economic condition in october

Economic indicator

Economic indicator

1 Ruchi Gupta [email protected]

INR v/s USD:-

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.

54.8 53.3 54.4 54.3 53.7 56.5 59.1

60.5 66.5

62.6 61.7

0

10

20

30

40

50

60

70

INR v/s USD

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.

292.6

296.3

287.8 284.6

280.1

275.4 277.3 276.2

277.7 279.2

281.1 282.9

260

265

270

275

280

285

290

295

300

29 mar2013

26 april2013

31 may2013

28 june2013

26 july2013

30 aug2013

20 sep2013

27 sep2013

4 oct2013

11 oct2013

18 oct2013

25 oct2013

Foreign exchange Reserve in USD Billion

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 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

7.24 7.18 6.62

7.28

5.65

4.77 4.58 5.16

5.79 6.1

6.46 7

0

1

2

3

4

5

6

7

8

Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

Inflation Rate(WPI)

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.

(Taking USD equal to INR 55)

99.8 100.5 111.1 114.6 112.4

120.2 126.9 126.0 124.4 122.9

62.2 64.7 67.0

72.6 72.3 69.1 68.1

80.3 73.1

90.2

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

Apr-jun(2011)

july-sep oct-dec jan-mar apr-jun(2012)

july-sep oct-dec jan-mar apr-jun(2013)

july-sep

IN USD Billion

Import Export

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.

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.

7.7

6.9

6.1

5.3 5.5 5.3 4.7 4.8

4.4

0

1

2

3

4

5

6

7

8

9

april-jun(2011)

july-sep oct-dec jan-mar april-jun(2012)

july-sep oct-dec jan-mar april-jun(2013)

% change in GDP

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

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 April-

June 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.

14.1 18.9 19.6

21.7 16.4

22.3

32.63

18.17 21.8

05

101520253035

CAD in USD Billion

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.

7.75 7.5

7.25 7.5

7.75

6.75 6.5

6.25 6.5

6.75

0

1

2

3

4

5

6

7

8

9

29-jan-2013 19-mar-2013 3-may-2013 20-sep-2013 29-oct-2013

Repo Rate Reserve Repo Rate

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

Money deposited in Fixed deposits (FD)

Cash certificates

Gold deposits.

Staff security deposit. E.g. in some banks when you join as Probationary officer, youve to sign bond worth RS.1-2 lakh rupees.

Demand liabilities

Money deposited in savings account

Money deposited in current account

Demand drafts

unclaimed deposits;

Economic indicator


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.

8.25 8.5 9 9.25 9.5 9 8.75 8.5 8.25

10.25 9.5 9 8.75

0

2

4

6

8

10

12

MSF rate

MSF rate

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.

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.

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.

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 operatio...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 ...RBI allows unlisted firms to raise funds abroad

economic condition in october

Education

marginal standing

liquidity

monetary policy

monetary policy

cash reserve

foreign exchange

reserve repo

foreign exchange