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Cash crunch: Modi govt, RBI say no shortage, but SBI research pegs shortfall at whopping Rs 70k cr

Even as government and Reserve Bank have asserted that there is no currency shortage, SBI Research pegged the cash shortfall in the system at a whopping Rs 70,000 crore, which is a third of the monthly withdrawals at ATMs. In a note that comes a day after reports of currency shortages made national headlines, it depended on nominal economic growth, currency with the public and the rise in digital transactions to arrive at the shortfall estimate.

A 9.8 per cent nominal GDP growth would have taken the currency available with the public to Rs 19.4 trillion by March 2018, as against the actual availability of Rs 17.5 trillion, it said, stressing that the gap of Rs 1.9 trillion is not the shortfall.

The proportion of digital transactions stands at a low Rs 1.2 trillion only, much down the immediate months following the November 2016 note-ban. “The apparent shortfall thus could be around Rs 70,000 crore or even less,” it said.

The note estimates that Rs 15,291 billion were withdrawn from ATMs through debit cards in the second half of FY18, which is a good 12.2 per cent growth over the previous six months.

Reacting to reports of the currency shortage, it said the currency in circulation has breached the pre-note ban levels of Rs 17.84 trillion and added that such reports are “intriguing and defy logic”. The report explains that a part of the reason why the shortage is being felt could be the introduction and faster-acceleration in printing Rs 200 notes.

“This may have altered the demand for smaller denomination notes in a larger way to possibly substitute for the currency of larger denominations,” it said. “As ATMs have to be replenished more frequently, it can lead to the conjecture that cash is not available,” the report added.

It can be noted that in a statement, the RBI had yesterday attributed the shortage to “logistical issues” in both replenishing ATMs with cash and also recalibrating those to accommodate the Rs 200 notes.

The higher level of economic activity in the fourth quarter may have also resulted in more withdrawls at ATMs, the report said in the note. The report also dismisses notions of the rising demand being due to proposals in the Financial Resolution and Deposit Insurance Bill, saying those were mooted over five months ago.

But it can be noted that the cash crunch originated in the Southern states, particularly in Andhra and Telangana last month following rumours that money in banks is not safe due to a certain provision in the proposed Financial Resolution and Deposit Insurance Bill 2017, finance ministry officials had said yesterday. The most contentious part in the Bill is a suggestion to have a “bail-in” provision, which if incorporated result in cancellation of a liability on the part of the bank and can extend to bank deposits.

This Bill also seeks to set up a resolution corporation with powers relating to transfer of assets to a healthy financial firm, merger or amalgamation or liquidation. The proposed corporation will have power to use depositors money to save a failing bank.Government tabled the Bill last August in the Lok Sabha, which was referred to a Joint Committee of Parliament. It was supposed to come up in the Winter Session that was a complete washout.

Samurai loans: why Indian infrastructure needs them

News that Reliance Jio has raised 53.5 billion Japanese yen (approximately Rs 3,251 crore) in Samurai loans is proof that as the telecom sector in India evolves, not only is Reliance Jio pushing for changes on how businesses are run, but it is also innovating on the capital structure front. There are important takeaways for the infrastructure sector from this Samurai loan.

Tapping into Japanese investors provides infrastructure businesses in India with an opportunity to access a large pool of capital that is looking for returns in a low interest rate environment. While an Indo-Japan collaboration through Japanese technology transfers is extremely beneficial, capital transfers through Samurai loan-type transactions is an area that deserves equal attention.

Reliance Jio’s Samurai loan allows it to borrow in a relatively low interest rate currency such as the yen and eventually swap the yen back into rupees to fund investments at home. Even factoring in for hedging costs, such transactions allow companies to borrow cheaper than a similar loan in India. Most importantly, it opens up a large pool of capital in Japanese institutions and retail investors.

To get an idea of why Japanese investors, who have traditionally invested largely in Japanese government bonds and equities, might want to start looking at offshore markets such as India, one needs to understand the policy changes and macro-economic conditions in that country, especially over the last few years. “Abenomics”, extensive monetary easing by the Bank of Japan and extremely low interest rates have all contributed to the changing macro-dynamics.

The size of assets with Japanese investors is significant, with institutions such as Government Pension Investment Fund (GPIF) having a total of 162.6 trillion yen of assets under management in December 2017. This makes GPIF the single-largest pension fund manager in the world. In addition, there is a structural shift underway in organisations such as the GPIF through a series of reforms initiated in 2014 — a shift that has seen the investment focus move towards international equities, bonds and alternative assets.

It is important for India to attract a part of this reallocated capital not just from GPIF but other large Japanese financial institutions. The Reliance Jio deal has shown that there is healthy appetite amongst Japanese investors for Indian businesses that have robust models.

To further understand why Japanese investors would have an interest in Indian debt-like investments one needs to look at data at an individual level. According to the annual survey by the Central Council for Financial Services Information, a body administered by the Bank of Japan, 54.1 percent of Japanese household financial assets are held in savings and bank deposits, with only 8.9 percent held in stocks.

When one considers Japan’s ageing population, one realises that the demand for fixed coupon paying assets such as bank deposits will only increase in the country. So, even if the average household does allocate more towards equities than they currently do, the demand for fixed income assets will still remain high as the population ages further. A three-year term deposit earns anything between 1 and 10 basis points in Japan.

