Monetary measures

    Repo rate cut by 50 bps to 8%
    MSF borrowing cap raised from 2% vs 1% of banks&rsquo; NDTL
    CRR kept unchanged

Growth projections

    FY13 GDP growth projected at 7.3%
    Non-food credit growth for FY13 projected at 17%
    Deposit growth projected at 16%
    Money supply growth projected at 15%
    March 2013 inflation projected at 6.5%

Regulatory measures

    Banks&rsquo; exposure to gold loan NBFCs reduced
    Banks barred from charging pre-payment penalty on floating-rate home loans
    Unique customer identification code across banks
    Basic savings account with minimum facilities without minimum balance requirement
    Banks asked to put mechanism for early detection of distress assets


Policy in 2 minutes

Business Standard

Rate action by central banks since October 2011, when RBI indicated a pause after raising rate by 25 basis points

Global view

The decision by the Cabinet Committee on Economic Affairs to, in essence, hand over Rs 30,000 crore to Air India is among the most unjustifiable decisions in India&rsquo;s recent economic history. The very size of the package is enormous, inviting comparisons with the entire outlay of the rural employment guarantee scheme for this year; it is considerably more than what the central government spends on health. Such comparisons may appear unfair, given that the amount is to be slowly infused into the ailing carrier over eight years, rather than all at one go. It is instructive to note, though, that the government is being stingy in bailing out the Indian Railways, which would want sums much lower than these &mdash; in spite of the fact that Air India matters to, at most, a few percentage points of India&rsquo;s population, and that too the section most able to withstand the marginal increase in fares that would accompany a carrier serving a small fraction of the market dropping out.

An unjustified bailout

The government has attracted considerable criticism for making mistakes in the economic data it puts out and, some months ago, Reserve Bank of India Governor D Subbarao alluded to the wide variations between provisional and actual numbers that made monetary policy-making difficult. But the central bank is hardly free of the same problem. The RBI bulletin, a monthly publication, went off track by stating that the outstanding number of credit cards declined by close to 2 million in January over December. An enquiry from this paper revealed that instead of a decline, the number had actually increased by 0.07 million and the mistake was subsequently corrected on the website.

Et tu, RBI

The tax proposals by the finance ministry in the Budget have irked industry so much that no criticism of the system is enough for it. At a conference to announce the new joint venture partner of Max New York Life recently, New York Life CFO Michael Sproule said, &ldquo;There are complicated tax issues involved here [in India]&rdquo;. To this Max India Chairman Analjit Singh said, &ldquo;Michael is extremely benevolent in calling our tax regime only complicated.

A tax complex

Here&rsquo;s a creative way of getting round a regulator&rsquo;s advisory. Last week the Directorate General of Civil Aviation issued a directive to travel portals saying they could not publish air fares without specifying the airline (a practice known as &ldquo;opaque air fares&rdquo;). The objective of the directive was, of course, to insulate passengers from unwittingly booking a journey with troubled Kingfisher Airlines, which has been cancelling flights at random. So travel portals decided to interpret the directive in that light and continue with opaque air fares but with an important disclaimer: &ldquo;These fares are not on Kingfisher Airlines&rdquo;.

No-fly zone

Asish K Bhattacharyya&rsquo;s article &ldquo;Independent directors: Are they lame ducks?&rdquo; (April 16) articulates well the issues concerning the functioning of independent directors (IDs). However, his point that IDs are expected to protect the rights of minority shareholders is incorrect. Every director&rsquo;s responsibility is exclusively towards the company and its shareholders in general. An ID is not a representative of minority shareholders; he is expected to protect the company from such actions of promoters that might not be in the best interest of the company. Bhattacharyya has missed the most important challenge in the set-up. An ID is normally selected by the promoter. It is quite unlikely that the promoter will select a person about whom he knows nothing. Similarly, given the onerous legal risks run by a director, no sensible person will accept directorship offered by a total stranger. This affinity or a prior relationship can impair the independence of the ID.

