Indian Economy : News,Discussions & Updates

[vstol Jockey]

RBI has been selling dollars for months now. Forex has fallen from 422B to 392B.

RBI sells a record $12 billion in spot and forward to salvage the rupee

First you pump out rupee to buy $ than you pump out $ to support Rupee. very funny trade off.

And the rates change based on inflation, it is entirely dictated by market forces. And the RBI has actually chosen a neutral stance on the rates, which is perfectly normal.

For last 4.5 years we had two Governors of RBI crying Inflation while inflation has been well under control and yet they have refused to lower either the CRR or the Repo rates. Than we have an RBI Governor who buys $ from market to keep rupee depreciated.
How funny will it be if a man sells his house, puts the money in bank to create reserves and move to a footpath for living. Could we not have used the rupee to speed up infrastructure spending instead of buying $s? And than we go around the world looking for finances to grow our infra.

 

[randomradio]

Curbing imports by emphasizing modernization and upgradation of the public transport and infrastructure. Have put a series of links.

The govt is doing a pretty good job regarding that. Electrifying railways, switching to natural gas, solar power and so on. And state govts are switching over to electric buses wherever affordable.

But none of these have an immediate effect that will impact elections.

 

[randomradio]

First you pump out rupee to buy $ than you pump out $ to support Rupee. very funny trade off.

That's how it works when we want to control currency volatility. We don't want too strong a rupee or too weak a rupee. So the RBI buys or sells dollars if the market forces are not conducive to the stability of the rupee.

Basically the RBI buys when the rupee gets strong and sells when the rupee gets weak.

For last 4.5 years we had two Governors of RBI crying Inflation while inflation has been well under control and yet they have refused to lower either the CRR or the Repo rates. Than we have an RBI Governor who buys $ from market to keep rupee depreciated.
How funny will it be if a man sells his house, puts the money in bank to create reserves and move to a footpath for living. Could we not have used the rupee to speed up infrastructure spending instead of buying $s? And than we go around the world looking for finances to grow our infra.

Inflation is under control because the RBI has been doing well controlling the flow of money.

 

[vstol Jockey]

Because CRR has been held, the inflation is low. Reduce CRR, your risk of default increases along with inflation. 231 million percent inflation of Zimbabwe didn't help them right?

Bro, I explained that if you don't want to change CRR, why not reduce Repo rate? Instead of increasing money supply, increase the demand for money with lower lending rates which will allow more people to take loans and help businesses with lower cost of capital.

 

[vstol Jockey]

That's how it works when we want to control currency volatility. We don't want too strong a rupee or too weak a rupee. So the RBI buys or sells dollars if the market forces are not conducive to the stability of the rupee.

Basically the RBI buys when the rupee gets strong and sells when the rupee gets weak.



Inflation is under control because the RBI has been doing well controlling the flow of money.

What if you divert just 10% of forex to our economy? Its 3 lakh crores.

 

[randomradio]

What if you divert just 10% of forex to our economy? Its 3 lakh crores.

Then it will set a precedent where, down the line, we will be begging IMF for a bailout.

 

[vstol Jockey]

Then it will set a precedent where, down the line, we will be begging IMF for a bailout.

we busted over 20 billion $s to shore up Rupee after working overtime to keep its value low by buying $s. The report cited by @Hellfire clearly shows that nearly every bank in the world considers 400B $ as Forex to be more than adequate for India. I am not saying that we dole out 40B in one go but how about in installments of 10B each over a period of 6-8 months. Instead of increasing Forex further, let us route the money to our economy.

 

[randomradio]

we busted over 20 billion $s to shore up Rupee after working overtime to keep its value low by buying $s. The report cited by @Hellfire clearly shows that nearly every bank in the world considers 400B $ as Forex to be more than adequate for India. I am not saying that we dole out 40B in one go but how about in installments of 10B each over a period of 6-8 months. Instead of increasing Forex further, let us route the money to our economy.

There is no need to do such a thing. The economy is going strong anyway. There is literally no need to transfer critical funds into welfare programs.

And there's no such thing as "enough forex". Even the Chinese are now worried about their first deficit in 20 years, whereas we have always been under deficit. As long as we do not start generating a surplus, the forex is the last thing we should touch. Forex is the country's "working capital."

 

[vstol Jockey]

There is no need to do such a thing. The economy is going strong anyway. There is literally no need to transfer critical funds into welfare programs.

And there's no such thing as "enough forex". Even the Chinese are now worried about their first deficit in 20 years, whereas we have always been under deficit. As long as we do not start generating a surplus, the forex is the last thing we should touch. Forex is the country's "working capital."

I am strictly against using reserve money for welfare programs but I am all for boosting infra which generates jobs in rural economy and increase rural income.
If there is no need to transfer funds to the Govt for boosting the economy, why is Niti Ayog making such suggestions?

 

[randomradio]

I am strictly against using reserve money for welfare programs but I am all for boosting infra which generates jobs in rural economy and increase rural income.

