Monday, February 11, 2013

Silent Poor Can Only Cry Due To Price Rise Pain But Corporate Can Impress FM For Low Interest Rate And For All Reliefs and Discounts And subsidies


People suffering due to high inflation forces RBI governor D Subbarao to hold rates

MUMBAI: It is the silent millions of poor squeezed by soaring prices who were the driving force behind the Reserve Bank of India's decision to keep interest rateshigh, the central bank's governor said on Monday. 

"People who are worried about economic growth are typically quite articulate, that they have a platform to express their concerns," said Governor Duvvuri Subbarao, using language strikingly different from the cut and dry style usually preferred by central bank chiefs. 

"I have sympathy with that view (that high interest rates was hurting growth). I am not saying that's an invalid criticism. But I just want to say that their voice is heard, but people who are hurt by inflation - the large majority of the poor - their voice is not heard." 

Corporates and even Finance Minister P Chidambaram, who in the past has said inflation is a tax on the poor, have expressed unhappiness at RBI's reluctance to lower interest rates. After a nine-month gap, Subbarao lowered key interest rates late last month by 25 basis points. 

A basis point is 0.01 percentage point. Economists affiliated to prominent banks and brokerages have forecast interest rate cuts of 50-75 basis points by December 2013. 
People suffering due to high inflation forces RBI governor D Subbarao to hold rates
The governor said the decline in growth was because of the slump in consumption and the fall in exports. But it was the slump in investments that last week forced the Central Statistical Organisation to forecast a 5 per cent economic growth this fiscal, which was the most worrying as it was a portend of grim tidings for the economy. "It (the slump in investments) is a matter of great concern because today's investment is tomorrow's production capacity," said Subbarao, addressing students at the Indira Gandhi Institute of Development and Economic Research in Mumbai. "So if investment is not taking place today, our growth potential on our way forward is going to be hurt." 

While the statistics office stands by its forecast citing poor investments, Chidambaram is forecasting 5.5 per cent growth believing there are green shoots in the economy. 

Subbarao expressed concern over the rising current account deficit, the excess of spending overseas over exports of goods and services. 

"We would not worry so much if it was on account of import of capital goods, but here we are having current account deficit on account of oil and gold," he said. "The way we are financing it. We are increasingly financing it through volatile flows. We should ideally be financing through foreign direct investment." 

Current account deficit for the September quarter rose to a record 5.4 per cent of the gross domestic product and is forecast to be above 6 per cent for the December quarter. 

In an interview to this newspaper in October last year, Chidambaram had said the finance ministry was, if necessary, prepared to "walk alone" if the RBI did not respond to reform measures by cutting interest rates. 

The central bank has backed reform measures announced by the government since September last month, but have stuck to their guns when it comes to rates, as inflation has not declined noticeably.

RBI Governor warns of widening CAD

Financing it through volatile flows is a concern: Subbarao
The Reserve Bank of India Governor D. Subbarao, on Monday, warned the country against widening Current Account Deficit (CAD), which is expected to be higher than last year.
“Today, the external sector is vulnerable. Last year, the CAD was 4.2 per cent of gross domestic product (GDP). This year, in 2012-13, we expect the CAD to be significantly higher than that, historically, the highest CAD measured as a proportion of the GDP,” said Dr. Subbarao while speaking at the convocation of Indira Gandhi Institute of Development Research (IGIDR), here.
At present, the CAD is at 5.3 per cent of GDP in the second quarter of the current financial year.
In his review of third quarter policy in January-end, Dr. Subbarao had highlighted the issue of widening CAD, which would disturb policy actions.
Rupee has depreciated by about 20 per cent in the last two years. “We expect the rupee depreciation to be a natural counter-force to increasing CAD, but we have the rupee depreciating and still CAD is high.”
“We would not worry so much if the CAD is high … if it was due to import of capital goods … but because of import of oil and gold.”
The other concern is that the way India is financing the CAD which is increasingly through volatile flows instead of getting much of foreign direct investment (FDI).
On reducing the rate in the last policy review, Dr. Subbarao said that “the dilemma we faced in making our monetary policy in the context of the CAD was that we reduced rates at a time when CAD was so high because one would expect that if the CAD is going to go up, the central bank would keep a tight policy. On the other hand RBI reduced rates.”
The RBI Governor said that the country was dismayed by the growth number put out by the CSO (5 per cent advanced estimate) as it was the lowest in the last decade. Growth was slow because consumption had fallen, net exports had fallen, and, most importantly, investments had declined.
“This is a matter of concern because today’s investment is tomorrow’s production capacity. So, if investments are not taking place today, then our growth potential on the way forward is going to be hurt.”
At 7.2 % inflation is still high: RBI governor
MUMBAI: Ahead of the January inflation readings later this week, Reserve Bank governor D Subbarao on Monday said the price rise index which slowed to a three-year low of 7.18 per cent in December, is "still high."

