Friday, September 21, 2012

PRIME MINISTER’S ADDRESS TO THE NATION Dated 21-Sep-2012 - An Analysis - The Pluses and Minuses



Dated 21-Sep-2012

The first thing that must be appreciated about the address of the Prime Minister, Dr.Manmohan Singh to the Nation at 8 PM on 21-Sep-2012 – is the very fact that the PM chose to address the nation on the measures that his Government has just introduced. One would like the Prime Minister to be addressing the Nations more frequently than this. 

In fact, a Monthly address on issues facing the Nation would be in order. If not as an address to the Nation, it can be a monthly Press Conference. 

A Press Conference will not be a monologue; it will not be a one-sided affair like the Address to the Nation. There would be questions and answers, and some of them will be not very easy to handle, but such uneasy questions do need to be answered. On the other hand, an address to the Nation, though welcome in itself is not a substitute for a press conference, where the PM addresses the people, takes their questions and answers them too. Having said this, it is still a welcome thing that the PM chose to take the nation into confidence. This is sure to generate further dialogue on the subjects covered by him.

The second Point is – On all issues which the Government introduced as REFORMS – there are differences of Opinion among all Political Parties. Many of them will object to the very Nature of the REFORMS. Do they really qualify to be called as REFORMS at all? There are serious differences on each of the measures introduced by the Government. Also, the TIMING of some of the PRICE RISES proposed and threatened to be proposed shortly – seems NOT GOOD AT ALL. With a DOUBLE DIGIT FOOD INFLATION and a NEAR ZERO GROWTH staring the common man in the face, are the measures introduced by Government, the LAST STRAW on the POOR MAN’S BACK? This question will keep rising in every person’s mind in future – if INFLATION happens to gallop from the current High levels to Higher levels?

Is there any one measure proposed to arrest the FOOD INFLATION on one side and stimulating Growth in the manufacturing sector on the other? The RBI has placed the ONUS SQUARELY on the Government to adopt fiscal and administrative measures to REDUCE FOOD INFLATION. When will this Urgent issue be addressed? This is a question being asked by many.

These measures are much more urgently needed and – the PRIME MINISTER will need to concentrate his attention on these measures too immediately. If this is done urgently, the other measures like FDI etc will receive greater acceptance probably.

The timing of these measures coincides with embarrassing revelations on COALGATE – as pointed out by almost all Opposition Parties. It is unfortunate that the Opposition Parties failed to bring ALL RELATED, RELEVANT FACTS into a discussion in Parliament. Even if UPA was unwilling, it was incumbent on OPPOSITION to insist on discussion. But, the Opposition gave the impression of running away from the DISCUSSION in Parliament. The PM therefore need not discuss COALGATE  before the Nation – before he discusses it in Parliament.

The Government might very well survive this shock REFORM treatment to the Nation – given the inclination of various Parties not to side with BJP, and the BJP’s own adamant clinging to its SUICIDAL LINE OF HINDUTVA – for no earthly Benefit whatsoever.

Individuals and organizations tend to have some survival Instincts and suicidal Instincts. For Congress – the suicidal Instinct is proving to be its track record of SCAMS and CORRUPTION. Each scam is becoming bigger than the previous one. There is no way of ignoring them. For BJP, it is its HINDUTVA SLOGAN – which is of no earthly Use whatsoever for any Political Party in India. By dropping the slogan, heavens are not going to fall – for the BJP, while potential for much greater acceptance of its credibility among the masses and among other parties will arise instantly.

Congress is unlikely to give up on scams and BJP is unlikely to give up on HINDUTVA. 

Despite all the Noise by BJP and others, it is very difficult – almost impossible – to point the finger of corruption at the Prime Minister, Dr. Manmohan Singh. Inefficient, incompetent, lack of leadership qualities – one may accuse him of any or all of these – but NOT as CORRUPT at personal level. This does not Gel with most people.

Most people will like to believe him as the one bearing this stink of others. India knows Manmohan only as a Great Economist. Even Bad REFORMS may just get accepted by Public, coming from the PM, if he projects them Better and more frequently before the Nation.

Having said this, I think, the Nation must demand not only the views of the PM, but also the views of each of the Opposition leaders in Parliament. There should be strong democratic winds – and these must happen BEFORE  a Bill or Administrative measure is implemented. This should become the practice in future before any major measure affecting the Public is implemented.

