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Weekly Digest (Economics, Finance and Banking) 31 May - 6 June 2016


"There are a thousand excuses we could give to other people and ourselves, so I believe that the hardest part of anti- fascism is getting out of bed." – Stephen Rider

Forget C(K)apital… discover a path forward…absorb the image, embrace the consequences of that which has already happened, the fatality of your existence. The Left in embracing the Image of capitalism rather than its effect has contributed to its own illusionary critique; as if in creating the monstrous Image of Capital we’ve built a false simulacrum, an idol we could smash against our critical apparatuses without ever alleviating the real problems which remain in the shadowlands of our planet like so many lost objects. The mirror of capital is broken beyond repair, and we seem bent on putting it back together again book by book – a repetitive act of absolution and absolutizing – rather than crushing its false semblance into oblivion.  

Public Finance Public Accountability Collective (PFPAC) Weekly Digest (31 May - 06 June 2016)

Banking in Distress

RBI's Asset Quality Review (AQR) needs to be regularised. Such systemic analysis should invariably help stress tests of banks, says Jayant SinhaMeanwhile, Government seems to be quite unhappy with PSBs' recovery record and has asked to accelerate efforts to get back money from the defaulters. 


+ Indian banks' financials touch epic soap horror serial. It's become a never ending disastrous horrorific tale, according to Forbes story. 

+ Where is your swimming trunk? Or do banks prefer swimming naked? As long as the government backs up these banks, talks of a banking collapse as imminent is unjustified, but living in a mode of constant denial is unwise. Is inspecting banking portfolio with a toothcomb the solution? Tamal Bandyopadhyay asks. 

+ Is National Infrastructure Investment Fund (NIIF) the answer to destress banks? Or probably, it is a combination of distressed debt funds, special situation fund and NIIF. NIIF is conceived as a catalyst financing of infrastructure projects by leveraging the corpus multiple times. 

+ These sure are desperate times. Lifeline to debt-laden companies and high-street lenders saddled with sticky loans gets mapped. RBI has proposed infusing equity through Stressed Assets Equity Fund (SAEF) or give working capital finance through Stressed Assets Lending Fund (SALF). 


+ Amidst the thorny picture of big borrowers and related NPAs, service sector has helped sail through the choppy waters helping retail loans. Says who? Arundhati Bhattacharya somehow pits lot of optimism on the corporates once the economy gets going. 

Multilateral Development Banks

Ever wondered how come these development banks are so welcoming and accommodative? Pun aside, there are still going to be enough pundits calling this as an antidote to BrettonWoods and ADB, as China-led AIIB prepares to score a century of members, with 30 lying in wait to be on board. Let us learn to accommodate education, health, urban planning and management as part of infrastructure. 

+ ADB and AIIB? Frenemies? Can't be as their lingua franca matches now. Watch, how the former compliments the latter's take on huge infrastructural gap calculated by the former in Asia. Nothing is more ironic that ironing out!!!

+ BRICS Bank decides to issue its first Yuan-denominated bonds. No surprises here as China enjoys holding the largest foreign currency reserves. But, a decent takeaway from this development is the likelihood, which had been expressed in the past as well, of lending in destination currencies. Now, thats what is called a war on dollars!

+ If Beijing is touched, Shanghai can't be far behind. And it wasn't as European Investment Bank (EIB) sought cooperation with BRICS Bank (NDB) after having done so with AIIB in Beijing. It looks like a Collective of MDBs (pun intended!).

+ Africa Calls. BRICS need maturity before challenging the current world order. BRICS, characterised by disjunctions, believes sharing ideas as opposed to material forces having primacy in determining structures of human associations. Moreover, the identities of purposive actors are not decreed by nature, but a resultant of shared ideas. Mills Soko and Mzukisi Qobo meditate.  