This combination of an ageing population and high demand for fixed income assets in a low interest rate country shows us why there is demand for high quality interest paying investments in Japan. The fact that the total size of the financial assets held by Japanese households stood at $16 trillion at the end of June 2017, as per Bank of Japan data, gives us an idea of both the conundrum facing Japanese policymakers and the opportunity for Indian infrastructure businesses. To put $16 trillion in perspective: It is approximately seven times India’s GDP.

While Japanese capital is available, it is also discerning. Hence companies need to create robust business models, stable cash flow profiles and corporate governance standards that will satisfy Japanese investors. Over the next two decades, as India looks to create world class infrastructure, structures such as Samurai loans will be needed. As the infrastructure sector gradually recovers, capital structure innovation through channelling Japanese capital into attractive investment opportunities in the years to come will be a must.


Indian investment proposals in France jump 73% in 2017

India recorded the biggest rise of 73 per cent in investment proposals into France among emerging economies in 2017, according to a report. In 2017, there were 19 Indian foreign investment projects in France, up 73 per cent over last year when there were 11 such projects, according to the report — The 2017 Annual Report: Foreign investment in France – The international development of the French economy. “Among emerging economies, India recorded the biggest rise,” the report noted. In total, France recorded as many as 1,298 foreign investment projects in 2017, with the US emerging as the top investor.

The proposals rose by 16 per cent from 2016. European countries remained the leading sources of foreign investment in France. The largest increase in investment decisions was from the US (up 26 per cent), Switzerland (up 40 per cent), Canada (up 37 per cent), the Netherlands (up 47 per cent) and Sweden (up 76 per cent).

Moreover, India was also among the key markets that drive French exports in Asia along with China and South Korea. The report further noted that Indian IT major Infosys has announced plans to move its business forward in France via a strategic partnership with CMA-CGM. Infosys will open a centre for development and innovation in Marseille (Provence-Alpes-Côte d’Azur region), leading to 80 jobs and setting the standard for Marseille as a hub of expertise. There are also plans to open a training centre at some point, it added.

The report further noted that foreign companies invested primarily in production/manufacturing operations, with 343 investment decisions in 2017, creating 16,123 jobs. “The growing numbers of investment decisions in France, and the jobs they generate, highlight the renewed confidence that decision-makers now have in a country on the move,” said Christophe Lecourtier, CEO of Business France.

Business France is the national agency supporting the international development of the French economy, responsible for fostering export growth by French businesses, as well as promoting and facilitating international investment in France.

PM Narendra Modi aims to increase healthcare share in GDP to 2.5%, says Rajnath Singh

Prime Minister Narendra Modi has set an aim to increase the share of healthcare sector in the country’s gross domestic product (GDP) to 2.5 per cent, Union minister Rajnath Singh said. In his address at the Founder’s Day celebrations of the Sir Ganga Ram Hospital (SGRH), the home minister also asserted that the government considered the private sector as a “strategic partner” in its endeavour to achieve universal healthcare and health cover to all citizens. “In a country of 125 crore people it is not an easy job to provide healthcare to all. There are various challenges which we have to meet…When it comes to government’s expenditure, our healthcare sector accounts for 1.16 per cent of the GDP.

“But, I want to assure you, and our prime minister also talks about it. And, the PM has aimed that the GDP share of the healthcare sector should be increased to 2.5 per cent, and for that expenditure can be made,” Singh said. The minister, in his speech, also hailed Sir Ganga Ram and his legacy, saying he is remembered both in India and Pakistan for his contribution, despite the partition in 1947.

RBI may give freer rein to rupee as us puts India on monitoring list for currency manipulation

India’s addition to the U.S. Treasury’s monitoring list for currency manipulation makes it more likely the Reserve Bank of India will give freer rein to the rupee when it rises against the dollar, analysts say.

India increased its purchases of foreign currency last year and has a “significant” trade surplus with the U.S., the Treasury noted in its semi-annual report on foreign-exchange practices released in Washington on Friday. The rupee has been the second-worst performing Asian currency this year, dropping 2.3 percent against the dollar, after strengthening 6.4 percent in 2017.

Suresh Prabhu assures exporters of taking up GST refund issue with finance ministry

Commerce and Industry Minister Suresh Prabhu assured exporters of taking up the issue of GST refund with the finance ministry. Exporters are claiming that over 60 per cent of their refunds are still stuck with the government. “I have asked them (exporters) to give me the details of the pending refund. GST refund is a major issue for exports. I will take it up with the finance ministry,” he said.

Federation of Indian Export Organisations (FIEO) is of the view that the refund filing mechanism should be made completely online and the pending GST refund released immediately to help exporters tide over the cash crunch. The issue has been hanging fire for over five months now with exporters complaining that delay in GST refund has blocked their working capital. Prabhu also said the government is taking all steps to further boost the country’s exports.

Speaking to FIEO members, he asked them to prepare a detailed action plan of all sectors and sub-sectors suggesting ways to promote their exports. “We need a concrete plan to work on that,” he said adding the Centre is also involving States to help boost the export. Prabhu also informed that he would be calling a ministerial meeting to discuss issues pertaining to outbound shipments.

He exuded confidence that exports during 2018-19 would be better than the previous year. India’s exports dipped after a gap of four months in March but finished 2017-18 with a healthy rise of 9.78 per cent to USD 302.84 billion.

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