Now, Let us briefly look at the measures covered by the PM in his address :

1)   FDI in retail: PM says -it will not harm small traders. India as a growing economy can accommodate both small & big retail. The PM also says that there will be Benefits to farmers from the storage spaces etc to be created by BIG RETAIL. The PM did not deal with the BUSINESS LOSS, if any, to the small retailers, if Big Retail deals directly with Farmers.

2)   Diesel price hike: The PM says that – the actual need is to raise diesel prices by Rs 17, but his government has only increased by Rs 5. The PM says, India still has lower prices than its neighbours.

3)   Diesel for by big Vehicles: PM feels – most of the diesel is used by larger cars and SUVs of the rich and by factories and businesses. He says, Government need not run into large fiscal deficits to subsidize them. Fine, if this be so. But, is this really so? Will state transport undertakings and private buses plying for public transportation not increase Rates and tariffs now?

4)   Reduced taxes on petrol: PM says, Government has reduced taxes on petrol by Rs.5 per litre to prevent a rise in petrol price – as  crores of middle class people who drive scooters and motorcycles will be benefitted and not hit by Petrol price rise. Is costlier Petrol really a common man’s fuel and cheaper diesel a rich man’s fuel?  Is this logic right? Can we not have differential (LOWER) prices for public transport vis a vis the large cars / SUVs running for the RICH, who are any way clamouring for these fuel price rise. Let them pay for it – exempting at least to some extent, the Public Transport.

5)   Cap on LPG cylinders: PM says – this is essential in India’s current difficult economic situation. He says, this will reduce fiscal deficit and will reduce the steep rise in cost of essential commodities. But, does it not directly place the higher cost of LPG on common man now? The logic of 6 cylinders for common man needs more statistical data. A number like 9 seems more reasonable – though still not adequate.

6)   Subsidy burden: PM says - Oil subsidy on petroleum products was Rs.1 lakh 40 thousand crores last year. If these reform measures are not taken, the subsidy burden will be over Rs.200,000 crore this year. But, whether as subsidy on oil products (financed through taxes) or as higher prices for the subsidies, any way, the final burden falls on common man only. Taxes are any way increased annually to finance the subsidies. As taxes, rich man has to pay more and poor man slightly less. This tax money goes to finance the subsidies. But, if subsidies are cut, the burden falls more on common man and less on rich man. It looks like that!

7)   Takes on CRITICS: The PM appealed to the people not to be misled by those who want to confuse by spreading fear & false information. "The same tactics were adopted in 1991. They did not succeed then, they will not succeed now. I have full faith in your wisdom," the PM said. These jibes could probably be avoided – and more statistical Info in support of the measures could have been given. This can open up more arguments and counter arguments from Opposition Parties. The jibes do reflect some justified anger at the Opposition tactics. But, Opposition is bound to come up with INFORMATION  which cannot be easily wished away as misinformation.

8)   Economic growth: The PM pointed out that many European countries are facing severe economic problems and that his Government is determined to see that India will not be pushed into that situation. Europe is of course in turmoil. But, will these reforms ensure better economic growth? If so, how?

9)   PM seeks trust & Cooperation of People: The PM says that -We have much to do to protect the interests of our nation and we must do it now. At times, we need to say NO to the easy option and say YES' to the more difficult one. This happens to be one such occasion. The time has come for hard decisions. For this, I need your trust, your understanding and your cooperation."

On the whole, the PM’s address is a welcome one. With each such address coming from the PM, his own personal reputation in the public mind will GROW significantly. The negative tags attaching to him will fall off very quickly.

We need more such addresses with more details and facts on key issues facing the nation – and they must come preferably before adopting any such key measures, and not after implementing them. Some of the opposition and other view points, which we listen to on these issues are indicated above under each caption briefly. They are also relevant. In fact, on issues like FDI in retail, a mere statement from the PM is not sufficient. A white Paper on how the BIG RETAIL is functioning in various countries, the benefits and disadvantages accruing to those Nations – would have served the purpose much better. If Benefits are larger and disadvantages are lesser, acceptance would be that much easier.

The Nation also needs to know how Food Inflation and LOW GROWTH issues will be tackled by Government. 

