As soon as Mr. Raju announced the RESIGNATION with admission of FRAUD, SATYAM stocks as well as market started crumbling down. Finally markets closed almost 7% (both BSE & NSE) and SATYAM closed with 78% down (Rs. 140 down from its previous closing 179).
Here is link for Mr. Raju's resignation letter which started a storm in financial markets....
http://www.outlookindia.com/specialfeature/Satyamletter.pdf
Wednesday, January 7, 2009
Tuesday, January 6, 2009
Importance of Private Players in the Country's Economy
Today, I read two articles THE DEVIL IS NOT REALLY IN RETAIL by Kishore Biyani & PRIVATE SECTOR NEEDS TO BE MORE AGILE by Prakash Nedungadi in ECONOMIC TIMES. Both the articles talk about the importance of the private players/private consumption in terms of domestic demand boosting which forms the major part of our GDP.
Although most of college mates might read ET, I am posting some highlights of the both the articles for the benefit of my other readers (not from IBA & non readers of papers). Interested people can browse through through the paper for full articles.
So here we go...
THE DEVIL IS NOT REALLY IN RETAIL by Kishore Biyani
Here Kishore Biyani talks about how Chinese package is different from any other country's package, how they are overcoming the global slowdown by boosting the domestic demand. Here are his some thoughts.
China & Taiwan, on the other hand, decided to give back some money to its citizens to spend by themselves, thereby creating demand for products in local markets, which in turn could boost economic activity and job creation.
Under a new policy announced in December 2008, the island’s 23 million people regardless of age or wealth were given 3,600 Taiwan dollars or around $165 as shopping vouchers. “The programme is aimed at boosting the economy and is expected to contribute to a 0.64% increase in 2009 GDP,” explained Premier Liu Chao-shiuan.
The core belief behind this programme was government spending is not effective due to leakages and delay in execution, whereas private spending is far more efficient in boosting economic activity, creating demand for goods and services and raising employment levels. The idea of the voucher and stimulating growth through private consumption has been powerful enough for even the governments of Japan and Germany to consider such a move.
In India, private consumption demand has been the key driver of economic growth, with private final consumption expenditure contributing over half of India’s growth in the past decade. In fact, almost 68% of India’s GDP is accounted by private consumption, as against 39% in China, making the case for stimulating the Indian economy by growing private consumption far stronger than anywhere else in the world.
PRIVATE SECTOR NEEDS TO BE MORE AGILE by Prakash Nedungadi
Here he talks about how the private players not doing their moral responsibility of job. How the problems are getting bigger due to irresponsibility by these players. I am not posting those reasons for problems but I am posting the solutions he has mentioned in his articles as we want to be part of solution rather being part of problem!!!
First of all, organisations should hold on to people...retrain, redeploy, re-wage, but do not lay-off! Secondly, reduce prices substantially and immediately wherever possible. A 20-25% drop in prices would initially appear to contract the economy. In fact, it will result in a boost in real spending, start fuelling investment and spur sustainable growth.
Thirdly, let competitors, consumers, suppliers and other stakeholders know what you are doing transparently and, understanding the bigger picture, collaborate much more strongly.
Fourthly, innovate — fast! This is the secret of all step-change in demand growth and wealth-creation. Finding a different way, a better way is more important than ever, not cutting down innovation spends as many seem to be doing.
Although most of college mates might read ET, I am posting some highlights of the both the articles for the benefit of my other readers (not from IBA & non readers of papers). Interested people can browse through through the paper for full articles.
So here we go...
THE DEVIL IS NOT REALLY IN RETAIL by Kishore Biyani
Here Kishore Biyani talks about how Chinese package is different from any other country's package, how they are overcoming the global slowdown by boosting the domestic demand. Here are his some thoughts.
China & Taiwan, on the other hand, decided to give back some money to its citizens to spend by themselves, thereby creating demand for products in local markets, which in turn could boost economic activity and job creation.
Under a new policy announced in December 2008, the island’s 23 million people regardless of age or wealth were given 3,600 Taiwan dollars or around $165 as shopping vouchers. “The programme is aimed at boosting the economy and is expected to contribute to a 0.64% increase in 2009 GDP,” explained Premier Liu Chao-shiuan.
