Macroeconomic conditions deteriorated during 2012-13: RBI

23082013

Macroeconomic conditions deteriorated during 2012-13: RBI

(Slowing growth, lingering inflation pressures and risks from persisting twin deficits)

The year 2012-13 was marked by slowing growth, lingering inflation pressures and risks from persisting twin deficits. Policy efforts helped contain fiscal deficits and moderate inflation towards the later part of the year. However, significant challenges remain ahead for reviving growth while maintaining macro-financial stability. In this context, it becomes important to address structural constraints to growth, improve governance, address asset quality concerns and correct external imbalances.

The Annual Report 2012-13 released by Reserve Bank of India states that the year 2012-13 was marked by slowing growth, lingering inflation, large fiscal and current account gaps and deteriorating asset quality. With growth decelerating further and staying below trend for the second consecutive year, ordinarily the policy response would have been an accommodative monetary policy. Persisting inflation was eroding the competitive efficiency of the economy and lowering the financial savings of households with its adverse consequences for the CAD, investment and long-term growth.  Causes for economic slowdown – Growth decelerated further in 2012-13 to a 10-year low of 5%. The slowdown also became more pervasive across sectors, including services. Growth had averaged 8.8% during 2005-06 to 2010-11, despite a low of 6.7% in 2008-09 due to the external shock. Growth slowdowns are typically associated with cyclical or structural shocks that are often called real business cycle shocks in economics. The former are transitory, while the latter are more persistent because by nature they last until newer, lasting shocks take growth to a different level of output in either direction. Cyclical shocks are in the nature of upswings and downswings in growth or in terms of booms and busts. Permanent shocks are generally associated with real business cycle proponents, such as productivity changes, demographic changes, wars, natural calamities, structural deficits and other structural factors. Over the past two years, although part of the slowdown has been driven by cyclical factors, structural constraints have played a major role in the slowdown. The slack in manufacturing activity was largely due to poor investment on the back of structural issues facing the infrastructure sector. In addition, global factors played an important role in the current growth slowdown. Global growth decelerated to 3.1% in 2012, the lowest since the 2009 contraction that followed the global financial crisis. Likewise, global trade decelerated sharply to 2.5% from 6% in the preceding year and 12.5% a year ago. Consequently, external demand fell and revival was difficult.  Persistence of Inflation – The year 2012-13 was marked by headline WPI inflation ruling at a lower level than in the previous two years. On an average basis, headline inflation came down to 7.4% from 8.9% in 2011-12 and 9.6% a year ago. Headline inflation, after receding in Q4 of 2011-12, exhibited persistence at that relatively lower level. This persistence mainly reflected high food and fuel inflation almost throughout the year. So, although non-food manufacturing inflation receded further during H2 of 2012-13 due to softer global commodity prices and a fall in demand-side pressures, the overall WPI inflation exhibited a fair degree of persistence. The year saw the negative output gap helping to moderate inflation, but encountering resistance amid supply-side constraints. Food inflation originated from an unusual spike in vegetable prices during February–April 2012, a rise in cereal prices later in the year due to the delayed monsoon and a significant increase in minimum support prices (MSPs). Fuel inflation largely reflected the impact of administered price changes during the year, with some of the suppressed inflation coming to the fore.Fiscal imbalances and the reversal  – Fiscal developments during 2012-13 were split into two halves. The period H1 of 2012-13 was characterised by a fiscal slippage to a degree that it could have undermined macro-stability. However, H2 of 2012-13 was marked by an equally remarkable fiscal retrench, although in the face of a significant overshooting of subsidies from the budget estimate, the burden of adjustment fell disproportionately on plan revenue expenditure and on plan and non-plan capital expenditure. The fiscal correction in the second half of the year resulted in a significant reduction in the gross fiscal deficit (GFD) to 4.9% of GDP in 2012-13 from 5.7% in 2011-12.External sector vulnerabilities – External sector vulnerabilities came to the fore in 2012-13, as the CAD widened to a historic peak of 4.8% of GDP on top of an already high level of 4.2% in the previous year. The widening of the CAD was largely the result of high oil and gold imports and moderation in export growth. In order to contain gold imports, import duties on gold were doubled from 2% to 4% in March 2012, raised further to 6% in January 2013 and then hiked to 8% in June 2013. Further, in August 2013, custom duties on gold, platinum, refined gold bars and silver bars were hiked by 2% points each, taking the import duty on gold to 10%. With slowing growth over the past two years, external sector sustainability concerns came on the horizon. During 2012-13, India ’s external debt rose by about US$ 45 billion to US$ 390 billion.  