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Weekly Digest (Economics, Finance and Banking) 4 July - 11 July 2016

After an absence of three weeks, two of which caught me traveling over the weekend, the digest makes its appearance once again. 

This period has been a tumultuous one globally and nationally: Terror attacks during the holy month of Ramadan, Bangladesh under siege, fallout of US cops shooting Afro-Americans bringing to surface once again a stern racial divide in the US, BREXITgovernment's rejection for a call for a second referendum to go back into the Zone, Lionel Messi's retirement from Argentinian soccer team after the team lost to Chile in the finals of the Copa America, and Portugal getting the better of France in the Euro Championship. 
Nationally, in the wake of reshuffle, upheavals for some (cause to celebrate the ouster of the abrasive, arrogant and ignorant Irani's demotion, but cautious of getting the HRM in the form of Javdekar), media-constructed image giving rise to a possible cheer for the new minister of environment, before Shripad sets it correct on his blog to the advantage for scores of us. 

In the future - which, somehow, increasingly looks like our feudalist past - to be truly free, we’ll first have to pledge allegiance to a giant technology provider. Should our corporate overlord “pivot” to a new business model or simply decide that our freedom can no longer be justified in its cost-benefit analysis, we’ll have to find some other private guarantor of freedom. Fleeing from the effects of neoliberal capitalism, all of us are becoming permanent refugees – with technology giants occasionally taking pity on us by offering us free services, identity papers, and an opportunity to make money in the sharing economy. And, soon, there won’t be anywhere to flee.

Public Finance Public Accountability Collective (PFPAC) Weekly Digest (07 June - 13 June 2016)

Banking in Distress

The Government could take sufficient funds as maximum dividend from the Central Bank and improve banks' finances as a sovereign. Or, what about Government Capitalisation Bonds? These are decent enough means to stop capital infusion into the banks and more crucially steps to make banks raise their own capital, an absolute rarity in the case of PSBs. In my personal opinion, the Left has finally stung hard, with Sitaram Yechury writing to Prime Minister underlining the precarity of rising NPAs and why things are slipping put of control if monetising the assets of defaulters isn't prioritised. Prakash Karat too has quipped in with Left's favourite culprit, cronyism, or crony capitalism as its currency, which is a result of neoliberalism very familiar territory of abjectly poor ideas emanate from people's democracy.  

+ trickle of sale of stressed assets to ARCs does no good at all. Chief reason is banks' unhappiness over cheap valuation that ARCs are offering while these companies are capital starved to make higher upfront payment to the banks. 

+ In some past editions, Bankruptcy Code was mentioned and even discussed in an adumbrated format, this FE story mentions the Code as a panacea, which is jumping the gun. But, it nevertheless underlines lending policies of banks during the 2007-08, which were reckless. This could be corrected with meticulous examination of borrower credentials and project prospects. Is Bankruptcy Code the panacea then, or a mere placebo? Rajan blames externalities for NPAs, a significantly growing chunk blames reckless practices undertaken by the banks, but CAG calls it fraud, as a result of fraudulently obtained advances. The Government has recommendations up its sleeves by asking banks to take a legal recourse through SARFAESI Act, whereby properties could be auctioned in recovering. Wait Kingfisher case did exactly follow that and it's been misery loves company ever since. Anyways, the decision to take a legal recourse was also echoed at the Financial Development and Stability Council (FDSC) chaired by Arun Jaitley. 

Multilateral Development Banks

AIIB's green credentials turn out to be the basin of attraction during the first six months progress report discussed at the Beijing Summit. Though articulation of energy strategy is a far cry still, poignant reminder from the International Energy Association seems not to have permeated the new kid on the bloc. The other point of contention is transparency, which misses the international standards, due in large part to implementable strategies, rather than blueprinting them. Despite these shortcomings in the report card, AIIB has pledged $500 million to Asian projects co-authored by other MDBs viz. World Bank, Asian Development Bank and European Bank for Reconstruction and Development. During the Summit, private sector attendance was thin as there is ambiguity on opportunities and challenges for the sector to be in collaboration with AIIB, the chief reason behind which happens to be high-risk factors associated with emerging markets. Meanwhile, the Annual Meeting witnessed the establishment of Project Preparation Special Fund to assist low-income countries prepare projects for AIIB funding. 

+ On to AIIB architecture, a lot of ink has been spilled on the Bank's incompetency as regards its Chief Risk Officer jeopardising further China's dismal record of transparency culminating in the potential replacement of the South Korean Hong Ky-Ttack as the CRO. 

