India edges toward crisis

[East Asia United]

India edges toward crisis as rupee plunges
By Charles Riley
August 19, 2013: 7:40 AM ET

The rupee is trading at record lows and stocks have lost 10% in a month, even as the Indian government insists the country's faltering economy is not in crisis.

The slide that has rocked Indian markets accelerated Monday, with the rupee hitting a new record low against the dollar. The Mumbai Sensex, the country's benchmark index, dropped 1.6% on Monday and has now lost 10% of its value in the past month.

Investors are worried about India's large current account deficit, which reflects the nation's tendency to import many more goods than it exports and leaves it heavily reliant on foreign capital.

Talk of tighter U.S. monetary policy has seen some investors pull out of emerging markets in recent months.

Prime Minister Manmohan Singh has tried to calm nerves, saying the government has enough foreign reserves to defend the rupee for months.

"There is no question of going back to the 1991 [balance of payment crisis]," Singh told the Press Times of India, referring to an episode that nearly resulted in India defaulting on its debt payments.

But with elevated inflation, a sky-high government deficit and the economy slowing, some are worried that recent government attempts to shore up confidence may have had the opposite effect.

Policymakers last week unveiled a series of measures designed to support the rupee, including limits on the import of gold, oil and other key commodities.

The government also made a controversial move to restrict the amount of money Indian citizens can take out of the country, and similar restraints were placed on outgoing corporate investment.

The question now is whether the changes will be enough to bolster the rupee and stabilize the economy.

Many observers think the government must do more -- and markets seem to agree. The reaction was most violent on Friday, when investors returned from a one-day holiday to push the Sensex down by 4%.

"Authorities are taking a really piecemeal approach, and these measures are having exactly the opposite effect of what was intended," said Anjalika Bardalai, a senior analyst at the Eurasia Group. "The government has given the impression they are in panic mode."

Economists have long argued that India needs to implement structural economic reforms to bring about meaningful progress. Last year, parliament lifted restrictions on foreign direct investment after much debate -- a key step.

But investment dollars have not materialized as international companies seek more details about the new policy and remain wary of a change in the political winds that could reverse the decision.
And with national elections due before May 2014, India's fractious political parties may not be in a mood to cooperate.

"The problem now is that the government is running out of time and running out of options," Bardalai said. "A lot of what happens now with the rupee is beyond the government's control."

http://money.cnn.com/2013/08/19/news/economy/india-rupee/

 

[Khalsa97]

Your obsessed .

 

[East Asia United]

Your obsessed .

It would be good to focus on the topic at hand.

 

[474474]

It would be good to focus on the topic at hand.

In short, world peace (or at least in asia) is no longer a dream! The big bully is all air

 

[East Asia United]

In short, world peace (or at least in asia) is no longer a dream! The big bully is all air

No dude, prepare.... As India forges ahead into economic stagnation their politicians will increasingly look towards external aggression as a solution to pacify their progressively hostile population. The best way to calm domestic discontent is to turn their minds towards focusing on an external threat.

 

[Parul]

Apparently, 5th or 6th thread on the Topic. Theek hai

 

[PlanetWarrior]

No dude, prepare.... As India forges ahead into economic stagnation their politicians will increasingly look towards external aggression as a solution to pacify their progressively hostile population. The best way to calm domestic discontent is to turn their minds towards focusing on an external threat.

You mistakenly believe the Indian politicians to be the politicians of the USA. The only thing our politicians increasingly look towards is their bank accounts.

By the way, don't go on a hype about the Indian Rupee. It is purely reacting to global circumstances amongst them being the USA's recent increase of printing of dollars.

 

[East Asia United]

You mistakenly believe the Indian politicians to be the politicians of the USA. The only thing our politicians increasingly look towards is their bank accounts.

By the way, don't go on a hype about the Indian Rupee. It is purely reacting to global circumstances amongst them being the USA's recent increase of printing of dollars.

Ok, but then why is the Rupee falling more than any other currency (with the exception of the Brazilian real)?? 2nd worst performing in the world, and worst performing in all of Asia.

I think that the huge trade deficit, budget deficit, FDI withdrawal, and public debt to GDP are the reasons (among a few others).