Prospects for the year 2013-14 – The year 2013-14 has begun with tumultuous changes. After early signs that growth was picking up in the US and Japan, the indication by the Fed that it would unwind part of the monetary stimulus earlier than anticipated, has led to tightening in financial conditions. Bond yields firmed up across the curve and across geographies, and brought further changes in other asset prices. Currencies of the Emerging Markets and Developing Economies (EMDEs) depreciated speedily, not just of the current account deficit economies but also for some current account surplus economies. This, in turn, led to a decline in equity prices as portfolio shifts occurred from EMDEs to US markets. Global commodity prices, which had exhibited a softer bias during February–April 2013, firmed up temporarily. Political unrest in parts of the Middle East also put upward pressure on global oil prices.  These global spillovers affected India , like many other EMDEs. After the Fed Chairman’s comments on May 22, until July 15, 2013 foreign institutional investors (FIIs) on a net basis disinvested US$ 8.3 billion of their bond portfolio and US$ 2.1 billion of their equity portfolio in cash markets in India. The resultant net outflows brought the rupee under immense pressure. Considering the heightened exchange rate volatility, the Reserve Bank announced measures to stabilise the rupee on July 15, 2013 which were later modified in July 23, 2013. The emerging macroeconomic scenario for the year 2013-14 is challenging amid the wide CAD, risks to fiscal targets, persistence of high consumer price inflation, risk of exchange rate depreciation feeding into inflation, slowing growth and deteriorating asset quality.  The Annual Monetary Policy Statement for 2013-14 of May 3, 2013 projected the baseline GDP growth for 2013-14 at 5.7% conditional upon a normal monsoon, revival in domestic investment and global growth and projected WPI inflation to be range-bound around 5.5% during 2013- 14, keeping in view the domestic demand-supply balance, the outlook for global commodity prices and the forecast of a normal monsoon. As such, macroeconomic and monetary policies need to be carefully calibrated to achieve the immediate objective of maintaining stability without compromising growth.  Going forward – Indian economy is currently going through a difficult period. However, the problems are not unique to India . Growth has also slowed down in many other EMDEs. What is important at this stage is to preserve India ’s growth potential by arresting the downtrend and maintaining stable macroeconomic conditions. For this, the focus need to be on implementation of measures aimed at removing structural constraints so that production and investment activity could gather momentum. This is important, because spillovers from global growth and financial market conditions can only account for a part of the slowdown. Current slowdown has been accentuated by structural factors that have come in the way of smooth adjustment through pure demand management policies. With consumer price inflation, fiscal deficit and current account deficit being amongst the highest in EMDEs, the need to preserve macroeconomic stability has emerged as a binding constraint.  As such the momentum of recovery could come from reengineering focus on unclogging the stalled investment projects, giving an impetus to investments in key infrastructure sectors, supporting productivity enhancements by technology enhancements, bringing in more managerial efficiencies and supporting research and development. Inherently, the Indian economy has several strengths including its natural endowment and demographic dividends. Simple institutional reforms such as better regulation of natural resources, improved harnessing of water resources, investing more in skill formation, digitalising land records, land consolidation, better integration of regional agricultural markets, freer labour markets and more competitive domestic markets can go a long way in improving India’s potential as well as actual growth. As such, efforts in the direction of macroeconomic stability and structural reforms can pave the way for the recovery.   Warm regards,  Dr. S P Sharma

Barack:Make college more affordable for American families.

