Notes on Indian equities, sectors and economy

Posts Tagged ‘Narendra Modi’

RBI’ Revenge

Posted by fairval on October 28, 2017

India’s real interest rates are at rates rarely, if even, seen in its history. Why does RBI not lower rates? Revenge for getting screwed on Demo?

When demonetisation (DeMo) was announced by Prime Minister Narendra Modi (NaMo) in a dramatic press conference on 8th November 2016; several commentators said it was a bad move. The subsequent shoddy implementation and its inability to reveal any immediate black money – notes came back into the banking system – heightened the criticisms. Today, almost one year down the line, it is almost universally acknowledged that DeMowas a failure.

While the NDA government has faced flak for it, the central bank Reserve Bank of India (RBI) has faced even more criticism. When DeMo was announced, RBI had just passed under a new leader. The resignation was the previous governor – posterboy Raghuran Rajan (RR) – was mourned by many. Experts said NaMo had let RR go because he wanted a pliable chief. RR had crossed the line by making political observations; he was giving indications of being anti-NaMo.

When DeMo was announced, the experts immediate said ‘RR wouldn’t have done it’. The new RBI governor immediately became painted as a sinner; someone who sort of lowered the independence of the RBI. The ‘experts’ were also clear – from now on, RBI would dance to the tunes of the government.

Well, a year since DeMo, nothing of that sort has happened. RBI refuses to dance. Despite a slowing economy, and hugely comfortable inflation situation, RBI refuses to lower interest rates. The result – India’s real interest rates are at levels perhaps never seen before in Indian history.

Remember India has always been a high inflation country, and for most parts, we have operated in zone of negative real rates. But now, our real rates are above 4.5%. While one has not seen history of real rates since last few decades it is likely these levels could be all time high. When economy has clearly slowed, should they be so high? This level is also much higher than other countries (see chart below)


The Economic Survey (vol 2) released in Aug’17 by Ministry of Finance has a detailed section explaining the situation on real interest rates and suggesting how much should interest rates go down. Says the Survey – Cyclical conditions, then, suggest that the policy rate should actually be below—not 50-100 basis points or so above—the neutral rate. The conclusion is inescapable that the scope for monetary easing is considerable, more than that suggested by comparison with neutral interest rates.

So why is RBI not listening? Is it the RBI trying to leave no doubt in anyone’s mind about its independence? Or worse, is it trying put the government down for destroying its reputation with Demo? RBI’s revenge?


Posted in Indian Economy | Tagged: , , , , , , , , , , , , , | 2 Comments »

Not Big Policy, Modi needs to get bureaucracy reforms right

Posted by fairval on November 13, 2014

Of late, several articles have begun to appear in the media about – Where are the Big Reforms?

It does not matter whether Big Policy changes come or not, unless we kick the butt of Indian bureaucracy, nothing will change in India. Notice this extract from an article in today’s Economic Times. this is an interview of the owner of Huntsman Chemical, a global leader in chemical industry

While manufacturing in India has its advantages, (Huntsman says he is clear that his firm’s interest is not due to cheap labour), the firm is among the many multinationals and domestic firms who have been at the receiving end of bureaucratic delays.

The firm shuttered a plant in Chennai after the local pollution control board delayed clearances. A second plant in Ankleshwar in Gujarat got its clearance only recently after a three-year delay. The Huntsman experience should ring a warning bell to bureaucrats and ministers in the establishment who are pushing Make in India aggressively. 

Posted in Indian Government, Make In India | Tagged: , , | Leave a Comment »

No Modi wave in Delhi Bureaucracy

Posted by fairval on November 12, 2014

Poor Modi may not be able to do much better than previous PM Manmohan. The entrenched sloth in bureaucracy will ensure that. I am writing this from personal experience. A client of ours applied for FIPB approval over 4 months ago. This was for FDI into a manufacturing unit. 4 months on, we have no f__king clue of what is going in inside FIPB. The process is too damn opaque. You apply online, but after that it is the same old file system. It seems there is a guy in FIPB, who then sends a physical file to various departments. In this case, the file has gone to many departments which have no role to play. Our client was recently in Delhi trying to trace what was holding the whole issue up. We found several shocking things, like —

  • The file went to some departments where it should not have been sent. These guys were saying – we don’t know why this has come to us. So it seems 1-2 of them simply tossed it aside and did nothing.
  • Amazing, one guy retired in this period, and the file was lying on his desk!

According to the way the govt functions, if the file does not come back from whom it was sent to, next step cannot be taken. So nothing was happening on this case for 2-3 months. Our client is still trying to find out how many other places the file has gone too, and people are simply sitting on it, because the file should not been sent to them in the first place! If this is how bureaucracy is functioning, Modi can’t do much.

Posted in Indian Economy, Indian Government, Make In India | Tagged: , , | Leave a Comment »

Only 3-4 states have solvent electrical utilities in India

Posted by fairval on July 27, 2013

Found some data on finances of Indian electric utilities and they make for abysmal reading. Only about 4 states seem to have positive financials. Of these, 2 get touted for good governance – Gujarat and Delhi, and the chief ministers Narendra Modi and Sheila Dikshit have won 3 times in a row.

West Bengal and Kerala seem to have consistent positive performance. This was a bit of a surprise, given the long communist history of these states. The other state touted for good governence – Bihar – has very poor performance here. No sign of loss reduction either. The worst is Tamil Nadu, where the two parties are only concerned by distributing freebies and coming to power.


Gujarat scores highly in power availability also. Delhi’s performance here has to be discounted, becos, as India’s capital, it is likely to get assured supply in any case.  But given the stories of power blackouts in Delhi, not clear how true is the data here. Bihar and TN have no power either. So Nitish’s claims about good governance need to be taken with a pinch of salt.


Posted in Infrastructure | Tagged: , , , , , , , , | 1 Comment »