Perils of patience PC passes battered buck

Discussion in 'Economy & Infrastructure' started by Ray, Aug 28, 2013.

  1. Ray

    Ray The Chairman Defence Professionals Moderator

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    Perils of patience

    PC passes battered buck


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    Aug. 27: The rupee sank today to an all-time low of 66.30 against the dollar — recording its biggest percentage fall in 18 years — and the sensex shed almost 600 points, prompting the Union finance minister to speak of the “difficult pitch” he inherited from his predecessor.

    Investors pounded the Indian currency and domestic stocks, apparently spooked by fears that the Food Security Bill passed in the Lok Sabha yesterday would weaken the government’s resolve to curb spending in an election year.

    The food bill, widely seen as a critical element of the UPA government’s strategy for re-election, will raise the food subsidy bill to Rs 1.3 trillion, threatening to undermine efforts to cap the fiscal deficit at 4.8 per cent of the GDP this year.

    Markets were worried that if that happened, global rating agencies would not hesitate to downgrade India’s rating to below investment grade.

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    The country could be facing more trouble on the import front as oil prices rose to a six-month high today as western powers readied a military strike against Syria.

    The rupee had started sliding on these fears in the morning and ended a skittish day of trading at 66.24 to a dollar, a fall of 194 paise, or just over 3 per cent.

    The bellwether index of the Bombay Stock Exchange plunged 590.05 points to close at 17968.08, which wiped out investor wealth of Rs 1.69 trillion.

    Finance minister P. Chidambaram cut a brave front in Parliament even as the Opposition slammed the government for failing to stem the slide of the rupee. The Indian currency has fallen 16 per cent since January and now ranks as the worst performing Asian emerging markets currency.

    “We have to be patient. We have to be firm. We have to be clear-headed…we have to strengthen the fundamentals of the economy,” Chidambaram told irate lawmakers who were quick to blame the government’s economic policies for the turbulence in the markets.

    “When I took over (as finance minister) in August 2012, I knew that I was returning to a difficult pitch,” Chidambaram said in his defence. “Fiscal deficit limits had been breached. The CAD had swelled. These were the two main challenges….”

    He said the seeds of the current crisis were sown between 2009 and 2011 — a reference to a period when then finance minister Pranab Mukherjee had cobbled an economic stimulus package to stave off the impact of the global financial crisis. However, the first stimulus package of Rs 20,000 crore was announced in December 2008 by Prime Minister Manmohan Singh, who handled finance till Mukherjee was given charge of the portfolio in January 2009.

    “We allowed the fiscal deficit target to be breached and we allowed the current account deficit (CAD) to swell,” said Chidambaram, a comment that many interpreted as a thinly veiled criticism of his predecessor’s handling of the economy.

    In 2011-12, the fiscal deficit had leapt to an unprecedented 5.7 per cent of the GDP, wrecking the government’s finances.

    Chidambaram said he had been able to cap the fiscal deficit at 4.9 per cent in 2012-13, lower than the 5.2 per cent mentioned in the revised estimates in the budget. He assured Parliament that the fiscal deficit target of 4.8 per cent of the GDP set for this financial year would not be breached.

    “I have already said that 4.8 per cent of the GDP and the absolute number that was indicated in the budget (Rs 5.42 trillion) is a red line. The red line will not be breached,” he said.

    But the bigger worry has been over the CAD, which surged to $88.2 billion in 2012-13 and has been projected at $70 billion this year. The CAD is a deficit that arises because of the gulf between monetary receipts and payouts arising from two-way trade and financial transfers.

    The CAD is usually financed out of foreign fund flows. Last year, the gaping hole was easily papered over because of strong foreign fund flows.

    This year, it is proving to be a struggle because foreign investors have been pulling out their money, disenchanted by the returns in India and scared over the financial turmoil anticipated next month when the US Federal Reserve starts winding down its $85-billion-a-month bond-buying programme. Chidambaram described the US decision as a “completely unexpected event”.

    Foreign institutional investors have dumped stocks worth $813 million in the past six trading sessions.

    If the foreign fund flows are not enough to finance the CAD, India will have to dip into its foreign exchange reserves estimated at $278 billion — which is just enough to pay for seven months of imports. The import cover ratio is the lowest in a decade.

    Global rating agencies have warned that they could downgrade India’s rating if it isn’t able to bring its twin deficits — fiscal and the CAD — under control. A downgrade will reduce India’s rating to junk bond status, complicating plans to float a sovereign bond issue that the government has said is one of the options on the table to fight its way out of the mess.

    The fiscal deficit is projected to go down to 4.2 per cent in 2014-15 and 3.6 per cent in 2015-16, the government said in its medium-term expenditure framework statement submitted to the Lok Sabha today.

    Global rating agency Fitch had warned yesterday of a rating downgrade if the country misses its fiscal deficit target.

    Standard & Poor’s is the only one of the three major credit agencies to have a negative outlook on India’s BBB-minus sovereign credit rating.

    On Monday, the cabinet committee on investments fast-tracked approvals for 36 infrastructure projects involving an investment of Rs 1.83 trillion.

    “We are trying to kick-start the investment cycle,” Chidambaram said. “Once the investment cycle picks up… I am sure it will have a positive impact on the economy and in particular on the current account deficit.”

    Perils of patience

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    Where are we heading?

    What does the future hold for us?

    Doom and gloom?

    Chidambaram claims, "I have already said that 4.8 per cent of the GDP and the absolute number that was indicated in the budget (Rs 5.42 trillion) is a red line. The red line will not be breached,”

    The poor chap does not realise that he has been lying through his teeth every time and so who will believe him?
     