By sagarmedia on August 23, 2013 | Edit

Naresh –

Michelle and I wouldn’t be in the White House today if it weren’t for our college educations.

It wasn’t cheap. We didn’t finish paying off our student loans until about nine years ago.

That’s why it’s been a personal mission of mine to make higher education more affordable for more Americans — and starting today, I’m hitting the road to talk about real reforms to fundamentally rethink how we pay for college in this country.

I’m asking you to speak out as well.

Stand with me today — tell Congress you support real action to make college more affordable for American families.

Right now, the average student who takes out loans to pay for school graduates with more than $26,000 in debt. Something’s got to change — it’s not enough just to tinker around the edges. We’ve got to shake up the current system.

My plan won’t be popular with everybody, especially those who profit from the way things are. But we owe it to our students to make sure that our colleges are working for them.

While we’ll need Congress’ help to get some of this done, my administration will continue to do what we can to make sure quality, affordable higher education is in reach for millions more young Americans.

So far, we’ve taken some good steps forward. We’ve published college scorecards to ensure that families are getting the best information as they pick a school, doubled funding for Pell grants, and established a college tax credit. And thanks to the income-based repayment program, which caps student loan payments based on new graduates’ incomes, 1.6 million young Americans can keep more money in their pockets.

But there’s much more we can and should do — this is key to creating a better bargain for the middle class.

That’s something I’ve talked a lot about — every day, I think about what I can do to live up to it. 

That’s why I’m calling on Congress to tackle rising tuition costs and pass reforms, so families can get a better bargain when it comes to getting a world-class education.

I’m counting on OFA supporters to be part of this fight. Not much gets done in Washington without the voices of people like you.

Add your name:

http://my.barackobama.com/College-Should-Be-Affordable

Thanks,

Barack

Nokia Threaten Pullout

An Opinion of the author.  Ravinder Singh
August23, 2013

India has become the “least favourable market”, and it now
makes business sense to exit and export from China, Finnish major
Nokia has told the government. In a letter written this June, Nokia
cautioned that the “political risk” of operating in India may impact
future investment decisions.

Nokia urged the government to “act quickly to correct the wrong
perception of India as a place for business”.

The telecom multinational’s caveat came in the wake of fresh income
tax disputes and delay in the refund of VAT. It is ominous in the
current economic scenario in which foreign direct investment has
become a trickle, institutional investors have been pulling out, and
several investors have refused to take the plunge after wetting their
toes.

In a ‘non-paper’ dated June 19, 2013, Nokia sent a harsh, terse
message to the Ministry of Commerce & Industry: “India has suddenly
become the least favourable market.”

Technically, a non-paper is an unofficial document. It was received by
the finance ministry last month.

It said that the non-refund of value-added tax by the Tamil Nadu
government made it “more cost efficient for Nokia to have transferred
the manufacture of mobile phones to China and to import them to Indian
market rather than manufacture them in Chennai”.

Under an MoU signed with Tamil Nadu, the state was to refund the four
per cent VAT Nokia pays on phones sold in the domestic market from its
plant in the SEZ. The issue reached a flashpoint after currency
fluctuations and China-Vietnam competition started eroding thin
margins, especially in the low-end models.

“The state has not issued a government order in accordance with the
MoU,” Nokia wrote in the non-paper.

The company has also mentioned the bilateral tax treaty between India
and Finland, under which the software business is to be taxed in
Finland, where Nokia is based.

In March, the finance ministry had served a retroactive income tax
demand of Rs 2,080 crore on Nokia. The I-T department asked the
company to pay the tax evaded on its royalty payment to Finland-based
parent Nokia Oyj for downloading software on mobile devices
manufactured at its Sriperumbudur facility since 2006.

This, Nokia has said, violates the bilateral tax treaty between the
two countries. “Nokia does not think India can override its
international obligations and the mutual tax treaty, by introducing
retroactive domestic laws without greatly disturbing the trust
international business in India,” it wrote.

