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India facing a cash crunch as bank credit growth slows down in September

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Mumbai :India’s tight money conditions and fears of a contagion following a debt crisis at a local lender dented demand and put a muzzle on animal spirits in the world’s fastest-growing major economy.

Economic growth in the July-September quarter may have retreated from the 8 per cent plus expansion in the three months ended June as consumption cooled, a slew of high-frequency data show. The overall activity reading moved a notch lower in September to sit in the middle, for the first time since Bloomberg News started tracking the indicators to measure animal spirits — a term coined by British economist John Maynard Keynes to refer to investors’ confidence in taking action.

Signs that consumption, a key driver of growth, is weakening is bad news given the absence of private investments. Here are the full details of the dashboard:

 

The main services index rose at the slowest pace in four months in September amid near stagnation of new business. Companies reported that market conditions were underwhelming with growth activity slowing in finance and insurance sectors and business services. The Nikkei India Composite PMI Index also fell, as weaker services activity eclipsed a slight improvement in the manufacturing gauge. The services sector accounts for about 55 per cent of the nation’s gross domestic product.

Nevertheless, price pressures intensified, with higher fuel costs and a stronger dollar making imported goods pricier. Still, with headline inflation expected to hover close to, or even undershoot, the central bank’s 4 per cent target in coming months, the central bank is likely to be on hold, having resorted to back-to-back interest rate increases in June and August.

Exports contracted both in year-on-year terms and sequentially, despite the sharp depreciation in the rupee — which has lost more than 12 percent against the dollar so far this year. More worryingly, imports also moderated despite high oil prices and belying expectations of a festival season demand for gold. Analysts at Nomura Holdings Inc. say these point toward a potential moderation in domestic growth and a faster-than-expected adjustment to the weaker currency. Overall, external trade is expected to be a drag on growth in the July-September quarter, unlike the previous quarter when exports helped.

The Reserve Bank of India’s latest consumer confidence survey serves as a grim reminder that conditions are softening. The current situation index waned in the September survey, reflecting a worsening consumer perception on the general economic situation and the employment scenario, the central bank said. That’s in addition to reduced optimism on spending by consumers.

Data from the Society of Indian Automobile Manufacturers show that private vehicle sales fell in September as rising cost of loans and a sharp spike in domestic fuel prices likely put off buyers. Higher insurance costs are expected to hurt sales of two-wheelers in the coming months, analysts said, although commercial vehicles sales are holding up for now — primarily driven by a healthy demand for trucks.

Meanwhile, bank credit growth slowed to 12.5 per cent in September from a year ago and compared to August’s 13.5 per cent rise.

Bloomberg Economics’ Abhishek Gupta said this was likely due to the increase in lending rates over the past few months.

“Tight liquidity conditions in the banking system have been driving up bank deposit and lending rates since March. This is likely to further crimp bank credit growth,” he said.

The Citi India Financial Conditions Index shows a considerable tightening as advance tax outflows, the central bank’s intervention in the foreign exchange market and banks refusing to lend to non-banking counterparts after a default by Infrastructure Leasing & Financial Services Ltd., combined to drive up money market rates. The index incorporates among other indicators, short-term money market rates, government bond yields, the yield curve, credit and credit default spreads.

 


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Indian billionaires’ wealth rose by Rs 2,200 crore a day in 2018: report

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New Delhi: Indian billionaires saw their fortunes swell by Rs 2,200 crore a day last year, with the top 1 per cent of the country’s richest getting richer by 39 per cent as against just 3 per cent increase in wealth for the bottom-half of the population, an Oxfam study said .Globally, billionaires’ fortunes rose by 12 per cent or USD 2.5 billion a day in 2018, whereas the poorest half of the world’s population saw their wealth decline by 11 per cent, the international rights group said in its annual study released before the start of the five-day World Economic Forum (WEF) Annual Meeting in this Swiss ski resort town.

Oxfam further said that 13.6 crore Indians, who make up the poorest 10 per cent of the country, continued to remain in debt since 2004.

Asking the political and business leaders who have gathered in Davos for the annual gathering of the rich and powerful of the world to take urgent steps to tackle the growing rich-poor divide, Oxfam said this increasing inequality is undermining the fight against poverty, damaging economies and fuelling public anger across the globe.

