This document contain the economic condition of india during october 2013

1. Economic indicator
INR v/s USD:-
INR v/s USD
66.5
70
60
54.8
53.3
54.4
54.3
53.7
56.5
59.1
60.5
62.6
61.7
50
40
30
20
10
0
The rupee has plunged to an all-time low against the dollar which was 68.36 on
28th august 2013.
Steps Taken by RBI to strengthen Rupees against dollar: The Reserve Bank of India (RBI), in order to stall the rupee slide, has
prohibited purchase of real estate by Indians in overseas markets, lowered
the ceiling on outward remittance from $200,000 to $75,000 a year and
increased the import tax on gold from 8% to 10%.
 Any approved agency importing gold should ensure that at least 20% of the
imported metal is used for exports.
 The Reserve Bank today reduced the limit for overseas direct investment
(ODI) by domestic companies, other than oil PSUs, under automatic route
from 400 per cent of the net worth to 100 per cent.
 The Reserve Bank of India (RBI) will provide dollars directly to state oil
companies in attempt to support the rupee that has slumped over 20 percent
this year. State-run companies are the biggest source of dollar demand in
markets - worth $400 million to $500 million daily - and directing them to a
special window is meant to reduce pressure on the rupee.
1
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2. Economic indicator
 In a bid to attract NRI deposits, the RBI liberalized bank deposit schemes
and some banks raised rates for overseas Indians this month.
 To spur banks to attract more dollar deposits from NRIs, the RBI has
exempted deposits from cash reserve ratio and statutory liquidity ratio
requirements.
 PSU oil companies would be allowed to raise additional funds - $4 billion through external commercial borrowings (ECBs).
 The RBI has tightened the norms for gold imports by linking them to
exports. Also, credit availability for gold imports has also been tightened.
 The RBI will sell Rs. 22,000 crore bonds every week to check the volatility
in forex market.
Foreign Exchange Reserve:Foreign Exchange Reserves also known as Official Reserves and International
Reserves are the foreign assets held or controlled by RBI. The reserves themselves
can either be gold or a specific currency like the dollar or the euro. They can also
be special drawing rights and marketable securities denominated in foreign
currencies like treasury bills, government bonds, corporate bonds and equities and
foreign currency loans. The reserves are generally used to finance the balance of
payments imbalances or to control exchange rates.
Foreign exchange Reserve in USD Billion
300
295
296.3
292.6
287.8
290
284.6
285
280.1
280
275.4
277.3
276.2
20 sep
2013
27 sep
2013
277.7
279.2
281.1
282.9
275
270
265
260
29 mar
2013
1
26 april
2013
31 may
2013
28 june
2013
26 july
2013
30 aug
2013
4 oct
2013
11 oct
2013
18 oct
2013
Ruchi Gupta
gupta.ruchi93@gmail.com
25 oct
2013

3. Economic indicator
Inflation Rate:In India Inflation is a persistent rise in the price level in an economy. The price
level refers to the average price of goods and services in the economy. Inflation
arises when the demand for goods and services in an economy exceeds the supply
of same.
Inflation Rate(WPI)
8
7.24
7.28
7.18
6.62
7
5.79
5.65
6
6.1
7
6.46
5.16
4.77
4.58
Apr-13
May-13
5
4
3
2
1
0
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Inflation in India unexpectedly hit a seven-month high in September as food prices
climbed, increasing the odds for yet another central bank interest rate hike even as the
economy stumbles through its worst crisis since 1991.
The wholesale price index (WPI), India's main inflation measure, climbed to 6.46
percent last month - its fastest rate since February - pushed up by food prices such as a
322 percent jump in onion prices.
Effects of Increase in inflation are: When inflation in a country is more than that in a competitive country, the
exports from former country will be less attractive compared to the other
country.
 When Inflation increases the currency of that country depreciate.
 Inflation will also affect interest rate levels. The higher the inflation rate, the
more interest rates are likely to rise.
 When inflation increases the investment made in stock market, treasury
notes, and certificates of deposit become less attractive as these investments
1
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4. Economic indicator
offer low interest rates that are usually lower than the inflation rate. The low
interest rates and negative returns make investing in gold an attractive option
for many investors.
Import and Export:A good or service brought into one country from another. The higher the value of
imports entering a country, compared to the value of exports, the more negative
that country's balance of trade becomes.
Export means when goods produced in one country are shipped to another country
for future sale or trade. The sale of such goods adds to the producing nation's gross
output. If used for trade, exports are exchanged for other products or services.
IN USD Billion
140.0
120.0
100.0
111.1
99.8
114.6
112.4
120.2
126.9
126.0
124.4
122.9
100.5
90.2
80.0
62.2
64.7
67.0
Apr-jun
(2011)
july-sep
oct-dec
80.3
72.6
72.3
69.1
68.1
jan-mar
apr-jun
(2012)
july-sep
oct-dec
73.1
60.0
40.0
20.0
0.0
Import
jan-mar
apr-jun
(2013)
july-sep
Export
(Taking USD equal to INR 55)
1
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5. Economic indicator
Gross Domestic Products:The monetary value of all the finished goods and services produced within a
country's borders in a specific period of time.
