RBI governor Raghuram Rajan receives Deutsche Bank Prize, 2013

Reserve Bank of India governor Raghuram G Rajan has been awarded the Fifth Deutsche Bank Prize for Financial Economics 2013, in recognition of his ground-breaking research work which influenced financial and macro-economic policies around the world.

The academic prize is sponsored by the Deutsche Bank Donation Fund and carries an endowment of euro 50,000. The Centre for Financial Studies (CFS) awards the prize bi-annually in partnership with Goethe University Frankfurt.

Presenting the prize to Rajan, Deutsche Bank co-chairman Juergen Fitschen yesterday said that it would have been hard to find a more deserving winner for this year's award.

Rajan's career "is not only marked by path-breaking, empirically-based research, but he never shied away from the real world of complex policy issues and special interests. He never shied away from speaking inconvenient truths," Fitschen said.

He noted that Rajan had in 2005 warned about the dangers of building up "unsustainable imbalances in the financial system," three years ahead of global financial crisis.

"Prof. Rajan's work revealed that the relationship between the financial sector and the rest of the economy is so complex that it is not good enough to simply look at the size of the financial sector in relation to the gross domestic product (GDP), as is done so often at present," Fitschen said.

He had also "warned us about the dangers of using or rather misusing" financial regulations and financial systems for purposes other than their original objectives, for example, for safeguarding stability or fostering growth, the Deutsche Bank co-CEO said.

The housing bubble in the United States, which triggered the financial crisis in 2008, had highlighted the danger of using the financial system to make up for the failures in social policies.

Jury chairman and director of the Centre for Financial Studies Michael Heliassos said the organisers are quite pleased to welcome Rajan in his new capacity as the RBI governor.

Rajan was picked up for the prize from more than 260 nominations from top universities, central banks and research centres in 37 countries. More than half of the nominations came from the US.

Oil & gas sector may get safety regulator

The Ministry of Petroleum and Natural Gas plans to set up a regulator to look into health, safety and environment (HSE) practices in the oil and gas sector, minister M Veerappa Moily said on Thursday.

“I have moved a proposal to have a regulator for HSE and the ministry is looking into it,” Moily said on the sidelines of the two-day Global HSE Conference organised by Cairn India.

Currently, the Directorate General of Mines Safety is the regulatory body looking into safety in mines and oil fields. Moily said the proposed body would focus on the oil and gas sector.

Moily said the next round for the New Exploration Licensing Policy bidding would be early next year. “Taking lessons from the first nine rounds of auctioning, we would come up with a comprehensive policy this time. It would be industry-friendly,” he added.

On another matter, the minister said the deadline of the Kirit Parikh committee has been extended by a month. The panel was set up to look into a new methodology for pricing of diesel and liquefied petroleum gas, after ministries had a difference of opinion on pricing. “The report would be submitted after a month, as they have asked for an extension,” Moily said.

The finance and petroleum ministries had disagreed over the issue.

The finance ministry wanted a change in the formula and calculation to be made on the basis of export parity pricing, against import parity pricing now.

The new formula was expected to result in savings of Rs 15,000-18,000 crore a year, as it wouldn’t include costs such as transportation.

Calculating using import parity pricing involves 80 per cent of import parity price and 20 per cent of export parity price.

The new methodology was mooted by the finance ministry to reduce underrecoveries, as Customs duty of 2.5 per cent (according to import parity pricing) was going as underrecoveries.

RBI governor says forex reserves comfortable

 
Even as the country’s foreign exchange reserves are at a 39-month low, Reserve Bank of India (RBI) Governor Raghuram Rajan says they are at a “comfortable level”.

According to RBI data released last Friday, the country’s foreign exchange reserves were at $275.3 billion as on September 13, which went up by about half a billion over the previous week.

The central bank has been cautious in using its forex to stem the depreciation of the rupee, which has weakened by 14.4 per cent against the dollar this financial year. Under Rajan, who took charge on September 4, the currency has been able to halt its fall, which has appreciated 5.5 per cent this month.