 

[PlanetWarrior]

Ok, but then why is the Rupee falling more than any other currency (with the exception of the Brazilian real)?? 2nd worst performing in the world, and worst performing in all of Asia.

I think that the huge trade deficit, budget deficit, FDI withdrawal, and public debt to GDP are the reasons (among a few others).

What you believe is immaterial and of no significance. What is important (and until refuted correct) is the reasons furnished by the Indian establishment. Conspiracy theories abound for every country's economy. If it makes you smile in your dreams that the Indian establishment is on the brink of collapse due to the factors which you believe to be the case then so be it.

 

[East Asia United]

What you believe is immaterial and of no significance. What is important (and until refuted correct) is the reasons furnished by the Indian establishment. Conspiracy theories abound for every country's economy. If it makes you smile in your dreams that the Indian establishment is on the brink of collapse due to the factors which you believe to be the case then so be it.

It's not what I believe. These are facts.

2nd largest trade deficit.

Budget deficit that is 5%-6% of GDP.

Debt to GDP ratio of almost 70% (highest amongst any developing nation).

Average inflation of 8%.

Huge withdrawals of FDI in the last two quarters.

FACTS - Learn what they are.

 

[PlanetWarrior]

It's not what I believe. These are facts.

2nd largest trade deficit.

Budget deficit that is 5%-6% of GDP.

Debt to GDP ratio of almost 70% (highest amongst any developing nation).

Average inflation of 8%.

Huge withdrawals of FDI in the last two quarters.

FACTS - Learn what they are.

Dude, in 2008 we faced a similar situation. The government of India reassured Indians stating that the fundamentals of the Indian economy are strong. Shortly after our headaches began, the world economy hit a shutdown. You shouldn't gloat at the current Indian situation. Instead you should be asking yourself, what are the ramifications for my country if there is a bigger and heavier recession than that of 2008. India and Brazil may just be issuing the warning signals to the global economies. You should surely realize that even Pakistan is not exempt from a global economic crisis so your gloating is really meaningless

 

[Srinivas]

Even if rupee plunges to 65 rs per dollar it is not a problem for us.

It will make Our manufacturing base stronger.

Yarn exporters to make most of rupee depreciation

While the recent rupee depreciation against dollar may have brought some cheer for yarn exporters, the industry players are pushing for export orders to make the most of the situation.

According to yarn exporters - both cotton and synthetic, the rupee depreciation till Rs 58 against US dollar has helped increased their margins but the exports have not been sufficient.

"Export orders have not been sufficient to make the most of the weakening rupee. The orders have been below average. Hence, we will be pushing and exploring opportunities to increase our exports by at least 30 per cent in the next few weeks to avail maximum benefit out of the rupee depreciation," says Makrand Appalwar, chief executive officer of Emmbi Polyarns Ltd which currently exports yarn worth Rs 75 crore to various countries annually.

Industry experts blame it on China which was one of the largest buyers of Indian yarn, especially cotton.

"China has been cutting down its textile capacities. Resultantly, it has cut down on buying yarn and this has impacted some of the Indian export orders since China was one of the major buyers. Whatever margins were rising due to rupee depreciation is being set off by below average export orders and this needs to be changed," says DK Nair, secretary general of Confederation of Indian Textile Industry (CITI).

Seconding Nair is Jayesh Pathak, president of Bombay Yarn Traders Association. According to Pathak, Indian yarn exporters are now looking at other markets to offset the demand decline from China.

"Our main cotton yarn buyers are China, followed by Pakistan and other countries. But China has in recent times reduced demand since it is cutting down overall textile capacity in the country. This has impacted our export orders. However, the industry is pushing and aiming to attract as much export orders as possible in near future from other markets," says Pathak, president of Bombay Yarn Traders Association.

What's more, Indian yarn exporters are also not getting desired prices in yarn exports.

"Yarn prices are lesser in overseas markets than domestic. Moreover, overheads of Indian yarn exporters are also higher than other countries. This has hindered Indian yarn exporters from enjoying the right prices for their products internationally," adds Pathak.

