Dr.T.V.Gopalakrishnan , Mumbai , says: The budget is not attractive for investors in general and FIIS in particular. It has not helped to boost the business confidence as there are lot of irritants and scope for corruption.Nothing substantial in the budget to revive the economy through administartive,legal or financial reforms. Doing business is more complicated with the provision to reopen the cases relating to IT with retrospective effect.Overall the budget is not very imaginative to improve the economy by any measures.
This is in response to an opinion poll relating to FII's investments in ET dated 26/03/12.
Monday, March 26, 2012
Sunday, March 25, 2012
Budget has placed RBI in a SPOT
Chances of a further increase in inflation in the background of the Budget proposals cannot be ruled out. Expecting the Reserve Bank to cut policy rates will amount to sacrificing price stability for economic growth.
March 25, 2012:
The Budget for 2012-13, after assessing the results of the elections in five States, has a slew of measures intended more for the Government's survival than reviving the sagging economy.
As against 6.9 per cent GDP growth finally estimated for the current financial year (2011-12), it has projected growth for the coming fiscal at a moderate 7.6 per cent with scope for 0.25 percentage points deviation either way.
Pursuing safe policies
The undertone of the Budget is good, revealing the Government's awareness about the urgent need to give a boost to the economy through bold reform policies.
But for certain obvious political compulsions, it seems to have decided to pursue safe policies leaving the economy to take its own course.
That the Budget is not the only exercise to remedy the ills plaguing the economy is the message being conveyed by the Government.
Nevertheless, it has attempted to please all key segments of the economy — agriculture, industry, infrastructure, particularly power, the capital market, small and medium enterprises, and the salaried class.
Perhaps, the services sector is the only exception, with more services being brought into the tax net and enhancing the tax rate from 10 per cent to 12 per cent.
The approach of the Government, no doubt, is positive but needs to be closely monitored for successful implementation, especially the measures intended to bring down subsidies to 2 per cent of GDP and contain the fiscal deficit at 5.1 per cent of GDP.
The fiscal and current account deficits continue to remain high and this could worsen and add to the inflationary pressure.
The current prices of crude oil, at around $125 a barrel, and the exchange rates are not very favourable.
The $115/barrel taken by the Government for its assessment of fiscal deficit and the oil subsidies not actually provided for can lead to the deficits slipping further.
In case oil prices come down, as has happened in the past, it can only be a bonus.
Rate cut expectations
The Reserve Bank's recent monetary policy measures, which include cutting the CRR (cash reserve ratio) by 1.25 percentage points in two instalments, keeping the repo and reverse repo rates unchanged at 8.5 per cent and 7.5 per cent, respectively, and the marginal standing facility at 9.5 per cent, have had a softening effect in the money market and generated further expectations of policy rate cuts.
However, with higher excise duty on a wide range of items, increased charges on a large number of services hitherto not covered, exchange rate fluctuations, with the rupee hovering around Rs 50 to a dollar, coupled with uncertainties in the international markets, the expectation that inflation can be brought under control seems like wishful thinking.
The increase in rail passenger and freight charges will also have an adverse impact on commodity prices.
The realities are, therefore, far from expectations. The Wholesale Price Index-based inflation, which was 6.6 per cent in January 2012, increased to 7 per cent in February. Retail inflation, based on Consumer Price Index, has risen from 7.7 per cent to 8.8 per cent.
The retail inflation for rural and urban areas worked out to 8.4 per cent and 9.5 per cent in February as against 7.3 per cent and 8.3 per cent, respectively, in January.
Chances of a further increase in inflation in the background of the recent the Budget proposals cannot be ruled out.
Expecting the Reserve Bank to cut policy rates will only amount to sacrificing price stability for economic growth, which is elusive due to several other factors other than interest rates and are beyond the control of the apex bank.
‘Fiscal consolidation'
The RBI has been repeatedly cautioning the Government that “credible fiscal consolidation will be an important factor in shaping the inflation outlook.”
As the situation has not changed much, it will be too early for the Reserve Bank to take a realistic view on the policy rates in its April review.
In fact, the Budget has put the Reserve Bank in a tight spot. The achievement of the twin objectives of monetary policy — economic growth and price stability, which includes financial stability — has been rendered an uphill task.
