Gold imports rise 65% in June to $3.12 bn

After past its best for seven months in a row, bullion imports grew by 65.13 per cent to $3.12 billion in June.
Import of gold bars in June 2013 stood at $1.88 billion.
The high imports have slightly pushed up the country's deal shortfall to $11.76 billion in June from $11.28 billion in the same month last year.
In October 2013, gold imports had risen 62.5 per cent to $1.3 billion.
The government has forced limitations on inbound shipments of the costly metal to thin the present explanation shortage. India's CAD, which is the glut of foreign exchange outflows over inflows, touched a momentous high of 4.8 per cent of GDP in 2012-13, mainly due to increasing imports of petroleum harvest and gold.
A high CAD puts heaviness on the rupee, which in turn makes imports classy and fuels price rises.
The government had augmented customs obligation on gold to 10 per cent and barred import of bullion coins and medallions, while the RBI linked imports of the metal to exports.
India is the main importer of gold, which is mainly utilized to meet the command of the jewelers commerce.
The Commerce and business Ministry is headfirst for reduction of the gold import limits to boost gems and jewellery exports, which declined by 5 per cent in June to $3.31 billion.
According to experts, decline in bullion prices in the international market have pressed up imports in the realm.
Gold in New York, which in general sets price trend on the marital front, fell by 0.7 per cent to $1,297.10 an ounce after moving $1,292.60, the lowly since June 19.

FY'14 CAD narrows to 1.7% of GDP at $32.4 bn

Mumbai: Helped by a sharp restraint in imports, particularly of bullion, India's current account deficit (CAD) sharply pointed to 1.7 percent of GDP, or USD 32.4 billion, in FY'14 from 4.7 percent in FY'13, Reserve Bank said Monday.

"Contraction in the deal shortage, attached with a increase in net invisibles' receipts, resulted in a lessening of the CAD to USD 32.4 billion, or 1.7 percent of GDP, from USD 87.8 billion, or 4.7 percent of GDP in 2012-13," it said.

For the March sector, CAD, a calculate of the inflow and loss of foreign currency, stood at USD 1.2 billion, or 0.2 percent of GDP, as beside USD 18.1 billion, or 3.6 percent of GDP, in the same epoch previous fiscal, the RBI said.

Insurance Bill: It's time to act now

 
The ambitious bilateral Free Trade Agreement (FTA) between India and European Union (EU) is stalled. The reason is the failure of the Indian government to pass a significant financial legislation -- the Insurance Laws (Amendment) Bill, 2008.

The Bill has been pending with the Rajya Sabha since 2008. It was to be passed in the monsoon session earlier this year. However, if the statement of the finance minister at the close of the monsoon session and recent news reports are anything to go by, then it seems that the Bill will now be placed in the winter session of parliament.

The proposed legislation could be a game changer and could certainly assist the falling rupee and the wide current account deficit. The Bill seeks to liberalise the insurance sector by increasing the foreign direct investment cap from 26 per cent to 49 per cent. This would permit Llyod's of London -- the world's largest insurance market -- to enter the Indian insurance sector, provide flexible capital structures and take away the divestment provision by Indian promoters after a certain time-frame, which is a requirement under the current regime.

This piece discusses some of the above key proposals of the Bill.

The economic reform measure where a foreign investor can hold equity shareholding up to 49 per cent has been resisted by opposition parties. They argue that Indian insurance companies should raised funds domestically. This could be by way of the promoters of Indian companies investing in the joint venture or by taking such companies public.

However, this viewpoint of the opposition parties seems untenable. Firstly, it is quixotic to raise funds from the capital market through the IPO route, especially at a moment when more than 35 private insurance companies require large capital. Secondly, there is an extensive gestation period in the insurance sector, normally ranging from five to 10 years, which makes it tougher to raise domestic capital. Taking the argument further, if insurance companies borrow funds domestically for capital raising would it not increase costs for such companies in respect to debt servicing?

