Econo-Reflexions

IPOs and Retail Investors

2012-02-24T18:56:00.001-08:00

Dr.T.V.Gopalakrishnan , Mumbai , says: The recent gains in the market will not lead to a revival of IPO segment as the previous experience of investors is very bad. The pricing pattern and market quotations do not have any relationship and the greed of the Corporates and the Govt is very much visible in the pricing of shares in IPOs.The Govt and the SEBI have to ensure that the retailers enter the market in huge numbers and the share of public holding should be above 51% and for that initial offer price should be attractive.There should be some more incentives to attract retailers to IPOs other than the 5%discount now avaialble.Further IPOs should be made an attractive savings instrument replacing Gold and other forms of investment and for that the present approach of SEBI and Govt should undergo drastic change.
(This appeared in ET dated 24/02/2012).

Cash Deposit Ratio continues to be still High

2012-02-07T02:55:00.001-08:00

Is the Cash Deposit Ratio of Indian Scheduled Commercial Banks very high?
The Cash -Deposit ratio of scheduled commercial Banks in India (Cash in hand and Balances with RBI as percentage of Deposits) is observed to be high at 8.2% for all scheduled Commercial Banks as at end march 2011. The ratio ranges between 6.9% (old Private Sector banks) and 9.2% (New generation Private sector banks). This includes the Cash Reserve Ratio of 6 percent statutorily required to be maintained with the Reserve Bank in terms of the Reserve Bank Act 1934 which has since been brought down to 5.5 % in the recent credit policy review held in January 2012. The need for such a high cash deposit ratio ratio, in these days when plastic cards, inter-net payments, electronic funds transfer etc are on the increase is surprising and needs to be viewed seriously in the context of efficiency and profitability of banks. In fact the ratio which remained at 7.1% in March 2002 has gone up to 8.2% in March 2011.
Since the culture of ATMs has been spreading fast, no doubt the banks need to maintain hard cash to meet the demands of customers. There are 74505 ATMs functioning all over the country as at end March 2011.The public preference for hard cash continues to be strong perhaps indicating lack of spread of banking habit in its fullest sense, the persistence of corruption, prevalence of black money, high level of inflation and general insistence for cash payments for commodities like gold and silver in particular. The high level of cash transactions in the economy necessitates more physical notes in circulation adding responsibilities to the Reserve Bank and increasing the Seignorage cost. This has been well evidenced in the increase in Bank notes in circulation by 18.7% i.e. from Rs.7, 88,299 crores in March 2010 to Rs. 9, 35,856 crores in March 2011.
Banks have been provided with currency chests to improve their cash management. The Reserve Bank through its 18 issue offices, one sub office and a wide net work of 4248 currency chests carries out the issue of notes and management of currency and helps the banking system to improve its funds management.
The cash deposit ratio of late, seems to have its importance it had in the good old days. With the implementation of prudential norms as per Narasimham Committee’s recommendations on Financial System and Banking sector reforms and also Basel I and Basel ii guidelines for improving banks’ efficiency, productivity and profitability, the attention paid in the maintenance of cash and the cost it adds to banks’ overall cost of funds seems to have been somewhat missing affecting adversely the profitability of banks among other things. The old private sector bank maintains the best cash deposit ratio (at 6.9%) and their cost of borrowings is comparatively the lowest (at 2.2%) as on March 2011 among all the bank groups.

Position of Cash Deposit Ratio* of All Commercial Banks

As at end March
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
7.1 6.3 7.2 6.4 6.7 7.2 9.7 7.3 7.7 8.2
• Cash in hand and balances with RBI as percentage of Deposits.
Position of ATMs of Scheduled Commercial Banks:
(As at end March 2011)
Sl. No. Public Sector Banks Old Private Sector Banks New Private Sector Banks Foreign Banks All Scheduled Commercial Bank
1 2 3 4 5 6 7
1. On-Site ATMs 29,795
(23,797) 2,641
(2,266) 8,007
(6,337) 286
(279) 40,729
(32,679)
2 Off-Site ATMS 19,692
(16,883) 1,485
(1,124) 11,518
(8,720) 1,081
(747) 33,776
(27,474)
3 Total No.of ATMs 49,487
(40,680) 4,126
(3,390) 19,525
(15,057) 1,367
(1,026) 74,505
(60,153)
Figures in brackets relate to March 2010
Source: Report on Trend and Progress of Banking in India 2010-11.
Payment and settlement system has been well strengthened over a period to facilitate smooth functioning of financial markets in particular and the economy in general. Both paper based like Express cheques clearing and grid based cheques truncation system and electronic payments like electronic clearing service, electronic funds transfer systems have been very well developed to ensure fast, efficient and well secured payment and settlements not only to obviate the need for physical movement of cash but also to bring in efficient funds management among banks. The Reserve Bank has thus streamlined the process flow in credit push systems like National Electronic Funds transfer, Real Time Gross Settlement, Electronic Credit System (credit) and National Electronic Clearing Service systems and banks are in a position to credit beneficiaries account without any hassles.
With all these facilities, the cash held at banks has been found to be very high and needs to be reviewed and fine tuned for improved efficiency. The cost of funds of banks at 4.7% and the cost of borrowings observed at 2.3% for all scheduled commercial banks as at end March 2011 can be further brought down by minimizing cash balances and related costs. Since the funds management leaves much to be desired, the banks can do a lot by improving the banking habit, spreading the card culture, enhancing the use of cheque and electronic payment systems and putting into optimum use of currency chest facilities.
There is ample scope to reduce the physical handling of cash at branches and banks and save all related expenditures. The cash and bank balances have to be considerably brought down taking advantage of the improved telecommunication system and facilities provided by the Reserve Bank. The asset liability management of the banks will also improve in the process. The Govt and the Reserve Bank can also bring in policy changes by insisting on payments beyond a cutoff point say Rs 5000 by means of instruments like cheque or plastic cards or through electronic payment systems. Payments of cash to organized and unorganized sector where ever possible and feasible should be made only through banks and banking instruments. This will help to reduce the cost and other administrative hassles faced by the Reserve Bank in the issue of currency notes. Less cash in circulation is also an indicator of economic development in general and banking development in particular is a fact which cannot be underestimated by policy makers. Such an approach will also facilitate strengthening Financial and Banking inclusion.

T.V.Gopalakrishnan
(This article appeared in Business Line dated 7/02/12).

Budget 2012-13 some simple suggestions.

2012-02-04T08:19:00.000-08:00

The budget should aim to bring down fiscal deficit for which some simple solutions are to be attempted.Ensure that all transactions above Rs 5000 are made compulsory through Cheque or card payments. Keep a close watch on all real estate,commodity transactions and ensure that the Income tax returns provide columns to report all assets and liabilities on an year to year basis with proper explanation for variations. Make full use of Information technology to track all transactions in the economy above a cut off limit. Capture all economic activities under GDP. Ensure that all salary and wage payments including payments under NREGS are through bank accounts.and make financial and banking inclusion a reality. Several activities where huge payments are involved go unnticed and they need to be captured officially.Make accounting professionals accountable for manipulation and irregularities whereever they are employed either as auditors or accountants. Time management is missing in all spheres of economic activities and need to be closely monitored. Overrun costs and wastage alone can bring down the deficit to a considerable extent..Will the FM change the mindset of people lacking in commitment , sincerity and integrity through budget? The economy has all resources and its suffering is man made. The FM has to be very imaginative and practical in drawing the budget and make it a healthy and dependable one.There should be no scope for exploitation and manipulation of any kind.

Dr.T.V.Gopalakrishnan

FDIs and Investments in Telecom

2012-02-03T18:24:00.000-08:00

Dr.T.V. Gopalakrishnan , Mumbai , says: Cancellation of licenses will not impact FDI inflow in telecom. On the contrary it adds to the credibility to the system that malpractices will not be toleated and there will be ethics and standards in the economy for FDIs to invest and benefit. This should be welcome by all genuine investors who believe in doing business with transparency,honesty and accountability.
3 Feb 2012, 1948 hrs IST

(This appeared in ET dt3/2/12).

Solar Energy in India

2012-01-31T04:55:00.000-08:00

Dr.T.V.Gopalakrishnan , Mumbai , says: Not only in Solar power, even in other sources of power, the approach of the Govt is lackadaisical and the economy is suffering.The power sector needs lot of reforms and earlier the Govt takes the initiative the better. Solar energy, thermal power and other sources need to be fully exploited taking advantage of the favourable natural resources and other potentials of the economy.Politics plays spoilsport and economy's growth is hindered.

(This appeared in ET dated 31/01/12).

Will FIIs' inflows will sustain?

2012-01-30T04:58:00.000-08:00

Dr.T.V.Gopalakrishnan , Mumbai , says: Yes. High FII inflows will sustain in the calendar year just for the reason that the economic growth will be around 7% despite all the constraints and it is attractive. Once the elections are over and the political stability returns,the economy can perform well.Inflation will be brought under control by March 2012 and the budget is expected to be investment and production oriented as the Govt has no other alternative but to bring fiscal deficit under control.The climate is very conducive for FIIs to continue to invest in Indian market by any reckoning.
30 Jan 2012, 1759 hrs IST

(This appearted et ET dated 30/01/12)

2012-01-29T07:50:00.001-08:00

January 29, 2012:
Kudos to the Reserve Bank for having come out with a bold measure of releasing liquidity to the funds-starved market through reduction of CRR by 50 basis points from 6.0 per cent to 5.5 per cent.

This measure alone should help the banking system take care of partially the gaps in the credit needs of the manufacturing sector to augment investment and production, although the cost of funds is comparatively higher as policy rates have not been changed.

The Reserve Bank is fully justified in keeping the repo rate and reverse repo rate unchanged in the background of persisting high level of headline inflation which averaged at 9.7 per cent (y-o-y) during April-October 2011 and ever increasing fiscal deficit expected to be far more than the budgeted figure of 4.6 per cent.

Thus, the repo rate and the reverse repo rate will continue to be at 8.5 per cent and 7.5 per cent respectively. This has been done perhaps keeping in view the RBI's continued apprehension, and justifiably so, in containing the inflation and inflation expectations.

Comfort to liquidity
The relaxation in CRR is to provide comfort to the liquidity constraints, of late, faced by the banking system. The borrowings of banks from the Reserve Bank have been exceeding the limits and often much higher than the RBI's comfort level of Rs 60,000 crore.

These borrowings add to the cost of funds whereas banks do not get any return on their cash reserves kept with Reserve Bank out of their costly deposits. The reduction in CRR is expected to release funds to the tune of Rs 32,000 crore and this can be used to expand the credit particularly to the manufacturing sector. This should also help the banks to reduce the rate of interest to the borrowers to the extent they save on their borrowings from the Reserve Bank.

The banks got partially what they want but they also have got a lot to do in the economy taking into account the fiscal, monetary and economic conditions of the country. They have a major role to play to make inclusive growth a reality by taking advantage of financial and banking inclusion through innovative methods as a great business opportunity.

Improved offerings
The potential to increase deposits is manifold and the tendency of people to go in for other types of investments, particularly in gold and real estate, needs to be curbed by offering improved savings products. The NIM continues to be high in banks and this needs to be checked and brought down by improving the credit portfolio and recycling of funds.

The Asset-Liability management needs fining and cost of funds need to be brought down further. The Reserve Bank has been liberal with the banks by deregulating the SB NRI deposits rates and permitting them to restructure the sticky loans to improve their competitiveness and project a better balance-sheet.

The Reserve Bank has, however, moderated the GDP growth at 7 per cent as against 7.6 per cent projected earlier in its October 2011 review of credit policy. Considering, the external and domestic factors, even the 7 per cent growth is good enough to keep the confidence level high and to better the performance further in the next fiscal.

The need of the hour is the development of infrastructure which impedes the growth of the economy. Making available quality coal at reasonable price to the power sector through all possible means i.e. by rail and road will itself go a long way to give a boost to the economic growth.

The ease of doing business by removing administrative and legal bottlenecks, facilitating FDI investments in infrastructural developments, improving productivity both in agricultural and industrial areas without too much of interference by the Government and bringing in efficiency in the marketing and distribution of products, particularly agricultural products, need urgent attention which only the Government can provide. There is also an imperative need to activate and coordinate all rural development related agencies to give a facelift to the rural economy which requires more freedom for State Governments to take initiative.

Now, it is the turn of the Central Government to do its bit to contain fiscal deficit, improve supply constraints and provide the much needed infrastructure to give a boost to GDP growth and bring down inflation.

On the fiscal front, the Reserve Bank has made its message explicitly clear to the Government by saying that “considering the egregious implications of large fiscal deficits, which are well known , there is an urgent need for decisive fiscal consolidation, which will shift the balance of aggregate demand from public to private, and from consumption to capital formation. This is critical to yielding the space required for lowering rates without the imminent risk of resurgent inflation. The fourth coming Union Budget must exploit the opportunity to begin this process in a credible and sustainable way.”

Hope the Government does its part fast and the economy will flourish.

Dr.T.V.Gopalakrishnan

(This article appeared in The Hindu-Business Line dt29/01/12).

2012-01-23T05:00:00.000-08:00

Dr.T.V.Gopalakrishnan , Mumbai , says: NO.Aviation industry requires structural changes and it cannot be set right by permitting FDI.Air India and King Fischer are made sick by total mismangement and fresh investments whether by way of FDI or otherwise will only help help good money chasing bad investment and negative return. Entire aviation system and its operations need to be thoroughly revamped as they suffer not due to paucity of funds but due to lack of accountability in utilising public funds both from the Govt and the banking system. it is better to understand the issues involved in aviation industry and then think of reviving them with or without FDI.
23 Jan 2012, 1809 hrs IST
(This appeared in ET e paper dt23/01/12)

Eurozone countries need to come out of this mess

2012-01-16T07:26:00.000-08:00

Dr.T.V.Gopalakrishnan , mumbai , says: Yes. Eurozone countries have no choice but work together to come out of the mess.World Financial Institutions particularly IMF have to play a key and dynamic role to save the european countries and the world at large.This is where the world leaders have to exhibit their statesmanship and save the european countries. US is gradually recovering and this should help the European countries to arrive at some solution.Brics can and should come to the rescue of European economy at this critical situation.Financial institutions and the Govt should coordinate well to ensure that the international financial stability does not get disturbed too much in future by framing suitable policies and creating checks and balances.

(This appeared in ET dt/16/1/12).

Why not a Joint review of Monetary and Fiscal policy ?

2012-01-16T04:36:00.001-08:00

The economy needs a morale boost and this can come only if the Government and the RBI jointly initiate measures to revive the confidence of the investors.

January 15, 2012:
The Indian economy, which till a couple of years back was going strong and raising expectations of overtaking even China and other strong economies, has turned weak.

The US financial crisis of 2008, which brought down many economies, did not affect the domestic economy as the crisis was well managed both by the Government and the Reserve Bank of India.

In terms of broad parameters such as GDP growth, inflation, financial stability, exchange rate stability, and so on, the economy was doing well. But the situation changed since 2009.

Erosion of confidence
Many scams, one after another, were detected, revealing governance deficit. Corruption and black money attracted much attention and affected decision making at various levels.

Inflation raised its ugly head and continued to remain unabated. Industrial production declined, with hike in interest rates being cited as one of the major reasons for it. Infrastructure development did not get the priority it deserved.

Favourable monsoon did not bring down food inflation as supply chain constraints and periodical increases in fuel prices affected the marketing and distribution of food products at reasonable prices.

The trade gap widened due to increased imports and reduced exports. And exchange rate fluctuations added fuel to fire. The rupee depreciated by around 17 per cent since August 2011.

Administrative policies were not implemented as expeditiously as the economic conditions of the country demanded. Investments, especially FDI, slowed. And FIIs started pulling out their investments, creating volatility in the stock market.

The downgrading of the US economy and the European crisis have aggravated the situation.

Inflation focus
The Reserve Bank took a series of measures, basically to contain inflation. The approach was to make money dearer and reduce the purchasing power. The RBI raised the repo rate 13 times since March 2010, and brought it to 8.5 per cent in October 2011. The reverse repo was revised to 7.5 per cent and the Marginal Standing Facility was fixed at 9.25 per cent.

Interest rate on savings bank and NRE accounts was deregulated. And sensing the mood of the investing community against further interest rate hikes and seeing some respite in inflation, the RBI decided to keep the rates unchanged in its policy review in December 2011.

But production costs have increased, not only because of the hike in interest rates but also because of input costs going up, reducing thereby the profit margins and fresh investments.

The fiscal policies have not been moving in tune with monetary policies. The general opinion is that the RBI alone is taking action and the Government has been keeping quiet on various fronts.

Direct and indirect tax revenues, which are directly linked to GDP growth, have not been keeping pace with Budget expectations, and the Government is falling behind in achieving the disinvestment targets due to poor market and other conditions.

Infrastructure required for industrial production, particularly energy, has not picked up for want of fresh administrative policies and proper implementation of existing ones.

Fresh impetus
The economy needs a morale boost and this can come only from the Government. To start with, the Government and the RBI should jointly review the monetary and fiscal policies pursued so far and initiate measures to revive the confidence of the investors.

Since food inflation has started declining and the overall inflation is expected to fall to around 7 per cent by March 2011, the RBI can consider effecting some reductions in its policy rates.

Dr.T.V.Gopalakrishnan

(This article appeared in The Hindu-Business Line dt16/01/12)

Public Sector Banks, Borrowers and Basel iii

2012-01-11T01:59:00.000-08:00

This refers to your editorial Capital Idea (Et,dt 9/1/12). The objective of the implementation of Basel 111 guidelines is basically to improve the banking systems' ability to absorb shocks arising from financial and economic stress caused due to circumstances beyond the control of banks, regulators and borrowers. No doubt situations arise in an atmosphere of globalised banking and interlinkages of various domestic and international markets involving exotic products and dynamics of economic forces where additional capital resources would come to the rescue of banks. But in india,the way borrowers like King Fisher and many healthy corporates but bad borrowers conduct themselves and banks are made to aborb losses are beyond any tolerance limits. Ultimately, making the Govt being the majority shareholder of these banks to bear the cost resorting to budgetary resources despite its poor fiscals is something unthinkable and this is where the BASEL 111 guidelines needs to be customised in India. The indiscipline of the borrowers and their mismanagement of bank funds need to be dealt with separetely and the Govt should not liberally fund the banks without making them and borrowers accountable for loss of public funds. The NPAs in Indian banking system is basically due to the failure of banks and borrowers and this needs to be factored in while injecting capital by the Govt in Public Sector Banks.

