become market-makers, will increase capital inflows by $8-10 billion, or 0.3-0.4 per cent of GDP, in the fiscal year that ends March 31, 2019.
The government also announced its intention to curb imports and reiterated its commitment to this year’s fiscal deficit target.
Although these measures provide credit positive support to India’s external account, they are unlikely to reverse the currency’s depreciation, Moody’s said.
The rupee has depreciated more than 10 per cent against the US dollar since January 2018 and was at Rs 72.1 against the dollar as of September 21.
Moody’s, however, said that strong macroeconomic fundamentals will keep the credit risks of a weaker currency at bay.
The measures will likely take time to affect capital inflows. Moreover, although the potential removal of hedging requirements could reduce some short-term pressure on the rupee, it could also heighten corporates’ exposure to currency fluctuations, Moody’s said.
Concurrently, measures to curb non-essential imports might help to contain the imports bill, but will likely have a lagged effect, it added.
At current levels, India’s current-account deficit (CAD) is still much narrower than the near 5 per cent of GDP posted during the taper tantrum period in 2013, when the currency depreciated by nearly 20 per cent between May and August.
The CAD, difference between inflow and outflow of foreign exchange, widened to 2.4 per cent of GDP in the April-June quarter.
Moreover, India’s External Vulnerability Indicator, the ratio of external debt payments due over the next year to foreign exchange reserves, remains low at 65 per cent when compared with its peers, Moody’s said.
Although foreign reserves have declined by 5.7 per cent to $376.6 billion since peaking in March 2018, they are significantly higher than their level of around $250 billion in 2013, said the US-based rating agency.
The large foreign-currency reserves provide additional policy space and flexibility for the central bank to manage external shocks and reduce the risk of sustained and large portfolio outflows, as well as pressure on the currency, Moody’s said.
It said oil prices at current levels will raise expenditures and add to existing pressures on India’s fiscal position.
Those pressures include the lowering of goods and services tax rates on a range of consumer goods and a tax cut for small businesses, as well as the relatively high minimum support prices set for this year, Moody’s said.
We, therefore, see risks that the central government deficit will be wider than targeted and expect the general government deficit (central and states) to be around 6.3 per cent of GDP in fiscal 2019, compared with 6.5 per cent the previous year, Moody’s said.
The measures announced by the government on September 14 included removal of single-exposure limit of 20 per cent on foreign portfolio investors for corporate bonds, lowering to one year from three years the minimum maturity on manufacturing firms’ external commercial borrowings (ECBs) of up to $50 million.


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Business

RBI needs to ensure stability: Shaktikanta Das

Agencies

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New Delhi: The head of the Reserve Bank of India (RBI) said he would take the steps necessary to maintain financial stability in the country and help create favourable conditions for growth.

India’s economy has grown because of measures such as the nationwide goods and services tax and the insolvency and bankruptcy code that prevents wilful defaulters from bidding for stressed assets, Shaktikanta Das said in his address to an investor roundtable.

The country’s growth story is backed by its strong domestic fundamentals, he said, citing lower inflation.

 

Annual retail inflation rate dropped to an 18-month low of 2.19 per cent in December, strengthening the views of some economists that the central bank could ease monetary policy next month.

India’s top business groups on Thursday urged the central bank to cut its benchmark interest rate by at least half a percentage point and lower the cash reserve ratio it imposes on banks.

The country also needs to watch out for any sudden turbulence in the gloal financial market, Das said.

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Centre removes two PNB executive directors for lapses in Rs 13,500-cr fraud

Agencies

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Chennai:The Central government has removed two Punjab National Bank (PNB) Executive Directors — Sanjiv Sharan and K.Veera Brahmaji Rao — for the lapses in the Rs 13,500 crore fraud allegedly perpetrated by absconding diamantaire Nirav Modi.

The PNB has intimated the action to the stock exchanges.

“We welcome the Central government’s action to dismiss the two Executive Directors. The scam of such proportions could not have happened without the knowledge of the top management,” C.H. Venkatachalam, General Secretary, All India Bank Employees’ Association (AIBEA), told IANS.

 

“Perhaps for the first time, the Centra has removed the Executive Directors of a nationalised bank under the Nationalised Banks (Management and Miscellaneous Provision) Scheme, 1970. All these days it was said the top management of government-owned banks — Chairman, Managing Director, Executive Directors — are governed only by the contract of appointment.

“It is also good that the central government has followed the due process of giving the two PNB Executive Directors opportunity to put forth their views before dismissing them,” Venkatachalam added.

According to the Central government’s notification, on July 3, 2018, Sharan and Rao were issued a show cause notice as to why they could not be removed from office for having failed to exercise proper control over the functioning of PNB, thus enabling the fraud through the misuse of SWIFT at the bank’s Brady House branch in Mumbai.

After considering Sharan and Rao’s replies and the comments of the bank’s Board, the Centre removed them from office as it found it was expedient in the interests of PNB.

According to the notification, the dismissal of Rao is subject to the outcome of a plea in the Delhi High Court.

“We are happy to see some action being taken. Whether it is only the two Executive Directors and other officials are also involved in the scam has to be probed in full,” Venkatachalam said.

According to him, in the past, low-level officers would have been the scapegoats for such massive scams.

“With the action taken on the top management, people will be satisfied that public sector bank officials are answerable for their lapses,” Venkatachalam added.

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In this new world, data is the new wealth: Ambani

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Mumbai: Reliance Industries chairman and managing director Mukesh Ambani urged Prime Minister Narendra Modi to take steps against ‘data colonisation’, specially by global corporations, stating that Indian data must be owned by Indians.

Invoking Mahatma Gandhi’s movement against political colonisation, Ambani said India now needs a new movement against data colonisation.

“Gandhiji led India’s movement against political colonisation. Today, we have to collectively launch a new movement against data colonisation,” he said Gandhinagar at the Vibrant Gujarat Global Summit.

 

Stressing that, in this new world, data is the new wealth, Ambani said, “India’s data must be controlled and owned by Indian people and not by corporate, especially global corporations.”

He further said, “For India to succeed in this data driven revolution, we will have to migrate the control and ownership of Indian data back to India. In other words, give Indian wealth back to every Indian.”

Stating that the “entire world has come to recognise” Modi “as a man of action”, Ambani said, “Honorable Prime Minister, am sure you will make this one of the principal goals of your digital India mission.”

Later in the day, countering Ambani’s call, Governor – Commonwealth of Kentucky, Matthew Griswold, asked Modi “to think in the opposite” in order to realise the tremendous opportunity that lies in Indo-US partnership.

“Honorable prime minister you have been asked from this stage to think about limiting the amount of competition, limiting the exchange of ideas, information and goods. I would encourage you to think in the opposite,” he said.

While stating that it is important to put the people of India first, Griswold said, “It is also important to put their opportunity and our opportunity as citizens of the world to trade with one another and exchange ideas because iron sharpens iron.”

The greatest possibility comes from the exchange of these idea, he added.

“If we can cut the regulations, cut the bureaucracy, cut the red tape, the opportunity is enormous between our nations,” he added that India is now the 10th largest trading partner for the US and “climbing quickly”.

“The opportunity before us between India and the United States is incredible, but responsibility falls on each of one us, those of us in elected positions, those of you in the industry, those of you who represent various constituencies, we have much work to do…we must do this, ” Griswold said.

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