In July, the central bank had beefed up its foreign exchange market intervention as it sold close to $6 billion to stem the rupee fall. Rajan has also announced several steps, like swap facility for banks for foreign currency non-resident bank, or FCNR (B), deposits and banks’ overseas borrowing limit. Both these windows, which are available till November 30, are expected to swell the forex kitty by $10 billion.

According to a Bank of America Merrill Lynch report, India’s import cover has halved to seven months — last seen in 1998 — in the past five years, which is well below the eight to 10 months needed for rupee stability.

Rajan, who was speaking at a seminar in Frankfurt, reiterated the policy stance of the central bank was “neutral” at this point in time, though he said high and persistent retail price inflation was a concern. “At this point, we are neutral, we will see how things develop,” he said when asked about the central bank’s policy stance.

The RBI chief added inflation was not just due to higher food prices. “Unfortunately, there is still some inflation when you strip out the effects of food and energy. Therefore, it is not just food, it’s other factors also, which are driving inflation,” Rajan told reporters on the sidelines of the conference.

During the mid-quarter policy review, Rajan had hiked the repo rate by 25 basis points (bps) to 7.5 per cent, while reducing the marginal standing facility rate by 75 bps to 9.5 per cent.

“The intent here is that when the repo rate becomes the effective policy rate, it should be consistent with inflationary conditions in the economy. On net, these measures will reduce the cost of bank financing substantially while allowing us to take an appropriately precautionary stance on inflation,” Rajan said while announcing the policy last Friday.

He added there was a need to bring real interest rates down as low as possible. According to him, there is a need for new innovative ways to bring down real interest rates. Rajan believes emerging market economies must resort to fiscal tightening when money is flowing in.

The US Federal Reserve has recently decided against reducing its massive monetary stimulus, known as the third round of quantitative easing. According to Rajan, an exit from quantitative easing will be more abrupt than entry. He said there was a need to rethink dangers of over-stimulation. Besides, there is a need to rethink dangers of cross-border capital flows. Going forward, the external consequences are large, he added.

CBI set to probe NSEL crisis

With Finance Minister P Chidambaram on Thursday saying the Central Bureau of Investigation (CBI), the Forward Markets Commission (FMC) and the Ministry of Corporate Affairs (MCA) will look into the payment crisis at National Spot Exchange Ltd (NSEL), the probe net on the exchange looks set to widen.

Chidambaram said the three would look into different aspects of the troubles at NSEL, “which flouted rules from Day-1”, and take action under their respective jurisdictions. He added the income tax department was also checking the financial details of NSEL investors to see if any black money was involved.

A committee headed by Economic Affairs Secretary Arvind Mayaram had on Monday given its report on NSEL to the finance minister.

“The Mayaram panel report has suggested CBI, FMC and MCA must take appropriate action. They have listed the irregularities... They will take action,” Chidambaram said at a press conference here.

FMC might file its report in a couple of days, after which the three bodies would decide on the action, he said.

A CBI official said the agency was in the process of verifying the NSEL complaint. It was looking into the aspect of criminal offence to find out if there was an instance of fraud or cheating.

The government had received a complaint from investors but not referred the matter to CBI yet. The agency, therefore, was also trying to establish whether the probe in this matter came under its jurisdiction, a senior CBI official said.

Ruling out similarities between the crises at Satyam and NSEL, Chidambaram dropped hints that the government might not bail out the people that had put their money in the exchange, saying they invested with open eyes, knowing full well they were investing in an unregulated entity. “The government does not come into the picture at all,” he added.

Chidambaram said NSEL was not a registered or recognised association under FMC; it got exemption even before it started its business.