Dr.T.V.Gopalakrishnan
(The author is a Mumbai-based consultant. The views are personal.)
(This appeared in The Hindu BusinessLine dated 26/03/12).
March 25, 2012:
The Budget for 2012-13, after assessing the results of the elections in five States, has a slew of measures intended more for the Government's survival than reviving the sagging economy.
As against 6.9 per cent GDP growth finally estimated for the current financial year (2011-12), it has projected growth for the coming fiscal at a moderate 7.6 per cent with scope for 0.25 percentage points deviation either way.
Pursuing safe policies
The undertone of the Budget is good, revealing the Government's awareness about the urgent need to give a boost to the economy through bold reform policies.
But for certain obvious political compulsions, it seems to have decided to pursue safe policies leaving the economy to take its own course.
That the Budget is not the only exercise to remedy the ills plaguing the economy is the message being conveyed by the Government.
Nevertheless, it has attempted to please all key segments of the economy — agriculture, industry, infrastructure, particularly power, the capital market, small and medium enterprises, and the salaried class.
Perhaps, the services sector is the only exception, with more services being brought into the tax net and enhancing the tax rate from 10 per cent to 12 per cent.
The approach of the Government, no doubt, is positive but needs to be closely monitored for successful implementation, especially the measures intended to bring down subsidies to 2 per cent of GDP and contain the fiscal deficit at 5.1 per cent of GDP.
The fiscal and current account deficits continue to remain high and this could worsen and add to the inflationary pressure.
The current prices of crude oil, at around $125 a barrel, and the exchange rates are not very favourable.
The $115/barrel taken by the Government for its assessment of fiscal deficit and the oil subsidies not actually provided for can lead to the deficits slipping further.
In case oil prices come down, as has happened in the past, it can only be a bonus.
Rate cut expectations
The Reserve Bank's recent monetary policy measures, which include cutting the CRR (cash reserve ratio) by 1.25 percentage points in two instalments, keeping the repo and reverse repo rates unchanged at 8.5 per cent and 7.5 per cent, respectively, and the marginal standing facility at 9.5 per cent, have had a softening effect in the money market and generated further expectations of policy rate cuts.
However, with higher excise duty on a wide range of items, increased charges on a large number of services hitherto not covered, exchange rate fluctuations, with the rupee hovering around Rs 50 to a dollar, coupled with uncertainties in the international markets, the expectation that inflation can be brought under control seems like wishful thinking.
The increase in rail passenger and freight charges will also have an adverse impact on commodity prices.
The realities are, therefore, far from expectations. The Wholesale Price Index-based inflation, which was 6.6 per cent in January 2012, increased to 7 per cent in February. Retail inflation, based on Consumer Price Index, has risen from 7.7 per cent to 8.8 per cent.
The retail inflation for rural and urban areas worked out to 8.4 per cent and 9.5 per cent in February as against 7.3 per cent and 8.3 per cent, respectively, in January.
Chances of a further increase in inflation in the background of the recent the Budget proposals cannot be ruled out.
Expecting the Reserve Bank to cut policy rates will only amount to sacrificing price stability for economic growth, which is elusive due to several other factors other than interest rates and are beyond the control of the apex bank.
‘Fiscal consolidation'
The RBI has been repeatedly cautioning the Government that “credible fiscal consolidation will be an important factor in shaping the inflation outlook.”
As the situation has not changed much, it will be too early for the Reserve Bank to take a realistic view on the policy rates in its April review.
In fact, the Budget has put the Reserve Bank in a tight spot. The achievement of the twin objectives of monetary policy — economic growth and price stability, which includes financial stability — has been rendered an uphill task.
Dr.T.V.Gopalakrishnan
(The author is a Mumbai-based consultant. The views are personal.)
(This appeared in The Hindu BusinessLine dated 26/03/12).
