India, Sri Lanka seek to double bilateral trade volume

Officials from Sri Lanka and India held talks on trade, investment and economic cooperation here aimed at doubling the bilateral trade volume.

“Recognising that India is Sri Lanka’s leading trade partner and that bilateral trade between the two countries has now reached USD 5 billion, it was agreed that the potential which remains to expand bilateral trade further to the tune of USD 10 billion would be exploited in the next 3 years,” said a statement issued by the Sri Lankan government today.

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During the talks held on June 24-25, it was agreed that there was considerable potential to expand bilateral trade, in a balanced manner through optimal utilisation of the opportunities available between the two neighbours.

Sri Lanka’s secretary to the Treasury, PB Jayasundera, said the talks covered entire gamut of economic, trade and development related issues between the two countries.

“Review of several elements in the current bilateral trade in relation to the Indo-Lanka Free Trade Agreement will be undertaken over the coming months,” he said.

The Free Trade Agreement between India and Sri Lanka was the first ever bilateral trade agreement for both countries, signed in 1998 and enforced since 2000.

India has emerged as Sri Lanka’s foremost development partner in public investment strategy through the provision of assistance and credit totalling USD 1.75 billion, Sr Lankan Treasury stated.

Indian projects include the construction of 50,000 houses in the former conflict stricken areas in the north and east and also in the central hill plantation areas. India has also undertaken to assist public transport network infrastructure rebuilding.

Indian banks should move wealth mgmt services to arms: RBI

Indian banks should split wealth management and investment advisory services to avoid conflict of interest as well as address mis-selling of financial products, by creating a subsidiary, a draft report by a Reserve Bank of India (RBI) panel said.

The banks will need to get the RBI’s approval to create subsidiaries, which would be then registered with the Securities and Exchange Board of India (SEBI), the panel proposed on Friday.

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“To address the issue of conflict of interest arising from the single entity conducting both the activities of advisory/fund management as well as marketing, it is proposed to segregate the two functions,” the report said, adding the bank should have an ‘arm’s length’ relationship with its subsidiary.

The report also proposed the RBI should continue to supervise the bank’s activities done through the subsidiary.

Last month, the RBI said it would issue draft guidelines to address mis-selling of financial products and structure of transactions to aid tax evasion and fradulent transfer of funds.

We have built for 10 yrs, growth can’t go sub 5%: KV Kamath

In 12-18 months, we should be back to growth rates that we have been used to
KV Kamath
An internet joke ‘Are we back to the 1990′s?’ is doing the rounds highlighting the return of Madhuri Dixit in films, Narayan Murthy in Infosys and weak growth rate of sub 5 percent. The rupee is also under pressure. But KV Kamath, Chairman, ICICI Bank , does not agree with it. He believes in 12-18 months growth will be back to normal, to the levels that we have become used to.

His belief is bolstered by the fact that corporate India is better placed for brownfield expansions not only in terms of removal of red tapes but also in terms of availability of an efficient infrastructure. All the achievement of last 10 years has to be taken into account while talking about sustainable growth. But to transform in a meaninful way, India needs to grow in double digits, Kamath says.

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Kamath does not think the government will allow the rupee to depreciate much beyond 60 since everything that has happened so far has been done consciously. The efforts to stabilise the rupee has not been through market intervention, but more structural. Whether it is allowing FII flows or access to domestic bonds by global investors, every decision has been taken with eyes wide open.

On banking licences, he says if large players come in, they could move fast. But there is a risk of moving too fast. “So I would think, generally, in banking, if you are trying to grow anything over 25 percent, however good you are, the probability of taking mis-steps multiplies in a geometric way, non-linear way (exists),” says Kamath.

Below is the edited transcript of KV Kamath’s interview with CNBC-TV18

Q: Does it looking like the last 10 years was a dream and we have to get used to a 5-6 percent growth for a longish period and rupee depreciating every year by 5 percent or so.

A: I don’t agree with that. I think we have challenges for the immediate future; in 12-18 months, we should be back to growth rates that we have been used to. I also do not believe that we will fall anywhere below the current rate of growth because there are too many things happening in the economy, which will prevent it, but there are also too many things happening in the economy, which prevents it from growing faster.

Q: There was a belief consensus growing that we perhaps have seen the worst already. Q3 of FY13 was 4.5 percent, we crawled perhaps to 4.8 percent in Q4. There was a feeling that from here it is 4.8 percent and then 5 percent perhaps, and more. But with this huge meltdown in asset prices and the depreciation of the rupee, do you think we could be sub-5 percent for FY14 as well?