The core belief behind this programme was government spending is not effective due to leakages and delay in execution, whereas private spending is far more efficient in boosting economic activity, creating demand for goods and services and raising employment levels. The idea of the voucher and stimulating growth through private consumption has been powerful enough for even the governments of Japan and Germany to consider such a move.
In India, private consumption demand has been the key driver of economic growth, with private final consumption expenditure contributing over half of India’s growth in the past decade. In fact, almost 68% of India’s GDP is accounted by private consumption, as against 39% in China, making the case for stimulating the Indian economy by growing private consumption far stronger than anywhere else in the world.
PRIVATE SECTOR NEEDS TO BE MORE AGILE by Prakash Nedungadi
Here he talks about how the private players not doing their moral responsibility of job. How the problems are getting bigger due to irresponsibility by these players. I am not posting those reasons for problems but I am posting the solutions he has mentioned in his articles as we want to be part of solution rather being part of problem!!!
First of all, organisations should hold on to people...retrain, redeploy, re-wage, but do not lay-off! Secondly, reduce prices substantially and immediately wherever possible. A 20-25% drop in prices would initially appear to contract the economy. In fact, it will result in a boost in real spending, start fuelling investment and spur sustainable growth.
Thirdly, let competitors, consumers, suppliers and other stakeholders know what you are doing transparently and, understanding the bigger picture, collaborate much more strongly.
Fourthly, innovate — fast! This is the secret of all step-change in demand growth and wealth-creation. Finding a different way, a better way is more important than ever, not cutting down innovation spends as many seem to be doing.
Monday, January 5, 2009
IE Editorial: Capital Ideas By lla Patnaik
Today when I was reading this article, CAPITAL IDEAS from Mr. Patnaik, I thought its good article share with you guys, where in he talks about the Monetary Policies with respect to Inflation. The way he analyzed the things is very educative. I am posting part of the article, interested people can read from Indian Express. Here is what he says...
First, there is a case for RBI to cut rates even further. RBI can go all the way to a zero short-term interest rate, as some other central banks have done. To understand the case for cutting rates let’s focus on the real rate — the short-term policy rate minus the expected Inflation rate. What do current trends show? WPI inflation, based on point-on-point calculations using seasonally adjusted data, was above 8 per cent (annualized) for each month from November 2007 till July 2008 which was a high inflation environment. But in September, WPI inflation was about 0, and in October it was -7.4 per cent, on an annualized basis.
Suppose we think that in the coming three months, annualised inflation will be -5 per cent. In this case, a short-term interest rate of +5 per cent implies a real interest rate of 10 per cent. This is a highly restrictive stance of monetary policy which is not appropriate in a downturn. A scenario of -5 per cent inflation with even a 0 per cent policy rate giving a high value of the real rate at 5 per cent is tight monetary policy. RBI needs to continue aggressively cutting interest rates.
However, unfortunately, while high interest rates can do damage, a sharp easing of interest rates is not going to have a large or immediate impact on the economy. The way monetary policy works is that the central bank makes changes to the short-term price of money. Through the “monetary policy transmission” these decisions reach out and influence the entire economy. This process requires the BCD (Bond Currency Derivative) nexus, the intricate system of markets through which small changes in the policy rate propagate out to influence rates across the economy. Unfortunately in India, the BCD nexus is basically malfunctioning. The Patil, Mistry and Rajan reports have recommended actions for creating a BCD nexus. But as of today, not many of these recommendations have been implemented.
As a consequence, monetary policy is largely ineffective. So while RBI should cut rates further, we should not be particularly optimistic about its effectiveness. In general, banks are a poor source of financing in a downturn; they find it difficult to absorb the shocks that come from companies going bankrupt. Further, banks in India generally lend to companies that are doing well. They do not have the expertise for examining companies which are presently facing difficulties but have the genuine strengths to thrive in the long term. This is usually the domain of private equity (PE) firms.
The first is the removal of capital controls on NRIs. NRIs are Indian citizens, holding Indian passports. They are the vanguard of India’s globalisation. It is in India’s interest to give them a welcoming environment where they are able to bring money into the country. Today many NRIs actually think of India as a safe harbour. Putting controls on NRIs bringing money into India is bad policy in general, but at a time like this, it is absurd policy. RBI’s response of tinkering with NRI deposit rates is woefully inadequate.