+ India and Pakistan on the same pedestal now, according to the World Bank. Listed as "Lower Middle Income Economy" according to the new nomenclature. Ain't this irksome for the country has often been touted as the largest growing emerging economy according to IMF and marks a distinction of the only BRICS country not making to the "Upper Middle Income Economy". Technically, it is due to Gross National Income (GNI) per capita ranging between $4126 and $12735 that is categorised as "lower Middle Income Economy". Following this decision by the WB, UN might follow suit. 

+ Last week, the digest linked to "Neoliberalism Oversold", putting the IMF squarely in doubting globalisation and/or neoliberalism. It's like the Pope saying catechism is oversold!!! Time meditates this week. 

Policy 

Water for life for all. How? Just wait for the National Water Framework Bill to become a reality, the draft for which promises to be a model legislation for states. A separate draft Bill for ‘Conservation, Protection, Regulation and Management of Groundwater’ has also been prepared and put in the public domain for suggestions. The draft law tries to build a comprehensive governance structure on water, dealing with its conservation and preservation, regulation of use, pollution prevention and abatement, pricing, administration, and river and aquifer management. It says that the state “at all levels” would hold water “in public trust” for the people, and “water for life” would take precedence over all other uses, including agricultural, industrial and commercial. 

+ Reboot manufacturing policy to benefit from digitised industrial revolution. now thats sensible if one were to transcend what Marc Andreessen says of manufacturing, "It is a government-subsidised jobs programme". India can attract through Make in India some low-cost manufacturing for maybe 10 years. Importantly India is uniquely positioned to leverage the global phenomenon of 4.0 because India has middle-order skills in both manufacturing and software. 4.0 can be to manufacturing what Y2K was to business software. 

+ Outdated or outmoded (OUTMODIed)!! US working very hard to change its export policy on India. What is expected is for 'Make in India' policy and US' technology policies to come together in the same way that the America's rebalance and India's Act East policy have come together. 

+ An absolutely brilliant column on India caught-up in the duality of speed growth. Elsewhere in Osaka, Arun Jaitley has stamped claims of pro-growth policies by the Government are a press on the pedal to gain speed. So much so, that for him Indian economy would double to $5 trillion in few years. Strangely, one has the figures where growth would reach in certainty, but not the time it would reach at. Thats numbers game for you. Fastest growing economy, fastest growing economy, fastest growing economy... is growing into an echoingly sick mantra, or chant as you will. 

Currency

Swamy-led battle on Rajan leads to Indian rupee going bonkers! The growing brouhaha over his continuing for the second term is growing by the day has steamrolled the currency decline. Currency declension joins the bandwagon of politics, petitions and adverts. P Chidambaram, weren't you right on the fact if the Government deserves Rajan as RBI Chief? Talking of which, Rajan might not want a second term. Honestly, even honesty is nailed under Modi's regime. 

+ Moving global. Is Yuan the boon or bane for Dollar? Yuan has the potential to become the chief reserve currency iff it establishes a full convertibility for transactions in addition to for trade, which it now enjoys; sets up a weighted basket of currencies establishing a foreign exchange rate; and pledges to use central bank in supporting Yuan's exchange rate, while affirming its intentions to confine such interventions in rare and stressful circumstances. Meanwhile, the risks of Chinese currency interventions aren't exaggerated. If the yuan gets depreciated slowly, there is ample time for policy makers to frame strategic objective of integrating China's economy in the global financial economy.   

Taxation

A report by Centrum Wealth Research says a pedigree of the company rather than the tax structure of the home country is responsible for making business a strong investment proposition. The report doesn't throw caution to the wind that FIIs would likely abandon India due to a tax treaty revision with India. 

+ Indian Express feels scrapping tax treaty with Mauritius would not only boost India's domestic tax reform agenda, but also signals an end to holidaying for Mauritius. 

+ All that you need to know about GST Constitutional Amendment Bill. Arun Jaitley says GST rate would be moderate and likely to be pushed in the Monsoon Session of the Parliament. 