Letters: Independent director?

Apropos the report &ldquo;Year-end rush sees Rs 2 lakh cr flowing into banking system in one week&rdquo; (April 14), the increase in deposits and loan growth can be attributed to window dressing. Bankers dress up their balance sheets in the last week of every fiscal to showcase an impressive record. There is, in fact, a double counting aspect to deposits growth; a major portion of it has come from the loan book. There are customers who are willing to oblige their bankers by helping them build up total business growth (deposits plus advances).  These deposits or loans vanish after the first week of April. There is a small cost that &ldquo;helpful&rdquo; customers have to pay (the difference between lending rate and deposit rate) but banks make up for it by offering concessions in other services during the year. Such bloated total business heavily dents profit growth.

Letters: Window dressing, again

This refers to the edit &ldquo;Infosys gets a jolt&rdquo; (April 16). The IT sector, like defence and aviation, should come in the high risk, high profit category. And, thus, policy guidance for it needs to factor in phases like the one in which Infosys is today. The service industry and the country have been over jubilant after the initial gains made during the formative years.

Letters: Infosys must tide over

The recent arrest of Ambikesh Mahapatra, a professor at Kolkata&rsquo;s Jadavpur University, for emailing a comic strip lampooning West Bengal Chief Minister Mamata Banerjee, highlighted glaring flaws in the laws that made the arrest possible &mdash; the Information Technology (IT) Act, its amendments, and the Rules framed for its implementation. The strip was an innocuous mash-up that combined stock photographs of Ms Banerjee and Trinamool MPs Mukul Roy and Dinesh Trivedi with dialogue from Satyajit Ray&rsquo;s children&rsquo;s classic&nbsp;Sonar Kella. It was printed in the mainstream press and reproduced on several television channels without any fears that doing so would be actionable.

The IT Act's hammer

My bank has raised the fee applicable on certain services. Also, recently they charged me a fine for not doing any transactions in a particular month. While opening the account, I was informed of all charges. But banks seem to change rules according to their whims and fancies and not inform the account-holders.

Banking: Prashant Joshi

How did the retrospective amendment and other intrusive changes in tax law proposed in this year&rsquo;s Budget come about? According to North Block insiders, the opposition uproar over black money provided Central Board of Direct Taxes officials a perfect reason to press for changes that give them unprecedented discretionary powers. The old reasoning that fear induces evaders to pay was set out before senior bureaucrats and the finance minister before the Budget &mdash; and the rest was easy since these senior officials and the finance minister also understood that resisting such suggestions could lay them open to doubt.

Chain reaction

India&rsquo;s &ldquo;demographic dividend&rdquo; is much talked about. As Table 1 shows, there is a distinct youthward bulge in India&rsquo;s age distribution, and as time goes by these young people are entering the workforce. However, as Table 2 shows, this is a geographically concentrated effect. The old BIMARU states &ndash; Bihar Madhya Pradesh, Uttar Pradesh and Rajasthan in particular &ndash; have populations growing at well above the national average.

StatsGuru: 16-April-2012

This refers to the aptly headlined edit &ldquo;Death of data discipline&rdquo; (April 13). Policy decisions based on inaccurate data can only yield bad results. This has been highlighted by none other than Reserve Bank of India Governor D Subbarao when he stated, in one of his speeches in 2009, that the weakness in the country&rsquo;s data system are posing challenges to monetary policy formulation. The expression &ldquo;garbage in, garbage out&rdquo; seems to apply to statistics relating to almost every aspect of the Indian economy &mdash; be it exports, imports, inflation, poverty levels or employment levels.

