As the government staggers from one corruption-related scandal to another, I am reminded of the title of an article I read some years ago, which characterised India as “a flailing state”. The epithet seems increasingly appropriate. It certainly applies to the economic policies of recent years which have ensured the collapse of economic growth from 9.3 per cent in 2010-11 to five per cent in 2012-13, the yawning external imbalance with the current account deficit (CAD) officially expected to exceed five per cent of GDP in 2012-13 and consumer price inflation in double digits for the fourth successive year.

Faced by such ugly official data, the government’s response – from the prime minister down – has been to speak soothingly about the worst being behind us and predict a return to eight per cent economic growth in three years and a reduction of the CAD to 2.5 per cent of GDP in a similar period. For this year, 2013-14, the finance ministry projects (via the Economic Survey, 2012-13) a growth revival to 6.1-6.7 per cent, a prediction dutifully reflected by last fortnight’s ‘Review of the Economy, 2012-13′ by the Prime Minister’s Economic Advisory Council (PMEAC) which foresees GDP growth of 6.4 per cent. The Reserve Bank (RBI), perhaps the most professional of extant official economic agencies, offered a more bearish forecast of 5.7 per cent in its Monetary Policy Statement, 2013-14 last week. >> Read More

India has officially lowered its expectations of investment from foreign stock investors, which could translate into a tepid year for Indian stocks.

A few days after Indian Finance Minister P. Chidambaram returned over the weekend from a trip to the U.S. and Canada to woo investors, the government said Tuesday that it expects fewer dollars coming into Indian stocks this year.

C. Rangarajan, chairman of the Indian Prime Minister’s Economic Advisory Council told reporters on Tuesday that India expects foreign institutional investors to invest around $18 billion in the country for the financial year that started April 1. This would be 25% lower than their investments in the previous year that ended March 31.

Foreign institutional investors are a key driver of the Indian stock market.

Last year, overseas investors poured $24 billion into Indian stocks, sending the benchmark Sensex 26% higher and making Indian stocks one of the top five performers globally.

The Prime Minister’s Economic Advisory Council didn’t specify why it expects foreign inflows to cool, but we can make an educated guess.

India’s economy is growing at its slowest pace in nearly a decade – an expected 5% for the year through to March 31. The government hopes growth to accelerate to 6.4% for the year ending March 31, 2014.

Meanwhile, there is political uncertainty given the national elections which must happen before May 2014. This makes investors wary.

In addition, global investors have lately been finding better investment options elsewhere. Japan, for example, has become an investor favorite because a recent devaluation of its currency is expected to help boost the country’s export-driven economy, according to a  Deutsche Bank report earlier this week.

India is aware that it has its task cut out even to meet its target of getting $18 billion from foreign stock investors. “Maintaining this level will be mostly dependent on domestic policy stance and growth conditions,” the Prime Minister’s Economic Council said in its report Tuesday.

The government plans to hold the next round of oil and gas block auctions later in 2013 after it puts in place a revenue-sharing regime.

About 68 oil and gas blocks are likely to be up for bidding in the 10th round of the New Exploration Licensing Policy (Nelp).

Petroleum ministry officials said the Cabinet note on replacing the existing cost-recovery mechanism with revenue sharing would be discussed soon. >> Read More

 Differences have cropped up between the Reserve Bank and the finance ministry over the guidelines for new banking licences, which are likely to be announced within the next fortnight.

Even as the RBI has the final say in framing the guidelines, it has been holding consultations with the finance ministry over the last few weeks to iron out the differences, but without much luck.

The Reserve Bank wants the rules to be framed in a way that large corporate houses and real estate giants are not able to corner these licences as their business interests may clash with the prudential norms needed to run banks.

The finance ministry is firm in its stand that the norms should not keep corporate houses out, but rather set up a barrier between owners and banking operations. >> Read More

The Reserve Bank should give preference to the non-corporate sector for new bank licences, Prime Minister’s Economic Advisory Council ChairmanC Rangarajan said. 

“It is possible for the Reserve Bank to start with initially non-corporate business and find out whether there are suitable applicants and thereafter proceed to look at the other applicants,” he said in an interview. 

The RBI is in the process of finalising the guidelines for giving new bank licences after Parliament approved Banking Laws (Amendment) Bill last month. 

The central bank, Rangarajan said, “should look at various types of financial institutions that are available currently and decide”. 

“…. many of the strong private sector banks today have been at one time or other in the financial system. They can look at it first and look at the other later on,” he said.  >> Read More

Calling himself a “green horn” at the time of joining Reserve Bank as its Governor over four years ago, Duvvuri Subbarao has now set a goal to demystify the ‘black box’ image of RBI and make it a role model for central banks globally.

