Chidambaram and Modi are sparring over growth figures. Who is correct?

The finance minister says the BJP Prime Ministerial nominee's claim that economic growth rate during the tenure of the Atal Behari Vajpayee government was 8.4% a year on average. Calling Modi's claim a 'fake encounter' with facts, Chidambaram says the average annual growth for the six-year NDA period stood at 6% and that for the last five years at 5.9%. Obviously one of the two is wrong. Is it Chidambaram or Modi? Do share your views with us.

Oberoi Realty share sale begins, stock falls 3%

Oberoi Realty is trading lower by 3% at Rs 164 on NSE after the real estate firm’s share sale programme for diluting 3.49% of the promoter’s stake commenced today at bourses.

The company’s CMD and promoter Vikas Oberoi will sell 11.4 million shares at Rs 158 per share through stock exchanges to meet market regulator Sebi's guidelines on minimum public share holding norm, Oberoi Realty said in a regulatory filing.

As on June 30, 2013, the promoters had 78.49% in the company and they need to pare their stake to 75% for meeting Sebi guideline on minimum 25% public shareholding for private sector listed companies.

The stock hit high of Rs 165 and low of Rs 163 so far. A combined around 20,000 shares change hands on the counter in early morning deals on NSE and BSE.

RBI assures Street on liquidity management

The Reserve Bank of India (RBI) on Wednesday assured the market it was closely monitoring liquidity conditions. It added it would take appropriate action, including open market operations, to ensure adequate liquidity was available to support the flow of credit to productive sectors of the economy.

Experts said the statement would result in government bond yields falling further on Thursday.

Beginning with the mid-quarter review of monetary policy on Friday, RBI began a calibrated unwinding of the exceptional measures announced since July to restore normalcy to financial flows. Currently, RBI is injecting about Rs 1.5 lakh crore into the system on a daily basis, through the liquidity adjustment facility, the export credit refinance facility and the marginal standing facility.

However, despite this, liquidity conditions have been tightening, as shown by the hardening of yields in the government securities market, owing to uncertainty on the government’s borrowing programme for the second half of 2013-14 and the prospective effects of banks’ half-yearly account closure. The seasonal pick-up in credit demand, the festive-season-related demand for currency and the sluggish deposit growth have also contributed to the tight liquidity.

On Wednesday, the yield on the 10-year 7.16 per cent benchmark government bond closed at 8.79 per cent, compared with its previous close of 8.84 per cent. Experts said the RBI’s assurance was necessary, as two government bond auctions were scheduled for this week.

On Monday, a government bond auction for a notified Rs 15,000 crore devolved partially on primary dealers to the tune of Rs 4,030 crore. On Friday, RBI would auction government bonds for a notified Rs 14,000 crore.

PM-Sharif meet to focus on trade

 
While the situation on the Line of Control in Jammu and Kashmir will definitely be discussed when Prime Minister Manmohan Singh meets his Pakistani counterpart, Nawaz Sharif, in New York on the sidelines of the United Nations General Assembly, it was emphasised by high-level sources on Wednesday that progress on trade would be made, as there is a concrete agenda to be followed for that.

The sources, who spoke on the condition of confidentiality, said that a significant step forward in exporting electricity to Pakistan could happen as early as next week. It had been held up, they claimed, not for political reasons but because the Pakistani side was evaluating its technical and commercial viability. However, it is believed that process is close to conclusion, and Pakistan may express formal interest in cross-border electricity trade, sending a delegation on the subject, within a week. Sharif and Singh are likely to meet on Sunday.

In another significant development, the Nuclear Power Corporation of India Limited, or NPCIL, will likely move forward within a few days on evaluating the terms of a possible contract with nuclear supplier Westinghouse. A limited exploratory agreement might be in place between the two companies, according to the highly-placed sources, before Singh meets US President Barack Obama on Friday. This is in spite of concerns expressed domestically that US companies, including Westinghouse, wish to dilute the nuclear liability legislation passed by the Parliament beyond recognition.

A lack of progress in transforming the US-India civil nuclear agreement of 2008 into real projects on the ground is often cited as a major cause for a chill in bilateral relations. However, officials close to the prime minister strongly denied that the United States had any ground for disappointment, and suggested that such claims may just be an American negotiating tactic.

Singh will also make a pitch for more US investment in India. Although the recent diplomatic coolness between India and the US has been driven in large part by the souring of US business on the India story, officials insisted that the outreach was not unusual. Reporters were told that a ramped-up pitch for investment will be the one consistent theme of all major upcoming foreign visits, including to China. The PM is scheduled to meet a group of US CEOs in New York City later this week.

