Let there be hike...

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...says Reddy. What are banks upto?

The trio of – interest rates, exchange rates & inflation; assuming the prowess of the ‘impossible trinity’ in its own terms have been the source of major concern for the central banker. Amidst it, along with the continued capital inflows, the RBI had to choose amongst three possibilities; either allow rupee to appreciate, or add to reserves and sterilise the excess either through issue of bonds or raising the CRR (the slice of customers deposit that banks set aside as cash with RBI) or discourage inflows. Prudently enough, the central banker announced a 50 basis point (from 6.5% to 7%) hike in Cash Reserve Ratio (CRR).

As a result of excess foreign inflows, liquidity glut haven’t been ‘sterilised’, or absorbed by the central bank. This excess liquidity has the potential to drive up the inflation, which is at 4.41% and within the RBI’s comfort zone. “Managing liquidity has become the most challenging task,” exclaims RBI Governor Y.V. Reddy. These are good enough indications to guess that the RBI’s stance continues to remain the same – managing growth & price stability. The recent hike will drain Rs.160 billion out from the system.

RBI has been buying dollars in the market to keep a lid on the rupee appreciation. In the past two months, the gross purchase has been to the tune of $33.21 billion, which is reflected into the addition to the foreign reserves to the tune of $17.11 billion during the same period. Every dollar that the RBI buys, an equivalent amount of rupee gets infused into the system and this liquidity has to be controlled. As there have been not enough outflows to off set the forex inflows; by hiking CRR, RBI has asked banks to set aside an equivalent rupee that it got infused into the system by buying dollar.

Considering the situation, the central banker has done a good job as there was no other choice. But penalising banks by hiking CRR every time RBI sterilises inflows, defies logic. Hence, focus should be more on encouraging outflows.

B&E edit bureau: Gyanendra Kashyap

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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Bickerings don’t allow NDA to take advantage of UPA’s problems

With the ruling United Progressive Alliance (UPA) on the mat because of its ally – Left parties’ – objections to Indo-US Nuclear Deal, National Democratic Alliance (NDA) should have been dreaming of power. Instead, it has been left grappling with its own problems. The NDA is struggling with a quiet rebellion unleashed by its own members, most prominent of them being the mercurial chief of Trinamool Congress, Mamata Banerjee. She not only abstained from voting during Presidential elections but also voted against the NDA candidate Najma Heptullah during the Vice-Presidential polls. Not only this, but she has also turned incommunicado to the NDA leaders.

The reasons are not far to seek. Mamata doesn’t see a future for herself in alliance with the BJP in West Bengal. Recent agitations over Nandigram & Singur have endeared her party among the anti-Left voters in West Bengal. But, BJP doesn’t have a major presence in the state. She therefore, doesn’t see any benefit in aligning with the BJP and instead wants to tie up with the Congress. In recent times she has frequently met senior Congress leader Priya Ranjan Dasmunshi fuelling speculation of an impending tie-up.

In Maharashtra too, BJP is perplexed with the behaviour of its ally – Shiv Sena, which voted for UPA candidate Pratibha Patil during the Presidential polls. Though the party came around to vote for the NDA candidate during Vice-President’s elections, seeds of suspicion have already been sown. Central BJP leaders claim to be under their state unit’s pressure to tie up with Raj Thackeray’s party instead of Shiv Sena. However, NDA leaders present a brave face. Says Sushma Swaraj, “These are mere posturings. NDA is not a small boat which can be rocked so easily.”

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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Round one in EU, Microsoft tiff ends

Microsoft immediately appealed the decision as well as the stipulation that required the company to share data regarding their flagship operating soft ware. EU lawyers submitted that a fine was needed to deter Microsoft ’s attempts to subvert their monopoly to their benefit and that the company was attempting to stifle competition.

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Source: IIPM Editorial, 2006

Endangered?

A country without a Human Development Rank, Somalia stands out as a blatant failure of the international community in alleviating the plight of people who have yet to see a day when their physiological needs are adequately met. The region, though, could have been rid of this constant mortal threat, had nations like US parted with as little as 1% of their defence budget accumulating $5.2 billion of life-saving aid.

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Source: IIPM Editorial, 2006

LG comes under MRTP scanner

Korean consumer durables gi­ant LG Electronics India Lim­ited’s festival offer ‘Mangal Hi Mangal’ has come under the scrutiny of the Monopolies and Restrictive Trade Prac­tices Commission (MRTPC). The commission has re­strained the Korean chaebol from releasing the gift scheme in any media vehicle, claim­ing that the scheme is false and inter alia it misleads the consumers. It was alleged by the director general of investi­gation and registration in the Ministry of Company Affairs that the advertisement was prima facie deceptive which amounts to an unfair trade practice under the MRTP Act, 1969. Life’s not that good this time for LG.

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Source: IIPM Editorial, 2006