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Weekly Digest (Economics, Finance and Banking) 26 July - 1 August 2016


The pun isn't not only intentional, but directed. Guess it, for I wouldn't finger point, or point fingers as the order supposes. This is the political we are doomed-to, deemed-to affiliate with. Let's roll on. Vampires need to drink blood because they exist in a state of blood debt. Their veins are filled with a sort of negative blood, which never leaves their system - it only ever bleeds inward. Because of this, drinking blood is something of an interest payment - it cancels out the opposite stuff that keeps accumulating inside of them. Without this process of negation, the internal pressure would just continue to build until they implode. Just like you might expect - by the vampire borrowing a second life after death has already claimed them. All they have to do is accept a single drop of the substance from another vampire, and the debt will continue to compound until it fills their corpse. After that point, it’s just a matter of keeping their blood books balanced..... Am I being politically correct even? We’ve become so enamored to curbing our minds, filtering our thoughts, policing our tongues that we’ve forgotten the ability to be independent. Instead we’ve conformed ourselves to a tedious gray-toned existence where the Zombie minds commingle in a self-revolving turnstile of mindless chit-chat that cannot escape the iron law of GroupThink Inc. Ours has become Orwell’s nightmare in inverse relation (additionally i.e.), rather than Big Brother listening in on our conversations, we also have each other to thank. We’ve become victims of our own overzealous rage against the infractions of a thousand years of bigotry, racism, and prejudice so that now we have built walls and fortresses around our minds so that the irrational thoughts of the human animal cannot escape its own belligerent and feral desires. It has caged itself in a merciless and tyrannical hivemind where thought-control is the last order against the anarchy of thought itself. The Law of Unintended Consequences could not have envisioned a better stepchild.

The Week Gone By

No offences to dogs, but going down to cows is the Indian way of going down to the dogs. Policing and politicking the cow is getting despicable. Be it MP, or Haryana, or Karnataka, the ruling dispensation at the centre needs to know that big brother is watching these headless chicken soup-sters. This is reaching an epidemic proportions. The only phrase to describe it is: Mad Cow Disease!!!

The passing away of Mahasweta Devi is the end of history. I first heard her name in the early 2000s when Gayatri Spivak was giving a keynote at Pune University, and I was flirting with Derrida. Mahasweta Devi could rightly called the inspiration behind subaltern studies, unless one learns to distance subaltern from its Gramscian connotations. Salutations. 

“Every person had a story to tell, that of pain, neglect, apathy, insult, inequality, discrimination and their compulsion to do the job that the society looks down upon as degrading for human civilisation. I tried to convince them to give up the job of removing by hand human excrement from dry latrines and carrying them on head in baskets, and physically getting inside septic tank to clean it. But, I failed as they too had no other option of earning livelihood. This made me sad and depressed, and at one point of time I thought of committing suicide, but didn’t have the courage,” Dr Bezwada Wilson, Ramon Magsaysay Award winner for 2016, shares. The other winner from India is TM Krishna, who brought classical music to slums. 

Internationally, Clinton accepts democratic nomination, but is opinionated againstSolidarity for Sanders. Even if Clinton were to become the first Woman US president, this would be factually wrong, since three decades before Clinton was born, Edith WilsonWoodrow Wilson’s second wife, ran the Oval Office for 17 months. Nobody voted for her, and she never actually referred to herself as president, but she did take charge of many executive duties after her husband was left incapacitated by a massive stroke. Back then, the U.S. Constitution didn’t specify what to do if the president was unable to fulfill his duties (it does now). There was no mechanism in place for automatically transferring power to the vice president. To further complicate matters, Wilson’s second-in-command was an unambitious man named Thomas R. Marshall, who, even when Woodrow was paralyzed, bedridden and suffering memory loss, vehemently refused to assume the president’s duties for fear of assassination. The republican Donald Trump...what a scum of goo in his brains? He calls it 'sarcasm' when he asked the Russians tomahawk Hillary Clinton's emails. To imagine Putin engaging Trump in a covert alliance is to see the discipline and coherence of a master strategist where there is, most likely, the opportunism and appetite for risk of a high-stakes gambler." Forget the politics, the hacks, and the hype. Joshua Yaffa has a very interesting piece on what the Kremlin really thinks about this election

Support Right, the world is fast catching up on it. If Right is a pestilence, supporting it is pestilential. Let's talk Turkey. The totalitarian Erdogan wants to close military schools to emaciate military's influence. 