Dr.T.V.Gopalakrishnan
( This letter was sent to ET on 9/1/2012)

Recovery of Dollar

2012-01-10T05:40:00.000-08:00

Dr.T.V.Gopalakrishnan , Mumbai , says: The recovery of US dollar will sustain as its GDP and employment growth have started picking up and the momentum will be maintained. Once the confidence level improves,the economy will pick up fast and the strength of dollar will improve. It is time for president Obama to project his image and improve his prospects of getting reelected.The economic policies initiated by his Govt have started yielding results and the problems in other economies particularly the European economy will get sorted out to a great extent once the US economy picks up.The year 2012 will be good for the US economy as its downward cycle has almost come to an end.Earlier the US economy and the dollar improve, the better for the rest of the world.
10 Jan 2012, 1813 hrs IST

(This appeared in ET dt,10/01/12).

Prices of Real Estate

2012-01-09T18:02:00.000-08:00

Dr.T.V.Gopalakrishnan , Mumbai , says: Property prices will come down in 2012 provided Govt is seious in curbing black money and corruption.The prices do not reflect the purchasing power of an average Indian. The rate of interest and the cost of funds in the economy have been ruling very high and the EMI and cost of real estate are beyond the reach of many. The mismanagement of the economy if rectified and administrative reforms which include accountability are introduced in all regulatory areas the cost will automatically come down.The real estate transactions need to be made more transparent and brought under a monitoring system using information technology. Cash payments need to be eliminated and there needs to be a tie up among banks,the purchasers,sellers and registrars of properties.All real estate transactions above a particular cut off limit should be tracked bY Income tax DEPT. If the Govt is willing,the property prices can be brought down considerably.
9 Jan 2012, 1845 hrs IST

(This appeared in ET dt 9/1/12)

India and Hybrid car, Affordability of people

2012-01-08T18:18:00.000-08:00

Dr.T.V.Gopalakrishnan , Mumbai , says: Manufacturers are ready for hybrid cars,but in terms of infrastructure,inequality of income and ever increasing oil prices, persistent level of poverty,the economy is not ready. Some industrialists and well off people who enjoy lots of black money can certainly afford high brid cars. If black money holding is the criteria many can afford and will go for these hybrid cars. But an average honest Indian cannot afford even to own a vehicle is a fact if one goes by the poverty level, rate of inflation, unemployment, hand to mouth existence etc.Reality cannot be and should not be hidden by displaying prospirity and wealth among a miniscule percentage of population who can afford and who are eager to own hybrid cars.
8 Jan 2012, 2127 hrs IST
(This appeared in ET dated 9/01/12)

SEBI and promoter shareholders of Companies

2012-01-06T05:32:00.000-08:00

Dr T.V.Gopalakrishnan , Mumbai , says: This is not a good move. What SEBI should have done is to encourage promoters particularly promoters of well run companies to bring down their holdings in such a manner that retail holding works out to more than 25 percent. The reason for letting promoters auction shares through a special window is not understandable. IF SEBI's INTENTION IS TO allow promoters some exit route, it should be made more transparent and retailers participation in owning shares should be encouraged. Special window approach gives room for doubt.
5 Jan 2012, 2006 hrs IST

(This appeared in ET dt 6/01/12).

Railway ticket through mobile phone

2012-01-03T18:40:00.000-08:00

The advancement in technology is appreciable and from that angle this is welcome But it can be taken advantage of only by a few who are very comfortable in using mobile and latest facilities. Only a fraction of the population can take advange of this facility and that too at the inconvenience of many in the society is a fact which cannot be ignored.Physically handicapped, senior citizens and illiterates and semi literates are at a disadvantage and it is unfair.Practical problems of convincing the TC who is hard presssed with several bogies under his supervision will take away the charm of the traveller having a mobile ticket confirmation. This sort of technological advancement is more useful if put into tracking transactions in cash and detecting tax evasion taking place through out the country day in and day out particularly by the rich and literates.

Dr.T.V.Gopalakrishnan

(This appeared in ET dt 3/01/12)

RBI and the Govt to act togother

2012-01-03T04:41:00.000-08:00

Your editorial comment on the economy was apt (“Little hope for 2012,” January 2). The year 2011 will go down in the history of our economy as the worst performing year since India’s economic liberalisation. The reason you have given for the poor performance – the mismanagement of the economy by the government – shows your unbiased approach and openness in assessing an economy and that is commendable. But it should be noted that the growth potential of our economy remains strong and a little more attention from the government and other institutions, particularly the Reserve Bank of India (RBI), can make 2012 a better year. Inflation is softening and the situation may improve with a favourable monsoon and credit support. RBI can consider reducing the interest rates and improving the liquidity further to ease monetary conditions and attract fresh investments. RBI and the government have to make a joint effort to instil economic confidence by all means. If they are able to do so, 2012 may not end up being such a bleak year after all.

T V Gopalakrishnan Mumbai

Govt and Lokpal bill

2012-01-01T19:08:00.000-08:00

Dr.T.V.Gopalakrishnan , Mumbai , says: The GOVT has hot been observed to be sincere and honest in eradicating corruption and black money in the economy which take away the strength of the economy. The Lokpal bill could have been brought out by the GOVT right royally sensing the mood and demand of the people. The awareness among the people about the corrupt practices very cleverly perpetrated by politicians and bureaucrats has been well spread by Sri Anna Hazare and his team and it is not easy for any force to erase that from the people. Earlier the Govt realises the better for the present and future Govts. Time has come with or without a lokpal bill to remove corruption from society and a proper bill will only be a facilitator.With the passage of an effective bill the Govt can earn the lost image and goodwill and it should put all positive efforts to bring out a bill acceptable to the society. Trying to be oversmart in avoiding an effective bill in the name of politics will not be tolerated by any right thinking person.
1 Jan 2012, 1615 hrs IST

(This appeared in ET dt 1/1/2012

2012-01-01T02:52:00.000-08:00

The present slump in the world economy is an opportunity for India to perform well keeping aside the political differences among the parties and concentrating on economic growth.Inflation is on the decline and the supply side constraints need to be further removed.The instituions set up for various purposes should be made more accountable and deliver the goods.What the economy needs is accountability from all categories of people particularly politicians,bureaucrats,industrialists and professionals. The various administative,regulatory and supervisory wings functioning in the economy need to concentrate on their role and responsibilities and see that their contribution is reflecting in the economy.The foremost requirement of the economy isto ensure that the data inrespectofGDP,Poverty,employment,inflation,exports , imports tax collections,deficit,etc have some interlinkages and reflect more or less the realities. Corruption and black money create havoc in the economy and distort the very fabric of the economy leading to chaos in the implementation of polices. Infrastructure is the basis for economic growth and all efforts need to be made to strengthen it without allowing politics to interfere. Involve midle class and lower class as part of decision making in some segments to ensure that implementation of certain policies is a grand success.Create awareness about the need for the growth of economy and its benefits to the nation among the masses.TheGovt has to do the needful.
T.V.Gopalakrishnan
(This appeared in ET dt 1/1/2012).

Discipline borrowers and minimise NPAs

2011-12-27T04:48:00.000-08:00

This refers to your edit ‘credit where it is not due’ (December 26,2011).The NPA menace which was kept under some check for a few years has again been raising its ugly head. More NPAs mean, more resources the banks have to find to maintain capital adequacy. The loss to the economy on account of NPAs is unfortunately made to bear by tax payers as the Govt loses its revenues on account of reduction of GDP because of non performance of assets and also is made to contribute to capital through budgetary provisions to enable the banks to maintain the capital adequacy standards as per Basle norms. Further, the cost of NPAs is unknowingly borne by all stakeholders of banks other than by the bad borrowers is an unfortunate reality. The fact that banks can camouflage NPAs and keep them under the carpet is well known and the hidden NPAs are difficult to be identified. Added to this, the permission granted by the Reserve Bank in August 2008 to restructure some of the unsatisfactory accounts and treat them as standard assets if found viable, has helped banks to keep the NPAs down artificially.
It is for the Govt and the Reserve Bank to seriously view the NPA menace and introduce a lasting solution perhaps acceptable to all stakeholders of banks other than borrowers. Time has come to give a serious thought to discipline the borrowers and to contain the problem of NPAs. Since only banks and borrowers do figure in the generation of NPAs, the only and ideal way to come out of this ever greening problem is to have a built in mechanism to liquidate NPAs by means of creating a fund under the nomenclature Precautionary Margin Reserve Fund (PMR) involving all borrowers and banks themselves. This has to be done on a systematic and scientific basis. Over a period this fund will be more than the formation of NPAs, and this approach can strengthen the vitally missing credit discipline among the borrowers. This suggestion developed through a statistical model has been found workable resulting in disciplining the borrowers and making the balance sheet of the banks strong. The Govt is the major beneficiary in case the solution is introduced.

T.V. Gopalakrishnan
(edited version of this appeared in Business-Standard dt 27/12/11).

GDP , Economic Activities and Taxation policy

2011-12-24T07:21:00.001-08:00

There are varieties of economic activities.But to what extent these economic activities and income generated from them reflect in GDP or tax revenue etc are in serious doubt. In various cities like Mumbai, Chennai Delhi, Calcutta, there are varieties of markets dealing right from scraps to gold bullion. There are whole sale and retail markets and transactions are generally in cash running into lakhs and even crores. These merchants are seldom seen issuing any receipts and it is difficult to assess tax collection if any. Apart from loss of revenue to the Govt, this system of transactions encourage black money and indiscipline in the society. It is desirable in the larger interest of the society that these transactions and the turn over should reflect online in some centralised data collection centre making use of the IT strength of the country. The very system of data generation will help to throw some light on the volume of transactions and money generated in the economy. This will pave way for formulation of policies on taxation,improvement of financial and banking inclusion, tracking black money generation and bringing in discipline and order among the trading community in paricular for conducting their business as per the laws of the country. It is not that difficult to get the transactions properly accounted for. Insistence of official receipt and getting the transactions tracked through IT will do the trick.The benefit is for the economy and the society.

NPA Menace

2011-12-21T04:16:00.000-08:00

Time for the Govt and the Reserve Bank to come out of the morass caused by Non Performing Advances ( NPAs) in Banking and the Economy.

The NPA menace which was kept under some check for a few years has again been raising its ugly head disturbing the peace of mind of authorities i.e. the Govt and the Reserve Bank. More NPAs mean, more resources the banks have to find to maintain capital adequacy. As long as lending remains an inevitable function of banking and banks have to deal with human beings as borrowers, this problem will continue to haunt the banks. Further, the changes in economic scenario which gets influenced by several micro and macro economic factors that include both domestic and international such as declining GDP growth, high inflation, financial instability, exchange and interest rate volatility, monsoon conditions etc where the management of banks have no control whatsoever, also affect the working of banks adversely and resulting in increased level of NPAS. The present approach by the regulator to expect the banks to make good the loss on account of NPAs by charging to banks' profit and loss account at the cost of all stakeholders of banks viz; depositors, borrowers, shareholders, employees and even customers is neither ethical nor prudential by any reckoning. Further the loss to the economy on account of NPAs is unfortunately made to bear by tax payers as the Govt loses its revenues on account of reduction of GDP because of non performance of assets and also is made to contribute to capital through budgetary provisions to enable the banks to maintain the capital adequacy standards as per Basle norms. The position of Public Sector Banks NPAs vis-a-vis advances, deposits and investments for the period 1993 to 2011 is given below.
( Amount in Rs Crores)
Year Advance NPA NPA as % of Total Advances Deposit CD Ratio Investment Investment Deposit Ratio
1993 1,69,340 39,253 23.2 2,63,315 58.5 99,889 37.9
1994 1,65,621 41,041 24.8 3,03,392 48.4 1,32,810 43.7
1995 1,97,352 38,385 19.5 3,48,938 50.9 1,50,432 43.1
1996 2,31,321 41,661 18.0 3,90,820 53.1 1,62,667 41.6
1997 2,44,214 43,577 17.8 4,49,329 49.0 1,91,058 42.5
1998 2,84,971 45,653 16.0 5,31,723 48.9 2,27,102 42.7
1999 3,25,328 51,710 15.9 6,36,810 46.7 2,76,802 43.5
2000 3,80,077 53,294 14.0 7,37,280 47.8 3,33,414 45.2
2001 4,42,134 54,773 12.4 8,59,376 48.2 3,94,107 45.9
2002 5,09,368 56,473 11.1 9,68,623 52.6 4,54,509 46.9
2003 5,77,813 54,090 9.4 10,79,393 53.5 5,45,668 50.6
2004 6,61,975 51,541 7.8 12,29,462 53.8 6,26,176 50.9
2005 8,77,825 48,399 5.5 14,20,750 61.8 6,60,674 46.5
2006 11,34,724 41,358 3.6 16,22,481 69.9 6,33,557 39.0
2007 14,64,493 38,968 2.6 19,94,199 73.4 6,64,645 33.3
2008 18,19,074 40,595 2.2 24,53,868 74.1 7,99,841 32.6
2009 22,83,473 45,156 2.0 31,12,748 73.4 10,12,666 32.5
2010 27,01,019 57,301 2.1 36,91,802 73.2 12,05,783 32.7
2011 33,05,632 71,047 2.2 43,72,985 75.6 13,28,534 30.4

Source : Trend and Progress of Banking various issues.
It is gratifying to observe that the gross NPAs as percentage of gross advances have drastically come down from 23.2% in March 1993, (when the concept of NPA was first introduced in terms of Financial Sector Reforms) to 2.2 % in March2011. Working of banks got further streamlined based on banking sector reforms introduced in 1998. The results are very encouraging. In the decade 2000 to 2010s, Banks could bring down considerably its NPAs. Many factors have come to the rescue of banks in keeping the NPAs down. The banks were identifying the NPAs through manual process all these years and it was humanly impossible to assess the correct position of NPAs. The banks could manage to keep many NPAs under the carpet and the hidden NPAs were difficult to be identified as banks had umpteen ways to camouflage NPAs. The boom in real estate prices came handy for banks to bring pressure on borrowers who also found it advantageous to sell off their assets and come out of banks' clutches. Further, Debt Recovery tribunals, Lok Adalats, implementation of SURFAESI Act 2002 for recovery of dues, improved performance of the economy and bank's own performance in terms of better profitability on account of enhanced efficiency, productivity, competition, better return out of investments and diversification of operations greatly contributed to bring down NPAs. Huge write offs of NPAs again at the cost of shareholders who include the Govt, effective regulation and supervision of the Reserve Bank had also played an important and effective role in keeping down the level of NPAs. The provisioning requirements of the Reserve Bank in particular compelled banks to be vigilant in minimising the NPAs. Added to this, the permission granted by the Reserve Bank in August 2008 to restructure some of the accounts (though strictly need to be classified as NPAs) and treat them as standard assets if found viable, limited the growth of gross NPAs. The gross NPAs of public Sector banks with all aforesaid adjustments stood at Rs 71047 crores as at end March 2011 are still staggering and causing concern. The steep increase in advances since 2005 onwards (CD ratio increased from 61.8 in 2005 to 75.6 in 2011) is something abnormal and how much of this would turn out to be NPAs is worth watching. With the recent switch over to computerised system to identify the NPAs, the position has been moving from bad to worse. The high interest rate regime, persisting inflationary and near recessionary conditions in the domestic economy, and discouraging economic scenario in US and Europe, the chances of generation of more NPAs in coming months cannot be ruled out. The fact that NPAs affect the economy in general and all stakeholders of banks in particular adversely and finally lead to bail out of banks with budget allocations has been the trend, has to be recognised and this approach to manage NPAs needs a final go-bye.
Time has come to give a serious thought to this NPA menace and a lasting solution to put up with NPAs and at the same time discipline the borrowers without jeopardising the interests of other stake holders has to be attempted. Since only banks and borrowers do figure in the generation of NPAs, the only and ideal way to come out of this ever greening problem is to have a built in mechanism to liquidate NPAs by means of creating a fund under the nomenclature Precautionary Margin Reserve Fund (PMR) involving all borrowers and banks themselves. This has to be done on a systematic and scientific basis. Over a period this fund will be more than the formation of NPAs, and this approach can strengthen the vitally missing credit discipline among the borrowers.
There is a saying that all truth passes through three stages. First it is ridiculed. Second it is violently opposed. Third it is accepted as being self evident( Arthur Scapenhauer). The suggestion to remedy the NPA menace through creation of fund i.e. PMR should not be similar to that and kept aside. Bankers and borrowers will ridicule the suggestion first and oppose it as it affects them directly. Banks will have to tighten the monitoring of accounts on a continuous basis to rate the borrowers, discipline them and levy the contribution towards the PMR fund based on borrowers' rating. Bankers are generally inclined to satisfy the borrowers and do not want to incur any displeasure by being strict and vigilant with them for fear of losing the account when the going is good. Borrowers will oppose creation of this fund as it adds initially to their cost of funds and expects them to adhere to strict credit discipline though they can derive the benefit in the long term. Besides, the rating will have reputation risk with attendant consequences.
It is for the Govt and the Reserve Bank to seriously view the NPA menace and introduce a solution perhaps acceptable to all stakeholders of banks other than borrowers. This suggestion developed through a statistical model has been found workable resulting in disciplining the borrowers and making the balance sheet of the banks strong. The Govt is the major beneficiary in case the solution is introduced.
(Views are personal).
Dr.T.V.Gopalakrishnan
(Edited Version of this write up appeared in The Hindu-Business Line dated 19/12/11)

Tame the rise

2011-11-23T04:20:00.000-08:00

Better Late Than never.
This refers to your editorial Get Going, Montek (Et dt,22/11/11). Inflation is said to the worst enemy of poor and the Govt and the planners have miserably failed to contain the inflation which has been in double digit for the past few months and continues to be defiant despite series of measures taken by the Reserve Bank. Containing inflation cannot be a lone battle by the Reserve Bank has been well proved and the failure of the Govt in this aspect has been very obvious. As rightly pointed out in your editorial, supply chain management with appropraite and effective logistics in the procurement, storage, cheap and quick transporation and distribution of the produce is the need of the hour to check spiralling of prices of food products. Further, incentives for improved productivity, controlling of corruption , black money and hoarding of agricultural products using bank funds will go a long way in bringing down prices. The suggestion to scrap the Agricultural Produce Market Committee Act is very valid and long overdue to be implementd. Coordination is the essence and planning Commission is well suited for that. Involvement of NABARD at state levels and Local Boards ofthe Reserve Bank would be of great help to coordinate.

(edited version of this appeared in ET dt 23/11/11)

Dr.T.V.Gopalakrishnan.