Corporate Scan 

Banks, the spoilers for India Inc's Q4 party. As the banks are busy cleaning up their balance sheets of bad loans, this quarter has been the worst for India Inc. in regards to profit growth. But, what worries India Inc. is the rising wage inflation in the economy, and add to the woes, the employee productivity, which continues to fall as salaries and wages continue to grow faster than the company's revenue growth. 



+ Port Talbot steelworks might be secured with Tata, if talks of a loan to the tune of £1 billion and restructuring of a British Steel Pension Scheme go through. Any loan between the Tatas and government would be commercially-termed. The pension scheme is regarded as a hurdle to a rescue deal. The latest figures show the deficit has ballooned to £700m, up from £485m last year. The government has estimated it would cost £7.5bn to buy out the scheme’s benefits. Under the government’s plan, drawn up with trustees, the scheme would be spun off into a new financial vehicle and benchmarked against the consumer price index (CPI) rather than the retail price index (RPI), potentially saving billions of pounds in future liabilities. 

Budget

Makes a brief comeback this week with FRBM Panel holding its first meeting and deciding to consult states and experts. It should be noted that Arun Jaitley in his budget speech had remarked that instead of having numbers as budget deficit targets, it'd be better to have fiscal deficit range as a target. This was visualised keeping in mind bette policy spaces for the government to act upon. 

Infrastructure

And now, corkscrews harder, courtesy RBI. 

Financing norms for NBFCs eased up by RBI. This is significant as refinancing is through take-out financing without a pre-determined agreement with other lenders, fixing a longer repayment period, which isn't 'restructuring' if such loans are standard in the books of existing lenders and not restructured in the past. 

What exactly is take-out financing? It is a refinancing route whereby new lenders take over project loans of existing lenders stretching the loans repayment over longer period. this not only gives a breathing space for the existing lenders, but also opens up opportunities for these to explore new avenues of infrastructural lending. 

+ Inland waterways for long-distance passenger ferries in Goa to be a reality soon. With 10 terminals planned in North Goa, the government is all prepared to kickstart the preparatory phase post the monsoons in October. Ironically, Nitin Gadkari, Union Minister for Shipping blamed the governments at the state and centre for stalling NOCs for the project. Speaking of Goa, the Centre in a JV with State government is planning to have a satellite port with 50 lakh ton Bauxite and 10 lakh ton of iron ore capacity to reduce burden on existing port near Panjim. 

+ Just be flummoxed at this statement by Piyush Goyal, and then may be laugh it off. For, according to him, India is poised to become the clean energy capital of the world. And how? Due to efforts of the present Government in promoting renewables plus NTPC's stellar efforts in preserving the flora and fauna in and around its project areas. Further, in an interview given to CNBC, the minister said that the Government has converted India into a nation of coal surpluses. In the meanwhile, Compensatory Afforestation Funds (CAF) Bill to pave the way for speedy utilisation of funds realised for forest lands diverted to non-forest purposes in a transparent manner would be passed in the forthcoming Monsoon Session of the Parliament. 

+ Costs of operations to increase thus flattening revenue earned. This is classical economics, textbook stuff, and is indeed the reason why solar units could probably be staring straight into unviability. Add to to that dust, lack of skilled workforce, dearth of water and high temperatures. These too contribute to significant costs in running solar power in the country. The Hindu does a cost-benefit analysis. Catching the Sun is possible through Feed-in-Tariffs and guaranteed priority grid connections to renewable energy producers. the former in India is left to the discretion of discos/regulators. If India wants to unleash a revolution in solar power, the price at which governments should buy solar power for its grids should be the marginal costs of thermal plus at least 10-15 per cent, which is the negative externality that thermal plants emit in terms of pollution and health costs. Once this is in place, one can quickly scale up to reach the target of 100GW. 

+ Whitewashing a murky record, says Jairam Ramesh. Modi Government is trying to palm off GSPC's KG Basin. Modiphiles tend to brush off the GSPC’s shenanigans at public expense as sins of omission rather than commission. However, anyone who has cared to lift the hood and analyse the GSPC’s operations or read the scathing report of the Comptroller and Auditor General (CAG) and talked to industry experts will concur that there was a deliberate exploitation of the GSPC by its then political masters under the alibi of a risky venture. Now, in a brazen attempt to wash away the past sins of his prime minister, the petroleum minister paints a rosy future of a proposed merger between the ONGC and GSPC.