Public Finance Public Accountability Collective (PFPAC) Weekly Digest (26 July - 1 August 2016)

Banking in Distress

Canara Bank sees a dip in profit and a surge in NPAs. Its obviously a case of deteriorating asset quality, but one often wonders what must be the reason behind a rise per unit in its share prices on the BSE. PNB profits for Q1 tank. Provisions for bad loans jumped 51.2 percent to Rs 2,738.4 crore in the quarter ended June 2016 compared with year-ago period but declined sharply 74 percent from Rs 10,485.2 crore in preceding period. ICICI takes a hit Q1, bad loans surge. The bank set aside more funds to compensate for losses from defaulters and cautioned about looming uncertainties.  Small home loan borrowers become big defaultersPublic sector banks have reported a gross non-performing asset (NPA) level of 12 per cent for small housing loans of up to Rs 2 lakh with some banks even reporting 40-50 per cent NPA levels in the March quarter of 2015-16. However, the NPAs in the overall housing loan segment have showed only a marginal increase from 1.3 per cent in 2014-15 to 1.4 per cent in Rs 2015-16. 

Regulations violated. RBI fines BOB, HDFC and PNB in connection with foreign exchange fraud.

+ Who Moved my Interest Rates by D. Subbarao is a highly recommended book, a personal memoir that seals through the rough and turbulent years 2008-13, the peaking and plateauing global financial crisis. Read the interview at ET. Excerpt: 

During the peak of the crisis Mr Chidambaram appointed a committee on liquidity. Were you angry? Finance Minister Chidambaram's explanation was that we needed outside expertise. When markets are in such a state of panic and turmoil we should get outside expertise in managing liquidity. To that extent, it was an understandable concern. But the way it was implemented, the finance ministry constituting the committee with finance secretary as chairman and asking the RBI to put in a representative, I think it was certainly ill-advised. 

+ LIC signs up AXIS Bank as a bancassurance partner, wherein the bank will distribute LIC's products to its customers. From April 1, norms have been revised under which corporate agents like banks are allowed to tie-up with three life, three non-life and three standalone health insurance companies. Earlier, the bancassurance model where banks sold insurance meant that they could only sell products of one life, one non-life and one standalone health insurer. Apart from LIC, Axis Bank also has a tie-up with Max Life Insurance in the life insurance space.

+ Public Sector Banks go on strike on the 29th July. Operations hit. Private Sector Banks continue operations. The strike to protest against the proposed merger of SBI associates with the parent and other banking reforms. Unfazed by nation-wide public sector bank strike, SBI chief Arundhati Bhattacharya today said the merger of 5 associate banks and Bhartiya Mahila Bank with the state-owned lender should be over by next March. "People have to understand that the change is inevitable. There have been strikes at many occasions but we have to educate them and take them on board," she said on the sidelines of the launch SBI's wealth management offering called 'SBI Exclusive'.

+ The government has asked public sector banks (PSBs) to increase the credit flow to small and marginal farmers by 10 per cent every year and remove regional imbalances in disbursal of agriculture credit in the country.

Multilateral Development Banks

In the recently held Annual Meetings of the AIIB, the method of PPP in infrastructure investment was discussed heatedly. PPP has the advantages of expanding funding sources as well as achieving project efficiency. Finance ministers offered prescriptions for encouraging PPP, including putting the public sector in the first tranche for project risk allocation, and having the guarantee of the government partner in place. Bankability is the first thing investors consider in infrastructure financing. Bankability has a nature of defence, in that it gives investors the comfort that they will be able to recover their money if things go wrong. To make a project bankable, however, defensive measures themselves are insufficient. In addressing this issue, AIIB president Jin Liqun emphasised both institutional and social problems.