The money the govt is looking for is not for infra programs. Infra programs will take years to deliver. What the govt wants is to boost welfare programs for the sake of winning elections. This is what even the RBI is arguing about. The govt has no intention of creating wealth with the reserve.

If there is no need to transfer funds to the Govt for boosting the economy, why is Niti Ayog making such suggestions?

Niti Ayog is the govt's Planning Commission. It is not an independent organisation like RBI. They are just saying what the govt wants them to say. It doesn't matter who they are, they should not interfere with the RBI in any case.

Right now, nobody knows who's right. Maybe RBI is overreacting, maybe Niti Ayog is right. If this happens, then no harm, no foul, RBI can drop rates and the economy will chug along as usual.

But what Niti Ayog is talking about comes with huge risk. If the govt steals the reserves and the RBI turns out to be right, then any major external shock can take India towards Zimbabwe in no time, with the RBI becoming helpless to stop it since they don't have enough reserves to release. Outside India, the rupee is literally worth less than toilet paper, so we can't do quantitative easing like the US can. With the Chinese bubble, trade war, oil prices, and out own real estate bubble, we can't take risks that the Niti Ayog has proposed.

The fact is even with rate hikes, inflation is still barely under control. The rates must be driven by market forces and the reserves must remain untouched. Politics is what created Zimbabwe, Venezuela and Argentina, and what Niti Ayog has proposed can easily take us down that road. The fact is the central govt and the states are so heavily overleveraged that we can't even get our sovereign ratings upgraded even though our economy is doing so well. The govt can't even manage their fiscal policy, how do you expect them to make sound decisions about our monetary policy?

Leave our monetary policy to the professionals.

 

[vstol Jockey]

Leave our monetary policy to the professionals.

Do you know who all are the professionals in Niti Ayog? Are they any less qualified than the present Governor of RBI?

 

[randomradio]

Do you know who all are the professionals in Niti Ayog? Are they any less qualified than the present Governor of RBI?

Their knowledge is irrelevant. Only their office is. They have nothing to lose if the RBI screws up.

If you really think they are capable, then Modi should simply kick out Urjit Patel and have one of these people take over the Governor position. Every single one of these knowledgeable people will make a u-turn and do exactly what Patel is doing once their neck is in the noose.

Urjit Patel is expected to tender his resignation on the 19th. Only one person in the Niti Aayog team even has the credentials to match Patel, so you can make him the Governor. I'm sure he would love to be Modi's scapegoat.

 

[Pundrick]

Can you explain how? Interesting concept.



And what is that figure?



Food prices are low, why? That is an interesting read by itself. And as for the world economy, what do you think is happening with Turkish Lira, sanctions on Russia and Iran, trade war with China?




You seriously have no clue, do you?

Here: The story of India’s ever-growing Forex Reserves at the time of fiscal slippage

1. No return while holding $ currency. Many country are trying to avoid $ and looking for alternative i.e. SDR & Gold.
2. 9-10 months i.e. for 2017 should have been $ 380-390 billion.
3. Monsoon was predicted to be normal by IMD and other meteorological agencies. During October 2017 to March 2018, there was no major trouble in world.
4. Son, did you even read the article before posting ? (Sala muhje pura article padhna pada, under nikla kuch b nahi) My first point explains a lot about Forex, that would have answered your many questions.

Also ,maintain the decency, your aggressiveness won't defend your point.

 

[Pundrick]

First you pump out rupee to buy $ than you pump out $ to support Rupee. very funny trade off.

For last 4.5 years we had two Governors of RBI crying Inflation while inflation has been well under control and yet they have refused to lower either the CRR or the Repo rates. Than we have an RBI Governor who buys $ from market to keep rupee depreciated.
How funny will it be if a man sells his house, puts the money in bank to create reserves and move to a footpath for living. Could we not have used the rupee to speed up infrastructure spending instead of buying $s? And than we go around the world looking for finances to grow our infra.

Indian economy is fragile, monsoon is one of the biggest factor which affect the food inflation. I know the 2-6% window has been successfully maintained by the RBI for long period of time. But situation can change very rapidly, e.g. Oil prices, US curb on import, EU market growth etc. Also RBI is tasked to maintain that window and if they miss they'll have to answer it to the parliament, so I think it was not the fault of RBI but our lawmakers who should have thought from broader perspective before giving RBI any target.

But I think Inflation is still a very good index to target. I helps in keeping the economy 'Stable'.

 

[Pundrick]

The money the govt is looking for is not for infra programs. Infra programs will take years to deliver. What the govt wants is to boost welfare programs for the sake of winning elections. This is what even the RBI is arguing about. The govt has no intention of creating wealth with the reserve.

The demand for using excess forex for infra & other CapEx was raised by Arvind Subramaniyam & team, the then chief economic adviser, in Economic Survey 2015-16. And even before him, many domestic economists(that's right) have recommended to use some portion for CapEx. May be 4-5% won't do much damage. That amounts to $ 20 billion, which reduces our dependence on foreign funds.

