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Tue, 30th August 2016

Anirudh Sethi Report

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Archives of “Analysis” Category

Economic growth in India below capability levels: Raghuram Rajan

Reserve Bank of India (RBI) governor Raghuram Rajan on Monday in the central bank’s FY16 annual report that although the economy is showing signs of picking up, it is still below levels that the country is capable of.

The key weakness is in investment, with private corporate investment being subdued because of low capacity utilisation, and public investment slow in rolling out in some sectors, he said.

“Inflation projections are still at the upper limits of RBI’s inflation objective,” Rajan said, adding that with the RBI needing to balance savers’ desire for positive real interest rates with corporate investors’ and retail borrowers’ need for low nominal borrowing rates, the room to cut policy rates can emerge only if inflation is projected to fall further.

He explained that the willingness of banks to cut lending rates is muted and not only does weak corporate investment reduce the volume of new profitable loans, their stressed assets have tightened capital positions, which may prevent them from lending freely. “Certainly, the reluctance to lend to industry and small businesses is more visible among the more stressed public sector banks compared to the private sector banks,” Rajan said.

Trade union strike on Sept 2: Narendra Modi govt faces biggest strike since coming to power

The government’s effort to dissuade 10 central trade unions (CTUs) from going ahead with the September 2 strike did not succeed on Monday as the minimum wage advisory board (MWAB) meeting remained inconclusive.

A fixed minimum wage between Rs 15,000 and Rs 18,000 per month has been on top of the CTUs’ 12-point charter of demands. A positive outcome of the MWAB meeting, which was preponed from the earlier scheduled on September 6, could have saved the government from the embarrassing labour stir.

With the meeting failing to reach a consensus, RSS-affiliated Bharatiya Mazdoor Sangh (BMS), which unlike 10 other CTUs is yet to give their strike call, may also join the stir. This would make it the biggest-ever labour strike since the new government under Narendra Modi assumed office in May, 2014.

Talking to FE earlier in the day, BMS general secretary Virjesh Upadhyay said the trade union would take part in the strike if the government gives orders and not just written assurances on majority of their 12-point charter of demands that includes a minimum wage of Rs 15,000 per month.

At its three-day Kendriya Karya Samiti (KKS) meeting in Bhopal earlier this month, BMS had resolved to declare the strike on September 2, but left the onus of taking the final call on its president B N Rai and Upadhyay.

RBI-Increased focus on reforms

The RBI today called for intensifying structural reforms and focusing on the land and labour markets to realise the potential of the economy and avoid jobless growth.

In its annual report for 2015-16, the apex bank said various governments need to act together in this direction.

“Labour regulations are often cited to be a significant barrier to growth, particularly with regard to large and medium-scale manufacturing companies.

 “Initiatives taken by some states to amend labour laws are a good starting point. Second, land acquisition processes are another critical factor affecting the pace of investment. States may consider putting in place a transparent and viable framework, de-bottlenecking land constraints, as in Andhra Pradesh, to drive the capex cycle,” it said.

Germany Sells Out Of Safes As Savers “Lose Faith In Banks”

It is no secret that one of the most admirable qualities of the German public – in addition to its striking propensity for thrift in the aftermath of Weimar – is its stoic patience and pragmatism when dealing with adversity. However, over the past month, we grew increasingly confident that said patience would be tested, if only when it comes to matters of monetary trust vis-a-vis the local, neighborhood bank. First it was the news that Raiffeisen Gmund am Tegernsee, a German cooperative savings bank in the Bavarian village of Gmund am Tegernsee, with a population 5,767, finally gave in to the ECB’s monetary repression, and announced it’ll start charging retail customers to hold their cash. Then, just last week, Deutsche Bank’s CEO came about as close to shouting fire in a crowded negative rate theater, when, in a Handelsblatt Op-Ed, he warned of “fatal consequences” for savers in Germany and Europe – to be sure, being the CEO of the world’s most systemically risky bank did not help his cause.

That was the last straw, and having been patient long enough, the German public has started to move. According to the WSJ, German savers are leaving the “security of savings banks” for what many now consider an even safer place to park their cash:home safes.

Indeed, as even the WSJ now admits, for years, “Germans kept socking money away in savings accounts despite plunging interest rates. Savers deemed the accounts secure, and they still offered easy cash access. But recently, many have lost faith.” We wondered how many “fatal” warnings from the CEO of DB it would take, before this shift would finally take place. As it turns out, one was enough.

PBOC sets USD/CNY mid-point today at 6.6812 (vs. yesterday at 6.6856)

PBOC injects 60bn yuan via 7-day reverse repos

and
Injects 40bn yuan via 14-day reverse repos 
ps. Friday’s setting for the yuan against its trading basket was at 94.06 … a fresh low for the CNY.
And … I’m having a few problems with the links … to get to this post, link:
http://news.forexlive.com/!/pboc-sets-usdcny-mid-point-today-at-vs-yesterday-at-66856-20160830

Japanese Government Now The Largest Shareholder Of 474 Big Companies

The two biggest buyers of Japan Inc. are flying blind and don’t care.

The Bank of Japan and the Government Pension Investment Fund (GPIF) have been buying stocks to inflate the market, create some kind of “wealth effect,” and bamboozle regular Japanese into pouring once again into stocks, after many of them lost a big chunk of their savings when the prior bubble imploded without ever recovering.

In 2014, the GPIF – buckling under the pressure from the Abe administration – decided to plow about 25% (“±9%”) of its assets into Japanese stocks. With assets at the time of still about $1.4 trillion, 25% would amount to about $350 billion. So the fund has been buying a lot! And it has been a disaster! [Read…  Japan Mega-Pension Fund Dives into Stocks, Foreign Assets, Loses Shirt. People Not Amused]

But even after Japanese stocks took a licking over the past year, the fund’s allocation to domestic equities is still 21%, so near its range and no longer a powerful buyer. But to make up for any holes left behind by the pension fund, the BOJ announced on July 28 that it would nearly double its annual purchases of equity ETFs to ¥6 trillion ($59 billion).

European Commission To Issue Apple An Irish Tax Bill of $1.1 Billion

The European Commission will rule against Ireland’s tax dealings with Apple on Tuesday, two source familiar with the decision told Reuters, one of whom said Dublin would be told to recoup over 1 billion euros in back taxes. The European Commission accused Ireland in 2014 of dodging international tax rules by letting Apple shelter profits worth tens of billions of dollars from tax collectors in return for maintaining jobs. Apple and Ireland rejected the accusation; both have said they will appeal any adverse ruling. The source said the Commission will recommend a figure in back taxes that it expects to be collected, but it will be up to Irish authorities to calculate exactly what is owed. A bill in excess of 1 billion euros ($1.12 billion) would be far more than the 30 million euros each the European Commission previously ordered Dutch authorities to recover from U.S. coffee chain Starbucks and Luxembourg from Fiat Chrysler for their tax deals. When it opened the Apple investigation in 2014, the Commission told the Irish government that tax rulings it agreed in 1991 and 2007 with the iPhone maker amounted to state aid and might have broken EU laws. The Commission said the rulings were “reverse engineered” to ensure that Apple had a minimal Irish bill and that minutes of meetings between Apple representatives and Irish tax officials showed the company’s tax treatment had been “motivated by employment considerations.”