The second area of urgent action is the capital controls imposed on private equity and venture capital funds. These are investors capable of taking a close look at firms and injecting risk capital into good businesses while monitoring the outcome. In a downturn their role is particularly important. While banks will not take the risk of lending to poorly performing businesses, such companies offer good investment opportunities to PE firms and to those who believe in India’s long-term growth story. Of course, the role of bank finance for working capital will stay, but PE funding can be crucial for saving many firms that might begin to be distressed in the coming year.
The third area for rapid action is the corporate bond market. If banks are not willing to lend to companies due to their own constraints, there is a case for disintermediating banking and allowing individuals to buy corporate bonds. The regulatory framework must encourage this. Along with that, to help individuals, mutual funds and others lending to companies hedge their credit risk, a credit default swap market should be developed; in such markets, one can buy insurance against a company going bankrupt. We must not repeat the mistakes of other countries; in India, such a market should be well-regulated, exchange traded, and with high transparency.
RBI’s move on raising the limit for FIIs investing in Indian corporate bonds is on the right track. But much more needs to be done to get a corporate bond market going. Every day of delay in this hurts.
First, there is a case for RBI to cut rates even further. RBI can go all the way to a zero short-term interest rate, as some other central banks have done. To understand the case for cutting rates let’s focus on the real rate — the short-term policy rate minus the expected Inflation rate. What do current trends show? WPI inflation, based on point-on-point calculations using seasonally adjusted data, was above 8 per cent (annualized) for each month from November 2007 till July 2008 which was a high inflation environment. But in September, WPI inflation was about 0, and in October it was -7.4 per cent, on an annualized basis.
Suppose we think that in the coming three months, annualised inflation will be -5 per cent. In this case, a short-term interest rate of +5 per cent implies a real interest rate of 10 per cent. This is a highly restrictive stance of monetary policy which is not appropriate in a downturn. A scenario of -5 per cent inflation with even a 0 per cent policy rate giving a high value of the real rate at 5 per cent is tight monetary policy. RBI needs to continue aggressively cutting interest rates.
However, unfortunately, while high interest rates can do damage, a sharp easing of interest rates is not going to have a large or immediate impact on the economy. The way monetary policy works is that the central bank makes changes to the short-term price of money. Through the “monetary policy transmission” these decisions reach out and influence the entire economy. This process requires the BCD (Bond Currency Derivative) nexus, the intricate system of markets through which small changes in the policy rate propagate out to influence rates across the economy. Unfortunately in India, the BCD nexus is basically malfunctioning. The Patil, Mistry and Rajan reports have recommended actions for creating a BCD nexus. But as of today, not many of these recommendations have been implemented.
As a consequence, monetary policy is largely ineffective. So while RBI should cut rates further, we should not be particularly optimistic about its effectiveness. In general, banks are a poor source of financing in a downturn; they find it difficult to absorb the shocks that come from companies going bankrupt. Further, banks in India generally lend to companies that are doing well. They do not have the expertise for examining companies which are presently facing difficulties but have the genuine strengths to thrive in the long term. This is usually the domain of private equity (PE) firms.
The first is the removal of capital controls on NRIs. NRIs are Indian citizens, holding Indian passports. They are the vanguard of India’s globalisation. It is in India’s interest to give them a welcoming environment where they are able to bring money into the country. Today many NRIs actually think of India as a safe harbour. Putting controls on NRIs bringing money into India is bad policy in general, but at a time like this, it is absurd policy. RBI’s response of tinkering with NRI deposit rates is woefully inadequate.
The second area of urgent action is the capital controls imposed on private equity and venture capital funds. These are investors capable of taking a close look at firms and injecting risk capital into good businesses while monitoring the outcome. In a downturn their role is particularly important. While banks will not take the risk of lending to poorly performing businesses, such companies offer good investment opportunities to PE firms and to those who believe in India’s long-term growth story. Of course, the role of bank finance for working capital will stay, but PE funding can be crucial for saving many firms that might begin to be distressed in the coming year.