 

[randomradio]

The demand for using excess forex for infra & other CapEx was raised by Arvind Subramaniyam & team, the then chief economic adviser, in Economic Survey 2015-16. And even before him, many domestic economists(that's right) have recommended to use some portion for CapEx. May be 4-5% won't do much damage. That amounts to $ 20 billion, which reduces our dependence on foreign funds.

All that sets a dangerous precedent, and that should never happen. Today, 4-5% won't do much damage. Tomorrow, that number that "won't do damage" will only increase.

CRR, forex etc are required for emergencies. When there are no emergencies, it's fine. But emergencies come without warning. CRR and forex keep us prepared to deal with such emergencies. That's also why we are spending money on building up a strategic oil reserve, which is actually a tremendous waste of money if you don't care about emergencies.

As I pointed out in the previous post, they should all put their necks on the line if they are to give their "brilliant" advises.

We have over $500B in external debt obligations. If our currency gets destroyed, how will we pay it all back? We will have to resort to an IMF bailout instead. We can't afford to take hundreds of billions of dollars in bailouts.

Read this:
Argentina’s economic crisis explained in five charts | Reuters

Look how fast the peso weakened. It effectively doubled their external debt in just a few months. We are not Russia or China that are sitting around with large surpluses. Until we become a surplus country, the forex is our lifeline. Without forex, you won't even be able to buy fuel for your vehicle.

The best way for the govt to make money is to privatise those ridiculously large PSUs. They can even increase the pace of the bank's NPA recoveries. But of course, the govt won't do anything that will affect them negatively. They want others to take the fall for it.

 

[vstol Jockey]

See who supports my point of view. Now don't tell me even these people are idiots of have been bought over by GOI.
India's economic growth to slow to 7.3% in 2019: Moody's

There is urgent need to reduce interest rates.

 

[randomradio]

See who supports my point of view. Now don't tell me even these people are idiots of have been bought over by GOI.
India's economic growth to slow to 7.3% in 2019: Moody's

There is urgent need to reduce interest rates.

The opposite. This is what Moody's is really saying:
Moody's said, in the short term while measures to stabilise the financial sector are put in place, credit growth is likely to slow.

First and foremost is financial stability.

They are not recommending decreasing rates. They are just pointing out what's in store for us, which is pretty normal for our current circumstances. Further tightening is necessary in order to "stabilise the financial sector".

 

[vstol Jockey]

The opposite. This is what Moody's is really saying:
Moody's said, in the short term while measures to stabilise the financial sector are put in place, credit growth is likely to slow.

First and foremost is financial stability.

They are not recommending decreasing rates. They are just pointing out what's in store for us, which is pretty normal for our current circumstances. Further tightening is necessary in order to "stabilise the financial sector".

We discussed about money supply thru CRR reduction but your view was that we must not touch CRR. I than stated that let us reduce interest rates by lowering Repo rates as RBI is flush with money and it can easily afford lower repo rate to support growth. The article quoted by me clearly shows the ill effects of higher lending rates. There is absolutely no reason for RBI to hold on to higher Repo rates when all other fundamentals of the fiscal as well as monetary policy are well within limits with very high forex reserves.
Chiddu today came out in support of RBI but do you know this same man was responsible for mess that we are in today. an inflation rate of 12.5% and Fiscal deficit of over 5% is what he had left the nation with in 2014. If our economy could survive then, it can do so easily today with lower repo rates. For any third world economy, growth is the single biggest aim of any fiscal and monetary policy. If they do not support Growth than we need to change them.
You can try whichever way you want but it is impossible to support RBI policy as being followed by present Governor.

 

[randomradio]

We discussed about money supply thru CRR reduction but your view was that we must not touch CRR. I than stated that let us reduce interest rates by lowering Repo rates as RBI is flush with money and it can easily afford lower repo rate to support growth. The article quoted by me clearly shows the ill effects of higher lending rates. There is absolutely no reason for RBI to hold on to higher Repo rates when all other fundamentals of the fiscal as well as monetary policy are well within limits with very high forex reserves.
Chiddu today came out in support of RBI but do you know this same man was responsible for mess that we are in today. an inflation rate of 12.5% and Fiscal deficit of over 5% is what he had left the nation with in 2014. If our economy could survive then, it can do so easily today with lower repo rates. For any third world economy, growth is the single biggest aim of any fiscal and monetary policy. If they do not support Growth than we need to change them.
You can try whichever way you want but it is impossible to support RBI policy as being followed by present Governor.

If RBI lowers the rates, then inflation will increase, so there's no point in doing it. There is too much money supply in the economy already. What the govt should do is start selling PSU stake instead.

As for the time during UPA, we came close to a collapse. We survived because Modi came to power, so we attracted investment, plus oil prices fell.