A common equation for GDP calculation is: GDP = Private Consumption +
Government + Investment + Net Exports (or simply GDP = C + I + G + NX)
where C is private consumption or consumer expenditure, I is business
investments, G is government expenditure, NX is gross exports - gross imports.
For calculation of GDP, net interest expenses in financial sector are added to GDP.
% change in GDP
9
8
7.7
6.9
7
6.1
6
5.3
5.5
5.3
4.7
5
4.8
oct-dec
jan-mar
4.4
4
3
2
1
0
april-jun
(2011)
july-sep
oct-dec
jan-mar
april-jun
(2012)
july-sep
april-jun
(2013)
For the April-to-June quarter in 2013, it grew at a rate of 4.4%, compared with the
same period in the previous year. It was a weaker performance than most
economists had been expecting and was a slowdown from the first three months of
the year, when growth was 4.8%. A contraction in mining and manufacturing
activity was behind the slowdown.
1
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6. Economic indicator
Current Account Deficit:Current account Deficit Occurs when a country's total imports of goods, services,
earning on investment and transfers is greater than the country's total export of
goods, services, earning on investment and transfers. This situation makes a
country a net debtor to the rest of the world.
CAD = Balance Of trade + Net Income Abroad + Net current transfers
35
30
25
20
15
10
5
0
CAD in USD Billion
18.9
19.6
14.1
22.3
21.7
16.4
32.63
18.17
21.8
The main reason for increase in CAD is high imports of gold and oil pushed CAD
from $18.17 billion in Jan- March quarter in 2012-13 to $21.8 billion in the AprilJune quarter of this fiscal.
Effects of Increasing CAD are: Currency depreciation.
 Outflow of foreign currency due to fears of value erosion, leading to
further economic deterioration.
 Reduction of credit rating of the country affecting foreign investment.
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7. Economic indicator
Liquidity Adjustment Facility (LAF)
Liquidity adjustment facility (LAF) is a monetary policy tool which allows
banks to borrow money through repurchase agreements. LAF is used to aid
banks in adjusting the day to day mismatches in liquidity.LAF consists of repo
and reverse repo operations. The collateral used for repo and reverse repo
operations comprise of Government of India securities.
The overall limit for access to LAF by each individual bank is set at 0.5 per
cent of its own NDTL outstanding as on the last Friday of the second
preceding fortnight.
Repo Rate and Reserve Repo Rates:Repo rate is the rate at which the central bank of a country (Reserve Bank of
India in case of India) lends money to commercial banks in the event of any
shortfall of funds.
Reverse repo rate is the rate at which the central bank of a country (Reserve
Bank of India in case of India) borrows money from commercial banks within
the country. It is a monetary policy instrument which can be used to control the
money supply in the country.
9
8
7
7.75
6.75
7.5
7.5
7.25
6.5
6.5
6.25
7.75
6.75
6
5
4
3
2
1
0
29-jan-2013
19-mar-2013
3-may-2013
Repo Rate
1
20-sep-2013
29-oct-2013
Reserve Repo Rate
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8. Economic indicator
Marginal Standing Facility (MSF)
Marginal Standing Facility (MSF) refers to the penal rate at which banks can
borrow money from the central bank over and above what is available to them
through the LAF window.
MSF, being a penal rate, is always fixed above the repo rate. The MSF would be
the last resort for banks once they exhaust all borrowing options including the
liquidity adjustment facility by pledging through government securities,
Banks can borrow through MSF on all working days except Saturdays, between
3.30 and 4 30 p.m. in Mumbai where RBI has its headquarters. The minimum
amount which can be accessed through MSF is Rs.1 crore and in multiples of Rs.1
crore. (Rs 1 crore = Rs 10 million).
RBI has raised the borrowing limit under the MSF from 1 per cent to 2 per cent of
their NDTL outstanding at the end of the second preceding fortnight wef 17th
April 2012.
NDTL: - Net demand and time liability
It includes:Time
liabilities




Demand
liabilities




1
Money deposited in Fixed deposits (FD)
Cash certificates
Gold deposits.
Staff security deposit. E.g. in some banks when you join as
Probationary officer, you’ve to sign bond worth RS.1-2 lakh
rupees.
Money deposited in savings account
Money deposited in current account
Demand drafts
unclaimed deposits;
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9. Economic indicator
MSF rate
12
10
8.25
8.5
9
9.25
9.5
10.25
9
8.75
8.5
8.25
9.5
9
8.75
8
6
4
2
0
MSF rate
Monetary and Liquidity Measures taken by RBI
Following an assessment of the evolving macroeconomic situation, the Reserve Bank
has decided to:
 Reduce the marginal standing facility (MSF) rate by 25 basis points from 9.0
per cent to 8.75 per cent with immediate effect;
 Increase the policy repo rate under the liquidity adjustment facility (LAF) by 25
basis points from 7.5 per cent to 7.75 per cent with immediate effect
 Keep cash reserve ratio (CRR) unchanged at 4.0 per cent of net demand and
time liability (NDTL); and
 Increase the liquidity provided through term repos of 7-day and 14-day tenor
from 0.25 per cent of NDTL of the banking system to 0.5 per cent with
immediate effect.
