This article reads well and is an indication that no economic theory what ever may be its proven success rate in any advanced economy does not work in India.This establishes another theory that well off people in Indian society are not affected by the general theory of price effect on demand.The fact that FMCGs perform well in India is evident as to how the well off society in India behave differently despite rise in prices due to their increased propensity to consume which is inelastic to the increase in prices.This only shows the prevalnce of black money and the ineffectiveness of the taxation policies and their implementation.In our economy which is characterired by predominance of black money, corruption,mal adminisration,it is uncharacteristic to compare the economic theories of advnced nations.The realities of poverty,unemployment and ever widening disparities of income and wealth have to be factored in while evaluationg the economic theories.This article should be an eye opener.
from: Dr.T.V.Gopalakrishnan
This is in response to the article that appeared in Business Line dated 15/04/12 by TCA Srinivasa Raghavan)
Posted on: Apr 15, 2012 at 09:05 IST
Showing posts with label black money. Show all posts
Showing posts with label black money. Show all posts
Monday, April 16, 2012
Tuesday, February 7, 2012
Cash Deposit Ratio continues to be still High
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).
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).
Monday, January 9, 2012
Prices of Real Estate
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)
9 Jan 2012, 1845 hrs IST
(This appeared in ET dt 9/1/12)
Sunday, January 8, 2012
India and Hybrid car, Affordability of people
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)
8 Jan 2012, 2127 hrs IST
(This appeared in ET dated 9/01/12)
Sunday, January 1, 2012
Govt and Lokpal bill
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
1 Jan 2012, 1615 hrs IST
(This appeared in ET dt 1/1/2012
Saturday, December 24, 2011
GDP , Economic Activities and Taxation policy
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.
Monday, November 7, 2011
Time to clear off real estate accummulation
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
T.V.Gopalakrishnan (Mumbai)
06 Nov, 2011 03:12 PM
Tuesday, October 18, 2011
Incentives and exporters
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).
Dr.T.V.Gopalakrishnan
(This appeared in The Hindu-Business Line E paper dated 18/10/11).
Wednesday, September 28, 2011
Talk of taxing the rich at last.
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).
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).
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