But, Government seems to be readying for raising price of sugar. What other REFORM MEASURES will come are unknown.

The Nation will seek to know - HOW WILL FOOD INFLATION COME DOWN? This is the issue raised by RBI. This is the issue hurting common man right now. 

The other side of the coin is –how and when will the HIGH INTEREST RATE REGIME of the RBI come down, back to what it was 2 years ago?

All said – it is necessary to congratulate the PM on his address to the Nation. We may or may not agree with any or all of these measures – but, we will have to concede that the PM has his genuine points and views.

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Tuesday, September 18, 2012

RBI - Mid-Qtr Monetary Policy Review: Sep. 2012 - CRR DOWN TO 4.5% - NO CHANGE IN RATES - EXCELLENT ANALYSIS - BUT, RBI must Bat for Growth - Reduce Interest Rates quickly


Mid-Quarter Monetary Policy Review: September 2012

The Reserve Bank of India has announced its Mid quarter Monetary Policy Review for Spetember,2012. As always, RBI’s analysis of the Economy and policy guidance provides interesting insights to all interested readers. They are also of significant implications for the economy.

Monetary and Liquidity Measures

The RBI, on the basis of an assessment of the current macroeconomic situation, has decided to:

(i)           reduce the cash reserve ratio (CRR) of scheduled banks by 25 basis points from 4.75 per cent to 4.50 per cent of their net demand and time liabilities (NDTL) effective the fortnight beginning September 22, 2012. Consequently, around ` 170 billion of primary liquidity will be injected into the banking system; and

(ii)          keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 8.0 per cent. Consequently, the reverse repo rate under the LAF will remain unchanged at 7.0 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 9.0 per cent

What RBI says  in arriving at these decisions is summarized below :-

2. There have been several significant developments since RBI’s  1st Quarter Review of Monetary Policy in July. Globally, as risks have risen, both the European Central Bank (ECB) and the US Fed have responded with liquidity measures intended to calm financial markets and provide further stimulus to economic activity. While these measures have certainly mitigated short-term growth and financial risks, they will also exert pressure on global asset prices, and particularly, commodity prices. Domestically, growth continues to be weak amidst a negative investment climate; however, the recent reform measures undertaken by Government have started to reverse sentiments. Government undertook long anticipated measures towards fiscal consolidation by reducing fuel subsidies and selling stakes in public enterprises. Further, steps taken to increase FDI should contribute to both greater capital inflows and, over the long run, higher productivity, particularly in the food supply chain. Importantly, however, for the moment, inflationary pressures, both at wholesale and retail levels, are still strong.

3. In April, RBI implemented a frontloaded policy rate reduction of 50 basis points on the expectations of fiscal policy support for inflation management alongside supply-side initiatives for addressing the deceleration of investment and growth. As these expectations did not materialise and inflation remained firmly above 7.5 per cent, the RBI decided to pause in its policy easing in the Mid-Quarter Review (MQR) of June and in the First Quarter Review (FQR) of July. As inflationary tendencies have persisted, the primary focus of monetary policy remains containment of inflation and anchoring of inflation expectations. In this context, the Government’s recent actions have paved the way for a more favourable growth-inflation dynamic by initiating a shift in expenditure away from consumption (subsidies) and towards investment (including through FDI). Of course, several challenges remain, one of which is persistent inflation. But, as policy actions to stimulate growth materialize, monetary policy will reinforce the positive impact of these actions while maintaining its focus on inflation management. Only this will ensure that the economy derives the maximum benefit from the recent, and anticipated, fiscal and supply-side policy measures.

Global Economy

4. Global activity has been weakening in Q3 of 2012. Merchandise trade slowed considerably with absolute contractions in major economies. Global purchasing managers’ indices (PMI) point to contraction in manufacturing and only modest growth in services. Persistent sovereign debt pressures amidst weakening economic activity in the euro area pose significant downside risks to the global economy. These concerns have prompted the announcement of the programme of outright monetary transactions (OMTs) in the form of sovereign bond purchases by the ECB. The US Fed  announced the purchase of additional agency mortgage-backed securities until labour market conditions improve substantially, and extended exceptional policy accommodation till mid-2015.