+ Even after the ruling against the Chinese over the South China Sea deadlock almost a fortnight ago, questions on arbitrations favouring Beijing could well be rejected by other countries. Section 55 of the AIIB charter details the dispute settlement procedures. In case of deadlocks, a three-man body is to adjudicate, and its rulings shall be final, binding, and executory. The three members shall be: one to be nominated by the AIIB, one by the disputing borrower-country, and one by the UN International Court of Justice as chairman.
Here’s the catch. The PCA at The Hague is an adjunct established by none other than the ICJ. The ICJ stands by the PCA rulings. So how can China’s AIIB enforce its dispute resolutions overseen by the ICJ, if at the same time it rejects an arbitration court of the ICJ that happened to rule against it? What if other countries become intransigent like Beijing, and reject UN and WTO rulings against them in disputes with China?
+ Here, I am taking the liberty to deviate slightly from the topic under heading and introducing a most amazing opinion piece on the China-Pakistan Economic Corridor (CPEC). The US and the West have historically used (and often compensated) for their adventures in the region. However, with both defence and economic sovereignty becoming an important issue for our people, the strategic relationship with China will need to be upgraded. The CPEC is an important economic initiative, but given Pakistan's turbulent neighbourhood and economic volatility, there has always been a need for a backstop. In the past, Pakistan has had access to the World Bank, the IMF and country specific aid from the US/EU and Japan. However, with China's growing geo-political influence, access to the newly minted Asian Infrastructure Investment Bank (AIIB) and China aid, grants will be crucial. Pakistan's negligible exports, FDI, and a large saving and investment gap imply that the country will require such a commitment from China. With the world's sixth largest population and a rising middle class, a calculated bet on Pakistan by China can prove to be strategically and economically prudent. Absence of such a commitment could well undermine the potential.
+ Cautious optimism as BRICS Bank (NDB) wraps up inaugural annual meetingOne of the main points of civil society, and also journalists, is that the bank has been operating with a sort of a lack of transparency so we don't know much information except the press releases or the public speeches. H/T Joe 
Independent Evaluation Office, Watchdog of the International Monetary Fund (IMF) has slammed the Fund for its its role in the eurozone crisis and for allowing “political intervention” to contaminate its technical economic analyses. The IEO concluded the IMF had “lost its characteristic agility as a crisis manager” in the way it responded to the economic turmoil in the eurozone, which required unprecedented bailouts for several states shut out of the capital markets and looked like it was going to tear the single currency zone apart. Here's why, IMF's role in Ireland crash was a drama in two acts

+ World Bank disappoints once again with safeguards draft. Omits LGBTQ community. But there is a 'Directive' that mentions the community. Fox guarding the henhouse. But, IMF's new study, data tool, assess fiscal policies to tackle gender inequality. The IMF project outlines the economic rationale for gender budgeting—the use of fiscal policy and administration to promote gender equality and girls’ and women’s development. An overview highlights successful gender budgeting practices, summarizes key country case studies, and offers fiscal policy implications. Six regional country surveys present case studies for countries where gender budgeting was undertaken.

+ Indian EXIM Bank raises $1 billion bonds at lowest yield since 2000. In the last fortnight, Adani Transmission raised $500 million and pharma firm Glenmark mopped up $200 million. Earlier in July, mortgage giant HDFC and the region's multilateral financial - Asian Development Bank, raised Rs 3,000 crore and Rs 500 crore, respectively, from international investors by floating rupee-denominated debt.

Policy and Macroeconomic Indicators

The Government's resources are finite, and thus should be used in a manner that avoids spreading of resources too thinly. The ministries should ensure that any new proposal for the approval of the Expenditure and Finance Commission (EFC) and Public Investment Board (PIB) should also suggest which existing schemes or their components can be dropped to help arrange finances for the new one. 

+ Inflation target for the next five years likely to be retained in the bracket 4 +/- 2%, as steam gathers to have the Monetary Policy Committee (MPC) in place. The Ministry of Finance had given a statutory backing to the formation of the Committee by notifying amendments to the RBI Act 1934. 

+ With all the marketing at constructing a feel good factor as far as emaciating the regulatory bottlenecks in the country is concerned, the Auto Giant General Motors keeps its $1 billion investment in the country in a state of suspended animation for precisely the same reason, viz. uncertainty. 

+ Make in India....Mystery of the missing deals....Isn't it time for the government to start going on the defensive? While the prevailing wisdom is that the delay is due to bureaucratic procedures, the consensus among the private defence manufacturers is that the current government is tight-fisted when it comes to spending on defence procurement. An amount of Rs 77,407 crore was allocated for capital acquisition in FY15-16, out of which Rs 6,070 crore was for new acquisitions. Rs 11,665 crore was unspent at the end of the financial year while the rest went towards committed liabilities.

+ Is Aadhar card actually becoming mandatory? If it isn't, then why are those not possessing it deprived of essential benefits and sops? 

+ NITI Aayog is becoming the black box in the most pejorative sense of the word. Get over incremental change, and sweep policy reforms, if PM Modi is to be believed. And who carries the burden to bring this about? Yes, you guessed it right, NITI. A Niti Aayog official said that the Prime Minister instructed Niti Aayog, among other things, to consider broader goals and issues for the agriculture sector. He also asked the body to keep in mind the growing food demand in the country especially considering the implications of an evolving middle class in India. “The Prime Minister said the focus cannot be on increasing agricultural productivity alone, but should be on the overall development of a vibrant rural economy. He emphasised the importance of the food processing sector, warehouse development, and technology inputs, in this sector,” an official statement said.

+ FDI rises 7% to $10.55 billion Q1, according to data from the Department of Industrial Policy and Promotion (DIPP). The sectors, which attracted maximum FDI during the period, included computer hardware and software, telecommunications, power, pharmaceuticals and trading business.