Consequently, the reverse repo rate under the LAF stands adjusted to 6.75 per cent
and the Bank Rate stands reduced to 8.75 per cent with immediate effect. With these
changes, the MSF rate and the Bank Rate are recalibrated to 100 basis points above
the repo rate.
1
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10. Economic indicator
MAJOR HAPPENINGS AROUND THE WORLD
Fiscal deficit in April-August touches nearly 75% of budget estimate:The fiscal deficit, which is the difference between government receipts and
spending. The government's fiscal deficit in the first five months of the ongoing
financial year has already touched 74.6 per cent of the budget estimate or 4.04 lakh
crore in April-August.
But in previous financial year the fiscal deficit reached 65.7 per cent of the budget
estimate in the April-August period of 2012-13.
Net tax receipts for the first five months of the fiscal year touched Rs 1.8 lakh
crore, while total expenditure was Rs 6.62 lakh crore. With aim to stick to fiscal
deficit target, the government had announced slew of austerity measures including
reduction in non-plan expenditure, ban on holding seminars in five-star hotels and
creation of new jobs.
MSME ministry to ask banks' heads to improve credit flow to sector
The Ministry of Micro, Small and Medium Enterprises will soon convene a
meeting of chiefs of banks to persuade them to improve flow of credit to
the MSME sector.
The Prime Minister's Task Force on MSMEs had recently recommended 20 per
cent year-on-year growth in credit to micro and small enterprises to ensure
enhanced credit flow.
However, most of these units still face problems in getting easy access to finance.
Major factors affecting growth of the sector include shortage of working capital,
lack of demand, marketing problems, shortage of raw-material, power crunch and
labour issues.
1
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11. Economic indicator
Government cuts tariff value on imported gold, silver
The government reduced the import tariff value of gold and silver to $418 per 10
gm and $699 per kg, respectively, in line with global rates.
The tariff value, the base price at which the customs duty is determined to prevent
under-invoicing, stood at $436 per 10 grams for gold and $702 per kg for silver
during the last fortnight.
India, the world's largest consumer of gold, imported about 860 tonnes of gold in
2012. The government has taken several steps to reduce gold imports including
hike in custom duties.
India may dip into forex reserves to finance CAD: World Bank
India may have to dip into its foreign exchange reserves to finance the current
account deficit (CAD) in 2013-14, the World Bank said.
C Rangarajan, Chairman of the Prime Ministry's Economic Advisory Council, had
said India may have to draw about USD 9 billion from its foreign exchange
reserves to finance the CAD.
The CAD for the first quarter of the current financial year was USD 21.8 billion, or
4.9 per cent of gross domestic product, driven by sluggish exports and
high gold imports in April and May.
The government plans to narrow the CAD to USD 70 billion, or 3.7 per cent of
GDP, in 2013-14 from USD 88.2 billion, or 4.8 per cent, in 2012-13.
RBI allows third-party payments for export, import transactions
Easing procedures, the Reserve Bank allowed third-party payment for export and
import transactions.
With a view to further liberalise the procedure relating to payments for
exports/imports, banks are allowed payments for export of goods/software to be
received from a third-party, the RBI said. Banks are also permitted to make
payments to a third-party for import of goods.
Third-party refers to an entity other than the buyer or the seller.
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12. Economic indicator
However, banks would have to follow certain conditions. Third-party transaction
should take place through the banking channel and with a Financial Action Task
Force (FATF) compliant country.
RBI allows unlisted firms to raise funds abroad
 Reserve Bank of India (RBI) has said unlisted companies can directly list on
stock exchanges abroad to raise funds for acquisitions or retiring overseas
debts, a move which may help India containing high current account deficit.
 As of now, unlisted companies are not allowed to directly list in overseas
markets without prior or simultaneous listing in Indian markets.
 "On a review, it has now been decided to allow unlisted companies
incorporated in India to raise capital abroad, without the requirement of prior
or subsequent listing in India, initially for a period of two years
 However, such companies can list abroad only on exchanges in International
Organization of Securities Commissions (IOSCO)/ Financial Action Task
Force (FATF) compliant jurisdictions or those jurisdictions with which
SEBI has signed bilateral agreements.
 The capital raised abroad may be utilized for retiring outstanding overseas
debt or for bona fide operations abroad including for acquisitions.
 In case the funds raised are not utilized abroad, it said, the company should
repatriate the funds to India within 15 days and park it with scheduled bank.
 The scheme will come into force once it is notified by the government.
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