+ From Beijing to Shanghai to Goa, pre-BRICS meet would focus on social agenda in the Western state. Though, nothing much is clear, Pune-based NCAS is on board with Wada Na Todo Abhiyaan, OXFAM India and People's Budget Initiative for the Goa meet. Leslie Maasdrop, VP & CFO, BRICS Bank (NDB) has pointed to opening the membership in the Bank thus significantly reducing the shareholding of the five-founding members. Here comes the proportion, the shareholding of the five members cannot go below 55%, and thus the remaining 45% would be via non-borrowing countries (20%) and others in the emerging markets (25%). Here is a rich interview with the VP-cum-CFO. BTW, I hope none of us just tick against the "I Agree" clause while installing softwares, for NDB's AoA could be a similarly laborious read, and purblind to it means we have signed on to the Devil. The emerging economies' elite club, BRICS and their Bank goes in utter disarray in the wake of crisis in Europe and specifically after the BREXIT. Do these club members still have the ammunition to challenge the western hegemony? Foreign Policy analyses the intercourse

+ Lagarde on the occasional bad cop role of the IMF, but with the mindfulness of the social safety net talks briefly of the keyword "uncertainty" following the BREXIT. Talking of the IMF, they are pretty satisfied with BREXIT, and as scathing as devastating in their pointing to a larger malaise of the single-currency and why the Brits were right to leave a dying, sclerotic and broken economy and forge ahead new trade links with economies that are booming. Logically enough, IMF cut growth projections in the Eurozone in the wake of BREXIT chaos. That BREXIT could have a domino effect resulting in tearing the continent apart is prophetic of Joseph Stiglitz. 

+ Speaking of Stiglitz, the former Chief Economist of the World Bank was in Bengaluru last week cautioning the policy makers to stop being overly obsessed with Inflation. The Columbia University professor also warned India about its international image taking a beating and potentially harmful in the way investors looked at the country in line with the recent clampdown on students. Take note Mr. PM, for this is your dream's undoing!!!

+ If the IMF does it, World Bank invariably follows suit. They switched once more, toggled growth forecasts following their cousins, and downgraded global growth from 2.9% in January to 2.4% in July, which is a significant revision, thanks to Euro Chaos. India is left untouched and slated to grow at 7.6%. If China was to be held culpable earlier this year, BREXIT at the present moment, then one doesn't really do justice to Bank's switch, for once the Bank is right in analysing how the emerging economies have been resilient in shying of commodity prices that are favourable resulting in the sluggish materialisation of benefits. 

+ Signing off this section with the Asian behemoth, the Asian Development Bank, known for its distorted rhetoric and allegedly a scourge, courtesy investments having scant respect for human rights. Partnering AIIB would complicate the meshwork further compelling the Bank to disburse money faster on one hand, and Ah!!! calling NGOs naive do-gooders. This blog posting by Hans Dembowski is as interesting as it is witty. On a happy note, ADB has updated its anti-corruption policy in the aftermath of Panama Papers (Caution: submit to understanding terms and conditions before searching the dataset), and vowed to work in close partnership with OECD and its Base Erosion  and Profit Shifting (BEPS) Recommendations. Talking of Panama Papers, and as an absolute aside, Lionel Messi, who caused a million heartaches following his announcement of retiring from Argentinian jersey after his team lost to Chile in the Copa America Centenario Final a fortnight or so ago, and whose name featured in the Panama Papers Scandal for tax fraud has finally been convicted to 21 months and fined €2 million. But, alas! he won't be spending time in prison.  

Policy and macroeconomic indicators

Call it Transparency or call it Government clipping the wings of the RBI Governor making decisions regarding the policy rates single-handedly, it mustn't be overlooked that Rajan had himself welcomed the move to have a committee constituted to effectuate such decisions. So, when the Government recently provided a statutory backing to the Monetary Policy Committee (MPC) by notifying amendments to the RBI Act 1934, the formation of the MPC is well on its way. What isn't all clear is the timing of its formation, which could either overlap with RBI's policy review on 9 August, the last one for Rajan before his term ends on 4 September, or after that for the Government to severe Rajan's interference. Finance Ministry already has plans to plan (yes, thats the authorial usage) setting inflation goals for next five years post-Monetary Policy Committee formation. 

+ Is the Government hell bent on destabilising the markets by an indulgence in selling enmasse the entire equity investments of Specified Undertaking of the Unit Trust of India? Well, nothing is different from the fact if analysts are to be believed in this desperate measure to meet disinvestment targets. Perturbations or no, the market sentiment would decide, but the holdings are big enough to cause distress in scrips or even for that matter momentum within the market. 