“Taxation”, it said, “should not drive business decisions on locating
operations, but current tax claims against Nokia and other
multinational companies operating in India have too great an impact on
the predictability and certainty of Indian business environment to be
ignored.

“The political risk of operating in India has therefore become
suddenly substantially higher and may inevitably influence future
decisions to develop one’s operations in India.” Companies involved in
tax disputes in India include Cadbury Plc, Royal Dutch Shell, Vodafone
Plc and LG Electronics Inc.

Nokia said: “A holistic view is needed to understand the big picture
and to ensure that possible short term benefits of aggressively
changed fiscal policies do not override long term policies to develop
Indian economy, create growth and jobs by attracting investments into
India with predictable business environment as has been done in the
past...

“It is very important that the Indian government corrects quickly
these surprising actions of individual tax authorities against Nokia
to restore the trust of Nokia and other multinational companies in
India as a good place of business.”

Asked for a comment on the document sent to the government, Nokia
spokesperson Poonam Kaul said over the phone on Thursday evening: “How
will I know (about the non-paper)? It may have been sent by Nokia
Finland. We have no concerns with the government. We had some
challenges, but that is a public issue. The tax matter is sub judice.
We can’t comment.”
WHY NOKIA MATTERS

* Chennai handset production facility, set up with an investment of $
285 million, is Nokia’s largest in the world

* Nokia employs over 8,000 workers directly, and provides indirect
employment to more than 30,000 people

* Has been in India since 1995, Indian firms play an important role in
Nokia’s content ecosystem

* In 7 years, Chennai facility has crossed the 800 million production
milestone, even though Samsung has just beaten Nokia as India’s
largest cell phone maker.


It is bad governance when State and Center demand tax payment against
tax free schemes or projects and offering Refunds after considerable
delay.

NOKIA threatening to relocate in China is very unfortunate.

It is the duty of GOI to protect Foreign Investors in India who have
invested in Plant & Machinery and created thousands of full time jobs.

VAT should not be charged on products made in SEZ when TN State
Government had assured no tax on Domestic Sale.

I think TN government should resolve the issue immediately when
Narendra Modi is ready with Cash and Land and Incentives to lure NOKIA
to Gujarat.

CAG defamation Campaign and Unfortunately even the Supreme Court
was swept away by the grand mischief.

In the case of 2G we found most Shameful consequences of spectrum for
2G outdated technologies was priced almost twice than 500 times more
efficient 4G technology.

Add to the above unlike commodities where quantity and quality differ widely
there is uniformity in Spectrum allocated.

CAG for example in 4000 MW UMPP projects in MP over DELIBERATELY
looked two things - first the PPA signed by MP government for
Chatrangi Project was at two times than bid price committed by
Reliance Anil Ambani for SASAN project (Rs.2.45/kwh to Rs.1.19/kwh)
and second Coal Deposits were 10% more than committed and of 10% to
12% better quality that attracts 20% to 25% higher price.

This together is well over Rs.5,00,000 crore Real SCAM in just one
4,000 MW, Chatrangi project.

Chatisgarh, MP and Gujarat had promoted over 100,000 MW projects.
 REAL loot is in PPA signed by these states with private
developers  without even providing for Transmission Lines.

When CAG itself reported 'Virtual Losses over 20 Years' Immature or
Incompetent Supreme Court believed Rs.1,76,000 crores have already
been robbed even before most operators had barely started the roll
out.

'Higher bandwidth 10 Gigabit Ethernet standards have since become
available as the IEEE ratified a fiber-based standard in 2002, and a
twisted pair standard in 2006. As of 2009 10Gb Ethernet is replacing
1Gb as the backbone network and has begun to migrate down to high-end
server systems.'

I fact I was using 100 mbps ethernet as early as 2003 though service
providered delivered just 64kbps. But when ISP provided direct service
in case of their server problem I was getting over 50 mbps data flows
much faster that 3G or 4G services likely to be operated. This
ethernet was retailed for only Rs.300/ in 2003.

