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Use caution or brace for slowdown: Experts

Agencies

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Hyderabad: With the stand-off over the Reserve Bank of India’s autonomy reaching its fever pitch, economists advised caution as the showdown between them on a host of issues, including a proposal to dip into the central bank’s reserves, could impact the economy.

“The standoff is over three issues — namely the government’s a proposal to wean away RBI’s regulatory powers over payments bank and the central bank’s approach towards bad loans and easy lending to MSMEs,” said Subhanil Chowdhury, assistant professor at Institute of Development Studies.

The other issues which reported have driven wedge between the Mint Road and the North Block are the government’s proposal to dip into RBI reserves to fund its fiscal deficit.

 

Unconfirmed reports suggest that the government has already invoked the never-used clause in Section 7 of the RBI Act to begin consultations with Reserve Bank.

The clause empowers the central government to order the RBI to take specific action on the issues that it considers to be of public interest.

While the difference of opinion between the Reserve Bank and the finance ministry officials is not new, the invocation of mandatory clause in the RBI Act hints at hardening of positions by both the authorities and complete breakdown of communications.

“Section 7 of the RBI Act was never used by any government in around 70 years. It was not used during economic stress in 1990s, or during the global recession in the aftermath of Lehman Brothers collapse or when US Fed’s tapper tantrums hit the economy badly in 2013. So the invocation of Section 7 by the government makes one wonder how bad is the economy,” he explained.

Chowdhury said the invocation of Section 7 appears to be a step taken by the government in panic as the economic indicators like stocks, current account deficit and rupee are not favourably placed in the election season.

“We should have never gotten to this point,” said Ananth Narayan, associate professor (finance) at SP Jain Institute of Management and Research in an interview to Bloomberg. He said the government may be trying using RBI’s reserves to fund fiscal deficit. “Rather than taking on long-term reforms, the government thinking of short-term steps. The entire ecosystem that was supposed to keep the system safe does not come out looking good.”

Even while counselling caution to Reserve Bank on regulatory steps, Mr Chowdhury said the government should not undermine institutions like RBI.

“If the government wants to create another regulator for payments banks or issue directions on how to operate, it indicates the government’s lack of faith in the RBI’s ability. If the government itself does not trust the RBI, how could it expect people have faith in it.”


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Saudi signs deals to invest USD 20 bn in cash-strapped Pakistan

Press Trust of India

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Islamabad: Pakistan and Saudi Arabia have signed a slew of investment agreements worth USD 20 billion which will provide a welcome relief to the teetering economy of the cash-strapped South Asian country.

At a ceremony in the Prime Minister House, Pakistan and Saudi officials signed MoUs for bilateral cooperation in a number of areas a process overseen by Pakistan premier Imran Khan and Saudi Crown Prince Mohammad bin Salman, who arrived in Pakistan on Sunday evening on a two-day visit.

“Today we signed MoUs. The amount of that kind of investment is USD 20 billion. It is big for phase one and definitely it (Saudi investment in Pakistan) will grow every month, every year in bigger numbers and it will be beneficial for both the countries,” the crown prince said.

 

“Pakistan is going to be very, very important country in the future and we want to be sure we are part of that,” he added.

Seven agreements, including MoUs in power, petrochemical and mining sectors, were inked as Prince Salman launched his diplomatic trip to Asia in Islamabad.

After Pakistan, the crown prince will travel to India, where he will meet Prime Minister Narendra Modi and Petroleum Minister Dharmendra Pradhan.

He is expected to finish the trip with a visit to China on Thursday and Friday.

Prince Salman said Saudi “cannot say no to Pakistan, whatever you (Pakistan) want we will do.”

“For Pakistanis, this is a great day,” the Pakistani premier said while addressing a dinner reception held in honour of the visiting Saudi guests at the PM House.

He said Saudi Arabia has always been there when Pakistan needed friends.

“I want to thank you for the way you helped us when we were in (a) bad situation,” Khan told the royal guest, adding that Pakistan and Saudi Arabia were now taking their relationship to a new level, where investment agreements would be mutually beneficial for the countries.

“The future is exciting for both Pakistan and Saudi Arabia after joining hands,” he said.

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Cement, fruit shipments from Pakistan among 10 most hit imports after duty hike

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New Delhi: Fresh fruits, cement and leather are among the 10 main imported items from Pakistan that would take a major hit following the imposition of 200 per cent customs duty by India on products from the neighbouring country in the aftermath of Pulwama attack, say experts.

The top ten products exported by Pakistan to India include fresh fruits, cement, petroleum products, minerals, and leather. Processed minerals, inorganic chemicals, raw cotton including waste, cotton fabrics, and glass and glassware are also among such items that account for 95 per cent of the total shipments.

“After drastically hiking the import duty on goods coming from Pakistan, we will isolate them in front of trade. Hiking of the duty at this level would completely hit exporters of Pakistan,” Professor Biswajit Dhar of Jawaharlal Nehru University (JNU) said.

 

Sharing similar views, Federation of Indian Export Organisations (FIEO) Director General Ajay Sahai said that Pakistan would face significant impact due to this decision.

The two main items imported from Pakistan are fruits and cement, which attracted customs duty of 30-50 per cent and 7.5 per cent, respectively.

Domestic importers who have already placed their orders from Pakistan may face issues after this decision. They may have to pay the 200 per cent duty or undertake lot of paperwork to get their consignments, an industry source said.

Taking strong economic action against Pakistan following the Pulwama attack, India Saturday raised the customs duty to 200 per cent on all goods imported from the neighbouring country.

India’s imports from Pakistan had increased to USD 488.5 million in 2017-18 from USD 455.5 billion in 2016-17.

Hike in the duty would drastically increase the prices of Pakistani goods in Indian markets which would make them far less competitive as compared to other imported goods. Slapping an import duty of 200 per cent effectively means almost banning the imports from Pakistan.

Total India-Pakistan trade has increased marginally to USD 2.41 billion in 2017-18 as against USD 2.27 billion in 2016-17.

At least 40 CRPF personnel were killed and five injured on Thursday in one of the deadliest terror attacks in Jammu and Kashmir when a Jaish-e-Mohammad suicide bomber rammed a vehicle carrying over 100 kg of explosives into their bus in Pulwama district.

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India needs fewer but stronger, mega banks: FM Jaitley after RBI meet

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New Delhi: Finance Minister Arun Jaitley addressed the customary post-budget meeting of the central board of the Reserve Bank on Monday.

Post the meeting, Jaitley said India needs fewer and mega banks which are strong.

“India needs fewer and mega banks which are strong because in every sense from borrowing rates to optimum utilisation the economies of scale as far as the banking sector is concerned are of great help,” Jaitley said.

 

On interim dividend, RBI Governor Shaktikanta Das said the central bank will take the decision based on the report by Bimal Jalan-led Committee.

Das also said that the RBI will discuss the issue of transmission of rate cut with bank chiefs on February 21.

Earlier this month, the Reserve Bank cut the benchmark interest rate by 0.25 per cent to 6.25 per cent.

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