ECONOMY by VIVEK SINGH

2021-06-19 07:56:30 The above is an article from HINDU. The following are some relevant points.

1) Punjab and Maharashtra Cooperative (PMC) Bank is an Urban Cooperative Bank also called Primary Cooperative Bank.

2) In Sept. 2019, RBI superseded the management of PMC bank because of financial irregularities and appointed an administrator. [RBI can supersede the management of the Urban Cooperative Banks (UCB), State Cooperative Banks (StCB) and District Central Cooperative Banks (DCCB) if RBI feels that the affairs of the bank are conducted in a manner detrimental to the interest of the depositors. This is done as per the Banking Regulation Act 1949]

3) Then RBI invited bids from private banks/financial companies to take over the PMC Bank. And now the "Centrum Financial Services" in joint venture with "BharatPe" have decided to take over the PMC bank.

This news is combined with one other news.

In Dec. 2019 RBI had released guidelines for "‘on tap’ Licensing of Small Finance Banks in the Private Sector". 'On tap' means any financial services or few other fintech companies were allowed to apply/convert themselves into Small Finance Banks anytime by applying to RBI (ofcouse they should meet some minimum criteria). Here 'on tap' is important because in banking sector..............no one can just apply to RBI for a license to open a bank. It is RBI who decides and then publishes a notification that RBI is in the process of giving license for banks and then someone can apply. That is why 'on tap' Licensing becomes important because in this case RBI can be approached anytime for a bank license. But this 'on tap' licensing is only for 'Small Finance Banks'.
And in the 'on tap' guideline... RBI has allowed that Urban (Primary) Cooperative banks can also apply for conversion into Small Finance Bank. Even Payment banks have also been allowed to be converted into SFB.

So, PMC bank has been acquired by "Centrum Financial Services" in joint venture with "BharatPe" and it has been converted into a "Small Finance Bank". Open / Comment

2021-06-19 07:39:22 Open / Comment

2021-06-18 06:55:53 The above is an article from Indian Express. The following are some relevant points.

1) Our Forex reserves has crossed $600 billion, with which we will be able to import our requirements of goods for the next 15 months (also called import cover) ... this is assuming that we do not get any new forex.

2) RBI is saying that $600 billion may not be sufficient as we should not judge it only by 'import cover' rather there other factors which cause external vulnerability and one important factor is "Net International Investment Position (NIIP)". [This term NIIP was discussed in Economic Survey 2019-20]

So, let us understand Net International Investment Position (NIIP)

Whatever the Govt. and other entities borrow from abroad acts as a debt/liability for our country.
And if we purchase shares of a company abroad then these shares are assets for us (our country) and liability for the other country/company. And hence all the FDI investments (it happens through shares) happening in India is a liability for the company in India and liability for the country also.

If my company has borrowed from abroad then the debt paper which the foreign bank will be holding, it is an asset for the foreign country/bank and liability for my company/country.

NIIP measures the difference between our nations (includes individual, companies, Govt.) stock of foreign assets and foreigner’s stock of our nation’s asset.
If the FDI inflow in our country is increasing then it is increasing liability on our company/country or in other way we can say that it is increasing the foreigner’s stock of our nation’s asset.

If our country has borrowed more from abroad or if FDI investment is more in our country then it is a burden for us and in future we will have to service this by paying interest/principal/dividend. And this payment/servicing of the liability/debt is in Foreign Currency.

So, if the NIIP position is deteriorating that means becoming negative [Our NIIP position is -12.9% of GDP, which means we own less foreign assets than foreigners owning our nation's assets], then we require more Forex reserves.

So, the $600 billion of forex may look sufficient in terms of import cover but its not at all enough if we look at our NIIP position. Open / Comment

2021-06-18 06:40:28 Open / Comment

2021-06-17 21:26:37 Open / Comment

2021-06-17 21:25:39 The above is an article from Indian Express. Some important points:

1) Hallmarking has been made mandatory for Gold and silver jewellery and artfefacts. It has been made mandatory for traders with turnover of more than Rs. 40 lakhs in 256 districts right now. It will be increased in other districts with time. Right now only 30% of Indian gold jewellery is hallmarked. Level of hallmarking is low because of non-availability of enough hallmarking and assaying (quality check) centres.

2) Till now 3 categories of gold is hallmarked based on purity - 22 carat, 18 carat and 14 carats. But now govt has announced three additional categories will also be hallmarked - 20, 23 and 24 carats of gold.

3) BIS implements gold and silver hallmarking scheme in India.

4)BIS is the National Standard Body of India established under the BIS Act 2016 for the harmonious development of the activities of standardization, marking and quality certification of goods. BIS has been providing traceability and tangibility benefits to the national economy in a number of ways – providing safe reliable quality goods; minimizing health hazards to consumers; promoting exports and imports substitute; control over proliferation of varieties etc. through standardization, certification and testing.

5) BIS certification is mandatory for various kinds of products like toys, bicycle, cement, pipe, paper, cattle feed, cooker, gas stove etc..... Open / Comment

2021-06-17 21:18:37 Open / Comment

2021-06-17 14:42:18

Open / Comment

2021-06-17 06:47:26 Source: Hindu
A very good analysis and reality of FDI inflow in India.

Following are some of the important features of FDI inflow in 2020-21:
1.Gross inflow of $81.7 billion which consists of equity inflow of $60 billion and reinvested earnings of $21.7 billion.

2.Out of the $81.7 billion foreign inflow, $27 billion earnings sent/repatriated abroad.

3.A characteristic feature of foreign capital inflow in 2020-21 is:
•Sizable repatriation of long term FDI capital
•Large inflow of speculative capital i.e. FPI/FII

4.Three Reliance group companies like Jio Platform, Reliance Retail Venture and Reliance BP Mobility getting more than 50% of the FDI.

5.Majority of the FDI is through indirect acquisition of shares held by Reliance Industries without creating any productive asset.

6.Majority of FDI (more than 80%) is in services sector and very less in non-acquisition (mere transfer of shares) manufacturing sector.

7.Highest FDI is coming from Singapore and the maximum FDI is received by the Gujarat state. Open / Comment

2021-06-16 07:09:58 The above is article from HINDU. The following are certain relevant points:

1. Yesterday the inflation data was reported. CPI for May is 6.3% and WPI for May is 12.9% which is quite high than what was expected. Now, whenever you make Fixed Deposit in bank and if the inflation is high then you demand more interest rate. In the same way when you are purchasing a (new issue) of bond then you demand more interest rate on the bond. AND in the same way if you are purchasing bond in the secondary market (which was issued earlier at a lesser interest rate because at that time the inflation was less) and inflation has increased then you DEMAND more return i.e. more yield and yield shoots up. So, in short when inflation goes up, the price of (already issued) bond comes down and the yield on bonds (traded in secondary market) goes up.

2. Rupee depreciated because of two reasons. First is inflation in domestic economy moved up and Second is the demand for dollars by importers has increased.
When inflation goes up it means Rupee looses value in terms of goods and services. When rupee looses value in terms of goods and services then Rupee looses value in terms of dollars also.

3. Higher inflation has created a dilemma for RBI whether it should focus on controlling inflation (which is the primary objective of Monetary Policy function of RBI) or it should focus on increasing economic growth because due to Covid the economic growth has come down. To control inflation RBI will have to increase REPO rate and to support economic growth RBI will have to reduce REPO rate and that is the reason for dilemma. Open / Comment