+ Social media on Sunday was abuzz with Jaitley's remarks on elevated lending costs questioning high interest rates on savings. While on the face of it, it appears that everything is fair when it comes to bridging the infrastructure gap, what has gone missing in the buzz, or at least what I saw of it has been the creation of liberalised interest rate regime facilitating a reduction in the cost of funds. This in isolation isn't as bad as aggressors to the liberalised economy make it look like, but in context has a downside, in that, aligning small savings rate with market dynamics in order to rid rigidities in interest rate regimes. India has a very robust small savings economy, and sentence above if colluded will dissuade such savings. This is political suicide. Brace yourself for the another spectacle. 

+ Harsh Bhanwala, Chairman, NABARD speaks about the need for collectivisation measures, long-term credit, oral land leasing, completion of irrigation projects and farmers suicides. 
Pulse prices have gone through the roof, leading to higher food inflation. Can we expect some respite?
Pulses are mostly grown in rainfed areas. If there’s a good rain, you will see good offtake. The variability in pulses production is high on account of variability in rainfall… which may not be the case in other parts… non-irrigated areas. For example, cotton is in non-irrigated areas. In paddy, the variability may not be much. Pulses would get good production this year… if monsoon is normal or above normal. The higher MSP (minimum support price) given would also incentivise the farmers to take up pulses production. The growth in MSP is one of the highest for pulses this year.

+ Indian Export-led growth model needs to be rekindled, and post the BREXIT all the more so. The irony of the matter lies in chasing the export dream. With global growth languishing at a paltry 2%, India needs to gain market share inexorably to sustain its GDP. but, unfortunately, India is distant to these conversations about bringing it about. Jahangir Aziz writes. On the GDP front, India's staggering numbers seem to upset US as the latter allege numbers as conjuring akin to fighting a trust deficit!!! Former Law Minister Ashwani Kumar talks of the importance of permeable growth, lest GDP numbers should be inchoate and irrelevant. 

+ Private-sector investment starts to crawl. Could these be early signs of an upcoming slowdown as excess capacity and high leverage continue to weigh on private-sector business confidence. 

+ The Government has constituted a four-member committee headed by the former Chief Economic Advisor Shankar Acharya to examine the desirability and feasibility of a new fiscal year getting under purview different agricultural crop periods, taxation systems, and procedures and impacts on businesses. The Committee will also look into the suitability of a new financial year from the point of view of receipts and expenditure estimates of central and state governments, relationship of financial year to the working season, statistics and data collection, and the convenience of legislatures for transacting Budget work. This wouldn't be the first time a change in the fiscal year would be under examination, as in 1984, the LK Jha Committee suggested moving the fiscal year to overlap with the calendar year as that would help cushioning the Budget from the impacts of the SW Monsoon. The congress had rejected these recommendations based on views mentioned here

As a trivia
Why does the current fiscal year commence from 1st April and runs through tim  31st March the following year? 
India adopted the Gregorian Calendar system of accounting under the British Government, which has an accounting period running from April till March. 1st of April coincided with the Hindu new year, Vaishakha, and thus Gregorian Period was tactfully matched with the Hindu calendar to ease out transactions. 70% of the Indian population is dependent on Agriculture and Indian Economy also runs on Agriculture base. Since, the agri sowing starts with the monsoons which enters into Indian Penunsula at the end of June and hence the fresh accounts starts in the month of July for most of the Businesses and Banks largely so RBI has to follow the cycle. Check below countries with different financial year cycles...


Sterling hit a 31-year old low against the dollar post the decision to leave, but global stocks and Sterling bounced after BREXIT's initial bashing. In the ensuing chaosmos, Yen gained. It ain't an instantaneous slip and slide and then a rebound, but Britain's decision to leave the EU could result in a global currency war


There seems to be a thaw in the Congress-BJP rift as the former drifts towards GST passage. The contested issue of the Constitution Amendment Bill seems to be heading for resolution via "ring fencing". According to the newly inducted Minister of State in Finance, Santosh Gangwar, no party opposes the GST outside the Parliament, but the story is quite different within. 

Ring-fencing involves isolating an investment to protect it from risk factors derived through taxes, acquisitions and economic changes. 

+ Labour Ministry wants Employee Provident Fund Organisation (EPFO) to invest in stock markets through Exchange Traded funds (ETFs), which are a basket of securities like bonds, commodities and indices, but the process needs to go rung-by-rung in a cautious manner. And, what about Labour unrest? One can't discount that. 

+ Arun Jaitley hopes IDS, or Income Declaration Scheme 2016 would help make the tax payer compliant and come clean on the global map. If it is the G-20 pressure, this is decent, as these nations that control 85% of the global economy have decided to cooperate in sharing information about illegal assets. 