The third area for rapid action is the corporate bond market. If banks are not willing to lend to companies due to their own constraints, there is a case for disintermediating banking and allowing individuals to buy corporate bonds. The regulatory framework must encourage this. Along with that, to help individuals, mutual funds and others lending to companies hedge their credit risk, a credit default swap market should be developed; in such markets, one can buy insurance against a company going bankrupt. We must not repeat the mistakes of other countries; in India, such a market should be well-regulated, exchange traded, and with high transparency.
RBI’s move on raising the limit for FIIs investing in Indian corporate bonds is on the right track. But much more needs to be done to get a corporate bond market going. Every day of delay in this hurts.
Sunday, January 4, 2009
Stock in BSE or SENSEX
Some times some of my friends ask some questions like how many stocks are there in BSE or SENSEX. How they are classified? How many stocks are active generally? How to track the stocks & etc…
So here is the answer for them. According to recent (Friday closing) BSE sources there are 6068 stock in the SENSEX and out them only 2981 are traded actively. Below is the detailed list of stocks wherein in which group, how many stocks are there & how many stocks are there active.
And about the groups A, B, S, T, TS & Z I have already posted in my previous postings, I think in the month of July. So you can refer for that. And stocks in these groups vary according to their trading, price, market capitalization and many other factors. Recently in this above list SEBI has transferred many stocks to B from Z category due to BLOODSHED in the market which induced the price discovery in the many stocks.
And about the tracking the stocks, I can say its individual perception. How you want to trade/invest. So I can’t generalize the things. I can only say go on reading and develop the passion for the same, and then you will find out your tracking system.
So here is the answer for them. According to recent (Friday closing) BSE sources there are 6068 stock in the SENSEX and out them only 2981 are traded actively. Below is the detailed list of stocks wherein in which group, how many stocks are there & how many stocks are there active.
And about the groups A, B, S, T, TS & Z I have already posted in my previous postings, I think in the month of July. So you can refer for that. And stocks in these groups vary according to their trading, price, market capitalization and many other factors. Recently in this above list SEBI has transferred many stocks to B from Z category due to BLOODSHED in the market which induced the price discovery in the many stocks.
And about the tracking the stocks, I can say its individual perception. How you want to trade/invest. So I can’t generalize the things. I can only say go on reading and develop the passion for the same, and then you will find out your tracking system.
Saturday, January 3, 2009
Fuller Capital Account Convertibility - 1
Yesterday, I started reading report of Tarapore Committee on Fuller Capital Account Convertibility (FCAC), which was lying on my monitor from very long period and completed reading nearly 25% of the report. I thought of writing about that, so here is what I read or you guys can say what I understood!!!
This committee formed because once in some RBI meeting Prime Minister, Manmohan Singh urged Finance Ministry to revisit subject of FCAC under present conditions. So at that time this committee was set up by then RBI governor Dr. Y.V.Reddy.
Now coming to CAC, it can be defined as, “freely conversion of domestic currency to foreign currency in accordance of market forces without the interference of central bank”.
What are objectives of FCAC?
1. I can say (from whatever I grasped from reading this report) attracting FDI (Foreign Direct Investment) is the main objective. FDI is not monetary but also tends to be associated with non financial aspects, such as transfer of technology, infusion of management and supply chain practices, etc, which is growth booster of the country. Example is China, whose growth is mainly due to FDI inflows into the country by policies like no sectoral limits, decentralized decisions, labor laws & SEZs.
2. Improve the efficiency of the financial sector through greater competition, thereby minimizing intermediation costs.
3. Opportunities for diversification of investments by residents.
Risks of FCAC
1. Asian Currency started due to current account imbalances with simultaneous savings-investment imbalance, overvalued exchange rates, and high dependence upon potentially short-term capital flows.
2. Some other crisis round the world like Mexican crisis (1994-95), Brazil (1998), Russian crisis (1998), Argentinean Crisis (2002), Turkey crisis (1993-94) due to overvalued currency, current account deficits, volatility in capital inflows. [An excessive appreciation of the exchange rate causes exporting industries to become unviable, and imports to become much more competitive, causing the current account deficit to worsen.]
3. Impossibility of the trinity (fixed exchange rate, open capital account and independent monetary policy).
4. Domestic financial institutions, in particular banks, need to be strong.
5. Short-term debt flows react quickly and adversely during currency crises. Receivables are typically postponed, and payables accelerated, aggravating the balance of payments position.