Activism 

Anti-dam protests gaining momentum in Tawang, but the Government and NHPC don't seem to give up either. 

+ Civil rights Activists slam MHA action against Indira Jaisingh's Lawyer's Collective. The suspension of the LC’s FCRA registration is nothing but an escalation of the government’s campaign to crush dissent and criminalise any person or organisation that questions or opposes the violation of fundamental rights and human rights by the state and its agencies. Is it technology, or ideology thats driving MHA's crackdown on NGO? 

+ NGOs urge PM to resist pressure from US on Intellectual Property Rights. They said the recently announced National IPR Policy “sees the generation of IPRs as an end in itself. However, in reality, promotion of IPRs has not only limited the ability of developing countries to obtain critical technologies for their economic and social development but has also seriously impacted their peoples’ lives by making essential goods such as medicines, seeds, and textbooks unaffordable.

+ Greenpeace claims that water used by the coal plants can meet the need of 25 crore people. It makes sense as the coal plants are concentrated in drought-like areas, and with more of these coming up, the situation is likely to deteriorate 3 times as bad as it stands today. 

+ A delay is good some of the times. And why? Adani could actually exit Queensland if the environmentalist continue to delay the project in courts. “You can’t continue just holding. I have been really disappointed that things have got too delayed." Thats Gautam Adani on record btw. 

+ How has the environmentalist versus growth debate unfurled over 25 years of reforms. Varad Pande delves. We cannot deforest and pollute our way to prosperity. Thats 1991 Union budget Speech by Manmohan Singh. Much has changed since then as the debate has moved corridors in academia to real life-testing situations. A must read. 

+ Always a pleasure to read Shripad, who blogs hereHere, he is sharing his thoughts on the occasion of World Environment Day about the Ministry of Environment.  

Audit

Despite CAG alert, stored mines leaking TNT. Pulgaon ammo blast. 

+ CAG reports water woes in Meghalaya. The performance review highlights corrupt practices of Public Health and Engineering Department (PHED) revealing real causes of delays in completion of these schemes. Himanshu Upadhyaya blogs

Macroeconomy

Not just the public sector banks, but, even the industrial firms are slipping into red. In short, for the listed public sector firms, the past year has been bad with shrinking sales and plunging profits. 



+ RBI might hold rates, and focus on inflation control in its June 7 policy review. Additionally liquidity management and pending policy transmission would be focus areas if forecasts about mild growth acceleration and improved monetary policy transmissions giving growth the necessary boost are to go by. The central bank cut policy rates by 25 basis points in the first bi-monthly policy review for FY17 on April 5, 2016 and narrowed the policy rate corridor to 50 bps from 100 bps, by reducing the marginal standing facility rate by 75 bps and increasing the reverse repo rate by 25 bps. This, according to the RBI, was done to ensure better alignment of the weighted average call rate with the repo rate. However, banks are yet to pass on the rate reliefs to their customers despite the best efforts of the RBI. 






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Capital tends to liberate itself from dependence on the human contribution. That’s why essentially alltechnology is substitutive (imitative). The fraction of the global population capable of making any contribution of non-near-zero value today is no greater than 20% (Damned lies statistics!!). Politics fills the gap with bureaucratic bloat and other make-work, welfare, a variety of protectionisms, macroeconomic junky-stimulus … and the gulf it needs to fill yawns open further every year. Sunny-side up (old-style) liberalism promotes 'The Process' (which is great). If it seriously expects to maintain the narrative that there is a continuous historical trend in which (dysgenically deteriorating) human populations will always find a useful place, it is deeply in denial. Massive swathes of the core industrial infrastructure are already close to laborless. The proletariat was a phase. Socialists have nothing correct and interesting to say on this (like most) issues; they have …