Risk of a sovereign downgrade increases after SBI downgrade by Moody's

The risk of a sovereign downgrade risk has only become exacerbated after international rating agency Moody’s downgraded State Bank of India’s senior debt and local currency deposit to ‘Baa3’, and now has a negative outlook. The market is viewing this as a proxy for the sovereign rating. The State Bank of India and group entities account for 25 per cent of the country’s banking system. Currency strategists say that despite the recent euphoria after the Fed’s “no taper” decision, India is far from the comfort zone.

The stress is not only in the banking system, India Ratings and Research in a report has said that the default rate of corporate finance issuers in the country has risen to 4.5 per cent in FY13 from 3.5 per cent and 0.3 per cent in the previous two years. What this implies is that the RBI’s move to ease liquidity conditions will have little bearing on the current financial condition of borrowers and their ability to repay loans. Scotia Bank’s currency strategist Sacha Tihanyi says that this should remind the market of the risk to the sovereign of a credit rating downgrade, as Standard & Poor’s currently has the country’s BBB– investment grade rating on a negative outlook (other major agencies have it on stable).

Modi, Advani share dais at Bhopal rally

The Bharatiya Janata Party (BJP) tried to put up a show of togetherness at a massive rally in Bhopal, where Narendra Modi was the star. The rally was the first to have party patriarch L K Advani share the dais with Modi, who seemed to do all the right things by referring to Advani as the BJP’s guiding light and publicly touching his feet (although almost as an afterthought, after seeing Shivraj Singh Chouhan doing so). Elsewhere, squabbles within the BJP broke out over the question of its allies, suggesting the road to forming a government at the Centre was not easy.

In his speech, Advani referred to the power sector reforms pioneered by Modi that ensured 24-hour power supply, a model then followed by other BJP-ruled states including Madhya Pradesh. He said on all indices of governance, the BJP-ruled states had stolen a march over others. Recalling the National Democratic Alliance (NDA) led by Atal Bihari Vajpayee formed the government at the Centre in coalition with many parties and that BJP came to power in many states under a similar arrangement, Advani said no other party can challenge BJP’s performance and track record.
“In the coming assembly and Lok Sabha elections, we will win on the basis of the record of the BJP and NDA. No other party can compare with BJP or NDA... It is our achievements, which will fetch a victory for us. We will not win elections merely on the basis of speeches but on the basis of the performance, leadership, achievements and the work done by us,” he said.

Party president Rajnath Singh said BJP workers and sympathisers had been booked under the specious charge of Hindu terrorism and harassed. Singh, who spoke after Advani, said: “Modi can become the Prime Minister of the country and Chouhan the chief minister in Madhya Pradesh only if the worker of the BJP at booth level works hard.”

Party leader Uma Bharti also sought the blessings of the people to make Chouhan the chief minister and Modi “the destiny-maker of the nation”.

The rally was largely a congregation of party workers, called Karyakarta Mahakumbh.

Modi also shared his concerns about the Central Bureau of Investigation (CBI). He said the Centre would not hesitate to use the CBI against political rivals, so the BJP needed to be conscious of this. Modi’s remarks were in the context of the case against former Gujarat home minister Amit Shah for his role in fake encounters after former DIG D G Vanzara turned against Modi and Shah.

Asking workers to make India ‘Congress-free’, Modi said: “I throw a challenge to Congress leaders: that they may choose any tactics in the coming polls but India’s voters will pay them back for each of their misdeeds during the last 10 years.”

In his typical style, he said during the United Progressive Alliance’s regime, there was a scam for every letter of the alphabet. If one were to count the money that the UPA-led government had siphoned off from the average Indian, the counting would start from Bhopal and end at Jan Path in Delhi (residence of Congress president Sonia Gandhi), he added.

“Mahatma Gandhi wanted to dismantle Congress after Independence, but the party did not honour his wish. We will have to work to make his dream come true and rid the country of the Congress party”, he said amid wild applause.

While ‘togetherness’ was the theme of the Bhopal rally, in Andhra Pradesh, the party unit sounded the bugle of rebellion when it rejected the overtures being made to Telugu Desam Party leader Chandrababu Naidu.

BJP’s Andhra unit president Kishan Reddy said the TDP was a ‘sinking ship’ and the BJP would make sure there would be no alliance with it. “If necessary, I will go to Delhi and explain why the alliance will hurt the BJP,” Reddy said in Hyderabad.

Modi said: “Congress harps on inclusive growth but one must know that the term had come out of BJP-ruled states like Madhya Pradesh where leaders like Chouhan have done tremendous work for the poorest of the poor. Those state governments that are working in the interest of the poor in country either belong to BJP or are part of the NDA. It doesn't suit them (UPA) to talk about inclusive growth.”