Bottom-Line:
I may or may not continue posting on this topic depending upon what feel about writing on this one!!!
This committee formed because once in some RBI meeting Prime Minister, Manmohan Singh urged Finance Ministry to revisit subject of FCAC under present conditions. So at that time this committee was set up by then RBI governor Dr. Y.V.Reddy.
Now coming to CAC, it can be defined as, “freely conversion of domestic currency to foreign currency in accordance of market forces without the interference of central bank”.
What are objectives of FCAC?
1. I can say (from whatever I grasped from reading this report) attracting FDI (Foreign Direct Investment) is the main objective. FDI is not monetary but also tends to be associated with non financial aspects, such as transfer of technology, infusion of management and supply chain practices, etc, which is growth booster of the country. Example is China, whose growth is mainly due to FDI inflows into the country by policies like no sectoral limits, decentralized decisions, labor laws & SEZs.
2. Improve the efficiency of the financial sector through greater competition, thereby minimizing intermediation costs.
3. Opportunities for diversification of investments by residents.
Risks of FCAC
1. Asian Currency started due to current account imbalances with simultaneous savings-investment imbalance, overvalued exchange rates, and high dependence upon potentially short-term capital flows.
2. Some other crisis round the world like Mexican crisis (1994-95), Brazil (1998), Russian crisis (1998), Argentinean Crisis (2002), Turkey crisis (1993-94) due to overvalued currency, current account deficits, volatility in capital inflows. [An excessive appreciation of the exchange rate causes exporting industries to become unviable, and imports to become much more competitive, causing the current account deficit to worsen.]
3. Impossibility of the trinity (fixed exchange rate, open capital account and independent monetary policy).
4. Domestic financial institutions, in particular banks, need to be strong.
5. Short-term debt flows react quickly and adversely during currency crises. Receivables are typically postponed, and payables accelerated, aggravating the balance of payments position.
Bottom-Line:
I may or may not continue posting on this topic depending upon what feel about writing on this one!!!
Friday, January 2, 2009
Government Measures for Stimulating the Economy
To minimize the impact of the global financial crisis government has taken many steps and also one stimulus package previously. Now looking at present condition government has come up with another one. Following are the details of 2nd Stimulus package from the government:
* Additional plan expenditure upto Rs. 20,000 cr. in the current year mainly for critical rural, infrastructure and social security schemes such as Pradhan Mantri Gram Sadak Yojana (PMGSY), Jawaharlal Nehru National Urban Renewal Mission (JNNURM), National Rural Employment Guarantee Scheme (NREGS), Indira Awas Yojana, Accelerated Irrigation Benefit Programme and National Social Assistance Programme
* An across-the-board cut of 4% in ad-valorem Cenvat rate except for petroleum products.
* Authorising India Infrastructure Finance Company Limited (IIFCL) to raise Rs. 10,000 cr. to refinance bank lending for infrastructure projects.
* In addition, with a view to further liberalizing the policy on External Commercial Borrowing (ECB), the Government and the RBI have decided:
1. The ‘all-in-cost’ ceilings on such borrowing would be removed, under the approval route of RBI
2. To facilitate access to funds for the housing sector, the ‘development of integrated townships’ would be permitted as an eligible end-use of the ECB, under the approval route of RBI
3. NBFCs, dealing exclusively with infrastructure financing, would be permitted to access ECB from multilateral or bilateral financial institutions, under the approval route of RBI
4. In order to give a boost to the corporate bond market, FII investment limit in rupee denominated corporate bonds in India would be increased from US $ 6 bn to US $ 15 bn.
* The flow of credit to the economy will be further enhanced by the following:
1. An SPV will be designated shortly to provide liquidity support against investment grade paper to Non Banking Finance Companies (NBFCs) fulfilling certain conditions. Details will be announced separately. The scale of liquidity potentially available through this window is Rs.25,000 crores.
2. An arrangement will be worked out with leading Public Sector Banks to provide a line of credit to NBFCs specifically for purchase of commercial vehicles.
3. Recently the guarantee cover under Credit Guarantee Scheme for micro and small enterprises on loans was extended from Rs.50 lakh to Rs.1 crore with a guarantee cover of 50%. In order to enhance flow of credit to micro enterprises, it has been further decided to increase the guarantee cover extended by Credit Guarantee Fund Trust to 85% for credit facility upto Rs.5 lakh. This will benefit about 84 per cent of the total number of accounts accorded guarantee cover.