In 2002 Telecoms laid countrywide Optic Fibrer network that could have
provided Broad Band, IPTV, Telecom, VoIP and IT services at
practically no cost compared to $400b annual imports bill for imported hardware by
2015. Wire Ethernet based technology is faster than even 3G and 4G and
could have developed and deployed by Indians.

Pramod Mahajan BJP Telecom Minister alone is $Trillion Liability to India.

Ravinder Singh
Inventor & Consultant
progressindia008@yahoo.com

Dear Naresh, It's back-to-school time for children, adolescents, and young adults in many countries across the world. Once these students have returned to their classrooms, however, it’s unlikely that they’ll be learning about food and nutrition. According to Jamie Oliver’s Food Revolution, in the United States alone, elementary school students only receive an average of 3.4 hours of food education per year. But it's more important than ever to educate and engage kids in the food system, especially as farming populations age. The U.S. Department of Agriculture (USDA) reports that the average age of an American farmer is 57 years old, and 60 percent of farmers in the country are over the age of 55.  All over the world, the farming population is diminishing, and this is a crucial moment for youth to realize the importance of farming and become involved in all aspects of the food system--from producing and processing food to becoming agronomists, scientists, chefs, and policy-makers. Jon Previant, Executive Director of The FARM Institute, said it best in an interview with Food Tank: “Kids spread the fever.” Food Tank has compiled a list of 14 initiatives that are educating youth about agriculture, and creating a genuine interest in safe, sustainable, and healthy food. 1. Edible Schoolyard Project Kids are excited to get involved in building gardens, like the one that began the Edible Schoolyard Project in Berkeley, California. Co-founded 17 years ago by Alice Waters, famous chef and Vice-President of Slow Food International, the project brings together students, teachers, parents, and community members to to grow more than 100 varieties of crops. The schoolyard now boasts a chicken coop and two rainwater cisterns. 2. Farm Africa Farm Africa has begun a farm training program for rural Kenyan youth, growing vegetables, mushrooms, and passionfruit. Farm Africa also teaches students how to get the best price at market and encourages them to get involved in local governance. 3. The FARM Institute The institute provides education about sustainable farming to children and adults. Located in Martha’s Vineyard, Massachusetts, the FARM Institute encourages experiential learning--kids learn by actively growing, preparing, and eating food on the farm. 4. The Farming Kindergarten Scheduled to open in September 2013, the Farming Kindergarten in Dong Nai, Vietnam, is designed as a prototype of tropical sustainable education spaces. It will provide food and agriculture experience and a safe outdoor playground to Vietnamese children in a suburb of Ho Chi Minh City. 5. Green Youth Farm Every year, the Chicago-based Green Youth Farm hires 60 high school students from ages 15 to 18 to work from mid-May to mid-October on an organic farm, managing bees, selling produce at markets, and cooking with the produce they’ve grown. 6. Jamie Oliver’s Food Revolution Jamie Oliver’s organization has been drawing national attention to the problem of unhealthy school meals and the lack of food-related education children receive in school. Along with improving school meals, Oliver’s program has launched a network of community kitchens that provide cooking classes, in-school cooking lessons for kids, and support to parents lobbying schools for better food. 7. Junior Farmer Field and Life Schools (JFFLS) The U.N. Food and Agriculture Organization (FAO), in partnership with the International Labour Organization (ILO), has programs in Kenya, Uganda, Antigua, and Barbuda in Junior Farmer Field and Life Schools as part of their “Strategic Plan for Youth Development/Involvement in Agriculture.” FAO and ILO aim to foster market demand for sustainable food while providing youth with tools to begin growing their own sustainable food. 8. Mexico Child Link Mexico Child Link provides a home for a small group of abandoned children and children with learning disabilities on a working farm. The children learn skills such as intercropping, animal husbandry, and cheese-making. 9. The Natwani Coalition In Arizona, the Natwani Coalition is working to get Native American children involved with traditional Hopi dry-farming practices, including a video-based curriculum and several school gardens. Students from the Johns Hopkins Center for American Indian Health are also starting community gardens and school gardens on a Navajo reservation. 