Make the Service Meaningful for self and others in society:

2011-11-14T06:36:00.000-08:00

“People , it is said , can be placed in three classes; the few who makes things happen, the many who watch things happen, and the overwhelming majority, who have no idea what has happened”. The bank officials in general and public sector bank officials in particular have to necessarily find their place in the first category as by any standard they enjoy all possible comforts one can think of in a developing economy and they are comparatively in a commanding position by means of resources and support they get from the authorities to be of great service to society.
Corruption has been rampant in India and it has become a subject of discussion even among illiterate masses who are unfortunately the worst victims as they are at the receiving end in the sense unless bribe is given, they do not get their entitlements as citizens of this great nation. It is more than six decades since the country got independence, but have the people got their economic independence and dues for a comfortable and peaceful life is the question lingering in the minds of all right thinking human beings. The bank officials right from top to bottom can do a lot to improve the living conditions of masses and have the satisfaction of serving them in letter and spirit and giving the support system to give a big boost to the economic growth provided they get fully absorbed and involve themselves with commitment in the discharge of their responsibilities. The mandate for this has to come from within and for that everyone has to do an introspection to satisfy himself or herself as to whether justice has been done to the society which takes care of everyone’s need and to some extent greed also.
The celebration of Vigilance Awareness week has been going on for decades and the taking of oath on elimination of corruption has become a ritual and has been taken faithfully by each and every employee of Public Sector during the week. Bank employees, by and large are not corrupt, is a great consolation, but are they fully satisfying the expectations of the economy or the society consisting of around 70 percent of the people living below poverty line? It is not that banks alone can remove the poverty in India, but they can easily come to the rescue of poor people and give them the recognition they badly need in society for their survival.
Banks’ raw materials are basically money and people but they discriminate a lot, not by rule but rather by convention in their day to day business by not entertaining people of less means. This is a fact which cannot be ignored and this is exactly the reason for the financial inclusion not being a success despite persuasion, compulsion, motivation, incentives and encouragement. Why this reluctance and discrimination on the part of a bank official who deal with public deposits and authorities want financial inclusion by all means? There are millions of bank employees scattered throughout the length and breadth of the country and they are better placed to bring people of less means and less privileged under the banking fold. Employees have their own servants, iron wallas, plumbers, electricians and contacts with all categories of people in a society right from pan wallas to Gold merchants .Many people like carpenters, dealers in scraps, waste materials, traders etc do not have bank accounts or do not operate the accounts even if some have. If employees turn their attention a little and no special effort is called for, millions of people can be brought under banking fold. All their contacts can be easily encashed and many can be brought under banking fold. The officials have to take financial inclusion as an opportunity to show humanism and at the same time help the needy to improve their lot. Through financial inclusion bank employees can provide life to many and this will the greatest satisfaction one can derive from service.
KYC is a weapon to serve the customer better by understanding him and his requirements fully and not to kill him. Here the bank officials can perform better and add business to the bank. The present day banking is enjoying lot of freedom, products and advanced technology to improve business. Full understanding of Financial Inclusion and Know Your Customer norms offer excellent business opportunities and help the bank to comply with the authorities’ requirements. By adopting a human approach rather than being mechanical, even the NPA menace which has been growing like a cancer in the banking system can be tackled to a great extent. Mind should be devoted for service and service alone. Will the employees rise to the occasion and be more humane in their responsibilities to the society? By being humane, one derives great mental satisfaction and no money or compensation can achieve that?
I wish each and every bank employee would emerge as a great leader with the qualities defined in Sloka-21 of Chapter -3 of Bhagavat Geetha which says “Whatever action a great man performs, common men follow. And Whatever standards he sets by exemplary acts, all the world pursued”. It is time for each and every bank employee to set standards in his actions.
(Views expressed are personal)
Dr. T.V.Gopalakrishnan,

Time to clear off real estate accummulation

2011-11-07T06:16:00.000-08:00

It makes sense to sell real estates particularly flats at current prices or even at discounted prices to clear off debts and avoid future losses. The market sentiments are against corruption and black money and accummulation of wealth by a few at the cost of masses will not be tolerated anymore. If the Govt is serious in tracking black money and accummulation of illegal wealth, the prices of real estate will have to crash sooner than later. This is the ideal time for builders to get rid off the stocks even at a lesser margin and profit than to incur heavy losses and debt.The advice by HDFC chief makes sense and worh pursuing.

T.V.Gopalakrishnan (Mumbai)
06 Nov, 2011 03:12 PM

Exporters and Incentives

2011-10-23T17:58:00.001-07:00

Posted on: Oct 17, 2011 at 22:32 IST inresponse to the editorial'Misguided Sops'.

Exporters are always a pampered lot.They enjoy tax incentitives, concessions,reliefs and interest rate subventions as the economy needs them to bring in as much foreign exchange as possible to support its essential imports particularly oil.Now it is time for the Govt to assess the support extended to exporters and value the benefits derived by the economy and reallocate the resources to vital segments like infrastructure which requires a thorough review, restructuring and fast development.One source of black money generation abroad is through exports and the inflow of funds to the economy through FDIs etc are part of this black money needs to be given weightage by the Govt when tax reliefs and concessions are liberally offered to exporters.Need based support is essential to encourage exports but as rightly pointed outin the editorial,it should not be at the cost of public money ignoring the other support system vitally needed for the economy to make all round progress.

Dr.T.V.Gopalakrishnan

This appeared in The Hindu-Businessline dated 18/10/11)

MBA graduates and PSUs

2011-10-20T06:31:00.000-07:00

Are PSUs unable to provide a conducive work envrionment to management graduates?

The work culture in PSUs will not suit the management graduates. What the executives do in a month in PSUs, these management graduates will do in a two or three days. Their thinking, and taking decisions are faster and their patience level is low. They are result oriented and their temperments will not suit the PSU culture. Inefficiency, delay,procrastination normally seen in majority of the PSUs are beyond the tolerable level of any modern management graduate. The systems and procedures in vogue in majority of PSUs cannot be acceptable to these graduates as they are for quick decisions and results which is something difficult if one adheres to the systems and procedures which are outdated and illogical to the present requirements. These modern graduates are ambitious and have high aspirations which our PSUs cannot meet. They expect to reach the top early where as seniority and promotion avenues in PSUs do not permit these graduates to go beyond certain levels.The realities are different in PSUs and these graduates cannot cope with that is the reality why they do not stick on to PSUs for long.

Dr.T.V.Gopalakrishnan
(This appeared in ET epaper dt19 Oct 2011, 1358 hrs IST)

Incentives and exporters

2011-10-18T08:16:00.000-07:00

Exporters are always a pampered lot.They enjoy tax incentitives, concessions,reliefs and interest rate subventions as the economy needs them to bring in as much foreign exchange as possible to support its essential imports particularly oil.Now it is time for the Govt to assess the support extended to exporters and value the benefits derived by the economy and reallocate the resources to vital segments like infrastructure which requires a thorough review, restructuring and fast development.One source of black money generation abroad is through exports and the inflow of funds to the economy through FDIs etc are part of this black money needs to be given weightage by the Govt when tax reliefs and concessions are liberally offered to exporters.Need based support is essential to encourage exports but as rightly pointed outin the editorial,it should not be at the cost of public money ignoring the other support system vitally needed for the economy to make all round progress.

Dr.T.V.Gopalakrishnan

(This appeared in The Hindu-Business Line E paper dated 18/10/11).

Int Rate and Industrial growth

2011-10-17T06:51:00.000-07:00

Int rates cannot affect the growth as it forms only an insignificant share of the over all cost of production. The growth gets affected for several reasons. The Govt's inaction on fiscal front,infrastructure development,on black money,corruption and so on and so forth has a negative impact on industrial climate. Labour reforms, legal reforms and administrative reforms which are long overdue in Indian economy affect the industrial growth negatively. The general level of confidence in our political and administrative system has been on the wane for the past few years and it needs to be revived.The industrialists have to be made more responsive to the societal needs and their greed to make money at any cost ignoring the national priorities needs to be given a cultural change. Will the Govt, bureaucrats and the industrialists do an introspection of their method of exploiting the society and come out clean to mutually cooperate and coordinate to work for the economy's welfare without ignoring their own pursuits?The economy needs a changed mindset and a common objective to take the nation on the growth trajectory without murmuring on issues like interest cost which is not significant.

(This appeared in ET Epaper dt 14/10/11).

Dr.T.V.Gopalakrishnan

Perpetual poverty of India

2011-10-10T06:18:00.000-07:00

(This is in response to a write-up in ET dated 09/10/11).

Not only the planning commission is out of touch with reality but the govt,the industrialists,the middle class, the religious leaders, social reformers and who ever talk of poverty are out of touch with reality.The success of the successive Govts for past six decades after independence is to have successfully manipulated the governance system and exploited the helpnesses of the masses to keep them in perpetual illiteracy and poverty.It is a shame for our politicians,industrialists and bureaucrats to have framed policies in the pretext of removing poverty and made themselves shamelessly rich. Statisticians have aided the policy makers by providing bogus figures on poverty and measurement of poverty standards.It is really surprising to find that this article is from a planning commissiom member which only shows that there are still some left in the Govt with some conscience and concern for the poor.What the economy needs is policy correction and strict implementation of policies with representatives of common people to keep a watch on policies and their implementation.Taxation policy pursued since 1990s widened the inequality of income and the conditions of the lower middle class and poor the worst beyond imagination.It does not require any superintelligence to understand the poverty in India. It is sufficient if our politicians, industrialists and bureaucrats travel in their cars keeping observing on both sides of the road and visit some slums spread all over the country.

T.V.Gopalakrishnan

SBI's rating and Govt of India

2011-10-07T11:19:00.000-07:00

The editorial is well written.The downgrading of SBI's rating by Moody reflects Govt's insensitiveness to safeguard the largest bank of the country with timely measures to raise its capital to the prescribed level.The Chairman of the bank has also to be blamed for his utterances against the previous chairman for allged window dressing of banks's balance sheet. The banks operations continue to be strong despite adverse economic conditions. Its deposit and advance growth have been well above many pvt sector and public sector banks.Its NIM is also comparatively high comapred to that of its peer group.The npas, provisions and profits have perhaps not been at the desired levels and for that the general performance of the economy needs improvement. All said, the bank has a competent management and support of its large clientele of customers and investors.The downgrading is only a warning to the bank to do well and it is not going to affect the bank's operations in any manner.

T.V.Gopalakrishnan

(This appeared in The Hindu Business Line dated 7/10/11)

Sharing of wealth in India

2011-10-06T15:50:00.000-07:00

It is a shame that Indians have to be advised by outsiders on Dharma for sharing and distribution of wealth among the needy.Indian culture,heritage and philosophy speak very high of dharma and the real joy of life is giving and not taking and accummulating.The politicians and bureaucrats have looted the country and enabled a few industrialists to amass wealth through wrong taxation and other economic policies. Some of them share a part of the wealth to earn a name and gain tax benefits.Some are looting even in the name of charitable trusts and charities. Govt sponsored schemes to aid the poor are avenues for free loot and the money does not reach the intended beneficiaries. Loot is going on in the name of spiritualism and there are no checks and balances. Ethics and values have been given a go bye and for survival one has to be dishonest, corrupt, disloyal,and 420 in letter and spirit. Honesty and straightforwardness are openly condemned. Corruption,blackmoney,and out of the way dealings are openly encoraged and anybody raising voice against mal practices and irregularities are taken to task and harassed.Morals and Principles in day to day life have become things of past geneartion and very talk of these things are looked down upon with contempt. Before we beg the wealthy to distribute their wealth, let all Indians learn to introspect and realise that over a period we have discarded values, morals, and ethics which our ancient culture and civilisation were once proud of.

Dr.T.V.gopalakrishnan

GST and the masses

2011-10-06T05:48:00.000-07:00

GST if introduced and implemented should benefit the economy and the people, but the way the Govt functions it is difficult for people to take for granted the govt's sincerity and good intentions if any behind it.All these years, the Govt has been fooling the masses and has made life miserable for aam aadmi. The latest is the Planning Commission's submission to the Supreme Court that person earning Rs 32 a day in an urban centre comes above the poverty line reflecting the Govt's insensitiveness to realise the ground realities of the living conditions of the masses and lack of concern for aam aadmi's welfare. The Govt is a miserable failure in combating inflation, corruption black money and bringing in fiscal discipline. GST should not be another modus operandi to favour the rich industrialists at the cost of general public is the fear lingering in the minds of masses. Govt should realise this and take proactive steps to convince that GST would turn out to be good for the masses and the economy.

Dr.T.V.Gopalakrishnan

SBI and Moody's rating

2011-10-05T20:17:00.000-07:00

Your editorial is well balanced and most appropriately concluded by saying that Moody's rating of SBI must be seen as a note of caution rather than as an alarm bell. The present predicament of SBI is the making of its present chairman for his utterances on banks' balancesheet as on 31st March 2011. Further the economy has not been doing well because of Govt's inefficient and ineffective fiscal policies in controlling inflation,black money, corruption and providing the much needed support to give a boost to economic growth. Of late its quality of assets has been deteriorating affecting capital adequacy, profitability and recycling of assets. All said, the Moody's rating basically based on some quarterly results do not reflect on the bank's overall strength with the strong backing of the Govt and its competence to overcome the temporary upsets. SBI is the largest PSB and it has abundant resources at its command to improve its performance in terms of NIM, asset liability management and capital adequacy ratio. It enjoys the confidence of investors, depositors and borrowers and the moment,economy starts showimg some sysmptoms of good growth, in no time the bank's performance will turn better. Moody's rating is only a warning to the bank to be more alert.

Dr.T.V.Gopalakrishnan

Time for Exchanges for SMEs

2011-10-05T14:35:00.000-07:00

The idea of SME exchanges needs serious consideration and at least four such exchanges should be set up in East, West,South and North regions. This will facilitate upcoming and already existing entrepreneurs to raise equity funds to set up SMEs and venture capital and Private Equity Funds can find some good avenues for investment. Such exchanges would facilitate distribution and better utilisation of wealth in the economy.It would also ensure improved participation of the masses in the capital formation and provide adequate resources for capital starved but well promising ventures.Banks continue to be shy in financing SMEs is a fact.The present exploitation of SMEs by large scale units needs to be given a go bye.This is possible only if well regulated and well run exchanges are set up in the economy.The country has all the potential in terms of resources,human power, technology including capital but it lacks the initiative and approach particularly from the Govt to take up new ventures in the form of setting up of exchanges for SMEs. The reasons can be adduced to the grip and control the industrialists have over the Govt.They want to take away all the facilities and benefits of policies for themselves hindering the growth of well deserving SMEs in the economy. Earlier the exchanges are set up,the better. The emergence of exchanges would help improve the functioning of the NSEs and other regional exchanges. This would also bring in the much needed discipline among Companies.

Dr.T.V.Gopalakrishnan

2G scam loss and the economy

2011-10-01T05:32:00.000-07:00

(This comment is in response to the editorial'Telecom Turbulance' appeared in The Hindu-Business Line)

The fact that the Finance Ministry has failed to exercise its due vigilance on the proposal of the Telecom Ministry to jettison the auction procedure and adopt first come first served has led to the loss of the exchequer in crores of rupees needs an explanation from the Govt.This sort of leakage of revenue due to malpractices and lack of concern for managing public finance efficiently leads to avoidable deficit and consequent damages to the economy which has been facing problems one after another for want of resources.The failure of these Ministries should be viewed as the failure of the Govt as the damage caused to the economy is irreparable.Inflation remains unchallenged since 2009 and the basic reason is failure of fiscal policy and definitely not due to ineffectiveness of monetary policy.Easy money in the hands of a few due to failure of policies has adverse moral,ethical and financial impact in the economy. The confidence is shaken among public and the economy suffers.

T.V.Gopalakrishnan

( This appeared in The Hindu Business Line Dt,1/10/11)

Investors and Cpital Market

2011-09-30T06:33:00.001-07:00

The editorial is very right in saying that by offering sops alone investors will not return to market.The market has been volatile since September 2008 when the financial meltdown began and continued without any sign of recovery.Even now the world economy is in a mess and the chances for an early recovery are remote.STT is non-inflationary in character and it is difficult to pass on to others and hence the grievance from investors and brokers.In fact,Govt should modify STT and should be made different for purchases and sales,retailers and whole salers,brokers and traders,FIIs and domestic institutions etc.STT can emerge as an important regulatory tool and it should contiue.Stamp duty rationalisation is overdue and needs to be expedited.The confidence in market needs a boost and for that the GOVT and SEBI should put on some coordinated efforts.The Govt has to ensure that its fiscal deficit will be contained through improved administration and policy initiatives followed by actions.

from: T.V.Gopalakrishnan.

(This appeared in the Hindu-business Line Dt 30/09/11).

Talk of taxing the rich at last.

2011-09-28T16:49:00.000-07:00

Dr.T.V.Gopalakrishnan (Fort Worth, Tx)
At last Mr Chidambaram is talking sense.All over the world the move is to tax the richest and wealthiest people to take the economy out of the woods and in India the Govt thinks of abolishing the Security Transaction Tax which is paid basically by people who enjoy excess funds and speculate in the market out of greed and make more wealth. The rich who invest in markets earns dividend in crores of Rs do not pay any tax. They are not affected by inflation as they have both black money and white money to exploit the economy in all possible ways. They trade in commodities like gold and silver and that too using cash. They also trade in real estate like stocks and escape all forms of taxes. The limit for wealth tax has been substantially hiked and many do not pay wealth tax. The economy expects to fill its kitty by direct and indirect taxes making the life of common man miserable. It is time to have an asessment of the gap between the rich and poor over the last two decades in particular and evaluate the performance of the Govt. Rich has become richer and the poor has become poorer. The rate of growth of wealth has been exhorbitant and the black money generation is at its peak. The economy after the reforms has done well but the benefits have gone to the well off of the society is a fact to be recognised.The laws favour the wealthy and they rule the economy. Earlier the Govt realises the folly, the better for the Govt and the people.The FM needs a change of his mindset to act.

(This appeared in ET dated 28/09/11).

Poverty, Statistics, Politics and the common man

2011-09-27T10:07:00.000-07:00

The editorial Poverty of Statistics is very apt. The Planning Commission's submission to the Supreme Court that a person who earns Rs 32( not 31 as indicated ) in urban area and Rs 27 in rural area should be treated above poverty line only reflects poor understanding of the poverty, or of the value of the rupee,or the inflation level prevailing in the economy, or the credibilty of data by its Members. It also reflects poorly,the concern that the Members have for the people particularly the poor.It is okay if these poor people have access to some canteens maintained by the Govt and the food is made availble at these rates.It is time to admit that there is no accuarcy of data with regard to the poor people and the method of arriving at the poverty level has no concensus.The amount of subsidies and various poverty linked programmes do not benefit the poor are common knowledge. The UID is the only hope left now and hope some lasting solution to remove poverty will be found soon.