While China and Pakistan happen to be one of the main cotton yarn buyers, regions like North America, Europe, Turkey are the top synthetic yarn buyers. The international prices for cotton yarn is only around Rs 100-400 per kg, state industry players.

Meanwhile, Nair cautions that the Indian yarn exporters have a limited scope of enhancing exports. "Unlike garments which are ready-made goods and can be sold anywhere, yarn can be sold only in those countries where fabrics are made. This puts a limit on the scope of enhancement of yarn exports by Indian exporters," adds Nair.

http://www.business-standard.com/ar...ost-of-rupee-depreciation-113061600575_1.html

In fact China is a big market for us along with west, hope This depreciation works for our benifit. India need to stop trade deficit and this is one way of doing it.

First thing the rupee depreciation does is it will make imports not profitable, this makes people to buy local products.

Secondly the depreciation will make human resources of India cheap and MNC's find this scenario attractive.

Thirdly the exports will have greater margins.

MMS knows best what is good for India

It's not what I believe. These are facts.

2nd largest trade deficit.

Budget deficit that is 5%-6% of GDP.

Debt to GDP ratio of almost 70% (highest amongst any developing nation).

Average inflation of 8%.

Huge withdrawals of FDI in the last two quarters.

FACTS - Learn what they are.

No need to learn from you, you are just ranting nothing else. You have half knowledge what you are talking about.

 

[East Asia United]

Dude, in 2008 we faced a similar situation. The government of India reassured Indians stating that the fundamentals of the Indian economy are strong. Shortly after our headaches began, the world economy hit a shutdown. You shouldn't gloat at the current Indian situation. Instead you should be asking yourself, what are the ramifications for my country if there is a bigger and heavier recession than that of 2008. India and Brazil may just be issuing the warning signals to the global economies. You should surely realize that even Pakistan is not exempt from a global economic crisis so your gloating is really meaningless

I'm not gloating.

If you care to refute any of the statements I made then feel free. There is publicly accessible data on the internet you can use to insure that I am not deceiving or outright lying to anyone.

As for whether or not this is the reason for the current crisis in India, the Indian politicians have made a 180 degree turn on their opinions. Read the Economist article I posted.

India’s financial crisis
Aug 18th 2013, 14:24 by P.F. | MUMBAI

ON SATURDAY morning August 17th India’s top policymakers gathered at a rather obscure event—the launch of an official history of the Reserve Bank of India (RBI), held in a room in the prime minister’s house in Delhi. Present were Manmohan Singh, the prime minister, and the past, present and future bosses of the central bank, among others. The day before there’d been a rout of India’s financial markets, as we described in a previous post. Here’s what I picked up at the event.

First, reality has bitten. There is a mood of distress, if not panic. This is a good thing. The economy faces “very difficult circumstances,” admits Mr Singh. While he and many of the others present held senior jobs during the previous balance-of-payments crisis, in 1990 and 1991, they have spent the past two years giving sugar-coated predictions even as the economy has slowed. Now though no one is disputing the fact that India is in trouble. Duvvuri Subbarao, the outgoing boss of the RBI, drummed in the message. “Does history repeat itself,” he asked, “as if we learn nothing from one crisis to another?”

Second, it is widely accepted that the capital controls announced on August 14th have backfired. The new rules limit the ability of Indian individuals and firms to take money out of the country and were put in place after clear signs of capital flight. However the changes have spooked foreign investors who worry that India might freeze their funds, too. The finance ministry has already tried to calm nerves. Although it probably won’t reverse the measures, the RBI is considering making it much clearer that more capital controls are not on the agenda. That would be helpful; people trust the bank more than the government.

Third, Raghuram Rajan, the incoming governor of the RBI, will assert himself sooner than expected and change the central bank’s tactics. On Friday, as markets tanked, he was in Singapore fulfilling an academic commitment that had been organised long before. He is due to take over formally on September 5th but he will be in Mumbai, where the RBI is headquartered, this week. He will try to end the impression of nervous hyperactivity that has built up in the past month. He will put his prestige on the line by trying to give a consistent and calming message to the markets: “We will not have a new policy every day.”