5. Growth in several major emerging and developing economies (EDEs) is also moderating, with China’s Q2 2012 growth slowing to its lowest rate in the past three years. Slowing global demand has adversely affected industrial activity and exports in these economies. Additionally, drought conditions in major grain-producing areas of the world and the possibility of further hardening of international crude prices in view of the fresh dose of quantitative easing impart ubiquitous risks to overall global macroeconomic prospects.

Domestic Economy


6. Economic activity picked up modestly in Q1 of 2012-13 in relation to the preceding quarter; but the sluggish momentum of value added in Q1 was evident across all sectors of the economy, and particularly in industry. Lead indicators point to slack activity in Q2 as well. Industrial production rose by just 0.1 per cent in July. In August, the manufacturing PMI fell to its lowest level during 2012 so far, as a result of output disruptions due to power shortages and declining export orders. The services PMI, however, picked up in August on growth in new orders and employment. With the progressive reduction in the rainfall deficit, kharif sowing, though still below normal, has improved. Reassuringly, the late rains have augmented storage in reservoirs which should improve prospects for the rabi crop, mitigating to some extent the concerns about agricultural prospects.


7. Headline WPI inflation (y-o-y) has remained sticky at around 7.5 per cent throughout the current financial year so far. At the disaggregated level, within primary food articles, the easing of vegetable prices in July-August was to a large extent offset by the surge in prices of cereals and pulses. Demand-supply imbalances in respect of protein-rich items persist. Fuel price inflation picked up in August, largely reflecting the upward revision in electricity prices. As welcome as the recent hike in diesel prices/rationalisation of LPG subsidy has been, the pass-through to administered prices remains incomplete. International crude prices are vulnerable to being driven up further by global liquidity. Core inflation pressures remained firm with non-food manufactured products inflation inching up from 5.1 per cent in April to 5.6 per cent in August and the momentum indicator remaining elevated. Even as demand pressures moderate, supply constraints and rupee depreciation are imparting pressures on prices, rendering them sticky.

8. In terms of the new CPI, inflation (y-o-y) remained broadly unchanged in July from June at close to 10 per cent, held up by rising prices of food items.  Notwithstanding some easing in July, core CPI inflation (CPI excluding food and fuel sub-group) remains elevated.

9. While the recent upward revision in diesel prices and rationalisation of subsidy for LPG is a significant achievement, in the short-term, there will be pressures on headline inflation. Over the medium-term, however, it will strengthen macroeconomic fundamentals.  It is important to note that these revisions were anticipated at the time of the April policy when a front-loaded repo rate reduction was undertaken.  Over the longer run, holding down subsidies to under 2 per cent of GDP as indicated in the Union Budget for 2012-13 is crucial to manage demand-side pressures on inflation. Containing inflationary pressures and lowering inflation expectations warrant maintaining the momentum of recent policy actions to step up investment, alleviate supply constraints, and improve productivity.

Liquidity Conditions

10. Money supply (M3), bank credit and deposits have moderated in relation to their indicative trajectories, reflecting the slowing down of economic activity. Against this backdrop, liquidity conditions have remained comfortable since the FQR. However, going forward, the wedge between deposit growth and credit growth could widen on the back of the seasonal pick-up in credit demand in the second half of the year. This, combined with outflows on account of advance tax payments and the onset of festival-related currency demand, could accentuate pressures on liquidity over the next few weeks. In these conditions, appropriate liquidity management assumes importance in order to ensure that drawals under the Liquidity Adjustment Facility (LAF) broadly remain within the indicative target of +/- 1 percent of NDTL, thereby facilitating monetary policy transmission and enabling adequate flow of credit to the productive sectors of the economy.

External sector

11. While the trade deficit narrowed in the first five months of 2012-13, the relatively large fall of exports in July-August is indicative of risks to the current account from the worsening global outlook. As regards external financing, the moderation in FDI inflows was partly compensated by a surge in non-resident deposits and a renewal of FIIs flows in recent months. Consequently, the rupee has been trading in a narrow range since the FQR. Looking ahead, a moderation in the trade deficit combined with increased inflows in response to domestic policy developments could ease pressures on the balance of payments. However, risks from global factors, in terms of both capital movements and oil prices will persist. Given these external risks, holding down the CAD to sustainable levels will depend on durable fiscal consolidation and, in particular, switching public expenditure from subsidies to capital outlay that crowds in private investment, thus preparing the ground for a revival of growth.