Dr.T.V.Gopalakrishnan.

(This appeared in The Hindu-Business Line Dt 27/09/11).

Wrong Approach of the Finance Minstry to abolish STT

2011-09-27T09:45:00.001-07:00

The proposal to cut STT and rationalise stamp duty to give a boost to the sagging stock market is welcome. The STT introdoced in 2004-05 budget has several benefits and can emerge as a leveller of the marketfluctuations and a source of recurring revenue to the exchequer without any inflationary implications. The revenue earned through STT at Rs 2223 crores this fiscal may appear less and lower than the expectations, this can be attributed to the volatility seen in the market due to the poor performance of the domestic and international economy.STT can be used as a tool to contain volatility and excessive speculation.STT should be different for purchase and sales,individuals and institutions,various cut off limits,equtuity and bonds,Govt securities of different maturities, Gold and silver,Forex etc.It should emerge as an administrative tool to regulate the various markets in Financial System, replace capital gains tax over a period.The need to retain STT is essential but with changes.

Dr.T.V.Gopalakrishnan

( This appeared in The Hindu-Business Line on 27/09/11).

Abolition of Security Transaction Tax -A blunder

2011-09-27T09:37:00.000-07:00

The move of the capital market division of the Finance Ministry to abolish the STT is not in the interests of the economy. This tax introduced through 2004 budget has been fetching easy revenue, non inflationary in caharacter and sparing the aam aadmi. It is basically affecting those who with their surplus income enter the capital market with a basic motive to save and speculate.Investors and brokers cannot ever favour such tax as their greed and clamour to curry favour from the Govt for all concessions and reliefs at any cost have always been considered, heard and adhered to. In case the Govt yields to this demand and abolish the tax the loss is substantial and it will be difficult to reintroduce at a later date. This tax needs to be reformed to emerge as an important administartive tool to regulate the capital market from the angle of controlling excessive speculation, volatility, raising recurring revenue without any inflationary implications, removing all other taxes like stamp duty, capital gains etc. The approach to abolish STT is only shortsightness and the Govt will repent later on. This levy needs to be made more dynamic and should vary from transactions to transactions.This tax should be different for retailers and whole salers based on certain cut-off limits,for individuals and institutions,for FIIs and domestic investors, equty, bonds and commodities, forex,etc. This will eventually lead to have a track of events in Financial market.

Dr.T.V.Gopalakrishnan

(This appeared in Et dated 27/09/11).

Gold Reserves to the rescue of world economic crisis

2011-09-23T10:37:00.000-07:00

The Gold price has been on the increase for the past several years and the demand for gold got an unprecedented boost since September2008when the financial crisis erupted in US.Gold became attractive as an investment avenue and storage medium from the angle of safety,liquidity and profitability.The Central banks of the world started purchasing Gold for Reserve purposes which resulted in steep increase of gold prices.Investors who speculate in commodities found an opportunity to make easy money and accummulation of wealth started purchasing gold ignoring the prices and gave a boost to gold market.Developing countries particularly India, where inflation is persisting at high level and black money circulation is very high,found gold as a best hedge against inflation and store of value.India alone imports gold on an average1000 tonnes per annum wasting the precious foreign exchange.Now the economic crisis is becoming a reality and US,Europe and other economies are finding it difficult to survive the crisis creating a panic situation.It is time for the leading institutions like world bank,IMF and central banks of advanced and developing nations to turn to Gold reserves and arrive at a solution to resolve the crisis.The World leaders have to cooperate and find some workable solution to convert gold into productive assets and rescue the badly affected economies.Globalisation integrates economies and Gold Reserves should facilitate it and resolve the economic crisis. Will it happen?

Dr.T.V.Gopalakrishnan

Rich and Poor A Paradoxical Situation in India

2011-09-23T09:57:00.000-07:00

My response to the editorial"Teach people to Fish" appeared in ET dated 22/09/11.
The link is here

Your editorial Teach people to Fish is thought Provoking and commendable.The planning Commission's affidavit to Supreme Court that any one with a monthly expenditure of Rs 965 in urban area and Rs 781 in rural area would be deemed not poor is an indication that the members of Planning Commission are totally unaware of the ground realities as to how much Rs 965 and Rs 781 can fetch in the market taking into consideration the fall in the value of Rs and rise in the value of products. In urban areas,water costs Rs 15 a bottle,milk costs Rs25-30 a litre, fuel costs Rs 375 a cylinder and the lists go on. Rs 965 a month at best can help a person to live for 15 days and starve for the next 15 days.This sort of definition of poverty level only reflects the poor understanding of the market realities and the actual living conditions of the masses.This lack of knowledge reflects poorly in all policy formulation.The number and conditions of people below poverty level have not changed for past six decades after independence. It is time to acknowledge the naked truth that Rs 32 a day can fetch nothing in the present day inflationary situation and this awakening is needed among the policy makers that economic policies so far pursued have miserably failed and widened the gap between the rich and the poor. The fact that dividend earned in crores of Rs is tax free,wage of Rs 32 earned through hard physical labour is above poverty level is a paradox and the Govt is answerable for that.

Dr.T.V.Gopalakrishnan

MNCs and Labour Unions in India

2011-09-22T15:34:00.000-07:00

The following is my comment on the article"MNCs cannot wish away union"
appeared in The Hindu Business Line Dated 22/09/11.

The write up justifies the need for recognising workers right to unionise and fight for their just rights by MNCs. The exploitation of workers has been going on for years and taking labourers on contract basis without any welfare or terminal benefits has been the order of the day. No doubt, making the workers to discharge their duties and responsibilities is sine qua non for any economy to register growth, it is also equally the responsibility and duty of the employers to see that workers are not exploited to satisfy their greed to amass wealth. The reforms in Labour laws are long overdue and it is the ideal time for the Government to take all the Unions into confidence to initaite and finalise meaningful laws to ensure smooth functioning of companies without any sort of exploitation of workers. They have to be compensated for their labour and militancy should never be tolerated. Politicisation of unions should be avoided and reforms of laws need to reflect this strongly.

Dr.T.V.Gopalakrishnan

(This appeared in The Hindu Business Line E paper dated 22/09/11)

RBI 's lone role to contain inflation

2011-09-21T13:51:00.000-07:00

My comment on the article "RBI Governor: The loneliest job in India" appeared in ET dated 21/09/11. The link is here

The author is right in saying that the Governor's job is the loneliest. The Reserve Bank has raised the interest rates 12 times Since March 2010 to combat inflation without success.Had the Reserve Bank not hiked the rates, perhaps,inflation would have been much higher and done more damage to the economy is a fact to be acknowledged both by the Industrialists and the Government.The Govt cannot claim to have taken any fiscal or administrative measures to support the monetary measures to contain inflation which is driven by excess demand,supply constarints and external factors where the Reserve Bank has very limited control.On the contrary, the prices of petroleum products have been hiked several times though warranted,challenging the monetary measures and creating diffidence in the whole management of the economy keeping at heart the welfare of aam admi.The Govt had several other issues other than managing the economy during the last several months and the the issue of containing inflation became the solitary responsibility of the Reserve Bank.
Speculation in commodities particularly gold and silver has been at its peak and the black money generation in these transactions has always been the rule rather than an exception.Corruption, black money, maladministration in the procurement, processing,storage, transportation,distribution, export and import of commodities which affect the supply and demand where RBI has absolutely no say have an inflationary impact and the Govt can play an effective and supportive role to bring down prices. Agricultural credit has been on the decline for the past several years and it needs to be tackled to improve agricultural productivity and marketing of the agricultural products. Here Central Govt, State Govts and NABARD can contribute a lot leaving RBI.Industrialists have a tendency to clamour for more from the Govt and Banks and this time they find RBIthe scapegoat for their failure.It is time they realiseit.

Dr.T.V.Gopalakrishnan

Federal reserve's Stimulus to revive the US economy

2011-09-21T13:37:00.000-07:00

FOMC meet: Is Federal Reserve running out of options to boost slumping US economy?
The following is my comment on this issue.

The monetary policy in the long run should encourage savings and investments and the stimulus it provides to banks should result in investment out of savings. The policy should aim at to take the banks out of the mortgage mess and for that a Fed Reserve can think of some innovative ways to attract idle funds lying in the economy to banks through some incentives. Banks should offer better rate of interest on savings and credit off take by individuals for consumption purposes needs to be drastically curbed. Consumption should come out of savings and credit combined or out of savings only. It may take some time for the economy to achieve this,but the result will be worh the waiting. Too many products and too much of capital market investments need to be closely monitored. Safety of funds should get priority over profitability and Risk taking and Fed Reserve's policies should be aiming at this. Production oriented investments of banks should be encouraged for job creation in the economy.

Dr.T.V.Gopalakrishnan

(This appeared in ET E paper dated21/09/11)

Petrol Politics, Inflation and Indian masses

2011-09-18T06:47:00.000-07:00

This is in response to the write up on "For petrol, Indians shell out the most in the world". The link is here

The only explanation for high prices of oil in India is the total mismanagement of the economy and utter disregard for the concern of the people's suffering. It is a solid example that pricing in india is not based on any rationale.The tax,wastage, extravaganza of companies who deal in petroleum products, maldistribution and wrong method of transportation and excessive cost on tranportation will account for the mismanagement. Black money, corruption and other mal practices like adulteration also add to the cost to the ultimate consumer. Governance is literally absent and accountability is virtually missing. People are helpless and they silently suffer. This is one of the major reasons for continued persistence of high inflation and the Reserve Bank has its own limitations in such matters like pricing of essential consumable items having inflationary impact.

Dr.T.V.Gopalakrishnan

Indians and Gold

2011-09-18T06:31:00.000-07:00

This is in response to the article "Do we know something about gold the world doesn’t?" appeared in ET. The link is here

The author has not come out with any suggestion or new insights in the presentation. Indian economy cannot afford to import gold at the presnt inflated value of gold and unfavourable exchange rate. It is time the sentiments attached to gold gradually disappear and the holdings of gold in India get converted into productive assets. India is far behind in infrastructure and this needs to be developed to make it a vibrant and fast growing economy. The money lying in the form of gold needs to be converted into cash and put into use for infrastructure development.The Government should discourage investment in gold and import of gold to save both money and valuable foreign exchange. The craze seen of late,to speculate on gold price volatility needs to be nipped in the bud itself. The rush after gold is widening the inequallity between haves and havenots and it is not good in the long run for the society.The approach by the Govt should be1) To Set up a Gold Bank and see that all gold holdings which include institution's and family holdings are taken as deposits on payment of some interest 2)Convert the Gold into cash and put into productive use in the economy3)Discourage speculation in Gold 4) Ensure that gold imports are well regulated 5) Gold encourages black money hoardings in the economy and it is the responsibility of the Govt to see that Gold hoardings are tracked.6)Purchase and sale of Gold above a cut off limit to be tracked by insisting payments through cards, cheques and internet and indicating PAN numbers.7) Educate the public not to run after gold and bring discipline through dowry prevention regulations.
8) The income tax wealth tax and sales tax for gold needs to be reviewed and reformed.
It is time for investors to realise that gold does not enjoy an intrinsic value and internal rate of return. The Govt should carry out a survey to assess roughly the Gold holdings and take appropriate steps to put them into optimum use to develop the economy.

Dr.T.V.Gopalakrishnan

Interest Rates and industrial growth

2011-09-17T06:30:00.000-07:00

This comment in response to the Article "RBI right in sticking to its guns" appeared in The Hindu Businessline dated 17/09/11.

The author is right in the sense that the interest cost cannot be cited for the problems faced by the industrial sector.The credit off take is more than the expectations and the credit deposit ratio has been on the higher side indicating continuous demand for credit and banks are meeting them thanks to the liquid adjustment facility made available by the Reserve Bank.Industrialists by nature clamour for more facilities and concessions as they do not want to sacrifice a bit of profit though they have umpteen ways to cover up the small interest cost caused due to RBI's monetary policy. The inventory management and luxurious style of living by our corporates' bigwigs add to the cost of production and it is time special measures are taken to avoid excess inventory, avoidable waste and introduce austirity measures in the over all expenditures of the company. The accountability of auditors has been virtually absent in our corportae accounting practices and this needs to be reviewed.

Dr.T.V.Gopalakrishnan

Dividend and Income Tax.

2011-09-15T19:35:00.000-07:00

Link to the article in ET is here.

It is time dividend earned beyond a cut off limit of Rs 1 crore and above should be brought under Income Tax net. A salary income of Rs 1.80 lakh is taxed. Out of this income, the person has to maintain family, take care of medical expenses, education of children and all sorts of expenses which include bribing to get small things done. It is difficult to understand Indian Taxation policy. Those who earn very high income beyond the imagination of ordinary people silently enjoy and talk of morals and ethics. politicians and bureacrtas who make unaccounted money enjoy life at others cost and advise people to lead a simple life with high thinking. They also liberally quote Bhagavat geetha, Ramayana and Gandhian thoughts for people to follow. It is time for industrialists to voluntarily contribute for common peoples' welfare as the money they earn by way of dividend is in a way public money. Make education free as far as possible and see that common people do not struggle to lead a life having atleast two time ordinary meals. With inflation ruling high, poor people have no means to survive.There is no moral, economic and social justification to exempt dividend from Income Tax under the name of double taxation. Taxation policy and the implementation of the policy have done maximum damage to our economy and the people. Will the authorities have the conscience to compare the tax and income of the Rich and the Ordinary taking into account the inflation factor and the living standards?

IMF and World Economic Stability

2011-09-13T11:07:00.000-07:00

Dr.T.V.Gopalakrishnan (Fort worth, Texas)
13 Sep, 2011 10:51 PM
It is good to hear that IMF has proposed a set of tools financial regulators could use to detect buildup of risks that can lead to financial crisis. The IMF being an international institution set up exclusively to help its members to come out of forex and balance of payment crisis and bring in some sort of economic stability world over has a major role to play to help resolve the European and U S economic crisis. It is time IMF comes out with an innovative approach taking the support of all member countries and its own gold and other reseves to come to the rescue of US economy in particular in finding a solution for its debt crisis. The economic scenario under globalisation and integration of world economies has undergone a sea change and it is time for IMF to review its own role in the changed scenario and work towards world economic stability using its command over the entire world. The role of gold reserves in ensuring world economic stability needs to be defined and IMF which has huge reserves of Gold should be in a position to bring the much needed economic stability through out the world by converting gold into productive assets and help the nations to work as per its directives till some semblence of economic order is achieved.Time has arrived for IMF to emerge as a world leader institution to look forward to by all member countries including advanced economies.Gold Reserves of various central banks of the world also needs to be put into productive use.

(This appeared in ET E Paper dated 13/09/11).

Import of Gold and Import Duty

2011-09-11T17:19:00.001-07:00

Dr.T.V.Gopalakrishnan , Fortworth, Texas , says:

Investments in gold take away the capital intended for productive use. Further, it has become a speculative habit even among middle class to invest in gold thus taking away the savings of the economy for economic development. If there is some arrangement to covert gold into productive asset by some means like setting up a gold bank and converting hold hoardings into cash, there is no harm in permitting gold imports. Higher import duties should not, however, result in smuggling of gold and generation of black money. In india administration is a weak area and prone to corruption and hence higher import duties should not lead to such undesirable practices.

(This appeared in ET E Paper Dt 6 Sep 2011, 2247 hrs IST).

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Should the Indian government have a sovereign wealth fund to invest overseas?

2011-09-11T17:05:00.001-07:00

Dr.T.V.Gopalakrishnan , Fort Worth, Texas , says:

India's present economic status does not permit for such luxuries. India has to make its economy strong in terms of improved GDP,percapita income,inflation and standard of living for its people. Charity begins at home and India should not venture for such adventures at least for another decade.Overseas markets are also not very conducive of late to attract investments. There are lots of uncertainities.Better to secure India's economy first and then think of entering overseas market. What is the source of Soverign wealth? Has India got the wealth?

(This appeared in ET E paper,9 Sep 2011, 1950 hrs IST)

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SLR, Fiscal Discipline and Banks

2011-09-10T09:13:00.000-07:00

Gopalakrishnan (Fort Worth, Texas)

This refers to your editorial on SLR reduction and Govt's fiscal discipline. The reduction of SLR is ideal provided the banking system is otherwise sound and the Govt is prudent in its fiscal management. If reduction in SLR is permitted,the banks exposure to credit will expand and consequently, it will have to provide additional capital to meet the capital adequacy standards, provide more towards provision for bad debts and find good demand for credit expansion which is not there due to high interest rate, high inflation,lack of congenial atmosphere / comfort level for investment by the private sector etc. No doubt, the need for reduction in SLR is justifiable to discipline the Government's fiscal management and dependence on dependable bank finance, will it be possible in India taking into consideration poor professionalism in banking, compulsions to finance weaker sections of society, lack of discipline among borrowers to conduct their operations with banks and public money etc is a million dollar question ? How far RBI's autonomy if at all if it is there, can permit it to run the banking system the way it wants? is another issue to be debated in the matter.

( This appeared in ET E Paper dt 10/09/11)

New Version of Loan Mela and the PSBs

2011-09-09T18:45:00.000-07:00

The Govt's plans to dole out Rs 10000 to aam aadmi to boost rural economy through PSBs is nothing but replica of the 1980s loan melas and do not sound good economics or good politics. The banking system though financially sound thanks to Reserve Bank's regulation and supervision,but it is still under the Govt's direction is a curse.Particularly PSBs at this rate cannot be expected to be run on professional lines whether they come under RBI or not,as longs as Govt's interference is there. The system of financing agriculture is in a mess and the contribution of agriculture to the GDP is dwindling year after year. The presence of NABARD exclusively set up to develop rural and agricultural development is never felt and the RRBs, Local area banks and cooperative banks have equally failed to give a boost to the rural segment.Six decades of independence have not been beneficial to the rural masses is a stigma to our political system and economic management.Giving out doles like this to the poor only indicates that people can be fooled and they have not come out of their ignorance to have an independent thinking to assess our system of administration of the economy. This approach is nothing but an intelligent way of exploitation of the poor. This is another form of corruption perpetrated on the poor in our economy by the Government. It is time to change and see that real economic activities are introduced in our rural areas using the institutions set up with public money. Will the Govt act ?.

Dr.T.V.Gopalakrishnan
(This appeared in ET E paper dated 10/09/11).