+ This ain't no laughing stock, for in a first, Kerala has introduced a "fat tax" on fast food restaurants. From this tongue twister, if one gets down to numbers, the tax is 14.5%, which is astronomical in a state that is gastronomical. This levy would earn Rs. 10 crore annually, yes, an astronomical dwarf. And, which of the foods count as fast aka junk in common parlance? Pizzas, burgers and doughnuts. Does the state even have many outlets serving these specifically? Thats another debate altogether spiced by its second rank in child obesity. Talking of hilarity of such taxation, does anyone remember the "Samosa Tax", thanks to Nitish Kumar. Thats at least his acknowledgement to Lalu's support (Pun intended!). 

Corporate Scan

First hit the "Pause", and then hit "Cancel". This is what BREXIT uncertainty is probably all about for Tata Steel's Port Talbot plant. ThyssenKrupp has expressed interest talks in Tata Steel Mills that are hit by overcapacity, weak demands and cheap imports, while Tata has suspended the process involving UK plant. 

+ The withdrawal of fine imposed on Adani Ports during the UPA regime has drawn a lot of flak, including political complicity or Modi's hand-in-glove with Adani. The opposition Congress is definitely gearing to raise the issue in the Parliament. DNA exposes the Why?  


Bullet train project to go elevated. And why so? To protect it from perennial politically-motivated protests and agitations, and land acquisition problems. So, if the cost earlier was a whopping variable, add another becoming-whopping variable to the tune of Rs. 10K crore (its a non-linear function to remind ourselves all the time!!!). And, btw, who must have suggested this? Yes, I guess most guessed it right. The empowered committee called the NITI Aayog vice-chaired by Arvind Panagariya. 

+ Ready to use, difficult to flush inhibitions. Amitabh Sinha dissects toilets under Swachh Bharat Abhiyaan.

+ The highly misunderstood notion of an SPV, Special Purpose Vehicle complicated further by the fluid definition that SPV entails, this model, used much extensively in smart cities, is now being incorporated to help take off irrigation projects worth Rs. 20K crore. The SPV, Water Resources Development authority (WRDA) would be borrowing around 60% of the funds required from NABARD as the government can't borrow, and the agreements on the finances raised and implementation of the projects would be signed between Centre, SPV, states and NABARD.  

+ Piyush Goyal, who has been given the additional charge of the Ministry of Mining has set up an immediate task of raising the share of mineral production as part of the GDP by 1% from the current 2.4% over the next two years. 


I hardly remember the Bardoli Satyagraha from history lessons, but had no idea that Gujarat Government were violating the 73rd and 74th Amendment by rampant urbanisation catalysing the farmers of this fertile land to stand up and resist state government's notification on developing urban infrastructure. Hat Tip to Sagar Rabari and DMIC listserv for bringing this in the inbox today. 

+ Legislative reforms promised before getting to form the Union Government and then going back on their word is pretty platitudinous with the current Modi-led regime. Thats what is exactly the case with axing environmental legislation. Kanchi Kohli and Manju Menon Menon report on why the government must take citizens into confidence before toying with Coastal Regulation Zone (CRZ), as a social contract cannot simply be annulled by a different party at the centre. 

+ Thanks a lot Benny Kuruvilla for the link to the video on Arunachal Pradesh: Rivers, Dams and People's Movements. More than 100 large and medium dams are planned in the North Eastern Indian state of Arunachal Pradesh. Lama Lobsang Gyatso from Tawang Valley talks about the large hydro-electric projects that threaten the very existence of his Monpa community.


Looks like another storm is already brewing and waiting for the monsoon session of the Parliament to commence. Congress has questioned the re-evaluation of CAG's findings of telecom operators understating the gross revenue causing significant loss to the government. The main allegations are helping cronyism by brushing brushing it under the carpet. While the decision to re-evaluate has come from the Telecom Ministry, But, is there a scam, or are the CAG and Congress wrong about it? Congress is convinced and vociferously so. 


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Report release and Panel discussion. “Unfolding Crisis – The Case of Rising NPAs and Sinking Public Accountability” at Constitution Club of India in New Delhi at 3:00 p.m. on 14th September, 2016

Public Finance Public Accountability Collective (PFPAC)
cordially invites you to attend the formal release of its first publication 
Unfolding Crisis – The Case of Rising NPAs and Sinking Public Accountability” 
Constitution Club of India in New Delhi at 3:00 p.m. on 14th September, 2016

Additionally, PFPAC will be organising a panel discussion to analyse the intricacies of Non-Performing Assets (NPAs) with a panel consisting of notable people from across the social, political, economic and financial spectrum:
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