Another pleasant reform is an amendment to the existing law for flexible capital structures. As per the current law, the paid-up capital of an insurance company should consist of only ordinary shares. Accordingly, insurance companies are debarred from issuing preference shares or other kinds of hybrid instruments for capital buildup. With the proposed changes to the capital structure, Indian insurance companies will be able to raise other forms of capital, which would be highly favorable for meeting solvency margin requirements. In an economic environment with insufficient capital, this is a welcome move to sustain the insurance sector in volatile times.

As a masterstroke intended to give incentives to foreign players, the Bill seeks to make an exception by permitting unregistered entities to operate in Special Economic Zones (SEZs). On a careful analysis of certain clauses in the Bill, it may be deduced that foreign insurers would be allowed to freely conduct business in SEZs, sans any regulatory control by the Insurance Development and Regulatory Authority (IRDA). Accordingly, foreign insurers would not be required to file information and annual returns with IRDA. All in all, these reforms allow for smooth functioning of foreign insurers in India.

The critics argue that it may result in a dual regulatory mechanism, and hence there should be uniform standards of compliances for both Indian and foreign companies, especially with respect to capital requirement and distribution of products. However, this does not affect the legality of the proposed reforms, since it is in complete consonance with the SEZ policy, which bestows the power on the government for meting out exceptional treatment to the insurance businesses carried out in SEZs.

The Bill also proposes to dispense with the condition that requires the Indian promoter(s) to reduce their equity to 26 per cent within 10 years.

In a breakthrough step, it is proposed that the Securities Appellate Tribunal (SAT) would be the appellate authority against IRDA decisions, instead of high courts. This would ensure proper and quick justice to industry players as insurance-related matters would now be dealt by SAT members having specialised knowledge in the subject.

As a concluding remark, it seems the prolonged delay and the political impasse in the passing of the Bill has frustrated corporate players and some serious foreign insurers. The government will have to be proactive in pushing these reforms, lest we lose out this capital to other aggressive markets. With India's economic growth being slowest in a decade, we certainly can't afford to drive away investors by deferring important reforms. Let us now hope that the two major political parties take a constructive view and co-operate to ensure the passage of this Bill.

Let's act in a timely manner, before it's too late.

RBI pegs CAD at $56 bn, says no reason for rupee decline

Mumbai: Seeking to reassure investors, RBI Governor Raghuram Rajan Wednesday said there is no fundamental reason for rupee to fall again, and pegged the current account deficit for 2013-14 at USD 56 billion, much lower than the quantum estimated earlier.

He also said the Reserve Bank will not rush to close the special window opened for dollar purchase by oil companies.

The Governor also expressed the optimism that the second half of the current financial year will see better growth numbers on the back of good monsoon and the associated pick-up in consumption and healthy exports.

Referring to the recent decline in the value of rupee, the RBI chief said: "There is no fundamental reason for volatility in the exchange rate."

"At some time, it makes sense to take a deep breath and examine the fundamentals. I hope you all will do that," he said in the hurriedly called press meet.

Pegging a much lower CAD for the fiscal, Rajan said: "Our estimate now is that CAD this year will be USD 56 billion, less than 3 percent of GDP and USD 32 billion less than last year. Of course, some of that compression comes of our strong measures to curb gold import."

The current account deficit (CAD), which is the difference between outflow and inflow of foreign exchange, touched an all-time high of USD 88.2 billion or 4.8 percent of the GDP in 2012-13.

Earlier, the government had projected the CAD in the current fiscal at USD 70 billion, which was revised downwards to USD 60 billion by Finance Minister P Chidambaram on back of declining gold imports and recovery in exports.

"It's important that RBI clarifies interpretation of economic events and the likely direction of economic policies at times of uncertainty so that the market worries about the right things and does not get into a tizzy about the wrong ones. That is my quote today," Rajan said.

His remarks seemed to have calmed currency markets as the rupee gained 41 paise against dollar to close at 63.30, after declining in the previous five days in a row.

"We have no intention of rushing this process (of closing the special window for OMCs)," Rajan said.

The Reserve Bank in August had opened a special window to help the three state-owned oil marketing companies -- IOC, HPCL and BPCL -- to meet daily foreign exchange requirements and buy dollars directly from RBI.

The rupee, it may be mentioned, fell to a record low of 68.85 to the dollar on August 28.