Obama's Package for Job creation in US

2011-09-09T09:32:00.000-07:00

Obama's proposals merit consideration, but will the politicians' agree? is the major issue. The economic crisis in US is more of political making than anything else. It is unfortunate that the politicians even in most advanced nation like US are behaving like the politicians of undeveloped / underdeveloped economies. Politics spoils the best of intentions whether they come from Obama or someone else. Obama has universal welfare in his actions and thoughts but the politicians of US have their own greed for power, money and self interests. Nothing can be done in such circumstances.

Dr.T.V.Gopalakrishnan

(This appeared in ET E paper dated 9/09/11).

The Great US Bank Robbery

2011-09-07T17:24:00.000-07:00

It is pathetic that tax payers money is liberally spent / wasted to save banks and bankers for their greed and mindless risk taking with investors money. This only reflects poorly on the regulatory system and the regulator's performance. The raw material to run banks is public money and banks should not be allowed either to face a run or run away with that money. There should be a built in mechanism in banks to save themselves from risks by creating a fund taking contributions from banks themselves from out of investment income, investment managers from their bonuses and regulators from their income earned from regulated entities. Making tax payers, depositors including retirees to bear the burden for someones' faulty investments out of greed is something beyond tolerance and there is no business ethics in that. The author is fully justified in his arguments that money invested to save banks should have gone for some productive investments to fetch better return.

Dr.T.V.Gopalakrishnan
(This appeared in ET E paper dt 7/09/11)

Obama to call for extended pay Roll tax

2011-09-07T17:16:00.000-07:00

Along with tax cuts for employees and employers, it is desirable to introduce some tax incentives for savings.Economic security should precede social security and there should be some measures to aim for economic stability. The Government can think of creating a fund 'Economic Stabilisation Fund' by mobilising funds from all segments of the economy. There can be two parts for this fund ie Refundable and Non-refundable. The country has billionaires,millionaires, and large multi-national corporations with lots of wealth in the form of gold, real estates, huge reserves and cash balances. By providing some incentives , the Government should be in a position to attract a small portion of these resources either on a refundable or non-refundable basis. The economic recovery is in the interest of all and there should not be any hesitation to come forward to contribute. The Govt can also consider introducing some levies in the form of Speculation tax on large deals in forex, capital market, commodity market and others, greed tax on casinos and other gambling areas, luxury tax for owning and operating very high end cars more than two and aircrafts, extravaganza tax on consumption, entertainment, marriage, festivals etc. USA has all the resources, talent, expertise and skill and the present situation is only a temporary upset which can be easily overcome without much fuss. The political bickerings need to be kept aside and efforts should be made only on economic recovery.
Dr.T.V.Gopalakrishnan
(This appeared in ET Epaper dt/7/09/11

CBI Action on illegal Mining

2011-09-06T18:38:00.000-07:00

At last CBI has started acting and it should be welcomed by all right thinking citizens. The loot of the common property by any body and any where needs to be eliminated and the present action of CBI is an eye opener. This enhances the sagging image of CBI in the eyes of the public and they deserve all appreciation and support. This is what is expected of CBI and other law enforcing agencies in India. Such actions will prove to be deterent in containing illegal activities. The enforcement of the existing laws will itself go a long way in tackling corruption and black money in India. Will this trend continue or stop as usual with political influence and interference?

Dr.T.V.Gopalakrishnan

This appeared in ET E paper dt 6/9/2011

Probe into black Money by Income Tax Dept and ED

2011-09-06T18:31:00.000-07:00

The probe by IT and ED into the black money is welcome and keenly watched by Indian masses as they have a big stake. The money if collected should be fully put into eradication of poverty and Government can take full credit for the black money recovery and its proper use. The modus operandi used to transfer and accummulate black money abroad needs to be studied in detaail and all the loopholes need to be plugged. Checks and balances should be in place to see that such instances do not recur anymore. The Government has to instill the confidence among public that it is back in action and it will not tolerate violation of laws of the land. This has been missing for decades in India and the economy has suffered and has been suffering.

Dr.T.V.Gopalakrishnan

(This appeared in ET E paper dt06/09/ 2011

The US economy -The way forward

2011-09-04T10:35:00.001-07:00

The US economy - The way forward-some random thoughts.
The US economy is in a big mess. The GDP growth (less than 2 %) is not picking up as per expectations. Unemployment (9.1%) is increasing beyond expectations. The debt and deficit are going beyond the means. The rating has been lowered from AAA+. The attempts so far made to improve the economy which include two installments of Quantitative Easing of money have not made any tangible impact. On the contrary it has aggravated the problems. To make the matters worse, the other economies particularly Europe for some reason or other have not been doing well. The economic situation has created a politically tense situation. For the status of US, the present damage to its image, is something unimaginable and not digestible. The think tank of the economy is engaged in arriving at a solution acceptable to the political thinking and improving the economic status. Maintaining the social security without the real backing of the economic security is becoming a challenge. The talk of a double dip recession is going around adding fuel to fire. The situation is abnormal, demanding an abnormal solution. One possible way to come out of this rut is to think of an Economic Stabilisation Fund and use the resources mobilised for infrastructure development, expansion of research and technology, improving skills all around to fill up the existing gap between demand and supply of skilled workers, finding alternate resources particularly for oil and electricity where wastage and extravaganza are visible, educating the people to save and then go for consumption with the support of credit if needed backed by repaying capacity etc. The need for reducing the greed of many is an area where value education is also desirable in a big way.
How to mobilise the resources for the 'Economic Stabilisation Fund' in a fund starved economy is an issue to be tackled? This should not be a problem for this advanced and rich nation. The wealth spread over in the economy with individuals, institutions, multinational companies in the form of gold, shares, high value commodities, real estate or in any form needs to be assessed and the possibility of getting a small share either by way of refundable loans or non refundable contribution to revive the economy has to be explored.
Refundable Basis:
An insignificant percentage of profit or writing down huge reserves of multinational companies towards contributing to this fund with or without interest if necessary by providing a tax incentive can build up the fund fast.
Individuals, institutions, multinational corporates having huge cash reserves can transfer part of the funds to this Stabilisation Fund on refundable basis. They can be paid reasonable rate of interest.
Part of Pension, Provident Funds and other funds of similar nature can be diverted towards this fund instead of investing in capital markets. Reasonable rate of interest can be paid.
Contributions from super rich and wealthy people can be accepted towards this fund and to encourage such contributions some tax incentives can be considered.
Non refundable Basis :
Since the fund is meant for ensuring economic stability on an endurable basis , the Government can consider levying some surcharges or cess from those segments of the society who can really afford without any burden. The following type of levies can merit consideration:
Greed Tax: Those who indulge in heavy gambling and speculation can be made to pay a small percentage of their investment towards this fund. In case they earn on such investments, a separate tax on such income i.e. different from income tax can be levied at a higher rate than the normal income tax. The gambling centres like casinos can contribute a considerable sum from their profit towards this fund.
Turn over tax: Multinational Companies, corporates, dealers, traders, brokers etc whose turnover is more than a cut off limit say $1billion can contribute a very small percentage of 0.01 or even less towards this fund till such time economy recovers/stabilises and overall position becomes comfortable.
Deal/ Transaction tax: Every purchase and sale in all exchanges like commodities, stocks, securities, bullion, foreign exchange etc can be taxed at some lower rates. While purchase transaction can have a very low rate compared to a sale transaction as the latter is generally to make some profit and should attract a higher rate. Short sale transactions should attract a different rate altogether.
Wealth tax and Estate Duty: The economic stability is in the interest of all segments of the society, the expectation from very wealthy and super rich segment to come to the rescue of the economy is naturally high and there is every justification to charge a little extra tax on this category.
Extravaganza Tax:
The concept of expenditure tax particularly on large expenditures on marriages, festivals, parties, clubs etc above a cut off limit can be introduced and funds thus collected can be contributed towards this fund.
Luxury tax:
The tendency to go in for very high end cars and own aircrafts is very much prevalent in the society. This type of luxury can be brought under luxury tax till such time the economy recovers and there is full employment in the society. The objective is not to curb the freedom of luxury but to the timing of indulging in such luxuries when a large segment of people are unemployed /underemployed and the economy is struggling to meet the social safety standards.
The measures suggested can be considered in combination or in isolation.
The economic security should precede social security and from this angle, build up of economic security is sine qua non and should be on the top of the agenda of the Government. The country has everything at its command in terms of human talent, skill, expertise and natural resources and the present economic crisis is not something beyond its control. It has an able, competent, excellent, and committed leader in Mr Barack Obama who aspires the welfare of not only the US citizens but the whole universe and it is an opportune moment to show solidarity and back him with all support to take the economy out of the present predicament. The need of the hour is to regain the lost confidence and for that some extra ordinary measures like creation of Economic Stabilisation Fund should be able to take care of the problem.
Dr.T.V.Gopalakrishnan
Fortworth, Texas

US Economy- Some random thoughts

2011-08-30T16:16:00.001-07:00

US Economy -The way to come out of the present mess- Some random Thoughts
The US economy, the leader of the world economy has been in trouble since 2008 after the breakdown of its financial system. Unfortunately for Mr Obama, the president on whom lot of expectations were there with his message Yes, We can Change, things have not gone in his favour both domestically and internationally and the Change he wants to see in US and the world over has been elusive for some reason or other. The full potential of the economy remains untapped and for no reason, the country is facing an embarrassing situation. It is avoidable and needs to be avoided. Mr Obama has the mind and the commitment and he should be in a position to bring the changes.
The Fiscal and the monetary policies pursued particularly after the financial turmoil in 2008, have not brought the desired impact in the economy and the fear of US facing a deep recession if not depression is looming large. The fiscal deficit and the debt incurred to save the economy from the crisis have aggravated the problem and the monetary policy inducements have also not helped to salvage the situation. The downgrading of its debt from AAA+ to AAA by S&P followed by European crisis has deepened the crisis further. Problems will always come in battalion is literally proved in the case of US. More than the disease, the remedy has turned out to be a major head-ache is said to be the situation in US now. To make the situation worse, regulatory measures on the financial system are often blamed for the banks' poor performance particularly in the area of deployment of credit.
To come out of the situation, it is advisable to pursue some simple theories than to depend on major economic theories and then face criticism from all around. As an observer from outside and without any deep knowledge of the economic theories and the economic crisis faced by the US now, I would like to suggest a few measures worth attempting.
The country is very vast and any amount of infrastructure to link east to west and north to south would prove to be only inadequate. The present approach to connect these places by vast stretches of road is good no doubt, but it is proving to be costly and energy consuming affecting the fiscal health of the economy. The dependence of the economy and its people largely on road and air needs to be reviewed and these need to be equally supported by expansion of rail and water transports. The money spent on oil and electricity needs to be saved by introducing massive rail and water transport system. The acceptance of this, may have resistance but in the long run, the economic benefits derived in terms of employment generation, reduction in fiscal deficit, improved consumption, saving and demand would justify such an action.
Public spending needs to be augmented considerably and private savings need to be encouraged to derive real strength for the economy. Demand, Consumption and investment should basically come from improved savings and prudent public spending. Expecting only enhanced consumption without any inducement for saving, for increased investment and employment opportunities would prove to be a disaster for the economy and this needs to be avoided. This approach will tantamount to building a house without adequate foundation.
Taxation policy pursued should ensure equitable distribution of wealth and income. Allowing one segment to accumulate wealth and another segment to consume more through induced credit without savings will have its own adverse impact in the economy. Development of the economy is the responsibility of both the haves and have nots and taxation policy should ensure that as per the capacity, people contribute for the economic development.
Too much of dependence on capital market to earn and accumulate wealth is not a healthy trend. Capital market cannot be taken as a substitute for Casinos. Its function is basically to aid capital formation and provide adequate liquidity and return to those who provide capital by way of investment. Too much of Speculation is not envisaged in capital market. This is perhaps where more regulation and supervision are called for to prevent casualties. Introducing exotic products in the guise of fighting against risks in speculation is inviting all round trouble and this tendency needs to be completely eradicated. The economy can function well even without any of these products.
The need of the hour is to improve the functioning of the economy through generation of employment opportunities, well managed public spending, induced private savings, improved fiscal deficit and well intended taxation policies. Infrastructure development connecting the entire length and breadth of the country through railway and water net work system can help to improve the economy with all its multiple side benefits. The other areas of development can however keep going as per the major proven economic theories true to pattern.
T.V.Gopalakrishnan ( Personal views)

Auditors, Banks and Accountability

2011-08-29T16:54:00.000-07:00

DrT.V.Gopalakrishnan (Fort worth, Texas)
30 Aug, 2011 04:09 AM

The editorial reads well and the suggestion that auditors should be paid from a pool of finance is welcome to prevent frauds and provide better accountability. However, this will not prove to be a foolproof method as long as the Boards of Directors are not made accountable and corporate Governance is rated in a transparent manner. The banks have also a major role to ensure that the corporates they finance conduct the accounts satisfactorily and the NPAs do reflect correct position. The auditors of Companies and auditors of banks have to have some inter action to ensure that all the Companies' dealings with banks and conduct of accounts, balances with banks, current assets, working capital position and NPAs reflect a true and correct position in terms of banks books and companie's books. Such an approach would itself reduce the nature of irregularities as seen in Satyam's books.
The ethics and values adhered to by Auditors in both banks' and corporates' accounts need to be independently assessed by their respective regulators viz; the Reserve Bank and the SEBI. There should be adequate checks and balances to ensure that the accounts reflect the correct position and there is no room for concern for investors. The Auditors unfortunately have not been enjoying the confidence of Regulators, investors and the Government is a fact to be taken note of by the Institute of Chartered Accountants of India while fixing their compensation and mode of payment.

This appeared in ET E paper dated 30/08/11.

Time to set up a National Gold Bank

2011-08-25T05:30:00.000-07:00

The article highlights the benefits that Indian Economy can derive from the recessionary trends witnessed in US and Europe. The fact that prices of all commodities except Gold have been on the decline and India is favourably placed to import goods, particularly oil, and improve its economy has been well brought out by the author. It is the best opportunity to attract funds for developing our economy provided the Government finds time and concentrates on the management of the economy. Gold stocks are available in plenty in India and the economy should know how to encash the gold and divert the resources for infrastructure development. It is time to think of a National Gold Bank and mobilise gold holdings of families and institutions and convert the assets into cash for economic development. Opportunities now available should not be lost sight of. By the time, the international scenario changes, India can build its economy strong and become the super-economic power early.

from: Dr.T.V.Gopalakrishnan
Posted on: Aug 25, 2011 at 02:31 IST
(This appeared in The Hindu Business Line)

Issue of Banking Licence to Corporate Sector

2011-08-25T04:54:00.000-07:00

Dr.T.V.Gopalakrishnan (Fort worth, Texas.)
25 Aug, 2011 09:00 AMThe editorial is very apt and to the point. The Governor's concern on the issue of banking Licences to corporates is genuine and justifiable. As it is, the banking sysytem in India is fairly sound, healthy and competitive. Ownershipwise, banks are reasonably well distributed and owned by government, public and private sector, private sector and Cooperative sector and their working has been by and large satisfactory catering to all segments of the economy. In case corporate sector steps in, it may distort the functioning and the present laws will not be adequate to regulate it effectively. Besides, in case Corpo rate sector enters the field,Financial inclusion which has not taken off well in the absence of active involvement of private sector,will become a major casuaty and agricultural sector will continue to suffer further. Tax payers money will have to come to the rescue of many segments if corporates enter banking . Prevention is better than cure should be the approach. Hope wisdom will prevail. The Govt cannot afford to ignore the lessons from past history of banking in the 1960s and the compulsions for nationalisation of banks in !969 and 1980. Let us not experiment again by allowing corporates to set up banking.

(This appeared in ET,dated 25/08/11)

Multinational companies and Consumer Forum

2011-08-24T19:49:00.000-07:00

The author has beautifully presented the problems of Indian Customers grievances despite the safeguards available under consumer proptection Act 1986. The inadequacies of Consumer Forum have also been well covered. The ultimate result is that consumers suffer and multinational companies get away with deleivery of substandard items.In my own case, I had to replace the clutch plateof my new car at my own cost within a few months and the Company had the audacity to argue the case before the District Consumer Forum stating that the Road conditions and drivers' skill are responsible for defective functioning of the clutch. Though the District Consumer Forum gave a verdict in my favour, the Company has filed an appeal in State Consumer forum after inordinate delay and put forward the same argument that Indian Roads are in bad condition and driver has no skill to drive.Due to frequent change of Gear,the cluth goes defective and the company is not responsible. Cos thrive in India at the cost of consumers.

from: Dr.T.V.Gopalakrishnan
Posted on: Aug 22, 2011 at 22:27 IST

(This appeared in The Hindu-Businessline)

Corporates, Real estate sector and irregularities

2011-08-23T06:33:00.000-07:00

T.V.Gopalakrishnan (Fortworth, Texas)
23 Aug, 2011 04:37 AM
The editorial is apt and timely and calls for an immediate action from authorities. The real estate sector needs a comprehensive law and an Ombudsman exclusively to protect the interets of home buyers. The corporates involved in real estate business have umpteen ways of extracting money from prospective buyers of properties and practically there is no accountability for the funds raised by them. Transparency in accounting and auditing is virtually absent and buyers have nowhere to look forward to register their complaints. Money is raised towards corpus funds without any standardised approach towards maintenance, funds for car parking are raised again without any standardised guidelines, terms and conditions are altered without the knowledge of customers, final terms included in the deeds are not maintained and undivided share of land included in the deed are subsequently sold without the knowleddge of customers,etc. are some of the very common mal practices the companies resort to. It is time an audit by a Govt appointed agency is conducted in all multinational companies who indulge in real estate business along with other business and mix up all accounts. Corruptive practices in multi national companies are perhaps worse compared to those in Government and needs to be closely monitored. It can help to bring down the real estate prices and minimise black money transactions also. Such checks and balances definitely bring some order in the transactions.
(This appeared ET E paper on 23rd august).