NPAs in PSU banks increase by 51%
The increase in NPAs of PSU banks by 51% is something of very high order and there is no justification of whatsoever to make the tax payers to bear the loss of banks on account of NPAs. The basic cause of NPAs is the undisciplined behaviour of the borrowers and they need to be made to behave responsibly when they use deposits of banks which belong to public. It is something not digestible to bear the loss of Kingfisher like borrowers by public as the loss of PSU banks is ultimately borne by the GOVT using tax payers money. The only way to tackle NPAs of banks is to make the borrowers to compulsorily contribute towards a fund in banks books based on borrowers performance assessed on a continuous basis and build up this fund over a period to absorb the losses on account of NPAs. It is more sensible to make the borrowers particularly the bad ones to bear the cost of NPAs rather than by other stakeholders.Loss on account of NPAs has to be borne only by the bad borrowers.
(This appeared in BusinessLine dated 21/03/12)
from: Dr.T.V.Gopalakrishnan
Posted on: Mar 21, 2012 at 08:30 IST
(This appeared in BusinessLine dated 21/03/12)
from: Dr.T.V.Gopalakrishnan
Posted on: Mar 21, 2012 at 08:30 IST
Monday, March 19, 2012
Fiscal deficit at 5.1% is unrealistic
Dr.T.V.Gopalakrishnan , Mumbai , says: The budget 2012-13 is for the survival of the Govt and not for the revival of the economy which is sagging for the past few years for want of proper direction and crucial policy decisions. The fiscal target fixed is not only unrealistic and cannot also be sustained if one were to go by the past records.The expenditures are not under control and the subsidies for food,fertilisers and fuel are absolutely unmanageable.Economic growth alone is the solution for many of the problems including fiscal deficit and unfortunately the budget proposals and domestic and external environment do not favor an excellent growth prospects. The economy has to put up with all these problems till political stability is established first which is a stupendous task as of now.
19 Mar 2012, 1919 hrs IST
(This is in response to the opinion poll in Et dated19/03/12).
19 Mar 2012, 1919 hrs IST
(This is in response to the opinion poll in Et dated19/03/12).
Friday, March 16, 2012
RBI and Policy Rates
Dr.T.V.Gopalakrishnan , Mumbai , says: RBI has no option but to keep the policy rates unchanged taking into account the pressures on inflation,Govt's reluctance to act on fiscal front effectively and other uncertainities from external sector.RBI alone cannot find measures to the ills of the economy is a fact which needs to be recognised by the Govt.
(This appeared in ET dated 16/03/12
(This appeared in ET dated 16/03/12
Thursday, March 15, 2012
Railway Budget and Politics
Dr.T.V.Gopalakrishnan , Mumbai , says: TMC's reaction to the Railway budget smacks of bad politics over good economics.This is not pro-poor in the long run.The economy has to grow fast to remove poverty and Railways play a key role in facilitating this growth. This is a vital infrastucture and it needs to be developed to ensure equitable distribution of nation's wealth and inclusive growth. At this rate,the growth of the economy and upliftment of the masses will remain a distant dream and this sort of shortsightedness on the part of Powerful,influential and popular politicians has an adverse and damaging imapct on the economy.
15 Mar 2012, 1818 hrs IST
This in response to the opinion poll in ET.
(This appeared in ET dated 15/03/12)
Dr.T.V.Gopalakrishnan
15 Mar 2012, 1818 hrs IST
This in response to the opinion poll in ET.
(This appeared in ET dated 15/03/12)
Dr.T.V.Gopalakrishnan
RBI's Policy Review on 15/03/12
The Reserve Bank kept all the rates unchanged and this move was on expected lines.Normaally,the Reserve bank's review follows the annual budget of the Govt and the Bank gets to know the move of the Govt and and a full feel of the economy based on Economic survey and buget indications.The sharp cut effected by the Bank in CRR a week ahead of the review was quite unexpected and surprising as it gave the message to the market that the Reserve Bank fully recognises the liquidity constraints in the system and action is called for.However,the inflation pressures suppressed under the uncertainities of the oil price increases and containment of fiscal deficit cannot be overlooked by the Reserve Bank for effecting policy rate cuts although, the industrial growth demands a steep cut.The present position is that the Reserve Bank and the GOVT are in opposite directions and there is an inevitable need for them to come together to frame monetary and fiscal policies.Perhaps,the budget to be announced on 16th would pave way for that.
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