GDP down to 7.1%

GDP growth slowed to 7.1% for the Q1 (April-June) of 2016-17. It is the lowest in the last 6 quarters. However, India is still the fastest growing major economy while China stands second at 6.7%.

In this post, I will analyse the GDP figures sector-wise to figure out the reasons for underperformance of Indian economy in April-June Quarter.

Troubleshooting the Banking Problems

Efforts to clean up the banking system would be Raghuram Rajan’s greatest legacy when he leaves office on September 4, 2016. In his three years in office, he has not just brought inflation under control but has also made the banks and the government accept the NPA and Bad Debts problem.

The government has become a proactive ally to the RBI. It has taken various measures to help the banks and create an able infrastructure to minimise bad loan problems.

Three important measures in the past few months are:

1. Insolvency and Bankruptcy Code, 2016
2. Rs 70000 crore Capitalisation Plan for Public Sector Banks
3. Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016

The Big Bad Banking problem: NPA

India wants to develop fast. We are the fastest growing major economy and we believe we can go even faster. However, slow credit growth is proving to be a big hurdle. Subramaniam Swami blames the RBI Governor Raghuram Rajan. He argues that RBI governor’s reluctance to slash the interest rates is hampering the credit growth. Mr Swami has even questioned Rajan’s patriotism to prove his point. In reply, Raghuram Rajan has said that slow credit growth is due to the NPAs (Non-Performing Assets) on the balance sheets of public sector banks.

What are NPAs?

Loans and advances are assets for the banks. They are considered performing if they generate income regularly in the form of interests, commissions, etc. When an asset stops generating income for the bank for a period of 90 days, it is termed as a non-performing asset or an NPA.

Negative Interest Rates

What is it? 

A monetary policy tool that sets the nominal target interest rate below the lower bound of zero percent. It effectively means that you pay the bank for storing your money.

Why is it done? 

During deflationary periods, consumption and investments fall. This reduces the aggregate demand and creates a negative pressure on the economy. This happens because people prefer to save and hoard money instead to spending and investing it.

Theoretically, a negative interest rate reduces the lending and borrowing rates and this increases the credit demand. Consumption and investment go up and aggregate demand increases.

Problem solved? Not quite.

Union Budget 2015-16

A CHALLENGE

The Finance Minister of India, Arun Jaitley is set to present the union finance budget 2015-16 on 28^th February 2015. The expectations from BJP’s first full fledged budget since coming to power last summer, are high on both sides i.e. the BJP and the country. The Modi-Shah election juggernaut was stopped this month by Kejriwal and it is being perceived as the end of BJP’s honeymoon period. Understandably, BJP would want a budget that could please one and all, a populist budget. It will help its Bihar and West Bengal campaign later this year and renew the energy of the party that doesn’t want to return to its ‘Ram Mandir politics’ after making ‘Development’ its tagline.

1991 Crisis: Devaluation of Rupee

The past few weeks have seen a lot happening in the world economy; Russia-US sanctions, European crisis scare with Italy slumping into recession, Argentina debt default and the Reserve Bank of India Governor Raghuram Rajan cautioning about another global financial crisis. These events lead to a round of discussions with my friends. One such discussion was about the 1991 Economic Crisis of India.

There was a huge current account deficit and the coffers were empty. One major cause of current account deficit was imports being more than the exports. There wasn’t enough foreign exchange left even to import even 3 weeks of supply. So in 1991, former PM and the then Finance Minister Manmohan Singh, in his historic budget, brought liberalization reforms and devalued the rupee twice in 3 days.

While most of my friends had a fair idea about the LPG policy, the continual reforms and their impacts on Indian economy, just a few knew that the Indian currency ‘Rupee’ was devalued and even fewer knew ‘why?’

In this post, I have tried to shed some light on this lesser known event of the 1991 Crisis, the devaluation of rupee.

Argentina Debt Default Decoded

What is Argentine debt crisis?

Argentina has a dubious history of failing to repay the foreign exchange debt and bonds and had defaulted for 7 times in history. After missing an interest payment on its bonds on June 30, the country had a 30 day grace period to reach a settlement with its holdout creditors — mostly the hedge fund Elliott Management — in order to avoid default. That grace period was up on Wednesday and Argentina defaulted for eighth time on Thursday, 31^st July 2014.

Russia versus The West. Is it a Duel or a Mexican Standoff?

The MH17 crash in the Ukrainian skies has made the Russia-Ukraine crisis very serious. US has imposed heavy sanctions on Russian banks and energy companies. Europe may follow suit, although unwillingly. Here is a brief analysis of the sanctions and their effects on the World Economy.

The New Development Bank

The BRICS leaders met in Brasilia on 15^th July 2014 and signed the long anticipated document to create the $100 billion BRICS Development Bank and a reserve currency pool worth over another $100 billion. Documents on cooperation between BRICS export credit agencies and an agreement of cooperation on innovation were also inked.