India and grammar of anarchy

2011-08-23T06:21:00.000-07:00

Your strongly worded editorial 'India and the grammar of anarchy' unfortunately fails to identify the genuine reasons why Mr Anna Hazare has to fight the elected Government taking the public support against widely prevalent corruption which make the life miserable for the common man in India. (August 20,2011) It is incorrect to interpret that Mr Hazare demands parliament to create the unelected post of ombudsman, chosen by a panel of worthies, with sweeping powers to haul up any public official on graft charges, without having a full grasp of the whole issue.
The issue of corruption and the suffering of common masses in India have been there since decades and the successive Governments in power have failed to find proper solution to eradicate / minimise the problem. The movement by Anna Hazare against corruption got its momentum in the recent past because of indifference of the Government and casual approach to take action against series of scams detected at Government level and put in place a meaningful system to prevent mal and corruptive practices. The suffering of the masses In India for their day to day life because of corruption at various levels is perhaps unimaginable in US and hence such an editorial.
It is right to say that the remedy to fight corruption through an institutional set up as per the well established Constitutional procedure is more ideal and appropriate. But the Government's response and intentions are not convincing. The bill proposed by the Government to fight corruption is only an eye wash as per the civil Society headed by Mr Anna Hazare and will not serve the purpose. The only way available for the public to fight for an anticorruption bill passed through Parliament is through this movement led by Mr Hazare. The insensitivity and inaction of the Government to understand the suffering of masses due to rampant corruption has forced the public to resort to this sort of agitation. Anarchy in Government's functioning is the cause and Anna Hazare's fight is the effect. Exceptional situation demands exceptional solution and Hence Anna Hazare's most appropriate method to seek solution for the perennial problem.

Dr.T.V.Gopalakrishnan,

( This was sent to The Wall Street Journal).

Neglect of the Economy by the Government

2011-08-20T06:10:00.000-07:00

This refers to your editorial politics playing spoilsport which is very apt and timely. The very fact that the economy is not progressing well despite the presence of several positive factors like favourable demographic dividend, talented and worldly recognised scientists, economists, bankers,IT strength and abundant natural resources,etc is a matter to be seriously debated and accounted for by our politicians and bureacrats. The economy needs to be run by professionals and politians should keep for themselves administration and social welfare bereft of corruption of course. The present international scenario is an ideal opportunity to attract both FII and FDI investments as India is perhaps one of the emerging economies whose fundamentals continue to remain strong except perhaps on inflationary front.The Government should come out of its false ego and arrogance and concentrate more on the management of the economy efficiently and effectively. It is time for Govt to act.

from: T.V.Gopalakrishnan

(This appeared in Business Line E paper Dated 19/08/11).

Insensitive Government and the masses

2011-08-18T06:56:00.000-07:00

The editorial has a clear message that the governmeent has lost its' sense of collective judgement of issues, sensing public mood and perception. Having won the elections, does not give the power to ignore the public and their sensitivity to issues dearer to their survival. The Government forgets that they have to continuously take care of common man's requirements and their welfare and they are elected for that. The present predicament of the Government is its own making and it is unfortunate that th Government does not realise its follies and commits one blunder after another. It is time for the Government to introspect and come to the rescue of the common masses who suffer from the worst system of corruption and miss their rightful entitlements and comfortable living. They do not want to amass wealth. They just want to lead a peaceful life and free from harassment for day to day living.

from: T.V.Gopalakrishnan

(This appeared in Business Line dated 18th August 2011).

Independence in India and PM's speech

2011-08-15T09:04:00.000-07:00

15 Aug, 2011 07:40

This is another year of Independence Day celeberation. Unfortunately, 64 years of independence, have not been helpul to remove the poverty from the Country and PMs have made wonderful speeches soothing only for the ear. If speeches can remove poverty and problems of this great nation, people can be happy as all the speeches since the 1st independence day to the lat one ie yesterday's will not lag behind. How long can the nation fool the masses is a big question that remains unanswered and our rotten polics, poor governance have only helped to create black money, corruption, and degeneartion of society and its values. It is time for all Indians to introspect and see whether we are in the right track in our nation building efforts. Let us believe in actions based on morale, ethics, values and principles to achieve a welfare society. Speeches can wait.

This appeared in ET E paper dated 15th August 2011.

Dr.T.V.Gopalakrishnan

Rating and the Regulator's Dilemma:

2011-08-13T12:49:00.000-07:00

The recent downgrading of US long term debt by S&P has created a scare among those particularly bankers who hold these assets in their portfolio as it may erode the realisable value of these assets in the short run and to that extent the soundness and safety get adversely affected. This rating, which has more of a psychological impact than that of a realistic situation, should not and need not affect banks soundness as the banks investments in such assets may not be that significant among its various other assets to worry about. The regulators interest generally is to ensure safety of each and every bank and it is for individual banks to diversify its assets based on its own assessment of various risks including market risk keeping in view and complying with regulator's guidelines. Overall stability of the financial system is the concern of both the Government and the Regulator.

The US economy can always bounce back from its economic crisis caused by heavy external debt fiscal deficit and poor GDP growth and it has all the potential and strength to put up a better show. The present downgrading should be viewed only as an eye opener and should help to review the economic policies so far pursued and initiate fresh policies in the areas of savings, infrastructure development, employment and taxation. The present approach More public Spending would stimulate demand needs to be replaced by more savings would lead to better investment, more employment opportunities, more spending and better GDP in the long run. It is a time consuming process, but end result would be lasting and enduring. It requires structural reforms in the area of taxation, income distribution, incentives for investment and generation of employment opportunities through creation of improved infrastructure in particular etc. Too much of debt would sound death-knell even if they are backed by assets.

Dr.T.V.Gopalakrishnan

Sensible Decision of the Government of India.

2011-08-11T05:39:00.000-07:00

The editorial is well written and the decision of the Government to extend the term of Dr Subbarao for a couple of years more is perhaps an indication that it cannot afford to ignore the economy any more. The Reserve Bank despite its limitations has been fighting a lone battle to contain the inflationary pressures and maintain some semblance of stability in economic growth for the last couple of years although, both internal and external conditions have been and continue to be a major constraint. Dr Subbarao has displayed his determination to challenge the odds which he has been facing since his inception as Governor. This extension is well deserved. Hope, the Government will continue to concentrate more on the management of the economy and come out with such decisions to enable the instituitions to perform well.The present international crisis is an opportunity to attract external funds and concentrate on infrastructure development badly needed for Indian economy to grow.

from: T.V.Gopalakrishnan
Posted on: Aug 11, 2011 at 06:10 IST (The Hindu Business Line)

Uncalled for scare- aftermath of Rating by Standard and Poor of the US.

2011-08-08T13:26:00.001-07:00

Standard & poor's decision to bring down the US of its triple A rating has created a scare in all international markets about the health of the US economy and its repercussions world over. The rating should not be taken to view that everything has gone wrong in US and there is no scope for revival of the economy in the immediate future. No doubt, the 2008 financial turmoil had forced the authorities to go in for some economic policies which failed to bring in the desired recovery, but it should not be construed that all decisions taken were wrong and the economy has gone from bad to worse. As the saying goes, problems always come in battalion, the crisis in Europe, Japan and other parts of the developed and developing countries as well has added fuel to fire and made a mess of all well intended policies pursued meticulously in US. The rating given by S&P at best can be taken to mean that the policies pursued need a relook and fresh efforts are needed to revive the economy . The two major issues faced by the economy are debt ceiling and fiscal deficit.
Both debt and fiscal deficit which are complementary to each other, however, failed to help the GDP growth and aggravated the economic problem. Standard and Poor, without presumably going into the reasons for the lower rate of growth of GDP taking into consideration other world contributory factors for poor performance and inherent strength of the US economy which has successfully weathered earlier crises, has come out with a rating at an inappropriate time when serious thinking and measures are in progress to take the economy out of the present predicament.
The damage such a rating has done to the global economy in general and US economy in particular is something enormous and the rating agency has to be made accountable for such an unwarranted untimely rating and making it widely transparent. Advance warning by rating agencies are welcome but bringing damage to an economy and creating widespread losses and attendant consequences in the form of higher interest rates, loss of credit market and erosion of values in various securities is something undesirable and perhaps avoidable in the overall interest of the economies. Rating an instrument and rating a country are two totally different matters and there should be some standardised norms in assessing and making transparent the rating of a country. Since negative assessment compared to positive assessment has more of an adverse impact, it is advisable for rating agencies to have a different approach to caution the rated economies in the case of a negative assessment even if the assessment is very objective and accurate.

Dr.T.V.Gopalakrishnan

Enhance the Confidence level in US

2011-08-07T07:43:00.000-07:00

It is essential that in the interest of the whole world economy the US economy needs to grow and for that the only immediate solution is all round development of public transportation system in entire US through encouragement of construction of needed infrastructure involving more of private participation.

It is time for US to have a relook on its energy spend particularly on oil and power and divert the resources saved therein to develop state wide transportation system in particular without in any way losing its glamour for private transport system presently in vogue.

The US economy has all the potential to attract international tourists and ways and means should be found to exploit its potential to the optimum level to make international tourism an opportunity and reality to support its further growth.
Employment opportunities will get an immediate boost and consumption and demand would increase necessitating fresh investment and production. Massive tourism to US from all over the world particularly from fast emerging economies like BRIC countries will help both the emerging economies and the US to mutually exchange trade, technology and other expertise for everybody's benefit. The avenues for revenues of the Government will automatically increase once the tourism picks up considerably.

Special incentives to industries who create additional employment opportunities can perhaps be another solution to tide over the present crisis. The need of the hour is to give a boost to the confidence in US economy and this country has fortunately everything to give that much needed boost.

Dr.T.V.Gopalakrishnan

US Debt Pangs - Response to the editorial on Business Line

2011-08-03T10:29:00.000-07:00

US problem of debt has only been postponed and the solution arrived at will have its own adverse impact for the future unless the US Government comes out with some innovative new economic policies to give a boost to its economic growth and enhance the confidence in international markets. Deficit and debt burden caused due to the banking crisis continue to haunt the US economy and the crisis management has only aggrevated the problem indicating the urgency to have a relook on the policies so far pursued and bring in a totally new approach keeping in view of the changes witnessed in international economic scenario particularly in emerging economies like China and India.
It is again an opportunity for India to take advantage of the position and go in for massive economic and financial reforms but unfortunately the present Government has been in a paralysed condition as rightly pointed out in your editorial and is unable to concentrate on economic issues faced by the nation.

from: T.V.Gopalakrishnan
Appeared on Hindu Business Line e-paper on: Aug 3, 2011 at 04:47 IST

The black money and corruption

2011-08-02T11:53:00.000-07:00

Black money generation takes place through umpteen ways. Corruption is prevalent literally from cradle to grave. Except politicians and bureaucrats, every body knows how to prevent corruption and minimise geration of black money. The simplest method is to track high value transactions through insistence of PAN card and payment by means of plastic cards and Cheques above Rs 5000. If this is introduced on a trial basis the result can be visible within a period of six months. Through out the world Indian IT strength is well recognised but unfortunately In India,It has not been put into optimum use to keep track of all transactions,tie up with the transactions with their origin,destination and link them ultimately to tax revenues, GDP growth etc intelligently. If there is a will there is a way. Readiness to trace black money and prevent corruption is all that matters. Will the authorities viz Politicians and bureaucrats bell the cat?

Dr.T.V.Gopalakrishnan

(This appeared in The Hindu Business Line E paper dated 2nd August 2011).

RBI's solution for inflation

2011-08-02T11:34:00.000-07:00

No doubt the solution offered is bitter but unavoidable to contain the high level of inflation,but the question as to whether this hawkish measure of RBI will contain inflation still remains unanswered.Growth will come down with such measures is a reality but containing inflation requires more measures other than monetary is a fact which is being ignored for long.This sort of hide and seek game keeping the problem of inflation at high level only shows lack of real concern for the masses who suffer from poverty and unemployment /underemployment.

This appeared in ET's blog dated 2nd August 2011.

Dr.T.V.Gopalakrishnan

Lies and Damn Lies

2011-07-05T09:36:00.000-07:00

Your editorial on ‘ a poverty of statistics’ ( June 30,2011) is very timely and most appropriate. Policy decisions based on false data are perhaps one of the reasons for all ills of the economy viz; high inflation, black money, inequality of income, unemployment, poor GDP growth, poverty levels etc. The strength of the country’s Information Technology has not been fully exploited to improve the data base of the economy and there is a growing feeling that people below poverty line do not reflect the correct position. Even the number of people paying taxes and filing return do not compare well with the welfare of people and luxury exhibited by many particularly after the liberalization of the economy in early 1990s.
The data on the economic activities and income levels of people particularly under self employed categories do not seem to be correctly reflecting in employment and poverty levels. The economic liberalization has improved the earnings of many particularly in urban semi-urban and metropolitan centres and both skilled and unskilled labourers are not available in many parts of the economy. Distribution of income in terms of economic activities though has improved, but where it reflects in terms of employment and poverty level is a matter of serious concern. It is time some serious attention is paid to capture the data on earnings, employment and poverty level of people so that policy decisions on subsidies, taxation, inflation and welfare of people can be better targeted and achieved.
T.V.Gopalakrishnan
The edited version of this came in 1st July 2011

Prime Minister and the Press

2011-07-05T09:21:00.000-07:00

The editorial is well balanced and conveys the message that the Prime Minister's office, and not necessarily the Prime Minister himself, should interact with the media regularly.

These are the days of allegations and charges on anything and everything, and the sensationalisation of even small things has become the order of the day.

The Prime Minister's office has to come out with its official stand and views at frequent intervals to clarify the issues of importance raised by reporters.

Even a news bulletin from the PMO on some of the major issues highlighted by the media and the Opposition parties would clear the doubts of the people, who will have the satisfaction of having heard of the Government's stand through Prime Minister's office.

T.V. Gopalakrishnan

This appeared in the Hindu Business Line 2nd July 2011

Clinging to power

2011-06-29T04:44:00.000-07:00

The article “Congress politics and the economy” ( Business Line, June 27) reads very well and provides ample food for thought. Political calculations decide the person and appointment for the top post. This decision is regardless of whether reform policies are pursued or not.

The economy has reached a benchmark level of performance based on previous reforms initiated and carried out two decades ago. There are certain unknown strengths in India which keep the economy going and parties and persons do not really matter much.

It is in the parties' and politicians' interests to remain in power and not necessarily for the public, as the recent plethora of scams, black money and increasing corruption have shown.

T. V. Gopalakrishnan

(This article was published in the Business Line print edition dated June 29, 2011)

Is black money issue insurmountable?

2011-06-24T05:48:00.000-07:00

This refers to the article' Our Black Money is here, not in Switzerland'( Sunday times Dt, June,19,2011). The author while giving out the details of black money in India rather than in Switzerland has highlighted the deficiencies in our tax administration. The income tax Department should do an introspection and satisfy themselves with the number of people paying tax in India is okay. It is widely reported that only 31 million people or 2.5 percent of the population is paying tax is itself a mockery and put the department into shame.
Millions of people are operating in the share market on a day to day basis. The number of transactions in bullion market, real estate, other commodities market and the amount involved would be of very high magnitude and indicate that tax evasion is rather convenient and permissible. Most of these transactions are in cash and generally receipts are not issued. Credibility of this market is very high among the customers and failures are seldom reported or not known. These are not secret transactions and there are specialised markets in almost all cities and towns.
The very basic approach to tackle black money and track the transactions would be to insist on issue of receipts witha copy to tax autorities for all types of transactions irrespective of the amount. Pan numbers and insistence of plastic cards, cheques above a cut off point would give a signal to market and black money can be minimised over a period of time. Information Technology needs to be properly put into optimum use. It is against all ethics and values that only 31 million pay income tax in India.

T.V.Gopalakrishnan

Needed, an ombudsman for the housing sector

2011-06-19T19:10:00.000-07:00

The economy has been hit by a variety of scams. Corruption is rampant. And the line differentiating black and white money is getting thinner by the day. One of the major sources of black money is the real estate business, with housing projects accounting for a significant share.

Tax evasion in real estate deals, involving builders, brokers, bankers and land owners, has been in existence for long. And the measures to curb black money generation have either been non-existent or seldom adhered to.

Liberalisation

The opening up of the economy in the early 1990s, the emergence of India as an IT powerhouse and financial liberalisation measures have led to GDP growth picking up, employment generation improving, and purchasing power of the people rising, especially with retail/consumer loans being granted liberally.

These developments resulted in a boom in the housing sector, and corporates and multinational companies began entering the sector in a big way to exploit the newfound opportunity to make huge profit.

The companies enter into agreements with landowners and banks to develop housing projects.

These are generally not vetted/approved by the authorities either at the State or Central level. Thus, neither the buyer's nor the Government's interests are protected.

The terms and conditions of the builders are generally in their favour and even if consumer interests are protected, the clauses are drafted so vaguely that they are seldom enforceable.

Individual owners of houses and apartments are invariably at the mercy of the developers and are duped in several ways. Cost escalation, delays in the execution of projects, pricing for built-up and carpet areas, among others, are areas where the prospective buyers are taken for a ride.

For instance, there are super built-up, built-up and carpet areas. The price quoted is for super built-up area, which is 30-40 per cent more than for the carpet area.

The standards for fixing the super built-up and carpet areas vary from city to city and within the same city it varies from builder to builder. The terms and conditions included in the sale agreement are not very exhaustive and verification of these in the sale deed is seldom done or attempted.

Having paid margin money and some of the instalments, the escape route is often sealed and the buyers are at the mercy of the builders/developers.

The country lacks a comprehensive/exclusive law to take care of the transactions and the related disputes under real estate, particularly in the housing segment in large cities and sub-urban centres.

Several laws

The transactions are governed by several laws which are incomprehensible even to the well-read. There are several Central and State laws applicable to real-estate-related transactions and it is practically impossible for ordinary people to have a clear understanding of the legal issues that need to be taken care of while undertaking a real estate deal.

Frauds are common, especially in the metros, involving banks, developers and buyers. Though the prospective buyers get legal opinions, the reliability and validity these are often questionable. And the accountability on the lawyers giving such legal opinions is virtually absent.

There are no adequate checks and balances to ensure that the deals by the developers and corporates are as per the rules and regulations, if any, and they stand scrutiny of the highest standards.

Systems are not in place to ensure full compliance with the laws of the land relating to land acquisition, laying of roads, provision of public parks, taxation, accounting standards and whether all the parties involved in various deals adhere to the prudential norms expected of them.

Generation of black money, corruption, misrepresentation of facts, irregularities before and after the deals are common allegations leading to total lack of credibility. The pricing is not subjected to any broad guidelines and is driven by corruption and greed.

In the process, along with the buyers, the economy suffers, as erosion in ethics and values with regard to land acquisition, developing housing projects, pricing pattern, accountability, and so on, affects all segments of society and the general credibility of the whole system is at stake.

The corporate giants in the field, being in the private sector, are not covered under the RTI Act and their accounting standards are not free from lapses and deficiencies.

They collect huge funds in different forms — such as corpus funds for maintenance of flats, common areas, clubhouse, gardens and security cover.

They promise parks and proper connectivity to main roads, markets, and so on. They charge for car park on ownership/lease basis, and the amount collected is generally exorbitant. The details of the money collected, the investments made from that, and so on, are not made transparent.