4. State Governments are facing constraints in financing expenditure because of slower revenue growth. To help maintain the momentum of expenditure at the state government level, states will be allowed to raise in the current financial year additional market borrowings of 0.5% of their Gross State Domestic Product (GSDP), amounting to about Rs 30,000 crore, for capital expenditures.
* Exporters are especially hit by recessionary conditions globally. To support exports a number of steps have been taken. As a further measure:
1. Taking into account the fact that the rupee has appreciated nearly four per cent against the dollar since November 2008, it has been decided to restore DEPB rates to those prevailing prior to November 2008. In order to provide predictability and stability of regime in the short term for future contracts, the DEPB Scheme would be extended till 31.12.2009.
2. Duty drawback benefits on certain items including knitted fabrics, bicycles, agricultural hand tools and specified categories of yarn are being enhanced. These changes will take effect retrospectively from September 1, 2008.
3. EXIM Bank has obtained from RBI a line of credit of Rs.5000 crore and will provide pre-shipment and post-shipment credit, in rupees or dollars, to Indian exporters at competitive rates.
BOTTOM LINE:
In additional to all these government has taken many more fiscal measures to minimize the recessionary effects. For further information please log on to http://pmindia.nic.in/pressrel.htm
Courtesy: pmindia.nic.in
* Additional plan expenditure upto Rs. 20,000 cr. in the current year mainly for critical rural, infrastructure and social security schemes such as Pradhan Mantri Gram Sadak Yojana (PMGSY), Jawaharlal Nehru National Urban Renewal Mission (JNNURM), National Rural Employment Guarantee Scheme (NREGS), Indira Awas Yojana, Accelerated Irrigation Benefit Programme and National Social Assistance Programme
* An across-the-board cut of 4% in ad-valorem Cenvat rate except for petroleum products.
* Authorising India Infrastructure Finance Company Limited (IIFCL) to raise Rs. 10,000 cr. to refinance bank lending for infrastructure projects.
* In addition, with a view to further liberalizing the policy on External Commercial Borrowing (ECB), the Government and the RBI have decided:
1. The ‘all-in-cost’ ceilings on such borrowing would be removed, under the approval route of RBI
2. To facilitate access to funds for the housing sector, the ‘development of integrated townships’ would be permitted as an eligible end-use of the ECB, under the approval route of RBI
3. NBFCs, dealing exclusively with infrastructure financing, would be permitted to access ECB from multilateral or bilateral financial institutions, under the approval route of RBI
4. In order to give a boost to the corporate bond market, FII investment limit in rupee denominated corporate bonds in India would be increased from US $ 6 bn to US $ 15 bn.
* The flow of credit to the economy will be further enhanced by the following:
1. An SPV will be designated shortly to provide liquidity support against investment grade paper to Non Banking Finance Companies (NBFCs) fulfilling certain conditions. Details will be announced separately. The scale of liquidity potentially available through this window is Rs.25,000 crores.
2. An arrangement will be worked out with leading Public Sector Banks to provide a line of credit to NBFCs specifically for purchase of commercial vehicles.
3. Recently the guarantee cover under Credit Guarantee Scheme for micro and small enterprises on loans was extended from Rs.50 lakh to Rs.1 crore with a guarantee cover of 50%. In order to enhance flow of credit to micro enterprises, it has been further decided to increase the guarantee cover extended by Credit Guarantee Fund Trust to 85% for credit facility upto Rs.5 lakh. This will benefit about 84 per cent of the total number of accounts accorded guarantee cover.
4. State Governments are facing constraints in financing expenditure because of slower revenue growth. To help maintain the momentum of expenditure at the state government level, states will be allowed to raise in the current financial year additional market borrowings of 0.5% of their Gross State Domestic Product (GSDP), amounting to about Rs 30,000 crore, for capital expenditures.
* Exporters are especially hit by recessionary conditions globally. To support exports a number of steps have been taken. As a further measure:
1. Taking into account the fact that the rupee has appreciated nearly four per cent against the dollar since November 2008, it has been decided to restore DEPB rates to those prevailing prior to November 2008. In order to provide predictability and stability of regime in the short term for future contracts, the DEPB Scheme would be extended till 31.12.2009.