The rationale behind this new approach is as follows. The RBI’s existing measures might be enough to stabilise the rupee. (They include intervening in the money markets to jack up short-term interest rates, as well as the capital controls). Adjusted for higher productivity growth and higher inflation than the rest of the world, the rupee is theoretically worth, perhaps, somewhere between 55 and 60 to the dollar. So the market has already overshot a bit, offering more than 61 rupees per dollar at the weekend. And there are signs that exports are recovering, thanks to the devaluation and the recovery in the rich world. Exports grew by 12% in July. India’s IT service companies, which generate foreign sales of about 4% of GDP, are expected to see an up-tick in business. A decisive improvement in the trade balance would make a world of difference.

Fourth, as the RBI calms down, the government will be expected to go into overdrive to narrow the trade deficit by fiat. By raising administered prices on imported fuel, demand could be contained. This will not be politically popular. Lower fuel subsidies will have the added benefit, though, of helping Palaniappan Chidambaram, the finance minister, hit his fiscal targets. The government will also try to end a blanket ban on iron-ore exports, which was imposed by the Supreme Court after a series of corruption scams. I’m sceptical this will work. Can the judges really be told what to do? I’ve just spoken to an expert who spent a week in July touring the mining belt in the states of Goa and Karnataka. His view is that it will take ages for the industry to crank production back up to its peak, when it was exporting ores worth $10 billion a year or so. Still, the central government will try.

Fifth, everyone wants to crack down further on gold imports—but is scared. India’s gold addiction is a nightmare; exclude gross bullion shipments into India and the reported current account deficit of 4.8% in the year to March 2013 would have been a far more manageable 2%. Accepted wisdom is that if you tighten the official rules, gold will still get into the country via smuggling, as was the case in the 1980s and early 1990s. But India’s demand for imported bullion has doubled since then, to 850 tonnes a year. It takes a lot of ingots hidden in suitcases to smuggle in that much. Taxes on gold imports have already been raised but there may be scope to raise them even further.

Sixth, the authorities are still missing a trick by ruling out the recapitalisation of India’s banks as a measure to restore confidence. Public-sector lenders that dominate the banking industry now have dodgy loans of 10-12% of the total. Almost 20% of infrastructure loans are in trouble. K.C. Chakrabarty, a deputy governor of the RBI, argues that most banks are state-backed and thus not at risk of failing. But they are viewed as radioactive zombies by investors and their rotten balance-sheets mean they are unable to lend, which might kick-start a recovery. America used its stress tests to force banks to get their houses in order and to restore confidence in 2009. India should consider something similar. The tricky part is that the cost of recapitalising the banks might have to be borne by the government, which is already straining.

India has few good options, but the emerging plan could work. A big test will be whether the political leadership, which faces elections by May 2014, gets behind it. The urban middle class will be hurt most by the present crisis, but they are not the ones who decide elections in mainly rural India. Still, the wobbly economy may now become a bigger theme in the election campaign. That might focus minds and make it easier for the government to argue that its tough decisions are being made in the national interest.

http://www.economist.com/blogs/banyan/2013/08/india-s-financial-crisis

Apparently, 5th or 6th thread on the Topic. Theek hai

This particular news article? I don't think so.

 

[East Asia United]

Even if rupee plunges to 65 rs per dollar it is not a problem for us.

It will make Our manufacturing base stronger.

You are too funny. Your politicians just said that this is a real crisis on their hands.

MMS knows best what is good for India

You are so incompetent you wouldn't know a financial crisis hit if the rupee tanked by 50%.

From the article in my comment above:

First, reality has bitten. There is a mood of distress, if not panic. This is a good thing. The economy faces “very difficult circumstances,” admits Mr Singh. While he and many of the others present held senior jobs during the previous balance-of-payments crisis, in 1990 and 1991, they have spent the past two years giving sugar-coated predictions even as the economy has slowed. Now though no one is disputing the fact that India is in trouble. Duvvuri Subbarao, the outgoing boss of the RBI, drummed in the message. “Does history repeat itself,” he asked, “as if we learn nothing from one crisis to another?”

 

[PlanetWarrior]

^^^ Did you even take the time to read that article from the Economist before you posted it here ???