Maintenance costs

And, this apart, the builders collect amounts towards maintenance in lump-sum or monthly basis which often get revised upwards in the name of general escalation of costs.

In the case of large projects, the construction work is often never competed on time. And as they do not provide details of money collected from occupants and non-occupants, flats sold and unsold, and so on, it is not known who bears the maintenance charges for the entire project.

Presumably the entire maintenance is passed on to the occupants, although many flats remain unsold or sold to developers themselves and are not occupied.

By and large, the accounts in respects of projects completed and fully allotted are not made available to the welfare associations, if any, formed in the housing projects.

Lack of clarity

The developers do not care to answer genuine queries of the associations. They do not make clear the entitlements of the occupants regarding the undivided share of the premises (although the sale deeds indicate entitlement) and often have the intention of making money with such land at the cost of the occupants' welfare, convenience and rights.

If questioned, they quote some local laws and get away with it. If referred to the courts, the matter takes years to get settled and the corporates treat the occupants indifferently during the interregnum. The position with regard to insurance of the flats also varies depending on the builder, banker and prospective buyer.

A study of giant corporate housing projects reveal that with regard to dealings with the occupants, accounting standards, accountability to the local authorities and occupants there is need for some sort of regulation and grievances redress mechanism, particularly for the buyers.

A necessity

A national housing ombudsman would, therefore, be a necessity not only for prospective buyers but also for occupants and the authorities.

Consumer forums and the Consumer Protection Act cannot take on these types of cases as they are already flooded with several other cases and the complexities of housing-related cases differ in content and scope.

The need for some sort of checks and balances exclusively for housing projects would be welcome to ensure that all concerned conduct themselves appropriately and there is some semblance of order, uniformity in the maintenance of accounts and transparency in all these types of transactions.

T.V.Gopalakrishnan

This article appeared in The Hindu Business Line dated 20th June 2011
--------------------------------------------------------------------------------

Inflation

2011-06-17T18:58:00.001-07:00

June 17 , 2011 ,13:51 IST

The hike of 25 basis poins effected by the Reserve Bank in REPO, Reverse Repo in its policy announcement is a clear indication that Inflation needs to be contained at any cost even at the cost of growth.Though the needed support from the Government through its fiscal and other administrative policies to contain inflation has not been forthcoming,the Reserve Bank seems to have decided to fight the battle lonely and the measures taken are appropriate. The signal is clear and it is for the users of credit to minimise their cost of production without necessarily passing on the additional burden to consumers.The editorial is very apt and provides the message.

This comment appeared in e-business standard on 17th June 2011

T.V.Gopalakrishnan

Fighting inflation

2011-06-17T18:53:00.000-07:00

The editorial “Strong diagnosis, weak prescription” (Business Line, June 17) has rightly pointed out that it is the failure of New Delhi to give a helping hand to the RBI in containing inflation. Of late, the Government has not been able to focus on managing the economy as it is faced with various other problems such as corruption, black money and the multitude of scams. Ministers are found busy sorting out issues with Baba Ramdev and the civil society and do not seem to be concerned with issues such as inflation, GDP growth, and so on.

The damage caused to the economy is high and it is time the Government spends quality time with the RBI and comes out with some convincing solution to check inflation.

T. V. Gopalakrishnan

This letter appeared in The Hindu Businessline dated 18th June 2011

RBI and Banks' NIM

2011-06-14T06:06:00.000-07:00

This refers to the article' RBI must not dictate Bank Margins ( Et, Dt, June 9, 2011). The Reserve Bank has been harping for quite some time to bring down the Net Interest Margin of banks from the present level of around 3 percent and the author has argued aginst it citing a number of reasons. The net interest margin though , is a key driver of profitability of banks, it does not mean that banks have to keep a very high margin between deposit rates and interest rates on loans to maintain their profitability There are umpteen ways for banks to reduce their cost of funds and reduce the interest rates on advances. The non performing advances of banks and the cost of operations of Indian banks are very high compared to international standards and the productivity is also not of comparable levels.

The banks, public sector banks in particular have to increase their volume of business, improve productivity, reduce cost of funds, churn out the assets and liabilities optimally to minimise cost and maximise profit. They have also to review their nomenclature of loans portfolio which is at variance with international standrads. Financial inclusion should be viewd as an opportunity to raise funds at minimum cost and expand loans portfolio appropriately. Making profit through high NIM presently followed by Indian banks needs to be curbed and the Reseve Bank's approach only sounds healthy and worth pursuing seriously.

T.V. Gopalakrishnan

Policy of pusillanimity -Editorial -The Hindu-Business Line

2011-06-13T09:17:00.000-07:00

Very well thought out editorial.The fact remains that both the Government and the Reserve Bank have failed to take appropriate measures to contain inflation and the masses suffer. Economy also suffers.
The blame game between the Government and the Reserve Bank is only to confuse the masses. The failure of administration and fiscal management are the major factors contributing for price instability and for that the Government has to be blamed. It is time to assess how much fiscal policy contribues for inflation in terms of number so that responsibility can be properly fixed.

from: T.V.Gopalakrishnan
Posted on: Jun 13, 2011 at 07:24 IST

Is achieving price stability becoming elusive?

2011-06-12T19:24:00.000-07:00

Apart from shortages, wrong pricing, influenced by greed, adds to the inflationary pressure.
The recent announcement hiking petrol prices by Rs 5 came with a rider: further increases cannot be ruled out. Diesel and LPG price increases are also in the offing.

There may be compelling reasons for the hikes, the prime one being to help oil companies reduce their losses incurred because of high international crude oil prices.

But such increases have a cascading effect on the prices of goods, especially manufactured ones.

The production as well as marketing costs go up and these are often passed on to the consumers. Companies, in general, do not like to reduce their profit margins. On the contrary, they often try to exploit the situation.

The argument that raising the prices of petrol alone, and leaving out diesel and liquefied gas, may not have an adverse impact on overall prices is flawed.

For instance, all expenditure incurred by a company, including on perks such as leave travel concession and regular conveyance, get reflected in the cost to the company, and is ultimately borne by the consumers.

The relationship between production cost and the final price paid by the consumer is not subject to any regulation. However, in a perfectly competitive market the prices reach an equilibrium level in the long run. In the process, the affordability of the consumers also gets factored.

Unfortunately, in our economy, all costs, direct or indirect, are borne by the common masses. Audit of ethics in the business is seldom done and corporate governance, if practised at all, is by and large for publicity and and not for benefiting the common man in any significant way.

Still high

Inflation, which has been in double digits for some time now, continues to be high despite a series of measures by the Reserve Bank of India to contain the demand side pressures.

Too much money chasing too few goods is how inflation is generally defined. It simply means there is a mismatch between demand for and supply of goods, and the value of money is getting eroded.

The demand is fuelled by an increase in purchasing power, a rise in population, enhanced employment opportunities, hoarding in anticipation of shortage of goods, and improved standard of living.

The supply side reflects total goods and services produced in the economy. The production of goods (which basically fall under either agricultural and manufactured) is dependent on several factors.

These are timely monsoon, conducive weather, and adequate availability of money, material, machinery and manpower, to complete the production cycle.

Supply factors

The supply is dependent on factors such as proper storage of perishable and non-perishable goods, and packing and transportation across the country after identification of the market, time and costs involved.

Herein lies the need to match the supply and demand at acceptable costs. The pricing of goods and services is vital to minimise the difference between the demand and supply.

In the absence of adequate checks and balances, the pricing of goods is influenced by greed, corruption, and mismanagement of commodity surpluses.

Apart from shortage of goods, wrong pricing for want of effective regulation adds to inflationary pressure.

Monetary and fiscal policies have to go hand in hand to ensure that there is more or less a match between demand and supply and there is no scope for excessive pricing.

The traditional approach of the RBI to contain inflation, by following a dear money policy and, at the same time, ensuring adequate credit for supporting growth of the economy, has its limitations.

Though, by and large, such an approach has been successful in the past, the situation now is different and changing fast. It is time, therefore, for the RBI to completely review its policy stance in the context shortcomings in the management of the economy, including fiscal deficit, widespread black money, corruption, pricing of essential goods and assets without any relevance to the purchasing power of a large segment of the masses, and so on.

How much monetaryand fiscal policies contribute to the change in the Wholesale Price Index, which is broadly the indicator of inflation in the economy, is not being assessed. It is time for such an assessment

Procurement, storage, transportation, marketing and pricing of goods do not seem subject to any governance standards, resulting either in short-supply or a glut in the market. This leads to not only wastage of essential items but also losses in revenue and energy.

Allowing for export/import of goods at competitive prices to contain inflation does not seem to be getting the attention it deserves. Accountability/responsibility for wrong and exploitative pricing of goods is not being fixed.

Local boards

Local boards of the the RBI can, perhaps, be actively involved and used as a major source of information to identify the areas of concern for inflation management.

Control at the regional level and overseeing coordination between Nabard, State governments and other local bodies (such as chambers of commerce and industry) could well be the forte of local boards.

They can be an effective tool in understanding the issues in pricing of products, marketing, distribution and management of supplies.

These local boards, which consist of eminent members from different fields, can be a rich source of feedback or advice for the RBI on various aspects that have a direct bearing on growth, efficient management of the economy and inflation at the regional level.

The overall approach of the Government and the RBI should be to identify the gaps in fiscal and monetary policies, the contributory factors fuelling inflation and then initiate measures in a coordinated manner without giving scope for a blame-game when inflation rises. Price stability and growth are essential to make inclusive growth a reality.

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Monetary and fiscal policies have to go hand in hand to ensure that the demand for and supply of goods more or less match and there is no scope for excessive pricing.

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Dr.T. V. Gopalakrishnan

(This article appeared in The Hindu Business Line dated 13th June 2011)

Capital Loss

2011-06-09T22:18:00.000-07:00

Business Standard / New Delhi June 10, 2011, 0:37 IST

This refers to the editorial “Not a retail market” (June 9). It is not surprising to see that politicians, civil servants and some of the richest Indians prefer investing in real estate than in the capital market. The number of retail investors has been coming down for the past few years. The reason for this shift is that capital market investments – which can be made only through demat accounts – can be tracked and they are subject to Know Your Customer (KYC) norms. Also, real estate investments can accommodate any amount of black money. Of late, the tendency to invest in gold, silver and other commodities has also increased because the liquidity, returns and safety are comparatively higher.

Besides, there are no real incentives from corporations that can attract retail investors. Very few companies declare high dividends and bonus shares. Scams and window dressing of balance sheets by companies also have an adverse impact on the confidence of retail investors. One hopes your editorial will be an eye-opener for the authorities concerned and will urge them to take positive steps to attract retail investors back to the capital market.

T V Gopalakrishnan,

Tax Return and Black Money

2011-06-07T09:05:00.000-07:00

Tax Returns and Black Money
This refers to the news item Taxman may soon keep 24X7 watch on crorepatis(ET, 3 June2011). The proposal to have dedicated cell to monitor earnings and spending of rich tax payers is welcome and it may have some deterrent effect on the evasion and avoidance of taxes in the long run. But this may not be sufficient to prevent generation of black money in the economy.

Plugging all possible loopholes where black money generation is suspected is what is needed and it should not be difficult to achieve this initially by insisting on all assessees of income tax to declare all their moveable, immoveable assets and liabilities in the income tax returns. Black money generation is in the system itself and that only perusal of returns of High Networth Individuals and that too wealth tax returns may not mean much although it has a message.

The money circulation in cash form needs to be drastiaclly curbed and all transactions say Rs 5000 and above should be by means of cheque or plasic cards.Even very wealthy and top busines people insist for cash payments and this needs to be curbed. This will also track financial exclusion experienced in the system. This should start with real estae jewellery and commodities market. The transactions above a cut off point need to be tracked through PAN numbers and even transactions through cheques and plasic cards should carry PAN numbers. The objective is to minimise black money and its further generation and it needs to be tackled through different means. Keeping a very close watch where corruption is rampant would help bring down black money. Very signal that black money transaction in any manner would be tracked by all means would do the trick to a great extent. Incidentally such a move would further strengten the banking system and improve the much needed financial inclusion.

T.V.Gopalakrishnan.

How long to put up with Non-performing Loans in Banks?

2011-05-27T04:59:00.000-07:00

Banks and Rising Bad loans and Losses:
This refers to the edit Rising Loan losses Price of Stimulus( Et Dt,24 May 2011). Banks in India particularly public sector banks have to be run as desired by the Government and the Reserve Bank due to socio economic conditions and the need to uplift weaker segment of the economy. Running banks purely on professional lines and as per the cyclical conditions of the economy is simply ruled out as long as agriculture sector and large segment of the population who remain dependent upon the rural economy remain weak. This results in cross subsidisation in different ways and formation of larger non performing loans (NPLs).

Because of high interest rate on certain loans, lower growth of the economy and preferential type of loans not linked to viability, NPLs of banks increase and the Government comes to final rescue in case of any bail out of banks. Larger NPLs mean more provisions, lower profits, lower deposit rates, lower distribution of dividend affecting all stake holders of banks. NPLs are part and parcel of banks and the only solution to contain the impact of this menace is to have a permanent approach to contain the emergence of NPLs and to ensure that banks do not suffer on account of NPLs.Since the borrowers' poor performance inter -alia is the basic cause for NPLs, it is ideal to have a solution involving borrowers. Rate all the borrowers based on their conduct of operations and levy a small sum from them on the basis of their rating to have a Precautionary Margin Reserve Fund to take care of NPLs. Banks and the Government if necessary can support the fund based on certain criteria in the interests of the institutions and their long term viability.This fund over a period would be sufficient to cover the risks arising out of NPLs.
Dr.T.V.Gopalakrishnan

Window Dressing of Balance Sheet

2011-05-24T07:39:00.000-07:00

Banks Balance sheets and SBI's Correct Position

This referss to the News items SBI Net slumps99 % on bad loans, pensions and Ghost from the past Returns to Haunt SBI appeared in the ET, dated 18th May 2011.It has become a ritual in banks that when ever there is change of guard at the top, the first quarter reasults under the new person show very poor performance and the achievements of the former guard turns out to be false and unimpressive. Such announcements by the new incumbent only indicate that many things have been and can be hidden under the carpet and the Accountants, Auditors and the Regulators also do not provide correct information or vouch for the authenticity of the figures.Particularly, the bad loans shoot up and the profits decline sharply under the new guard. The first quarter results and the balancesheet figures cannot have too much of variance unless the balancesheet figures are falsely prepared.

Investors and other stake holders do not know the correct position and they go by the reports that appear every now and then in the papers and elsewhere. If the present position of SBI is true, then the earlier reports compiled by the Chartered Accountants and vetted by the Auditors and regulators are wrong , then the whole matter needs to be thoroughy probed. For change of sensitive figures frequently, the Accountants, Auditors and the regulators of banks owe an explanation to investors and all stakeholders. Window dressing of balancesheets is neither desirable nor permissible.

T.V. Gopalakrishnan

( edited version of this letter appeared in ET,23 May 2011)

Is it the appropriate time to deregulate savings bank interest rate?

2011-05-22T17:48:00.001-07:00

Is it the appropriate time to deregulate savings bank interest rate?
T. V. Gopalakrishnan