Rajan said since October 14 most of dollar demand from oil marketing companies has been met from the market only.

The PSU oil companies are the biggest buyers of dollars, requiring USD 8-8.5 billion every month for import of an average 7.5 million tonne crude oil.

Expressing comfort at declining core inflation,narrowing CAD and better growth prospects in the second half on good monsoon, Rajan sought to reassure investors who fear India will be hit again as and when the US ends easy money policy.

Ruling out any major threat from the external front to rupee as well as the economy, Rajan said even if there is no more fresh FII inflows this year, there will not a problem to finance CAD as he country will have USD 32 billion less of CAD to finance this year.

"Last year FII inflows, both debt and equity, accounted for USD 26 billion. Let me assume that we get no inflow this year, and in fact outflows equal the inflows we got last year. In other words, there is a USD 52-billion turnaround in FII flows," the Governor said.

"Remember though that we have USD 32 billion dollars less of CAD to finance this year, and till yesterday, we raised USD 18 billion through new swap channels. So, if other financing remains the same as last year, which it seems on track, even if foreign investors pull out significantly more money this year than they have so far, we still can break even on capital flows," Rajan said.

Noting that OMCs have entered a swap arrangement whereby they will have to repay dollars to the RBI on various dates from February 2014 till April 2014, Rajan said: "One worry expressed by market participants is whether OMCs will add to further downward pressure on the rupee when it comes time for them to repay dollars to the RBI."

"This to my mind is a non-issue because we have three ways of managing the repayment. One is, of course, for the OMCs to buy dollars in the market. If exchange markets are calmer, this additional demand should be absorbed," he added.

Rajan said, "But if they are not calmer, we could roll over some portion of the swaps so they mature at a calmer time. But perhaps the easiest option would be for us to settle the swap with the OMCs by making net payments in rupees, and avoid the need for them to go back to the market for dollars. When the time comes, we will choose the most appropriate combination".

He also announced a bond purchase worth Rs 8,000 crore next Monday to inject liquidity in markets.

He further said the major outflows in the recent past following the tapering talks were debt outflows.

"Though that money has not come back, indeed our FII debt exposure, both corporate and sovereign, has come down from USD 37 billion on May 21 to USD 19 billion today. I presume what is left is more patient money, but given its diminished size, I do not see it is possible exit as a huge risk," the governor said.

Rajan's address came after stronger-than-expected US jobs data last week had sparked concerns about an early end to the Federal Reserve's stimulus, hitting the rupee and sending domestic bonds and shares tumbling. This led to FIIs pulling out more than USD 13 billion from bonds and over USD 2 billion from equities between end May and early September.

Though he termed food inflation "worryingly high", which rose to 10.09 percent in October, Rajan said he was comforted by a downward trend in the core consumer price index, which declined from 8.5 percent to 8.1 percent in the month.

"I am somewhat more heartened by the outcome of core CPI inflation, which declined to 8.1 percent from 8.5 percent in September. The momentum for core inflation is also on the decline," Rajan said.

CAD will reduce below $70 billion: Rangarajan

Stating that there has been improvement in the trade account, Chairman of the Economic Advisory Council to Prime Minister C Rangarajan on Tuesday said the Current Account Deficit (CAD) will go down well below $70 billion.

Pointing out that in August and September, India's exports showed a double digit growth rate, Rangarajan said at an event here that India's trade deficit in the first half of this year was $80 billion as compared to $92 billion in the previous year.
If the present trend in exports and imports continue, the overall CAD will reduce even lower than $70 billion.

Noting that the Indian rupee over the last few weeks had remained stable at around 61-62 against the US dollar, he said the rupee was well corrected for inflation differential.

Referring to the USA's indication of tapering on May 22 and the resultant fall in capital flows, he said this affected capital inflows not only to India but to all the emerging economies including Brazil as investments were moved to the USA.

However, now, there has been a change and investments flows have turned positive, he said.

