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
Friday, June 17, 2011
Fighting inflation
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
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
Tuesday, June 14, 2011
RBI and Banks' NIM
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
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
Monday, June 13, 2011
Policy of pusillanimity -Editorial -The Hindu-Business Line
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
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
Sunday, June 12, 2011
Is achieving price stability becoming elusive?
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.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
Dr.T. V. Gopalakrishnan
(This article appeared in The Hindu Business Line dated 13th June 2011)
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.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
Dr.T. V. Gopalakrishnan
(This article appeared in The Hindu Business Line dated 13th June 2011)
Thursday, June 9, 2011
Capital Loss
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,
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,
Tuesday, June 7, 2011
Tax Return and Black Money
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.
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.
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