“For an outsider looking in, the RBI is like a black box. Everyone knows people in there do important things, but cannot figure out the connection between that and their lives”

“It is important that we demystify the RBI so that people know enough to demand accountability from us,” Subbarao said in a new year message to his colleagues, while listing out his priorities for the central bank at an institutional level in

2013 and beyond.

“The quid pro quo for autonomy is accountability. We must be sensitive to the fact that we are a group of unelected technocrats handling important public policy and we should be able to explain and defend our policies and, where necessary, learn from the feedback we get,” he said. >> Read More

The Oil Ministry has withdrawn a note it had circulated to the members of a ministerial panel opposing hike in price of gas produced by Reliance Industries, as the Rangarajan Committee is examining pricing of the fuel.

In a surprise move, the Ministry had on October 10 moved a note to the Empowered Group of Ministers (EGoM) opposing a hike in price of RIL’s KG-D6 gas before April 2014 even though the company itself was not seeking a revision before that date.

“Yes, the note to EGoM has been withdrawn,” a top ministry official said.

This was done in view of panel headed by Prime Minister’s Economic Advisory Council Chairman C Rangarajan being asked to suggest “structure and elements of the guidelines for determining the basis or formula for the price of domestically produced gas, and for monitoring actual price fixation.” >> Read More

In an hour-long speech dominated by plainspeak backed by hard facts, a member of the Prime Minister’s Economic Advisory Council (PMEAC) criticised the Central government for its flawed approach to economic policies and the private sector for its failure to speak against such approach, apart from taking a dig at economists as well.

He started off by putting the recent reforms in perspective. “These reforms only have a symbolic value than real value. They did of course help in bringing in foreign institutional investors (FIIs) that stabilized the rupee and enabled to keep a check on inflation,” said M Govinda Rao, at a seminar on “Economic Reforms: Challenges and Opportunities for 
India Inc.” organized by the Bangalore Chamber of Industry & Commerce on Friday. Govinda Rao is also Director of the National Institute of Public Finance and Policy, New Delhi.

He flayed the approach to reforms and said, “Reforms in India have been gradualist and more like a band-aid, there hasn’t been systematic reforms. In reforms, you need to predict how economic agents will behave and change the course.”

He traced the genesis of burgeoning fiscal deficit to the Union Budget of 2008 and the subsequent policies that led to the deficit increasing from about 2.5 per cent of GDP in 2008 to worrisome levels (5.9 per cent in 2011-12). He doubted the Centre’s ability to contain it at the targeted 5.1 per cent this fiscal. >> Read More

The government today said fiscal deficit — gap between expenditure and revenue – could overshoot the Budget target and touch 5.3 per cent of the GDP this financial year.

“I dont think we will be able to contain fiscal deficit to our Budget plan of 5.1 per cent (of GDP). It could be 5.2 to 5.3 per cent, which is doable,” Department of Economic Affairs Secretary Arvind Mayaram said.

The government in its 2012-13 Budget had estimated the country’s economic growth in the range of 7.6 per cent and fiscal deficit at 5.1 per cent.

In the first four months of 2012-13, fiscal deficit has already crossed 50 per cent of Budget Estimate of Rs 5.13 lakh crore, or 5.1 per cent of GDP.

According to the Prime Minister’s Economic Advisory Council (PMEAC), India’s Gross Domestic Product (GDP) is likely to be 6.7 per cent this fiscal given the economic slowdown.

The Finance Ministry had recently assured the industry that it would soon come out with steps to contain fiscal deficit.

Besides other reasons, subsidy outgo on petroleum products is putting pressure on the government finances.

While the government recently hiked diesel prices and decided to cap the suplly of subsidised LPG cylinders to domestic consumers, high crude oil prices in the international markets continue to remain a concern.

To a related query, Mayaram said, “I don’t know what the movement will be of petroleum prices”.

The international crude oil price for Indian Basket was USD 108.03/barrel (bbl) yesterday, calculated by a wing of Oil Ministry.

The petroleum ministry and state oil firms plan to raise diesel and petrol prices next month ascrude oil rose to a three-month high last week anddiesel consumption has soared because of the weak monsoon and poor power supply, government and industry officials said.

State oil firms are putting pressure on the ministry to act, particularly after Indian Oil Corp recently reported the highest-ever quarterly loss by an Indian company. Total quarterly loss of state refiners exceeded 40,000 crore.

Diesel is expected to be costly by 4-5 a litre and petrol rates could be raised by 3 a litre, officials said. “Price hike is inevitable, but the timing and quantum of hike would be politically decided after the monsoon session,” an official said, requesting anonymity. The monsoon session of Parliament will end on September 7.

The government may spare kerosene but raise cooking gas prices between 50 and 100 and restrict the number of cylinders per household in a year to minimise revenue loss on fuels, which is estimated over 165,000 crore for current fiscal year, the official said. Rates of diesel, cooking gas and kerosene have been frozen for about 14 months. >> Read More