Finance oil imports via ECBs, Chidambaram tells Moily PTI

Finance Minister P Chidambaram has dubbed Oil Minister M Veerappa Moily's claim of cutting 3 per cent in oil import bill through fuel conservation as "ambitious" and has suggested that more oil imports need to be financed through overseas borrowings to help cut current account deficit (CAD). Moily is set to launch a six-week mega fuel conservation drive on Tuesday, attempted to taper demand, thereby cutting oil import bill by $2.5 billion. He had outlined the drive as well as other measures in a letter to Prime Minister Manmohan Singh and Chidambaram on August 30 saying his initiatives would help save $20 billion in foreign exchange outgo. Responding to Moily's letter, Chidambaram wrote back last week saying the projected savings of foreign exchange on account of various measures proposed are optimistic, official sources said. "While it is recognised that a conservation campaign might result in some reduction in petro-product consumption, the estimates of savings projected at 3 per cent, over and above the proposed crude imports cut, appear to be ambitious," the finance minister wrote. Stating that only $3.75 billion out of the total crude oil import bill of over $160 billion is proposed to finance through External Commercial Borrowings (ECBs), Chidambaram said the possibility of increasing the ECB mode of financing should be explored. India paid about $144.29 billion last financial year for importing oil and this year the outgo is projected at $160 billion. Besides fuel conservation, Moily wants increase in crude oil imports from Iran, which is paid in rupee and will help curtail foreign exchange outgo. Chidambaram also wanted oil companies to be "encouraged to import crude oil from Iran in greater quantities and their imports from Iran be reviewed regularly". As US and western sanctions have blocked all payment routes, India pays Iran in rupees in a Uco Bank branch in Kolkata. Buying more oil from Iran would mean it pays more rupees than dollars it has to pay to other sellers. Sources close to Moily said the conversation drive - which includes the minister and his officials using public transport at least once a week - is aimed at sending a message for conservation down the line. Also, it is aimed at bringing about change in people's mindset and to act as a catalyst in improving public transport system. The government, meanwhile, is grappling with high CAD, the gap between inflows and outgo of foreign exchange. It has set a target to bring down the CAD, which touched a record high to 4.8 per cent of GDP last financial year, to 3.7 per cent level in the current financial year. Moily's other measures included asking state-owned oil firms to keep crude imports at 2012-13 level of 105.96 million tonnes that will save $1.76 billion in foreign exchange. The mega fuel conservation campaign - to limit its consumption growth to last year's 4.1 per cent level - is projected to help prop up the rupee, which has slid sharply against the US dollar this fiscal.

CAD widens to 4.9 per cent of GDP in Q1 on high gold, oil imports PTI

High imports of gold and oil pushed current account deficit (CAD) to 4.9 per cent of gross domestic product (GDP) to $21.8 billion in the April-June quarter of the current financial year.

CAD is the difference between inflow and outflow of foreign exchange.

The deficit had declined to 3.6 per cent in the January-March quarter after touching a record high of 6.5 per cent in the October-December quarter. It was 4.4 per cent (or $16.9 billion) in Q1 2012-13.

"The trade deficit, coupled with a slow recovery in net invisibles (income and services), led to widening of CAD to $21.8 billion in Q1 of 2013-14 from $16.9 billion in Q1 of 2012-13," the Reserve Bank of India (RBI) said in its Balance of Payments statement.

Gold imports increased by $7.3 billion in the first quarter of the current financial year. The imports stood at about 335 tonnes in the April-June quarter.

"Excluding the increase in gold imports of $7.3 billion in Q1 of 2013-14 over the corresponding quarter of the preceding year, CAD would work out to $14.5 billion, which translates into 3.2 per cent of GDP," the central bank said.

RBI said there was a small draw down on country's foreign exchange reserves to finance the CAD.

"On BoP basis, there was a slight draw down in foreign exchange reserves of $0.3 billion in Q1 of 2013-14 as against an accretion of $0.5 billion in Q1 of 2012-13," it said.

During the quarter, while exports declined by 1.5 per cent, imports recorded an increase of 4.7 per cent. The trade deficit widened further to $50.5 billion in Q1 of 2013-14, from $43.8 billion a year ago, RBI said.

The government plans to bring down CAD to 3.7 per cent, or $70 billion, in 2013-14 from 4.8 per cent, or $88.2 billion, in 2012-13.