12. Since the FQR, while growth risks have increased, inflation risks remain. Mitigating the growth risks and taking the economy to a higher sustainable growth trajectory requires concerted policy action across a range of domains, a process to which last week’s actions made a significant contribution. Monetary policy also has an important role in supporting the growth revival. However, in the current situation, persistent inflationary pressures alongside risks emerging from twin deficits – current account deficit and fiscal deficit - constrain a stronger response of monetary policy to growth risks. Accordingly, as this process evolves, the stance of monetary policy will be conditioned by careful and continuous monitoring of the evolving growth-inflation dynamic, management of liquidity conditions to ensure adequate flows of credit to productive sectors and appropriate responses to shocks emanating from external developments.


There can be no denying of the facts and the strength of arguments coming from the RBI. It is largely true not much action has been taken by the Government, from the supply side - for containing Food Inflation. Government must address this aspect. It is apparent to one and all – and it has come from RBI several times in its reports – that until fiscal and administrative measures are taken – from supply side – there can be no control over food inflation.

RBI has also done well to point out the need for supply side measures – and has even pin pointed the inflation in cereals and pulses – where action is overdue.

With the recent activity seen in the Government over REFORM MEASURES, we hope that the Government will activate the Food and Agri Ministries at the Centre and States – so that they will initiate the necessary supply side measures and other administrative measures – to control food article supply and their prices.

This said – it still looks not the correct prescription for RBI to retain the Repo and reverse repo rates at current HIGH LEVELS.

These rates are a Big factor in capital Asset formation on one side and  in incentivizing  Buying / consumption for many consumer products. We find deceleration in Buying in all sectors of Automobile Industry. Likewise, in the Realty sector. 

Infra sector is not picking up because of Governmental bottlenecks on one side – and hesitancy of Infra Industry to go for implementation of projects in such scenario, given the high interest rates.

Will Telecom sector bid at the High licence fees fixed by Govt – and then go for further loans at current interest rates for expansion? This seems doubtful. Their profitability is already very LOW – for incentivizing any expansion at such high interest rates.

Capital asset formation happens only when Return from capital is good enough compared to Cost of Capital. This, in current circumstances, is in RBI’s hands,

So, the point is – RBI, I personally feel,  must BAT FOR GROWTH – at this point of time – even with the current High Inflationary levels, since FOOD INFLATION is out of its hands and the responsibility now lies on Central and State Governments (Food and Agri Ministries). Any reduction in Interest Rates is not going to stoke Inflationary pressures in FOOD ARTICLES.

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Friday, September 14, 2012





I am a small time contributor to an Orphanage cum school called Sevalaya,  which is at my place, called Tiruninravur (PIN : 602024) in Tamilnadu.  I receive their monthly News letter called – LOVE ALL SERVE ALL.

In the latest edition (Sp,2012) of it, I find an interesting news. I know, you will like it. Here it is :

Sevalaya gets volunteers from all over the Globe, mostly college and  School students – always willing to help others, learn more and spread the joy around. One such school student is Sahitya Hari. She lives in USA now and came to Sevalaya last year and offered to conduct  Spoken English classes over Skype every Sunday. 

The association with  the children developed  and this year she decided to publish her  collection of Poems, with the sole aim of diverting the entire Royalty amount she gets to support the kids in Sevalaya! The book is now published. It is available from, Google etc. 

She was in India recently and presented a Cheque for Rs.2 lakhs, the royalty amount she has received so far! She is in the 11th grade in her school and the collection of her poems is a prescribed text book for the 9th grade in her won school! The book is dedicated to Sevalaya… She worked hard in a private tutoring centre to raise  money to meet the publication expenses of her book amidst her tough school schedule.

She also volunteers close to 40 hrs a week in the Emergency Medical squad (EMS). There are dozens of patients to whom she has provided timely medical care…

The details of her run further on like this..  

Does she not make us search our souls – as to what are we doing? I am glad to know of you, Sahitya Hari! I wish you all the Best in your own life. You are already a Role Model for many. I am sure – many more ( including me ) will emulate you in future – and do even better. 

It is in these matters of –LOVE ALL SERVE ALL – that there should be a healthy competition amongst us all.

Are there miles between you and us? Miles dissolve in SMILES. Let us cultivate and spread JOY all around.

With Hearty Blessings