Japan-China Dispute Over Senkaku Islands

IndusView Chairman Bundeep Singh Rangar comments on the Japan-China dispute over Senkaku Islands, French PM Jean-Marc Ayrault's leeway to Greece for austerity targets, Gazprom Neft's Arctic drilling delay over safety concerns, burgeoning electricity costs of Internet servers and negative feedback on author JK Rowling's foray into non-children fiction.

The Reserve Bank of India Maintains Key Interest Rate; Drops CRR

   IndusView, Monday September 17 (London): The Reserve Bank of India (RBI) today kept interest rates unchanged, despite last-minute hopes for a reduction in the wake of policy changes announced by India’s government last Friday. It did, however, reduce the core reserve ratio requirement of Indian banks by 0.25% that’s expected to increase lending as new liquidity is ushered into the banking system.

           The RBI left its benchmark repo rate at 8% even as it cut the cash reserve ratio for banks to 4.50% from 4.75% that's could see as much as $3 billion available in new credit by banks. Wholesale price inflation rose to 7.55% in August and consumer price inflation was about 10%.

         "India’s central bank continues to use monetary policy to fight inflation even at the cost of growth,” said Bundeep Singh Rangar, Chairman of London based advisory firm IndusView. “While the diesel price increase announced by the government was a step in the right direction to cut the budget deficit, a key requirement by the RBI for it to cut rates, ironically, it also could have an inflationary effect that is the RBI’s key enemy.”

          “Inflation may rise due to the first increase in diesel prices in 14 months and a rise in the price of commodities as the U.S. steps up monetary easing,” added Rangar.

In the biggest economic policy push, more than halfway through Prime Minister Manmohan Singh’s second term, The Indian Prime Minister introduced the long awaited reforms allowing foreign direct investments (FDI) in multi-branded retail and aviation sectors on Friday. Proposals to allow overseas retailers like Wal-Mart Stores Inc. and Carrefour SA to own 51% of supermarket chains, shelved last year after alliance partners threatened to revolt, have been reinforced now.

India has also announced a 14% rise in the price of diesel, the first increase in more than one year, in an attempt to cut the country's budget deficit.

“The RBI has been reluctant to ease rates without the government doing its part to fix its budget deficit,” said Rangar. “The diesel rate hike was the minimum needed to get the RBI to act.”

  The RBI increased interest rates a staggering 13 times since March 2010 in one of the most aggressive monetary tightening by any major central bank around the world. It succeeded in bringing down inflation to about 7% from a high of 10% in Sept. 2011. Still, inflation based on the Wholesale Price Index (WPI) increased to 7.55% in August from 6.87% in July. That’s above the RBI's 5%-6% target.

  The RBI’s focus on inflation is despite slowing GDP growth that slipped to 5.3% in the fourth quarter of 2011-12, the lowest in nearly nine years, following poor performance of the manufacturing and farm sectors. As a result, GDP growth for the full year 2011-12 was down to 6.5% from 8.4% in 2010-11 with dismal predictions for 2012-13 at annual GDP growth below 6%.

The government also allowed foreign airlines to buy stakes of up to 49% in local carriers, a much-awaited policy move that provides a potential lifeline to the country's debt-laden airlines such as Kingfisher and open fresh sources of funding for the likes of SpiceJet Ltd, Go Airlines Ltd and Jet Airways Ltd.

The move had been strongly opposed by tens of thousands of small businesses and corner-shops, which fear they will be put out of business. But this latest move has already been welcomed by economists and industry, who say it will transform the way Indians shop and boost the country's flagging economy.

 According to the RBI, maintaining interest rates alone won’t suffice to reignite the investment cycle. With limited fiscal and monetary space available for direct stimulus to domestic growth, the government also needs to reduce spending by cutting subsidies and allocate resources instead to boost public capital expenditure.

 The RBI added that structural impediments impacting business confidence needed to be addressed immediately and has previously listed issues for the Manmohan Singh government to take care of such as mining and infrastructure to stimulate growth.

           Prime Minister Manmohan Singh is the only Prime Minister since India’s founding Prime Minister Jawahar Lal Nehru to return to power after a full five-year term in office. Singh’s liberal economic policies have rolled back much of Nehru’s socialist economic construct that saw dismal growth rates for nearly five decades of post-independent India.

FDI Liberalization to Boost Retail, Airlines, Banks and Property Sectors in India

       IndusView, Sunday September 16 (London): The Indian Prime Minister introduced the long awaited reforms allowing foreign direct investments (FDI) in multi-branded retail and aviation sectors on Friday.

In the biggest economic policy push, more than halfway through Prime Minister Manmohan Singh’s second term, proposals to allow overseas retailers like Wal-Mart Stores Inc. and Carrefour SA to own 51% of supermarket chains, shelved last year after alliance partners threatened to revolt, have been reinforced now.