"If you take the macroeconomic context today, you find that growth has moderated, inflation has come off the peak, but even at 7 plus per cent, it is still high," he said while addressing the convocation of the RBI-promoted Indira Gandhi Institute of Development Research here. 

The forthcoming inflation numbers are important as they come after the January 29 policy easing, when the RBI cut both the interest rates as well as the cash reserve requirements of banks by 25 bps. 

The also come after the government partially freed diesel prices in the middle of January by allowing oil companies to raise retail diesel by 40-50 paise every month apart from taking away the subsidy on bulk diesel customers. 

While retail or consumer-price based inflation readings jumped to over 10 per cent in December, headline inflation declined to a three-year low to 7.18 per cent during the month. 

The January inflation numbers are also crucial because they will be considered before the mid-quarter review by RBI on March 19. 

Taking a dig at those who blame his tight monetary stance as a major reason for the steep decline in growth, the Governor said: "The RBI has been criticised for hurting growth and we are sensitive to that. But one should understand that the person blaming for growth is very articulate and has got proper platforms for speaking up." 

"However, the person pinched by inflation does not have a platform and I think both the RBI and the government should take care of that part of the population," said Subbarao, who fought a solitary battle of nearly 40 months to fight inflation even as his counterparts across the globe have re-embraced an easy monetary policy regime as growth in their home countries faltered again.

Finance Ministry to decide on tax benefits for CSR after Budget: Sachin Pilot

NEW DELHI: The Finance Ministry is expected to take a view on providing tax benefits for expenditure on social welfare activities by companies after the Budget, Corporate Affairs Minister Sachin Pilot said today. 

Against the backdrop of the government making Corporate Social Responsibility (CSR) spending mandatory in the proposed new Companies Act, various firms are pitching for tax benefits on such expenditure. 

Emphasising that money spent on CSR does not go to the government coffers, Pilot said the money should be invested for community development. 

"It is clear that CSR (spending) we have proposed in the (Companies) Bill is two per cent of the profits. 

"Now, I think, post Budget, the Finance Ministry will take a view (on whether) it will be taken as an expense or not. But for all purposes, the definition of profit is what it is... Different people have approached, different suggestions have come forward," Pilot told reporters here. 

He was responding to a query on whether his ministry has taken up the issue of tax benefits for CSR activities with the Finance Ministry, on the sidelines of the 63rd annual function of the Institute of Chartered Accountants of India ( ICAI). 

The new Companies Bill proposes that certain companies would need to spend two per cent of profits on CSR activities, unless they have a reasonable reason for not doing so. 

"It is important to understand that this money is not something that goes into the coffers of the government. In fact, we want the to keep the government out of it. 

"We want self-compliance, self-regulation and self- disclosures that companies should do. They must invest that money for community development and develop the communities where they work," Pilot said. 

Stressing that CSR money is that of companies, he said it must be ploughed back into developing the society. "... it has been happening before.. We are trying to give it a structure, framework," he added

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