Normally, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) conducts a review once in every two months based on which the RBI makes policy announcements at the beginning of each of the following months viz. February, April, June, August, October, December. Deviating from this practice, in early May, 2022, Governor Shaktikanta Das announced changes in the important monetary policy instruments. Das increased the policy repo rate (interest rate at which the RBI lends to banks) or RR from 4 percent to 4.4 percent. He also increased the cash reserve ratio (percentage of a bank’s total deposits that it needs to maintain with the RBI as liquid cash; the bank does not earn interest on this liquid...
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Category: Growth & employment
2022-23 budget – avoid a debt trap
The Union Budget for 2022-23 provides for capital expenditure of Rs 750,000 crore which is a jump of over 35 percent from the budget estimate (BE) of Rs 554,000 crore for 2021-22 (revised estimate (RE) for the current year is Rs 604,000 crore which is more or less close to the BE when we exclude Rs 50,000 crore given to Air India Asset Holding Company Limited AIAHCL where the debt of now divested Air India resides). Considering that the BE for current year was 26 percent higher than the RE of Rs 439,000 crore during 2020-21, this sounds impressive. However, when seen in juxtaposition with over Rs 100,00,000 crore investment needed to build infrastructure over five years – for catapulting...
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Income inequalities – tackle the root cause
According to the Oxfam report, “Inequality Kills’’ released ahead of the World Economic Forum’s (WEF) Davos Agenda early this month, during 2021, the collective wealth of India’s 100 richest people hit a record high of Rs 5700,000 crore (US$ 775 billion) while the number of Indian billionaires grew from 102 to 142. During the pandemic, the wealth of these billionaires increased from Rs 2300,000 crore (US$ 313 billion) in March 2020 to Rs 5300,000 crore (US$ 719 billion) in November 30, 2021. At the same time, during 2021, the income of 84 percent of households declined even as the share of bottom 50 percent of the population in national wealth was a mere 6 percent. More than 46 million Indians...
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Shun ‘accommodative’ policy stance
In its bi-monthly Monetary Policy Committee’s (MPC) review announced by Governor Shaktikanta Das on December 8, 2021, the Reserve Bank of India (RBI) has kept the policy repo rate or RR ( interest rate at which it lends money to banks) unchanged at 4 percent. It has also kept reverse repo rate or RRR (interest rate on the surplus cash kept by the banks with it) unchanged at 3.35 percent. Besides, it has retained an ‘accommodative’ policy stance as long as necessary. This is the ninth consecutive time that both the policy rates have remained unchanged since August 2020. Justifying the decision, Das observed “given the slack in the economy and the ongoing catching-up of activity, especially of private consumption,...
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Fiscal splurge continues unabated
Even as the Finance Minister Nirmala Sitharaman prepares for the next budget, it is time to take stock of the fiscal scenario. During 2019-20, the revised estimate (RE) of fiscal deficit (FD) was 3.8 percent of GDP against the budget estimate (BE) of 3.3 percent. In her speech on the Union Budget for 2020-21, she had justified this in terms of the recommendation of the NK Singh Committee on review of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003 which permits breach of the target in case of “far-reaching structural reforms with unanticipated fiscal implications.” For 2020-21, she had set FD at 3.5 percent as against 3.0 percent as stipulated under the FRBM Act. Here also, she had justified...
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Asset monetization – will it take off
In her maiden budget presented to Parliament on July 5, 2019, Finance Minister Nirmala Sitharaman laid a roadmap for catapulting the Indian economy to $5 trillion by 2024-25, its most crucial component being investment in infrastructure to the tune of a mammoth Rs 100,00,000 crore (US$1.4 trillion) over a period of five years (read: 2020-21 to 2024-25). As for funding, 39% of this amount was to come from the Union Government and States each and the balance 22% from the private sector. The Centre’s contribution at 39% works out to around Rs 40,00,000 crore over 5 years or Rs 800,000 crore per annum. Against this, the revised estimate (RE) for capital expenditure during 2020-21 was Rs 439,000 crore. Even assuming...
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FDI in retail: Remove the smokescreen
A pragmatic approach would be one wherein the Modi Govt legitimises direct selling by foreign companies in Indian retail in all forms For the last couple of years, the Confederation of All India Traders (CAIT) was complaining about a blatant violation of the Foreign Direct Investment (FDI) policy and the Foreign Exchange Management Act (FEMA) by global e-commerce players like Amazon and Walmart-owned-Flipkart, etc. Addressing their concerns, the Ministry of Commerce and Industries in December 2020 asked the Reserve Bank of India and the Enforcement Directorate to take action against these global giants. Earlier this year, Commerce Minister Piyush Goyal promised to ensure that the e-commerce sector works “in the true spirit of the law”. As a follow-up, the Ministry of Consumer...
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Banning old vehicles is retrograde: Vehicle’s fitness, not age, should be the criteria for scrapping
Instead of a vehicle’s age, let’s use fitness as the criterion for determining whether it’s allowed to ply on the roads or not Whether a vehicle is fit to run or otherwise, a lot depends on how well it is maintained, its timely upkeep; this needs to be tested instead of pronouncing it as unfit merely because it has reached a certain age. (Representative image/ File photo) ———————————————————————– On March 18, 2021, the Union minister for Road Transport and Highways, Nitin Gadkari, announced a ‘voluntary’ vehicle scrappage policy to (1) mitigate vehicular pollution and (2) more than double the turnover of Indian automobile industry from the current Rs 4.5 lakh crore to Rs 10 lakh crore in a few years....
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Banning old vehicles – a retrograde order
On March 18, 2021, Union Minister for road, transport and highways Nitin Gadkari announced a ‘voluntary’ vehicle scrappage policy to (i) mitigate vehicular pollution and (ii) more than double the turnover of Indian automobile industry from the present Rs 450,000 crore to Rs 1000,000 crore in a few years. At present, there are 5100,000 vehicles which are older than 20 years, 3400,000 vehicles more than 15 years old but < 20 years and 1700,000 > 15 years, but without renewed fitness certificate. The policy architecture is founded on two pillars viz. incentivize their scrapping and dis-incentivize hanging on to them. The owner going for scrap will get 4-6% of ex-showroom price of the new vehicle as compensation; 5% discount on...
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India gets poorer, investors richer
Imagine if all of Rs 2100,000 crore under Atmanirbhar package had been distributed among 40 crore workers in the informal sector; it would have boosted demand The Corona pandemic may have brought about sharp deceleration in India’s economic growth – the sharpest ever during the last four decades or so – but has yielded a bonanza for the investors. The wealth of investors in the stock market as represented by the market capitalization of Indian equities (market value of shares multiplied by their number) almost doubled from around Rs 113 trillion (a trillion equals 100,000 crore) as on March 31, 2020 to Rs 226 trillion as on March 31, 2021. In contrast, India’s GDP at current prices declined from Rs...
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