The government will also allow foreign airlines to buy stakes of up to 49% in local carriers, a much-awaited policy move that provides a potential lifeline to the country's debt-laden airlines such as Kingfisher and open fresh sources of funding for the likes of SpiceJet Ltd, Go Airlines Ltd and Jet Airways Ltd.

          It’s a bold move after months of fighting high inflation, a sluggish economy and a threat of having its credit rating downgraded.,” said Bundeep Singh Rangar, Chairman of London-based IndusView. “It also put the ball back in the RBI’s court to do its part now to bolster India’s sputtering economic growth.”

“It could certainly help retail, airlines, bank and real estate industry sectors,” said Rangar. “More FDI will help big over-leveraged Indian retail companies like Pantaloon Retail and Future Group raise money and reduce debt. It will also help Indian banks, which are mostly public sector ones, with high exposures to Indian retailers, rescue their loans from turning into non-performing assets. And it will help commercial real estate prices stabilize and lift sentiment in the depressed realty markets of big Indian cities to which FDI in retail is currently restricted.”

India’s growth has been slowing and hit a nine-year low of 5.3% in the March quarter, partly because of a global slowdown as well as weaker demand and investment activity at home. During April-May 2012 too, FDI in India declined by 59% year-on-year to $3.18 billion, reflecting the impact of slowing global economy.

           India has announced a 14% rise in the price of diesel, the first increase in more than one year, in an attempt to cut the country's budget deficit.

          “The RBI has been reluctant to ease rates without the government doing its part to fix its budget deficit,” said Rangar. “The diesel rate hike was the minimum needed to get the RBI to act.”

On Monday, the Reserve Bank of India’s review of its monetary policy will be keenly watched for any changes to its key lending rates.

           Together with this increase in diesel prices, the decisions announced by Commerce Minister Sharma in New Delhi mark a sustained effort to ease criticism of Singh’s administration. The government has been assailed by two years of corruption allegations, while its agenda has been criticized by opposition parties and coalition allies alike.

Late last year, the cabinet had also allowed 51% Foreign Direct Investment or FDI in multi-brand retail, but suspended its plans after Ms Banerjee, whose Trinamool Congress is second largest constituent in the ruling United Progressive Alliance (UPA) and opposed to FDI, threatened to leave Singh’s Congress-led UPA.

          The move had been strongly opposed by tens of thousands of small businesses and corner-shops, which fear they will be put out of business. But this latest move has already been welcomed by economists and industry, who say it will transform the way Indians shop and boost the country's flagging economy.

            Prime Minister Manmohan Singh is the only Prime Minister since India’s founding Prime Minister Jawahar Lal Nehru to return to power after a full five-year term in office. Singh’s liberal economic policies have rolled back much of Nehru’s socialist economic construct that saw dismal growth rates for nearly five decades of post-independent India.

India GDP Data Better Than Expected for This Quarter

IndusView, Friday August 31 (London): New economic growth figures have been announced today in India showing the economy grew 5.5% in the quarter, driven by a rebound in construction and financial services, and slightly better than the 5.3% posted in the three-month period ending in March.

Other Asian economies, meanwhile, are posting lower growth rates this year. China, for instance, is projected to grow by slower 8.2% this year from 9.2% last year. Indonesia is expected to decelerate to 6.1% this year from 6.5% in 2011, while Malaysia is forecast to slow down to 4.2% from 5.1%. The forecast for South Korea is 3%, down from last year’s 3.6%.

“The GDP numbers were better than expected, which does alleviate some pressure from the Reserve Bank of India to cut interest rates at its next month’s meeting,” said Bundeep Singh Rangar, Chairman of London-based advisory firm IndusView. “Still, reviving growth is a top priority as global economic conditions remain weak and multinationals are wary of India due to policy flip flops in recent months.”

There is still a strong need for a stable policy, taxation and investment regime to attract foreign capital. The 2012-13 Budget introduced a controversial retrospective tax provision in the wake of Supreme Court judgment quashing the tax demand on Essar-Vodafone deal.

On January 2012, India's Department of Industrial Policy and Promotion, Ministry of Commerce and Industry (DIPP) revised its position on single brand retail trading. Multi-brand retailers are still prohibited from foreign direct investment into the market, even in partnership.

Amid uncertainty over global economy, Foreign Direct Investment (FDI) in India registered a growth of 34 per cent to $46.8 billion in 2011-12 against $34.8 billion in the previous fiscal. Inflation based on Wholesale Price Index (WPI) declined to 6.87% in July from 7.25% in June. It is still, however, above the RBI's 5%-6% target.

The central Reserve Bank of India has also warned the country's economic prospects are unlikely to improve in the near-term, due to high inflation, the lack of reform and the impact of poor monsoon rains on farm output.