+ It looked like the economy was about to sprout green shoots. The NITI Ayog and the finance ministry were optimistic. More than that visiting finance managers, the men who invest multiple billions, were rating India highly, talking about the mild industrial pick-up from March and the revival since. The governor of the Reserve Bank was also optimistic while urging more reforms. One was hoping to endorse all these sentiments. But the Central Statistics Office’s latest figures of the decline in investment rates in 2016 were too explicit to ignore. The green shoots, it seems, were only in the statements. Inflation rates shot up to above 5 per cent in April and the trend persists. The week-long delay in the monsoon will also take its toll. The meteorological department (MET) should not say that the delayed monsoon will be made up by later rainfall.... Yoginder K Alagh opines

+ Cutting across party lines, central trade unions including RSS-affiliated Bharatiya Mazdoor Sangh (BMS) on Tuesday raised strong objections to the government’s decision to take the money out of inoperative EPF accounts, estimated at Rs 45,000 crore, to finance the Senior Citizens’ Welfare Fund.


Renminbi is making strides and it could well be the next global currency. With both foreign access to the market and interest from international investors, inclusion of Chinese bonds into the benchmarks could be event that sparks a surge of investment.

+ Joseph Stiglitz on how a currency devised to unify Europe could end up dividing it. 

+ Predictions of on impending doom, thanks to Morgan Stanley. The dollar is set to fall 5 percent in the next few months, the Federal Reserve isn’t raising interest rates anytime soon and U.S. economic data is only going to get worse.

+ “The risks to India are from the East and not from the West,’’ according to Ruchir Sharma, head of emerging markets and chief global strategist at the firm. “Look at what’s happening post the Brexit. The panic has subsided very quickly and markets are back to where they were before the Brexit. In contrast, see what happened to sentiment and the economy when China had problems in August last year and again in January and February this year.’’


Start-up India. Stand up for your taxation rights, I mean tax concession rights

+ Taxmen's clamour for autonomy and lesser government interference has not gone down well with New Delhi, with FM Arun Jaitley calling it an act of "insubordination". The Finance Ministry has sent in a stern warning. "FM Arun Jaitley has taken a serious view of such a resolution by officers of Organised Group 'A' service to advise the government on what role it should play. this is an act of insubordination. Officers indulging in acts of indiscipline would be subject to 'conduct rules', a finance ministry statement said. 

+ The fixed deposit rates which hovered around 9 per cent in January 2015 for maturity period ranging between one and three years for various banks, currently stands between 7.25 and 7.5 per cent on deposits of similar tenure. While the interest rates on deposits declined by around 150 basis points over the last 18-months, a simultaneous spike in retail inflation to a 22-month high of 5.77 per cent in June 2016 means that the real rate of return has turned negative for investors falling in the highest tax bracket and thus has also lost its tag of wealth creator. Experts say that if inflation continues to remain firm and fixed deposit rates retained at current levels then these instruments will only make sense for investors whose income is either non-taxable or if it falls in the lowest tax bracket of 10 per cent.

+ The progenitors turn obdurate. Thats where the Congress stands today w.r.t. GST. Rajul Awasthi is a World Banker, in whose opinion, the hoopla around GST's likely passage might have negligible positive growth, could even turn negative for business environment, and worst of all, might not even be revenue neutral. In an interesting India/New Zealand/Canada scenario, the author hypothesises on the coming reality if the GST were to become an umbrella tax. Towards the end, he also delves into how the business environment could be adversely impacted and how the revenue neutral rate (RNR) with certain exemptions could usher anti-investment sentiments. Updated, Congress seems to be on boardOne Nation One Tax, Jaitley dangling on 'ease of doing business'. On GST Dispute Resolution as a temporary measure. If all goes according to plan, the National Democratic Alliance (NDA) is likely to present the constitutional amendment bill to roll out the goods and service tax (GST) in the Rajya Sabha this week - probably on Monday. 

Corporate Scan

High corporate debt levels, balance sheet challenges of banks, weak industrial and rural demand & sluggish exports are posing hurdles to investment momentum. L&T's net is up, but investments are yet to gather pace. 

+ Pink Slips: resign or be given the severance pay. Thats Flipkart's retrenchment strategy as of now. Between 700 to 1000 to be laid off. Growth is on the downward curve and many of e-commerce companies are trimming their workforce. With high level exits from Unicorns, lower valuations and a fund crunch staring in the face of start-ups, the once-glowing start-up ecosystem in India is getting grounded with realistic goals. And, did Flipkart really believe it could stand up to Jeff Bezos (Amazon), before admitting the mauling over in the market share? 