10. SeedMap.org A website dedicated to seeds, biodiversity, and food, Seedmap.org features an interactive map that shows seed diversity, threats to the planet’s biodiversity, and solutions. After it launches in October, kids and adults can look at the site to learn about the state of agro-biodiversity all over the world. Seedmap.org is a product of USC Canada and the ETC Group. 11. The Southern Sustainable Agriculture Research & Education (SSARE) The SSARE grants program funds high school and college students’ projects related to sustainable agriculture research. This year’s projects included “Weed Management and Nematode Communities in Organic Coffee Farms of Puerto Rico” and “Internship on Mapping Sustainable Farm Systems: An experiential introduction to sustainable agriculture.” 12. Sprouting Healthy Kids The Sustainable Food Center brings gardens and fresh produce to schools. The farm-to-school program began in the Austin, Texas area in 2007 and has since expanded to 22 schools throughout central Texas. Sprouting Healthy Kids serves fresh fruits and vegetables in school, teaches classroom lessons about food systems, and provides after-school gardening and cooking programs. 13. The Sylvia Center The Sylvia Center, based in New York, teaches children about sustainable food production. Cooking classes are hosted in New York City, and at Katchkie Farm in Columbia County, a 60-acre organic farm, students learn how to grow, harvest, and cook fresh produce.   14. WFP USA’s Back to School Campaign The World Food Programme (WFP) USA is working with eBay's Giving Works project to raise money to provide healthy school meals to kids in need. When buyers make purchases through August 25th, they can also make a donation to WFP USA. EBay sellers selling school clothes, backpacks and other school supplies can donate part of their proceeds to WFP USA. Please feel free to share this list by clicking HERE. What other innovations in education around food issues are important to highlight? Send me an email and let me know!       All The Best, Danielle Nierenberg Co-Founder, Food Tank foodtank.org Email: danielle@foodtank.org Phone: 202-590-1037 Let's Connect!: Facebook, Twitter, LinkedIn,  Pinterest, YouTube, Instagram, Google+ & Flickr!           Back to School: 14 Initiatives Educating Youth About Agriculture         It's back-to-school time for children, adolescents, and young adults in many countries all over the world. These 14 initiatives all over the world that are educating youth about agriculture, and creating a genuine interest in safe, sustainable, and healthy food. Read more...               The False Banana, Key to Food Security         The American Association for the Advancement of Science lists five criteria for food security: adequate volume of food; adequate nutritional intake; annual stability of food supply; accessibility of food; and long-term sustainability of food production. Enset - a pulse crop grown in Ethiopia - achieves, or helps to achieve, all of these criteria. Read more...                Transforming the Food System in Australia – From the Ground Up         This guest post from the Australian Food Sovereignty Alliance (AFSA) announces the launch of Australia's first Fair Food Week, and thus fires the opening shots in the battle underway for the soul of Australia’s food system. Read more...               Food Tank Book of the Week: The Permaculture Handbook by Peter Bane         Peter Bane, author of The Permaculture Handbook, has been studying and practicing permaculture for over 20 years. He gave Food Tank the opportunity to speak with him about his book and his personal experiences with permaculture. Read more...               Food Hero: The FARM Institute Teaches the Next Generation to Care About Food         This week's Food Hero, The FARM Institute, is building consciousness about food among the next generation - and that consciousness is spreading in a way that makes it look like it’s here to stay. Read more...               International Year of Family Farming: Bukonzo Joint Cooperative Challenging Gender Roles         Bukonzo Joint is a member-owned coffee cooperative in the Rwenzori Mountain region of Uganda that uses community-led programming to combat gender inequality and poverty through education and environmentally sustainable agricultural practices. Read more...               Nutrition Champion Awards 2013 will Celebrate Unsung Heroes in the Field         A guest post from Research to Action announces that the Transform Nutrition (TN) research consortium, in support of Scaling Up Nutrition (SUN), has launched a new initiative, the Nutrition Champion Awards. Nominees for the awards are the unsung heroes working in the nutrition development field. Read more...