May 22, 2011:
The Reserve Bank of India has been toying with the idea of deregulating savings bank (SB) interest rate for quite some time and accordingly, released a discussion paper inviting comments from public.
The SB deposit rate, which continues to be under regulation, has been enhanced from 3.5 per cent to 4 per cent in the Credit Policy announced on May 3.
SB accounts are basically maintained and operated more by the middle-class and lower middle-class people. A majority of the people from rural semi-urban and urban segments perhaps maintain only SB accounts as a matter of convenience and thrift habit.
Salaried class, senior citizens, pensioners and small savers maintain SB accounts and keep heavy balances according to their standards. Even among them, the slightly better off and highly literate maintain only very minimum balances in SB accounts as they prefer to save in other instruments such as recurring deposits, fixed deposits, equity shares, bonds real estate and commodities.
Minimum balances
Many of the banks, particularly the new generation and foreign banks, insist on minimum balances of comparatively high order and high net worth individual's business class people prefer to maintain their accounts with these banks as status symbol and for personalised attention.
Foreign banks have a knack of avoiding ordinary people from opening SB accounts by keeping the minimum balances beyond the reach of even some of the upper middle-class people by Indian standards. Their service charges are also beyond affordability for many.
Public sector banks and old generation private sector banks allow people to open SB accounts with very minimum balance and this is a boon to many particularly to those who belong to lower strata of the society.
With the invasion of ATM cards basically linked to SB accounts, the operations in the SB accounts have become convenient and user friendly. With Internet and mobile banking facility, highly educated well employed and high net worth class of people keep SB accounts and maintain very high balances.
Majority of senior citizens, pensioners and a large segment of people belonging to pre-reforms period, in particular, continue to have banking with old generation private sector banks and public sector banks out of sentimental value and because of mental block to switch over to modern technology related banking.
From banks' point of view
With the demat accounts made compulsory for investments purposes, most of the banks have linked SB accounts with demat accounts. Individuals having investments in capital market which form only an insignificant portion of over all investors, maintain such demat-linked SB accounts keeping relatively very high balances. Deregulation of such SB accounts' interest rate is highly desirable.
There are different categories of banks operating in the system and the SB accounts with them have different backgrounds. There are local area banks, regional rural banks, cooperative banks, old generation private sector banks, new generation private sector banks, foreign banks, nationalised banks and state bank group.
There is no level-playing field among various bank groups as far as deposit mobilisation is concerned. The only uniformity among these bank groups is in the matter of SB interest rate.
Deregulation of the SB rate can adversely affect some of the bank groups which thrive on SB deposits and take care of the so-called financial inclusion which unfortunately have not taken off well despite all efforts both from the RBI and the Government.
How some of the bank groups deliberately skip financial inclusion is well-known and deregulation of SB interest rate will further facilitate them to exclude financial inclusion right royally.
The local area banks are very few in numbers and they survive basically with SB deposits. Financial inclusion which is very essential and talked about loudly can be possible only if such banks are encouraged and supported by the RBI. These banks though operate in rural areas are also high tech banks and perform comparatively well in reaching out to the poor and needy. Regional Rural Banks enjoy a very large share of SB deposits from poor farmers, retailers and small business operators.
The SB bank deposits of these banks are from poor masses and they deserve better rate of interest if possible linked to inflation trend. Willy-nilly deregulation somehow encourages greed and this would affect the morale of the masses and only lead to exploitation of the masses.
Small savers need protection of their interest income. The economy has not matured enough and exploitation has been the undesirable trend. Maximise profit at any cost even at the cost of the poor people has been the trend and this can be cited in a way as one of the reasons for high inflation. This ground reality cannot be ignored while deregulating SB interest rate.
Old generation private sector banks continue to enjoy the loyalty and support of large segment of customers. Their business operations have some unique characteristics because of their regional base and they extend personalised service for their deposit customers. Deregulation of interest rate can result in undercutting among these banks and it may result in the shift of deposits from one bank to another resulting in the Asset-Liability mismatch and also increase in the cost of operations.
They have gold loans and advances against deposits having linkages with SB deposits. Their clientele except perhaps in urban and metropolitan centres prefer to have the transactions personally in the branch premises and do not use the ATM cards even if they hold the cards. For such banks, the disturbance on the deregulation of interest rate of SB account would be rather high and adjustment would take a long time.
High tech banks
New generation private sector banks and foreign banks are high tech banks and the deposit customers are also equally high tech when compared to other banks' customers. Their staff also belongs to the post reforms period and their banking knowledge and practices differ vastly from old private sector banks and even from public sector banks. They have a distinct advantage over other banks in adopting new reforms in terms of cost, technology, manpower and clientele understanding. They will welcome the deregulation of interest rate on SB account as they thrive on competition and maximisation of profit. They have no other consideration other than profit and deregulation of interest will be an opportunity for these banks to further showcase their competitiveness, particularly before some of the public sector banks.
Public sector banks, which enjoy the backing of the Government in guaranteeing the safety of depositors' funds, have maximum deposits in SB accounts. In case, the SB rate of interest rate is deregulated, they will be the worst sufferers. All PSBs cannot compete with private sector banks and many will lose their share of deposits in case rate offered by the private sector banks turns out to be higher than what they offer.
If they have to offer higher rate of interest to maintain their share of SB deposits, it may adversely affect their bottomlines and the Government will have to ultimately bear the cost. The deregulation cost will finally have to be borne by the Government and other stakeholders. This will also derail the financial inclusion programme of the Government and the RBI as PSBs may not be keen to go in for small deposit accounts.
Further, deregulation will have more asset liability mismatch in PSBs than in other banks because of their larger share of SB accounts and presumably bigger share of infrastructure loans extended based on the permanent / core share of SB deposits.
Co-operative banks have a sizeable SB deposits and if interest rate is deregulated it may even sound the death knell for the entire cooperative system which is already under stress.
Options for Deregulation
Though deregulation is desirable and may be necessary to make the monetary policy transmission more effective as claimed by the Reserve Bank, this can wait for some more years till the economy matures and depositors understand the nuances of finance and its implications.
As it is, only a very few percentage of the depositors understand the full implications of deregulation and the possibility and capability of the system taking the depositors for a ride because of greed for profit, general laxity in corporate governance in protecting the interests of the masses and the visible tendency to exploit any situation (even if the deregulation is well intended) through corruption and other malpractices taking advantage of the ignorance of the masses cannot be ignored.
The expectation that deregulation will increase the cost of funds which is already ruling high is also not very conducive for the present.
The ideal time for deregulation would be when the inflation is low, economic growth is good, and the average cost of funds in the economy is at a reasonable level.
No doubt SB interest rate deregulation has its advantages and is welcome in the overall interests of the economy in general and banking system in particular, the timing and approach need to be well calibrated. Partial deregulation in a phased manner can be initially attempted.
Banks which have kept very high level of minimum deposits for SB accounts and have linked the deposit accounts to ATM, Internet and mobile banking and demat accounts can consider deregulating the deposit interest rate and their operations need to be closely monitored by the RBI.
SB accounts maintained by institutions such as charities, trusts, clubs, associations, and NGOsin any bank can also be deregulated. The RBI can also consider keeping a ceiling say Rs 1 lakh for SB accounts. Any amount exceeding Rs 1 lakh should move to either current account or FD account. Interest rate on SB accounts should have a bearing on the inflation and should be periodically revised. SB accounts should be only for individuals.
Surging inflation
The economy is in the grip of high inflation. The cost of deposits and the cost of funds are already very high. In case of deregulation of SB deposit interest rate, the immediate reaction would be to hike the interest rate further beyond the 4 per cent already effected.
Since the NIM is beyond three per cent and banks are reluctant to bring it down, the possibility of banks enhancing service charges to recover the additional interest expenditure cannot be ruled out. Financial inclusion is far from satisfactory. In such a scenario, the timing for deregulation does not seem to be very appropriate.
This article appeared in The Hindu Business Line dt. 23rd May 2011.

Window dressing of Balance sheet

2011-05-20T07:47:00.000-07:00

Window dressing and 'undressing' - II
Business Standard / New Delhi May 20, 2011, 0:44 IST

Apropos the editorial “SBI comes a cropper” (May 19), it has become a ritual for new managements in banks to show the old guard in poor light. Such announcements indicate that many things have been and can be hidden. Stakeholders go by the reports that appear in the papers and elsewhere. If SBI’s present position is true, then the earlier reports compiled by chartered accountants and vetted by the auditors and regulators are wrong. The matter should be investigated. The accountants and auditors owe investors an explanation — and so does the Reserve Bank of India.

T V Gopalakrishnan,

RBI policy to contain inflation will help boost growth in long run

2011-05-09T05:35:00.000-07:00

The Reserve Bank of India has lowered economic growth projections to 8 per cent for the current fiscal. And inflation has been projected to come down from the present 9 per cent to around 6 per cent by March 2012.

The RBI is of the view that controlling inflation is imperative to sustaining growth over the medium term.

The monetary policy statement for 2011-12, released by the Reserve Bank on the May 3, 2011, clearly indicates that inflation will continue to be a challenge and economic growth will have to be sacrificed to check further worsening of inflation and inflationary expectations.

The so-called baby steps introduced since January 2010 to contain inflation have proved to be inadequate to contain inflation and ineffective to transmit the monetary policy mechanism the way the Reserve Bank wants.

Inflation spills over
The pressure of inflation on food prices for the previous year has spilled over into more generalised inflation due to reasons beyond the Reserve Bank's domain.

The trigger for higher inflation can be found in the sharp uptrend in international commodity prices, the quantitative easing and the liquidity surplus in international financial market.

Add to this, higher domestic demand due to improved purchasing power of the people, particularly among the rural masses, coupled with poor fiscal management and fuel price-induced inflationary pressures.

The policy stance taken by the RBI includes increasing the repo and reverse repo rates by 50 basis points each to make the funds dearer and check excessive and speculative borrowings.

Over a period, the repo rate has been enhanced from 4.75 per cent as on January 31, 2010, to 7.25 per cent as on May 3, 2011, and the reverse repo rate has been revised from 3.25 per cent to 6.25 per cent during the same period.

However, the cash reserve ratio (6 per cent) has not been touched to ensure sufficient liquidity in the system, which itself is an indication that the RBI recognises the need for availability of funds for genuine productive purposes and, at the same time, funds are made costly to curb speculative tendencies.

The sacrifice made in the economic growth is justified as inflation beyond tolerable levels will nullify the advantages of growth. The balancing done by the RBI for containing inflation at the cost of growth, though a bit late, is admirable and the economy will derive larger benefits in the long run.

The enhancement of savings bank rate has been long overdue and the RBI has done the right thing by increasing the SB interest rate from 3.5 per cent to 4 per cent. This will benefit a large segment of the population who has only SB accounts.

Though deregulation of SB interest is highly desirable and a discussion paper has been brought out on this aspect, this needs to be examined thoroughly as banks, particularly public sector ones, which operate in the rural and semi-urban areas comparatively in a big way and enjoy heavy SB deposits will face the risk of high cost of funds and asset-liability mismatch in the event of substantial hike of SB interest rate by private sector banks on deregulation.

The timing for deregulation is vital and the present high inflationary conditions and already high cost of funds under the dearer money policy do not seem to be favourable.

Deregulation of SB account can also derail financial inclusion. The hike in SB rate can help improve financial inclusion and attract build up of deposits.

Reduction in NIM
The measures of the RBI will no doubt increase the cost of funds for the banks and the borrowers as well. It is the right opportunity for banks to effect reduction in NIM (net interest margin) which the Governor has been coaxing for the past few months. The NIM of Indian banks has generally been high — above 3 per cent — and they have to manage to bring it down to around 2 per cent.

The changes in provisioning requirements for non-performing loans (NPLs) will bring down the profitability of banks and add to the cost of funds. This also indirectly indicates that bad loans are increasing, reflecting on the poor performance of the economy.

Higher the interest rate more will be the NPLs has been well-established by past experience. Since NPLs in general affect all the stakeholders of banks and are also inevitable in banking business in particular, it is time to think of an inbuilt solution to minimise the impact of NPLs in banks' books by making the borrowers contribute to a common fund based on their own performance rating. This fund can, in the long run, gradually supplement/substitute the provisions and reserves and banks' balance-sheet can look really healthy.

There are several known and unknown risks and to what extent the Reserve Banks' monetary policy measures would be able to achieve the targeted level of inflation is still a big question.

As it is, fuel price increase is overdue and the impact of excise duty enhancement effected on several items in the last Budget is yet to be fully factored. Corruption and black money continue to play spoilsport and supply side management of food articles remains to be fully rationalised and effectively managed.

Asset and commodity prices continue to rise, domestically and internationally, having some adverse impact on monetary measures. The RBI needs to be highly innovative and devise a new approach taking into consideration the areas where it has no control to ensure economic growth with price stability.

T.V.Gopalakrishnan
This article appeared in The Hindu - Business Line dated 9th May 2011

NPAs and Provisions

2011-04-26T09:17:00.000-07:00

T.V.Gopalakrishnan (mumbai)
26 Apr, 2011 08:38 AMThe problem of NPAs exists as long as banks deal with money and people. As it is, there is erosion of values and ethics in the system. Corruption and fraud have become part and parcel of business deals. In thi background, prudence demands that there should be a built in mechanism to contain the problem of NPAs involving individual borrowers and making them accountable. General provision and specific provision towards NPAs only affect the other stake holders of banks other than bad borrowers,of banks and such there should be a mechanism to penalise the defaulting borrowers on an ongoing basis for which the creation of Precautionary Margin Reserve Fund taking a small levy from bad borrowers based on their conduct of transactions with the banks is the only permanent solution for the perrennial problem of NPAs. Will the authorities care for such solution?.

Appeared in Economic Times e-paper-http://economictimes.indiatimes.com/usrmailcomment.cms?msid=8086930&usrmail=gopalakrishnan.tv@gmail.com&mailon_commented=1

Leader for the top IMF post

2011-04-25T06:22:00.000-07:00

Leader for the top IMF post.

This refers to your editorial' Picking leaders for the top IMF post (April,20, 2011). As rightly highlighted, merit not gegraphy should be the criteria to identify the right candidate to occupy the top IMF post. The world economic scenario is changing fast and some of the developing economies have been emerging as leaders capable of giving direction to the world economy, The role of IMF has to be proactive and it shouuld ensure that all economies perform well and generate the strength to withstand future shocks.
The financial crisis of 2008 has shattered many economies and the recovery cannot be stated to be evenly spread or well shared. The person who fills up the top post in IMF should be a visionary and view the problems of all economies whether developed or developing alike and find solution acceptable to all without jeoparadising the interest of any of the IMF members. The approach of the IMF should be to ensure that no economy sufffers from poverty, unemployment, illiteracy and lack of development. The balance of payment crisis, trade barriers, exchange rate adjustments, movement of funds between different economies etc need to be closely monitored by the IMF and the members have to extend full cooperation to IMF to ensure that the problems if any in any economy should not unduly affect other economies. This is possible only if the top person of the IMF views the whole world as one economy and gets the support from all the different economies.

This letter was sent to Financial Times

Hazare's fight only Last Resort

2011-04-07T08:01:00.000-07:00

This refers to your strongly worded edit ' Hazare hazard' ( April 6,2011). It is a pity to note that Business standard has not found favour with the rationale behind Hazare's fasting for introduction of the Lok Pal Bill which has been a long standing demand in the interest of the welfare of the people in a free democratic society.

The country is facing scam after scam and many make money at the cost of the poor masses and it is unjust and unfair on the part of Business Standard to find fault with the move adopted by Sri Anna hazare supported by people from all walks of life. He has resorted to this extreme step as no visible, acceptable and convincing solution is put forth from the authorities for decades. His demand is only to have the draft bill prepared in association with people who care for public welfare along with elected representatives who seem to ignore the issue of corruption for self intererst. This is the crux of the matter and the initiatives so far taken if any to root out corruption from public life have not been convincing or convinced the masses. Pointing out some technicalities and objecting to the movement initiated by Sri Anna hazare is the least expected from a media like Business Standard. The need of the hour is to have a lasting solution for ever increasing corruption and the means adopted by Sri Anna Hazare with massive support for that would fully justify the ends. Mr Hazare's health is a concern for all the masses behind him and their prayers are for hiim.

An edited version of this has come in todays Business Standard.

Dr T.V.Gopalakrishnan.

Plugging Tax Evasion

2011-03-01T05:06:00.000-08:00

Chase Dirty Money:
This refers to your edit Chase Dirty Money (ET,24 Feb, 2010). It is obvious that using information technology, tax evasion can be easily plugged.Apart from that Sharing of information among relevant government departments, insistence of PAN numbers for all monetary transactions above a cut off limit and minimising tax component in all major transactions will go a long way in creating an environment to make evasion impossible.

Similarly the sources of black money generation can also be brought under the Income Tax scanner by making use of tools like compulsory incorporation of PAN CARD details in cheques, credit cards, drafts , cash receipt etc. The Income Tax return should also have a provision to clearly indicate the assets and liabilities of citizens.The objective of IT returns should be to minimise black money and maximise revenue collection.

T.V.Gopalakrishnan
(This appeared in ET dated 28/02/10)

T.V.Gopalakrishnan

How about an ethics policy in the Budget?

2011-02-14T07:36:00.000-08:00

How about an ethics policy in the Budget?

T.V. Gopalakrishnan

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Can the Finance Minister think of introducing ethics in business transactions through the Budget 2011-12?

India has a sound Constitution, strong democratic principles, well-recognised demographic dividend, abundant natural resources, internationally recognised and well-sought after information technology, and an enviable culture, heritage and civilisation. With all these favourable factors, it discards the opportunity to reach the top of the world because of the greed, corruption, malpractices, lack of commitment and accountability from a few who matter. The series of scams reported every now and then only smack of disrespect and disregard for the laws of the country, and its image and reputation. It is a shame that things go from bad to worse, and there is no sign of improvement. This needs to be seriously dealt with, and it should be possible to a great extent through simple rules with strict enforcement. Here are a few suggestions for Mr Pranab Mukherjee as he prepares to unveil his Budget in a fortnight.

Business Ethics and Corporate Tax

Tax evasion and tax avoidance have been an open secret. These need to be plugged through checks and balances by way of practically enforceable rules and regulations. Adherence to tax rules and laws of the country in general, corporate governance principles, sensitivity to corporate social responsibility, compliance with financial market regulations and provisions of the Companies Act, satisfactory conduct of bank transactions and discipline followed as a borrower, and so on, should be assessed, rated and made public. Concessions, reliefs and special benefits, if any, from Government and authorities that are to be granted to corporates/firms/others, should have a bearing on this assessment. Excise and Customs duties payable and paid should reflect in the profit-and-loss account of companies, and should be independently verifiable by tax authorities, accountants and auditors. The board of directors should separately certify that all tax dues have been paid. There can be a thumb-rule to verify the levies payable/paid in relation to production, sales, imports and exports. Any violation/non-compliance should attract punishment and the financial regulator should be notified. Corporate governance and accountability to the Government and shareholders have to be made transparent through balance sheets. Once in a while shareholders' assessment of the company's response to investors also needs to be independently assessed through surveys. These steps may appear cumbersome, but need to be considered for implementation with the aid of information technology.

I-Tax of Individuals

There is a feeling that the tax and number of tax payers are insignificant and do not compare well with the wealth created, economic growth achieved in the past few years, jobs created both in India and abroad, transactions taking place — particularly in real estate, gold and commodities market.

In the absence of tax compliance, ways have to be thought of that link the transactions with income tax compliance. Banking inclusion at the initiative of tax authorities is the only solution to bring under the tax-net traders, skilled and semi-skilled professionals, service providers, etc. Bank accounts should be made obligatory for all. The simplest way is to insist on PAN number for all transactions above a limit and compulsory payment through cheques and plastic cards. Payment by cash is very common — particularly for buying gold and jewellery, land, furnishing of houses, etc. Tracking transactions using IT will go a long way in improving tax compliance and revenue collection both for the State Governments and Central Government. It will also facilitate for providing unique identity cards for a large segment of population. Tax returns should also reflect movement of assets and liabilities yearly. As it is, there is no way to know assets owned by an individual easily.

Tax on Dividend, bonus shares and stock-option issues

Canons of taxation demand that broader shoulders should carry heavier weight. Instead of periodically increasing prices of petroleum products, the Government can introduce levies on dividend payments beyond a cut-off, say Rs 5 lakh and above. Likewise, levies on bonus shares and stock-option issues can be made, and these funds can be used to meet the demands of oil companies. Increase in oil prices has a chain effect, and all items become costlier. It may not be judicious to leave the oil prices to market forces, for some more years of regulation may be required till the economy matures, and inflationary expectations and conditions stabilise. Pricing of commodities, levying of taxes, etc., which affect mass-consumption items directly through inflation, need to be carefully considered. Revenue mobilisation is easy by taxing such items, but it hurts the masses, incurs the wrath of the public and leads to unpleasant consequences. As rightly said, “Once a nation begins to think, it is impossible to stop it.” That is what we are witnessing now on account of the 2G scam and spiralling prices all around.

black money

The most painful thing is the prevalence of black money particularly in real estate, charities, etc. Innovative ways have to be introduced through Budget provisions to prevent such practices. Middle-class people are the worst affected, as they are compelled to bribe to realise their dream of acquiring houses. Morale and confidence in the system evaporate. This is not good for the society and the economy in the long run. The easiest way to solve this issue is to have a tie up among all parties to the transaction through IT and see that cash element is kept to the minimum. Black money in real estate transactions has to be eliminated gradually. Monitoring of real-estate deals can bring a lot of relief to people and the economy.

As it is, agricultural income is exempt from tax. However, there is nothing wrong if farmers with large holdings are made to file returns beyond a cut-off at least. This will at least pave the way for an assessment of wealth created in the economy and improvement in distribution of fertilisers and other essential items meant for poor farmers. Income-tax payers should be taken out of the public-distribution system wherever possible.
This appeared in The Business Line dated 14/02/11.