Letter: Data revival

It will soon be two years since petrol was decontrolled, but few will happily celebrate this second birthday. The government-controlled oil companies that dominate the fuel market continue to sell petrol way below the market-determined price, exactly as was the case in the pre-decontrol era. The promise made then to decontrol diesel prices and allow periodic adjustment in prices of kerosene and liquefied petroleum gas or LPG for domestic use is yet to be fulfilled. Worse, political interference in pricing of petrol has not been discontinued, causing &ldquo;decontrol&rdquo; to be viewed as something as a farce. The policy change in June 2010 should have meant that some margins could be made on the sale of petrol, but state oil marketing companies have continued to lose money sharply through retail sales. Oil companies are upset that they have to make huge losses on petrol sales &mdash; which go uncompensated, unlike for the three controlled petroleum products, diesel, kerosene and LPG.

A bullet still unbitten

The Supreme Court verdict upholding the constitutional validity of the Right to Education (RTE) is welcome. But the exemption of minority-run unaided private schools is controversial. This will lead to institutions rushing to get themselves listed under this category. Another issue is that the RTE may deter private players from starting new schools. Thus, in case of a consequent shortage, the government should step in to ensure there are enough schools to accommodate all children.

Making RTE work

In a classic case of a textbook approach, we keep fighting inflation by increasing interest rates. The efficacy of such a strategy, however, is lost beyond a point. Rising interest rates makes us a stagnant economy and lowers GDP growth.

Letter: ...but growth can't

Your edit &ldquo;RBI&rsquo;s hard choice&rdquo; (April 12) rightly emphasises that the time is not ripe for a rate cut. This counters the general euphoria in the financial markets that expect a rate cut &mdash; the first in three years. There is a small minority that holds a contrarian view and so Reserve Bank of India (RBI) governor must be under tremendous pressure to succumb to general expectations and announce a small 0.25 per cent cut in the rates, albeit grudgingly. However, the economy is not ready for this since inflation is still high and nowhere near the comfort zone. Moreover, there is no indication of oil prices softening. The latest Asian Development Bank report indicates that most Asian economies are similarly placed as India and are refraining from a rate cut for the time being. The growth-versus-inflation conundrum is likely to haunt RBI governor for sometime at least. It will be interesting to see how steadfastly he will defend his conviction.

Letter: A rate cut can wait

As rupee weakened against the dollar in 2011-12, RBI sold dollars to arrest the fall which in turn depleted its foreign exchange reserves.

Rupee's weak show

Railway Minister Mukul Roy may have been pressuring the bureaucrats in his ministry to find alternative means of raising funds, after he rolled back passenger fare hike mooted by his predecessor. But the minister has ready ideas when it comes to tackling the 14,896 unmanned railway crossings. In a recent meeting with the Railway Board, Roy proposed linking the railway crossings elimination initiative with the National Rural Employment Guarantee Scheme (NREGS), considering the huge cost it involves. In his view, the infrastructure needed to eliminate these crossings, such as road over bridges, etc, could be part of &ldquo;asset creation&rdquo; under the NREGS and thereby, the railway could save on the labour cost &mdash; as labour could be paid through the rural development ministry&rsquo;s NREGS. He is also planning to advocate to his fellow Members of Parliament that they should chip in with their Member of Parliament Local Area Development funds to finance these conversions.

Any takers, please?

Billboards across the Delhi skyline exhort voters to &ldquo;be Dabangg, be a voter&rdquo;. The odd spelling of the Hindustani word for &ldquo;powerful&rdquo; clearly indicates the appeal&rsquo;s connection to the successful 2011 movie starring Salman Khan. By voting, the Election Commission wishes to imply, the capital&rsquo;s citizens can seize control of their city&rsquo;s political landscape in a suitably Salman-esque manner. The EC has argued that its publicity campaign was responsible for the record numbers of voters who turned out to vote in the recent round of state Assembly elections, and clearly intends to try for a repeat. Unfortunately, it is not exactly being assisted in this noble endeavour by the political parties contesting in Sunday&rsquo;s election to Delhi&rsquo;s three new municipal corporations.

Business Standard

Business Standard

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