 

Oxfam International Executive Director Winnie Byanyima, one of the key participants at the WEF summit, said it is “morally outrageous” that a few wealthy individuals are amassing a growing share of India’s wealth, while the poor are struggling to eat their next meal or pay for their child’s medicines.

“If this obscene inequality between the top 1 per cent and the rest of India continues then it will lead to a complete collapse of the social and democratic structure of this country,” she added.

Noting that wealth is becoming even more concentrated, Oxfam said 26 people now own the same as the 3.8 billion people who make up the poorest half of humanity, down from 44 people last year.

The world’s richest man Jeff Bezos, founder of Amazon, saw his fortune increase to USD 112 billion and just 1 per cent of his fortune is equivalent to the whole health budget for Ethiopia, a country of 115 million people.

“India’s top 10 per cent of the population holds 77.4 per cent of the total national wealth. The contrast is even sharper for the top 1 per cent that holds 51.53 per cent of the national wealth. The bottom 60 per cent, the majority of the population, own merely 4.8 per cent of the national wealth. Wealth of top 9 billionaires is equivalent to the wealth of the bottom 50 per cent of the population,” Oxfam said while noting that high level of wealth disparity subverts democracy.

Between 2018 and 2022, India is estimated to produce 70 new dollar millionaires every day, Oxfam said.

“It (the survey) reveals how governments are exacerbating inequality by underfunding public services, such as healthcare and education, on the one hand, while under taxing corporations and the wealthy, and failing to clamp down on tax dodging on the other,” Oxfam India CEO Amitabh Behar said.
The survey also shows that women and girls are hardest hit by rising economic inequality, he added.

“The size of one’s bank account should not dictate how many years your children spend in school, or how long you live — yet this is the reality in too many countries across the globe. While corporations and the super-rich enjoy low tax bills, millions of girls are denied a decent education and women are dying for lack of maternity care,” Byanyima said.

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Fugitive Choksi surrenders Indian passport in Antigua to ‘avoid extradition’

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Chandigarh:Fugitive tycoon Mehul Choksi has given up his Indian citizenship and surrendered his passport to Antigua, as per media reports.

This move by Choksi’s is being seen as an attempt to avoid his extradition to India. Antigua and India do not have an extradition treaty.

India had earlier handed over a request to Antigua for extradition of Mehul Choksi who is charged in connection with India’s biggest banking fraud, and now living in the Caribbean nation after taking its citizenship.

 

Official sources said a team comprising officials from the Ministry of External Affairs (MEA) and other agencies was sent to Antigua a couple of days ago to request the Antiguan authorities to extradite Choksi, wanted in India in the US$ 2 billion Punjab National bank scam.

As per reports, Antiguan authorities cleared Choksi’s citizenship in November 2017 after India did not give any adverse report to stall his application for it.

Choksi had fled India on January 4 this year and took oath of allegiance in Antigua on January 15. His citizenship was cleared in November 2017.

Choksi’s application for citizenship in Antigua in May 2017 was accompanied with clearance from the local police as required by norms, Antiguan newspaper the Daily Observer reported, citing a statement from the Citizenship by Investment Unit of Antigua and Barbuda (CIU).

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FPI outflow crosses Rs 4,000 crore in Jan so far

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New Delhi: Foreign investors have pulled out more than Rs 4,000 crore from the Indian capital markets so far in January, highlighting their cautious stance towards the country.

This comes following a collective net inflow of over Rs 17,000 crore in the capital markets both equity and debt by Foreign Portfolio Investors (FPIs) during November and December.

Prior to that, they had pulled out a massive Rs 38,905 crore in October.

 

According to data available with the depositories, FPIs withdrew a net amount of Rs 3,987 crore from equities and a net sum of Rs 53 crore from the debt market, taking the total outflow to Rs 4,040 crore during January 1-18.

Market experts believe that FPIs are continuing with their ‘wait and watch’ approach towards India.

Going ahead, the focus would be on the budget, progress on the economic growth front and general elections, they added.

Other factors such as movement in crude prices and currency as well as US-China trade relations will also play a role in FPI flows, they added.

Harsh Jain, COO at Groww, an online MF investment platform, said 2019 is likely to see a lot of volatility because of the rate hikes and dollar instability, but the Indian markets may be able to weather the storm.

“India offers better investment opportunities due to consistent growth, supportive global factors and attract valuations. We should expect positive inflow in coming months,” he added.

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