Tuesday, March 12, 2013

Economist PM Plans Strategy, Stagnation And Stagflation

Economy facing stagflation: C Rangarajan
( From Economic Times )

MUMBAI: C Rangarajan, chairman of the Prime Minister's Economic Advisory Council, and a former governor of Reserve Bank of India, has become the first highranking policy maker to declare that Indian economy faces stagflation, a state of high inflation, and poor growth rate. 

"It is pertinent to note that stagflationary tendencies have already reared their head in emerging markets, like India, where financial intermediation was never a problem," Rangarajan says in a paper titled `Growth or Austerity: The Policy Dilemma' co-authored with Alok Sheel. The assessment brings to fore the monetary policy challenges for RBI, which is facing demands for lower interest rates despite strong inflationary expectations. 

"One would have thought that policymakers had learnt the right lessons from the oil price shock of the seventies, which administered a lasting negative shock to final disposable income in oil importing countries,'' says the paper published in ICRA's Money & Finance February issue. 

"Several western economies tried to stimulate their way out of the problem. The result was stagflation, until the US Federal Reserve under Paul Volcker forced painful adjustment on America by raising — rather than lowering—interest rates.'' 

Paul Volcker, the chairman of the US Federal Reserve, became famous for steep interest rate hikes in early 80s to fight stagflation after the Arab oil shock. India's economic growth rate plunged to a decade low of 4.5% in the December quarter and Central Statistics Office forecasts 5% growth for the fiscal. 

The scene on the inflation front is confusing with the Wholesale Price Index (WPI) easing from its peaks as inflation dampened price rise in manufactured goods. Consumer prices, however, are continuing to climb. 

The Wholesale Price Index was at 6.62% for January, but inflation as measured by consumer prices rose 10.91% in February. The Index of Industrial Production in January climbed 2.4%, but the capital goods production, sign of investments, contracted. 

"Stagflation is too harsh a term," said Madan Sabnavis, chief economist, Care Ratings. `"During a stagflation situation, governments pump in a lot of money into the system to revive the economy, but it ends up with high inflation and no growth. But the current situation for India is different. Inflation is high but not galloping. The current inflation is largely due to supply side factors and pricing policies of the government.''

Anti-Bribery Saga in India: Walmart puts new outlets in freezer

MUMBAI: Walmart Stores Inc has stopped opening new stores in India, pending an anti-bribery probe into the company's operations, and has asked several employees hired a year ago for the new outlets to relocate to other parts of the country.

Bharti Walmart, the 50:50 joint venture between Walmart and Bharti Enterprises, had planned to open seven Best Price Modern Wholesale stores (in Gujarat, Maharashtra, Andhra PradeshMadhya Pradesh andTamil Nadu) between last November and March, according to an internal schedule reviewed by ET.

According to persons familiar with the situation, many of the seven stores were to begin operations last year, but just weeks before the scheduled openings, the company decided to pull the plug because of the ongoing investigations, as well as tightening of procedures for obtaining licences.

Since cash-and-carry clients in India must enroll as members at stores, Bharti Walmart had started the process of enlisting members from March last year. It had also hired at least 100 store and sales associates in each location a year in advance.

A Bharti Walmart spokeswoman said there had been some temporary delays in store openings as the company developed and implemented enhanced procedures for obtaining licences.

Walmart puts new outlets in freezer, to relocate employees
Relocating Not Easy for Employees

"In the last few months, we have recruited and trained great teams in states. We have open positions in our 20 (existing) stores and have strongly encouraged them to take up jobs in the other stores," the spokeswoman said.

But people with direct knowledge of the situation said relocating to other towns and cities wasn't easy. The stores were to be opened in towns such as Anand in Gujarat, Sangli and Sholapur in Maharashtra and Jabalpurin Madhya Pradesh. Moving to other towns is not viable for many of the employees, several of whom have no option but to quit.

store manager at one of the proposed locations said at least 30 employees in his outlet alone had put in their papers in the last one month. "We are still uncertain on when we plan to open of our store. It could be after the ongoing scrutiny," said a store manager of another location.

Since last year, Walmart has been probing its India operations for potential violations of the US Foreign Corrupt Practices Act, or FCPA, that prohibits American corporations and citizens from bribing government officials in any part of the world. As part of the probe, Walmart late last year suspended its chief financial officer and the legal team that procured the reams of licences required to open and operate stores in India. Subsequently, the company snapped ties with two dozen consultants that helped Bharti Walmart procure various licences throughout the country.

    Credit growth to industry slows to 15.2% in Jan
    MUMBAI: Bank credit to industry witnessed a slower growth at 15.2 per cent in January as against 20.2 per cent reported a year ago, pulling down the overall non- food credit growth to 14.6 per cent for the month, RBIsaid today.

    "Deceleration in credit growth to industry was observed in all the major sub-sectors, barring chemicals and chemical products, petroleum, coal products and nuclear fuels, beverages and tobacco, leather and leather products, wood and wood products, rubber, plastic and their products, and cement and cement products," the RBI said in a release here.

    The central bank said non-food bank credit rose 14.6 per cent in January compared to 15.9 per cent a year ago.

    However, data show that credit to agriculture sector grew significantly in the reporting month compared to the corresponding period last year.

    "Credit to agriculture increased by 19.8 per cent in January, up from 6.3 per cent in January 2012," it said. Credit to the services sector also saw a slower growth of 12 per cent against 15.1 per cent Y-o-Y.

    The pace of credit from banks to NBFCs dropped to 21.6 per cent in this period compared to 30.6 per cent last year.

    Meanwhile, personal loans increased 13.5 per cent from 13.2 per cent a year ago.

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