“In the way NSEL started business, there’s much more than meets the eye. People seem to have given money to NSEL promoters, knowing fully well that it is not a regulated entity... Many of them made money in initial stages and some lost money now... I have seen the exemption order. Now, whether it is valid or not has to be examined.” he said.  of the 17,000 investors who put their money in NSEL — which is now grappling with a Rs 5,600-crore payment crisis — 9,000 traded through eight top brokers, including Anand Rathi, Motilal Oswal, India Infoline and Systematix. According to the finance minister, the investors would definitely move court, as it is a matter between them and the company.

The government had in 2007 exempted NSEL from provisions of the Forward Contracts Regulation Act (FCRA) to operate one-day forward commodity contracts.

The exemption was given on some conditions, including delivery of commodities within 11 days and a bar on short-selling by members of the exchange. “From Day-1, NSEL was violating the very conditions under which it claimed it could do business,” he said.

The Mayaram panel had suggested NSEL’s troubles had no systemic risk of an impact on other markets. However, Chidambaram said he had asked both the Securities and Exchange Board of India (Sebi) and FMC to keep a careful watch. NSEL, part of the Jignesh Shah-led Financial Technologies group, had to suspend trading on July 31 after a government directive. It had committed itself to clearing its dues to investors in tranches through weekly payments. But it has so far defaulted on its weekly obligations for six weeks in a row.

Two other trading platforms — Multi Commodity Exchange and MCX-Stock Exchange — are also Financial Technologies-promoted entities. On whether the government was looking at changing the management of other entities with the same promoters, Chidambaram said: “Let us wait for the regulator’s report.”


Supreme Court order on tainted MPs: FM accuses BJP of changing stand
Under attack from the Opposition for bringing an ordinance to protect lawmakers from immediate disqualification, the Centre on Thursday hit back, accusing BJP of changing its stand on overturning a Supreme Court judgment on the issue. Finance Minister P Chidambaram had said in an all-party meeting on August 13 that there was a “unanimous demand” that something be done in relation with the Supreme Court judgment on Sections 62(5) and 8(4) of the Representation of People Act. “They are entitled to change their mind but they should not ask everybody to do so,” he said on Thursday.

Barack Obama asked to address India's discriminatory trade practices

Washington: Hours before the arrival of Prime Minister Manmohan Singh here, as many as 18 influential American groups asked President Barack Obama to address India's alleged discriminatory trade practices when he meets the Indian leader at the White House.

"India's discriminatory trade policies put American businesses at a disadvantage, place manufacturing jobs at risk, and jeopardize India's ability to grow its economy," said Alliance for Fair Trade with India (AFTI) co-chair and National Association of Manufacturers vice president of International Economic Affairs Linda Dempsey.

"The business community, elected officials, and the administration are united in their concern with these protectionist policies. We urge President Obama to seek immediate and concrete solutions that can lead to growth in the American and Indian economies alike," she said.

In the letter sent to Obama Thursday, the organisations highlighted the alleged harmful trade policies of India which include a failure to protect IP rights, forced local production of certain information technology and clean energy equipment, and revocations of patents and compulsory licenses for innovative medicines.

These unfair policies are designed to benefit a few Indian corporations at the expense of manufacturing and jobs in the United States and other countries around the world, they said in the letter.
 "In the last 18 months, India has consistently failed to recognise international intellectual property rights, hindering India's path to an innovative and knowledge-based economy," said Mark Elliot, co-chair of AFTI and executive vice president of the US Chamber of Commerce's Global Intellectual Property Centre.

"During his meeting with Prime Minister Singh, President Obama has the opportunity to promote a trade environment that fosters innovation and creativity, creates high-quality jobs, and advances global economic development," he said.

The letter to Obama by 18 business organisations adds to the growing anti-India campaign here.

This week, a bipartisan group of governors highlighted the impact India's unfair trade practices have on jobs in states across the US in a letter to Obama.

Additionally, more than 170 US Representatives and 40 Senators expressed concern over the trade environment in India that puts American jobs and industries at risk in letters to the administration earlier this year.