2. Duty drawback benefits on certain items including knitted fabrics, bicycles, agricultural hand tools and specified categories of yarn are being enhanced. These changes will take effect retrospectively from September 1, 2008.
3. EXIM Bank has obtained from RBI a line of credit of Rs.5000 crore and will provide pre-shipment and post-shipment credit, in rupees or dollars, to Indian exporters at competitive rates.
BOTTOM LINE:
In additional to all these government has taken many more fiscal measures to minimize the recessionary effects. For further information please log on to http://pmindia.nic.in/pressrel.htm
Courtesy: pmindia.nic.in
RBI Announces Monetary Stimulus By Reducing CRR, Repo & Reverse Repo
RBI has reduced the CRR, Repo & Reverse Repo by 50 & 100 basis points each. This was an expected move from RBI & RBI took it aggressively due to many factors like
1. Exports registered a negative growth for the two recent consecutive months, October-November 2008, for the first time since February 2002.
2. The index of industrial production (IIP) registered a negative growth of 0.4 per cent during October 2008, with the manufacturing sector registering a negative growth of 1.2 per cent, for the first time since April 1994.
3. Inflation as measured by year-on-year variations in the wholesale price index (WPI) has declined to 6.38 per cent as on December 20, 2008, down by more than half from the high of 12.91 per cent as on August 2, 2008.
4. The global financial situation continues to be uncertain. Since the official recognition of recession in the US, the UK, the Euro area and Japan, the downside risks to the global economy have increased. Concomitantly, the policy initiatives in the advanced economies are geared towards managing the recession and defusing potentially deflationary trends. The US has reduced the Federal Funds Rate to 0 - 0.25 per cent. Several other advanced and emerging economies such as Japan, Canada, Republic of Korea, Hong Kong and China too have reduced their policy rates.
Bottom Line:
On a review of current global and domestic macroeconomic situation, the Reserve Bank has decided to take the following measures:
Repo Rate
* To reduce the repo rate under the liquidity adjustment facility (LAF) by 100 basis points from 6.5 per cent to 5.5 per cent with immediate effect.
Reverse Repo Rate
* To reduce the reverse repo rate under the LAF by 100 basis points from 5.0 per cent to 4.0 per cent with immediate effect.
Cash Reserve Ratio
* To reduce the cash reserve ratio (CRR) of scheduled banks by 50 basis points from 5.5 per cent to 5.0 per cent from the fortnight beginning January 17, 2009.
Source: RBI
1. Exports registered a negative growth for the two recent consecutive months, October-November 2008, for the first time since February 2002.
2. The index of industrial production (IIP) registered a negative growth of 0.4 per cent during October 2008, with the manufacturing sector registering a negative growth of 1.2 per cent, for the first time since April 1994.
3. Inflation as measured by year-on-year variations in the wholesale price index (WPI) has declined to 6.38 per cent as on December 20, 2008, down by more than half from the high of 12.91 per cent as on August 2, 2008.
4. The global financial situation continues to be uncertain. Since the official recognition of recession in the US, the UK, the Euro area and Japan, the downside risks to the global economy have increased. Concomitantly, the policy initiatives in the advanced economies are geared towards managing the recession and defusing potentially deflationary trends. The US has reduced the Federal Funds Rate to 0 - 0.25 per cent. Several other advanced and emerging economies such as Japan, Canada, Republic of Korea, Hong Kong and China too have reduced their policy rates.
Bottom Line:
On a review of current global and domestic macroeconomic situation, the Reserve Bank has decided to take the following measures:
Repo Rate
* To reduce the repo rate under the liquidity adjustment facility (LAF) by 100 basis points from 6.5 per cent to 5.5 per cent with immediate effect.
Reverse Repo Rate
* To reduce the reverse repo rate under the LAF by 100 basis points from 5.0 per cent to 4.0 per cent with immediate effect.
Cash Reserve Ratio
* To reduce the cash reserve ratio (CRR) of scheduled banks by 50 basis points from 5.5 per cent to 5.0 per cent from the fortnight beginning January 17, 2009.
Source: RBI
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