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  3. Ray

    Ray The Chairman Defence Professionals Moderator

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    FM talks of 10-point plan to boost growth

    NEW DELHI: Finance minister P Chidambaram on Tuesday said the government will initiate steps to get around judicial restraints on mining and green clearances as part of a 10-point plan to get the faltering economy back on rail. The minister told Parliament that steps to boost investment, recapitalize state-run banks and spur manufacturing and exports were key elements of his strategy.

    Although the government has repeatedly talked of pushing reforms, the latest statement was seen to be directed at the markets after the rupee breached the 66-mark against the dollar and settled at a fresh low of 66.19. "What we need now is not less reforms but more reforms, not more restrictions but less restrictions, not a closed economy but a more open economy," he said.

    At the same time, Chidambaram criticized the way the UPA handled the twin deficits - fiscal and current account - between 2009 and 2011, when he was the home minister and Pranab Mukherjee was at the helm in the finance ministry. "We recognize that there are domestic factors. One of the domestic factors is that we allowed the fiscal deficit to be breached and we allowed current account deficit to swell because of certain decisions that we took during the period 2009 to 2011. It brought us growth, it stabilized the economy, we swayed off the very serious consequences of the 2008 collapse of the US economy. But, it cost us in terms of fiscal deficit and current account deficit."

    FM talks of 10-point plan to boost growth - The Times of India

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    Building castles in the air?
     
  4. Ray

    Ray The Chairman Defence Professionals Moderator

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    And what about this Mr Finance Minister?

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    'Food bill blow to public finances'



    NEW DELHI: The fiscal cost of the food security bill has heightened worries of India Inc and economists, who say that the passage of the legislation has "dealt a body blow to public finances."


    While the implementation of the legislation is unlikely to have a major impact on finances in the current fiscal year, it would pose a challenge in 2014-15. Finance minister P Chidambaram vowed that the government will stick to the fiscal deficit target of 4.8% of GDP in 2013-14 and will not cross the "red line." But India Inc, which is generally muted in their response to controversial government decisions, raised the red flag. "There are concerns. Such a large outlay at this point in time would definitely have a negative impact on the fiscal deficit. This needs to be managed," CII president Kris Gopalakrishnan said in a statement. "The larger concern is regarding the effective implementation of such a high profile and critical social agenda of the government."

    Experts cautioned that the cost of implementing the scheme does not take into account the funds needed for stabilizing farm production, storage and logistics. "It will have a large cost unless you reduce subsidies on energy or fertilizers. It will put a strain on the fisc," Ashok Gulati, chairman of Commission for Agriculture Costs and Prices told TOI.

    The government has already provided Rs 10,000 for implementation of the National Food Security Act within the Rs 90,000 crore food subsidy Budgeted for 2013-14. But, experts say the burden would start to prove heavy in the years ahead.

    "The real issue is the potential for a ballooning subsidy down the line. Thus if we assume a similar rise in economic cost (like in FY05-FY13) and a fixed selling price, the subsidy under NFSB (National Food Security Bill) could rise to Rs 1,79,000 crore in five years after the rollout," said A Prasanna, economist at ICICI Securities Primary Dealership, adding that it could touch Rs 2 lakh crore if the growth in beneficiaries is taken into account.

    "Even assuming that fertilizer and petroleum subsidies are frozen at current levels, the NFSB would lead to nearly a 50% rise in the major subsidy bill with no concomitant revenues in sight," Prasanna said in a note. Economists said the timing of the legislation also sent a wrong signal to financial markets grappling with a volatile currency and the impact of a slowing economy. "Further, when markets were perhaps hoping for more steps towards fiscal consolidation, the government has dealt a body blow to public finances in the form of NFSB," Prasanna said. "If one is charitable, one can conclude that the Indian political system is tone deaf. If not, one can conclude that the political system doesn't care. Either way the signal to financial markets is the same - forget the sound bites, there is no light at the end of the tunnel," he stated.

    'Food bill blow to public finances' - The Times of India
     
  5. hit&run

    hit&run Elite Member Elite Member

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    They have been doing since last 66 years, only faces have changed. They claim themselves neither Right nor Left but Centre but they are neither but opportunistic scamsters. This is the reason they have kept India as a mediocre state which can go down the pipe but can't thrive. Hell they are proud of it without any guilt, not to mention what they personally earn/scam doing populist politics is not a hidden truth any more.

    One should have seen their pathetic faces when opposition tore them for the groping they have done to Indian economy.
     
  6. parijataka

    parijataka Senior Member Senior Member

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    Rupee continues to fall as Chidu blames Pranab

    Rupee at 68: Sorry Chidu, you are as responsible as Pranab!
    R Jagannathan
    Firstpost.com


     
    Last edited: Aug 28, 2013
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  7. hit&run

    hit&run Elite Member Elite Member

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    Anyone other than Sonia Gandhi and Rahul Gandhi are dispensable.

    Anyone who is made scape goat is made after his consents, at time times even that is not required because they all have taken oath to be loyal for Gandhi family. Blaming Pranab Mukerjee is never going to create traction within congress-I because they all are party to it with an understanding of the phenomenon how passing blame works with innocent and short memory masses of India.

    Then they have media outlets to make sure their passing the blame game be justified.

    This is what Barkha Dutt on NDTV has been doing for last two days, asking question on behalf of Congress-I to Yaswant Shina. Clever Mr. Sinha hasn't yielded anything to her that she could nitpick phrases of him which are soft on congress-I to abruptly end her program with that catch for Congress, she tries to net every day.
     
  8. sob

    sob Moderator Moderator

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    Both Pranab Mukherjee and PC have been fudging figures to paint a rosy picture, but now the truth is out and the blame game has started. The President is a easy scape goat but the buck stops at the gates of the PM and his boss, SoniaGandhi.
     

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