Indian PM rules out repeat of 1991 economic crisis Read more: http://www.f

[cirr]

Don't panic! don't panic!! The witless PM shouts from the roof top.


Published August 17, 2013 AFP

NEW DELHI (AFP) – India's premier ruled out Saturday any suggestion the country could suffer a repeat of its 1991 balance-of-payments crisis as it grapples with a plunging rupee and a huge trade gap.

Prime Minister Manmohan Singh spoke a day after India's currency hit a new low of 62.03 rupees to the dollar and stocks posted their sharpest single-day fall in nearly two years.

Singh was finance minister in 1991 and was credited with overcoming the deep economic crisis.
"There is no question of going back to the 1991 crisis," Singh told reporters in New Delhi in televised remarks at a book launch.

In 1991, hard currency reserves had sunk so low that India was on the brink of defaulting on its foreign loans.

Singh said the country only had foreign exchange reserves for 15 days in 1991.

"Now we have reserves of six to seven months. So there is no comparison. And no question of going back to the 1991 crisis," he said.

India still has painful memories of 1991, when New Delhi had to pledge its gold reserves with the International Monetary Fund to fund its debt.

To get India out of its economic morass, Singh unleashed sweeping change, beginning the process of abolishing what was known as the "licence raj", a system of economic management ruled by government monopolies, quotas and permits that dictated what firms could make.

Since June 1 this year, overseas funds have pulled out a combined $11.58 billion in equities and debt from India's markets over concerns about a sharply slowing economy, regulatory data shows.

To curb the rupee's fall, Indian policymakers have pushed up short-term interest rates and announced plans to allow state firms to raise funds abroad and curb gold imports.

Earlier this week, the central bank also tightened controls on the amount of money local firms and individuals can send abroad.

Asked about the record current account deficit -- the broadest measure of trade -- Singh acknowledged the problem and said gold imports needed to be further curbed.

Gold is the second-largest contributor to the current account deficit after oil.

"We seem to be investing a lot in unproductive assets," he noted.

Gold is hugely popular in India, especially during religious festivals and wedding seasons, and is also bought as a hedge against inflation.

India's woes have been exacerbated by signals the US could soon slow its stimulus drive that prompted big investment flows to emerging markets, and homegrown graft scandals that have virtually paralysed government policymaking.

Singh added that he hoped for "fresh thinking" at the central bank when its new governor Raghuram Rajan takes over in September.

"The time has come to look at the possibilities and limitations of the monetary policy in a globalised economy," he said.

India's finance ministry is reported to regard the current central bank leadership as overly conservative in its focus on inflation at the expense of economic growth.

Rajan is a former International Monetary Fund chief economist and is famed for predicting the 2008 global financial crisis.

Read more: Indian PM rules out repeat of 1991 economic crisis | Fox News

 

[cirr]

Market carnage fuels fears of India downgrade

Gayatri Nayak, ET Bureau Aug 17, 2013, 11.28AM IST

MUMBAI: The slump in stock market on Friday — the biggest drop in about two years — on fears of capital controls being imposed by the Reserve Bank of India and indicators of slowing economic growth has fuelled concerns about a potential sovereign downgrade.

Local economists, however, say that the possibility of a downgrade is slim. What also stoked concerns was the ratings downgrade by global ratings firm Moody's of the local currency and the financial strength of three large state-owned banks.

The agency downgraded the financial strength ratings of Bank of Baroda, Canara Bank and Union Bank of India by a notch on Friday — a day when the Nifty fell over 4% to 5,507.85 and the rupee recorded a lifetime low of 62.03, before closing at 61.55. Moody's said the downgrades ...primarily reflect the challenges of the current macroeconomic environment , which have been exacerbated by the depreciating rupee and high levels of inflation .

Besides, measures by the Reserve Bank of India (RBI) to support the currency have failed to stem the fall of the rupee, implying that interest rates may remain elevated for a longer time, the agency said. India's sovereign rating assigned by Moody's is Baa3 with a stable outlook. This is the lowest notch in the investment-grade rating.

Any further downgrade could push the sovereign ratings to a junk status. All other BRIC economies enjoy better sovereign ratings. Among its various emerging market peers, Indonesia, Turkey and Philippines, too, have a rating on a par with India. Earlier in May this year, ratings firm S&P had warned of a one-in-three chance of India's sovereign ratings being downgraded. "We have indicated that compared to one year ago, there (is) some easing of the pressure towards the downgrade of the rating," S&P credit analyst Takahira Ogawa had said.

"But nonetheless there is still more than one-third of chance for downgrade unless we see significant improvement of the factors that we mentioned," he had said. The rating agency said the main drag on India's rating is a high fiscal deficit and heavy government borrowing, although it also said India's position had improved over the past year.

Concerns of a downgrade were shared by a section of the market as the external sector continues to remain weak. "Even if we assume that government will be able to contain the fiscal and current account deficits, a rising external debt to GDP will remain a concern for the ratings agencies," said Partha Bhattacharya , deputy CEO, Mecklai Financial .