 

But while togetherness was the theme of this rally, in Andhra Pradesh the BJP unit sounded the bugle of rebellion when it rejected the overtures being made to Telugu Desam Party leader Chandrababu Naidu.

 

BJP AP unit President Kishan Reddy said the TDP was a sinking ship and the BJP would make sure there would be no alliance with it. “If necessary, I will go to delhi and explain why the alliance will hurt the BJP” reddy said in Hyderabad, putting the TDP leaders’ back up immediately.

Before polls, govt sets up pay commission

all it a poll compulsion or genuine desire to help government servants, the Centre on Wednesday decided to constitute the seventh pay commission for its five million employees and three million pensioners — three years before the commission’s recommendations will actually take effect. “Prime Minister (Manmohan Singh) has approved the constitution of the seventh Central Pay Commission,” Finance Minister P Chidambaram said in a statement here.

The pay commission awards, analysts say, might entail a Rs 1-lakh-crore annual burden. But the finance ministry doesn’t want to think about it yet: “don’t pre-judge the issue; let the terms of reference be decided first”.

According to officials, the move might soon be followed by a decision to increase the retirement age of government employees to 62 years from the current 60.

A look at earlier instances suggests the constitution of the pay commission at this time could be aimed at reverting to the usual practice, breached when the sixth pay panel was set up. The Cabinet had approved setting up of the sixth pay commission in July 2006, and its recommendations came into effect retrospectively from January 2006. But, that was because the Bharatiya Janata Party (BJP) -led National Democratic Alliance (NDA) government, in power then, had initially refused to set up the commission. The Congress-led central government on Wednesday tried to beat the BJP, the main Opposition at present, on this count.

“NDA had rejected the legitimate formation of the sixth pay commission in 2003. The Congress set up the sixth pay commission in 2005 and now the seventh one in 2013,” Party general secretary incharge for communication, Ajay Maken, tweeted.

The NDA finance minister had said there was no need to constitute the sixth pay commission, as 50 per cent dearness allowance had already been merged with the basic pay.

Asked whether the fiscal consolidation exercise of the government would not be affected, as it was estimated the exchequer would take a hit of Rs 1 lakh crore due to the recommendations of the seventh pay commission, a senior finance ministry official said: “How can you estimate the burden on the exchequer. The terms of reference have yet to be decided.”

The year 2016-17 would be the terminal year of a five-year fiscal consolidation road map announced by the finance minister. By that time, the government aims to bring down the Centre’s fiscal deficit to three per cent of gross domestic product. In 2012-13, the first year of the road map, the deficit had stood at 4.9 per cent of GDP. The plan is to lower it further to 4.8 per cent this financial year, and then by 0.6 percentage points each year.

 

To a query on whether the government should be allowed to set up the commission — the model code of conduct would come into effect as Assembly polls are due in five states — the official said the decision had been announced, so setting up of the commission would not violate the election commission’s guidelines.

He said the department of personnel would now start discussions with staff associations of government employees for announcing the constitution of the commission, as well as its terms of reference. It would be set up in about a month’s time, he added.

According to the 2011 census, there were 725 million voters in India. The finance ministry tried to brush aside the view that the government had set up the commission to woo the eight million government employees, pensioners and, indirectly, their dependents ahead of general elections.

It rather said the commission had been set up three years in advance to ensure that the recommendations did not have to be implemented retrospectively and there wasn’t any sudden financial burden in a single year.

According to the finance ministry’s statement, the average time taken by a pay commission to file its recommendations is about two years. “Accordingly, allowing about two years for the seventh pay commission’s report, the recommendations are likely to be implemented with effect from January 1, 2016.”

Traditionally, pay commissions have been set up after every 10 years to revise the pay scales of central government employees. States also accept these recommendations for their employees after certain modifications. However, since the sixth commission, headed by Justice B N Sri Krishna, was set up three years later because of NDA’s initial rejection, the gap between the fifth and the sixth commissions had become 13 years. The seventh, being advanced by three years, could also differ from the usual 10-year pattern.

The key area that the sixth pay commission focused on was removing the ambiguity in various pay scales and reducing the number of scales. For that, it introduced running pay bands for all government posts. It had recommended pay hikes of 20-40 per cent and also suggested a new system of four pay bands with 20 grade pays which was accepted with minor changes.

It had also recommended the minimum basic pay of Rs 6,660 a month. However, that was increased to Rs 7,000 by the Cabinet. The financial implications on account of these recommendations were to the tune of around Rs 22,000 crore for 2008-09.