+ Indian industry expects growth in sales and profitability to pick up by the year-end on the back of a rise in consumer demand buoyed by good monsoons, said Assocham, citing its Bizcon survey.


Cronyism gets a fresh breath of life. The government will grant Gautam Adani 16 billion rupees ($240 million) in so-called "viability gap" funding to help the new port at Vizhinjam in Kerala win business from established hubs elsewhere in Asia to build India's first transshipment port. Is this all due to an eye on the Chinese threat, which ironically irons out as the Government hasn't banned the Chinese companies from investing, but is treading along cautiously.  

+ To dam or not to dam is the question. The Environment Ministry set up an expert committee, and subsequently told the court in December 2014 that dams had exacerbated the 2013 disaster. The PMO also set a one-month deadline for the Environment Ministry to finalise the clearance norms for the dams in coordination with the Power Ministry and the Uttarakhand government. The case of the Upper Ganga dams

+ India’s water crisis is even more serious than its energy crisis though this is not generally realised. For energy, alternative sources such as solar and wind energy are becoming more cost-effective. For water, the only major alternative available is desalination and it is far too expensive. Isher Judge Ahluwalia dissects the looming crisis on urban water. 

+ "Infrastructure spending is going up and highways sector has stimulated growth. Cement and steel sectors sales have increased by 5 per cent each while bitumen sales have risen by 35 per cent...There are 205 projects of NHAI that are going on," NHAI Chief, Raghav Chandra said at a conference on 'Revitalising Public Private Partnership in Infrastructure' by IIFCL.  


Halting the forest bureaucracy in its marauding tracks just got difficult. The Rajya Sabha has passed the Compensatory Afforestation Fund Bill, 2016. This Bill essentially gives carte blanche to forest officials to spend gigantic amounts of money (over 40,000 crores) without any accountability to the people whose forests, lands and lives will be damaged or destroyed by their activities (Build up link). Why is the Compensatory Afforestation Fund Bill a doom for adivasis' rights

#RallyfortheValley. The claims about the irrigation and drinking water benefits have already proved to be unattainable with only 30-35% irrigation Canal Network built over last 30 years since the Project received clearance. The scale is also changing with the Government’s decisions on various kinds of diversions of forest and lands in favor of the corporate and industrial projects. It is no more a concealed fact that the Government of Gujarat has already taken a decision to de-command 4 lakh hectares of land from the Total Command Area, mostly in favor of Industrial Areas and Investment Regions; as part of the Delhi-Mumbai Industrial Corridor (DMIC). These planned projects including those of Adani and Ambani, being adjacent to the Canal Network, are obviously also going to be the first beneficiaries of the water supply from the Dam.

+ The National Green Tribunal (NGT), Kolkata bench, has summoned the Sambalpur collector, divisional forest officer and deputy director of mines to appear before it in connection with the alleged pollution being caused by Talabira mines in the district. The NGT had summoned the three officials thrice in the past but they did not comply. This time, the NGT has asked them to appear with an explanation. Petitioner and H/T Subhash Mohapatra. 

+ Whose forests are these anyways? CAMPA Bill. The current bill does not take into account any of the criticism voiced against an earlier version, proposed under the UPA government in 2013; it continues to ignore the Forest Rights Act.

+ The Lokpal Act brings under its purview any NGO wholly or partly funded by the Union government to the extent of Rs one crore or more and has received Rs 10 lakh or more in foreign donations. But the provisions of the act stretch in a manner that not only intrude into the privacy of individuals, but also provides the leeway for officials to harass people. Overregulation may not only stifle the voluntary sector but also force volunteers and donors to stay away. Many trustees, directors and professional managers in NGOs, who could be philanthropists, experts and eminent persons from different walks of life, wouldn’t want their assets and liabilities loosely posted on government websites.

+ Where is sense and nonsense in this? Kudankulam plant cited the safest in the world by this Russian official. 

+ On to some international stuff here. Rio Olympics is round the corner. The Fighter: Rio’s Vila Autódromo Favela Fights Olympic Bulldozers (Video). 


Even the e-auctions of coal mines by the NDA government seems to have come under the scanner, where the Audit could draw assurances of the fact that potential levels of competition was reached during bidding of 11 coal mines in the first two tranches. The CAG was carping in its criticism of the UPA government’s policy of granting coal mining rights based on the opaque recommendations of a so-called screening committee. It estimated the resultant loss to the exchequer at Rs 1,86,000 crore or more, the figure that bore an eerie sameness to the 2G loss. The NDA should pull up its socks before it gets to a scam-level. 



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