"With the government relaxing norms for foreign borrowings , it is expected to go up further ." However, economists in India dismiss the possibility of a ratings downgrade. "The chances of a rating downgrade remain low," said Saugata Bhattacharya , chief economist with Axis Bank.

"Policy measures (especially fuel price hikes) have been taken to rectify macro imbalances , while emphasising that the liquidity measures are temporary in nature, and targeted at containing volatility . More importantly, the current account deficit is likely to come down sharply, and the fiscal line in the sand looks to be largely followed," he said.

Market carnage fuels fears of India downgrade - Economic Times

 

[SirHatesALot]

Indian Economy has collapsed and now i am homeless with my laptop with no clothes @cirr please rescue me

 

[cirr]

Investors bail out as India's rupee crisis deepens

By Penelope Macrae

Published August 18, 2013 AFP

NEW DELHI (AFP) – Indian policymakers are looking increasingly panicky as they battle the worst currency crisis in more than two decades, and more worryingly there is no sign their remedies are working.

The rupee lurched to a new lifetime low of 62.03 to the dollar on Friday while the benchmark share index posted its biggest one-day fall since September 2011.

"None of the policymakers' Band-Aid measures (from capital controls to tightening liquidity) seems to be working. They have not been able to turn the tide," Rajeev Malik, economist at investment house CLSA, told AFP.

"The government and the Reserve Bank of India are taking fire-fighting measures."

The rupee has lost 57 percent of its value against the US currency since it peaked at 39.40 rupees to the dollar in February 2008.

The currency's strength began unravelling when Lehman Brothers collapsed later that year, triggering the global financial crisis.

But pressure on the rupee has mounted in the past two years as investor alarm over a slowing economy and a ballooning current account deficit -- the widest measure of trade -- has grown.

Part of the reason for the currency's most recent slide -- it has fallen 13 percent this year against the greenback -- lies outside Indian policymakers' remit.

The currencies of emerging markets globally have fallen on expectations that an increasingly buoyant United States will soon roll back stimulus responsible for funnelling big investments overseas in quest of high yields.

But other reasons for the rupee's drop are home-made -- failure to move fast enough on economic reform, a series of government corruption scandals, perceptions of policy paralysis and the record current account deficit, analysts say.

Since June 1, overseas funds have pulled out $11.58 billion from India's stock and debt markets.

Investors worry that despite the long-term growth potential of the country of 1.2 billion people, "things are not in shape in the interim period", said investment house IDBI research head Sonam Udasi.

As the rupee's woes have deepened, authorities have responded with a clutch of measures to try to stem its decline and avert a balance-of-payments crisis.

India has painful memories of its 1991 balance of payments crisis when it failed to attract enough foreign currency and was forced to fly 47 tonnes of gold as collateral for an International Monetary Fund loan in what was seen as a national humiliation.

Indian Prime Minister Manmohan Singh, who was finance minister at the time, was moved Saturday to rule out a repeat, saying: "There is no question of going back to the 1991 crisis."

In the past few weeks, Indian policymakers have hiked short-term interest rates, announced plans to allow state firms to raise foreign funds abroad and curbed gold imports.

They have also threatened to imposed higher duties on imported electronic appliances such as fridges, which are made locally.

But it is their most recent step -- stealthily announced late Wednesday on the eve of a national holiday -- that has fanned the deepest consternation.

The central bank sharply tightened controls on the amount of money firms and individuals can send abroad.

The move looked to observers like a disturbing throwback to the days before India unleashed its economic liberalisation drive in the early 1990s when Indians' access to foreign exchange was strictly limited.

Confederation of Indian Industry president Kris Gopalakrishnan criticised the move as "retrograde".

While the capital controls only apply to local individuals and firms, the restrictions may raise worries among overseas investors that they could be extended to foreign companies operating in India, analysts say.

Under the new policy, Indian individuals can send just $75,000 out of the country annually, down from $200,000 -- making it tougher to pay children's overseas university fees, for example.

Companies can invest abroad only 100 percent of their net worth, down from 400 percent -- though the central bank says firms can ship out more money if they give authorities a good reason for doing so.

"While the authorities aim to reduce foreign-exchange volatility, we fear they may end up sending a panic signal," Nomura economist Sonal Varma said.

There have been no signs so far of domestic capital flight but analysts say the controls may have been tightened to avert one in the face of India's troubles.

The economy expanded last year at a decade-low of five percent and indicators this year have been grim with economists warning about "stagflation" -- a combination of high inflation and low growth.

With an election to be held by May 2014 and pro-market reforms divisive, there is no way the Congress government can undertake root-and-branch reforms needed to put the economy back on track, economists say.

"There is a complete lack of faith in the markets" about India's outlook, said Param Sarma, chief executive at consultancy firm NSP Forex.

"We are slowly, but surely, likely to enter a phase of a crisis," he said.

Read more: Investors bail out as India's rupee crisis deepens | Fox News