A: The events that have happened in the last few weeks as it were, if I don’t factor that in I don’t see growth actually dropping below 5 percent. So probably the steady growth would be around 5 percent. I am saying this because there are too many things that have happened for the good which cannot be suddenly yanked away to push us back into 4.5 percent or 4 percent growth. There are too many positives that have happened.

Q: What would they be?

A: For example, start with corporate India. Corporate India is deleveraged except on the infrastructure side where we thought that they are leveraged appropriately the business that they are in, but by and large corporate India is deleveraged. Corporate India can invest at speed, which it could never do earlier because it had to get licences, it had to get clearances, it had to raise money, etc. Today there is cash surplus, by and large most in industries, if it is a brown field site, you do not have to deal with too many clearances.

On the manufacturing side capacity can be built up very quickly. There is a vast infrastructure already built up. Take for example the rural road network, that is what I would really think is the backbone of India. 300,000 km of road built over the last 10 years or so, 60,000 km of highway. The entire telecommunication network, ports, which are significantly more efficient than they were 10 years back, airports which are multiple times more efficient than they were. So we take these for granted at times, but all these put together sustained growth.

We need to study the events of the last few weeks, in the context of exchange rate movement, but at this point in time, we have not had any feedback from any client saying that this could impact us adversely. Indeed, it could impact a few clients adversely, but not system wise because that ways the borrowing impact is still not that severe. People have been careful or have been asked to take care because ECB was not freely accessible and they have behaved in an appropriate manner. So we will have to see what that impact could be, but I don’t see growth coming down significantly below where it is.

Q: China has come to terms with the fact 10 percent growth is not good for the economy, it is creating severe imbalances. They have sold the idea to their population that 7.5 percent is good and 11 percent is not good for you. Do we also have to accept that rather than continue to bemoan an 8 percent for which we couldn’t find the coal, for which we were scanning away mining rights. Do we need to sell that the proper growth which India’s administrative executive bandwidth can manage is not 8 percent, it is really 5-6 percent?

A: China is saying this now and they are already a five trillion plus economy. They went up to 5 trillion, they were very happy looking at 12 percent or low teen growth.

I think for India to transform, we need a growth in double digits, whether it is going to be 10 percent, which is sufficient, or 12 percent, time will tell, but we need to touch that double digit growth for us to transform in a meaningful way and meet expectations in a meaningful way.

See FY14 GDP growth higher on reform steps: Rangarajan

“I believe growth rate in the current fiscal will be higher”, said C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council (PMEAC). He was confident on the signs of growth in the economy coming back. The impact of past decisions of the government will be seen in the coming months, he added.

Rangarajan was speaking on “Is good economics bad politics” at the Think India Dialogue organised by Network 18.

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Speaking on investment patterns in India, Rangarajan said that the savings and investment rate in India continued to be around 30 percent. Although it has seen a fall, but we must capitalise on that, he added.

He said that the reasons for growth slowdown in the past years had to be assessed. “We can’t blame India’s slow growth in the last two years on external factors alone, but the global economic slowdown has had its impact” expressed Rangarajan.

On the fiscal consolidation plans of the government, he said that the council had laid out a roadmap for it. He added that there will be increased focus on the development of infrastructure.

Rangarajan attributed the high inflation rates last year to the failure of monsoon in 2009-10 led. He said that he was now happy that it had tamed down to 4.7 percent in May. On the potential for an interest rate cut due to this, he said that the external conditions did not permit a rate cut by the Reserve Bank of India (RBI).

He also stressed on the need to create a more competitive environment in India. The structure of the economy has not deteriorated since 2010, he added.

Infosys, TCS, Wipro fall as rupee breaches 60/USD mark

Technology stocks declined on profit booking after the Indian rupee rose above the 60 mark on Friday. Technology majors Tata Consultancy Services (TCS) and Infosys fell 1 percent and 0.5 percent, respectively.

Wipro shares lost 0.71 percent and HCL Technologies dropped more than one percent. The BSE IT Index slipped 0.77 percent, which had rallied nearly 5 percent in previous two sessions.

Indian rupee recovered further quite sharply Friday after the Cabinet Committee on Economic Affairs (CCEA) decided to hike gas price to higher-than-expected at USD 8.4 mmBtu from USD 4.2 mmBtu.

The rupee appreciated by 34 paise to 59.84 per dollar in early trade, after opening at 60.02 as against previous day’s closing of 60.18 per dollar.

The currency gained for the second consecutive session today to go above 60 mark from its record closing low of 60.71 per dollar. It had touched its all-time low of 60.76 on Wednesday.

Pramit Brahmbhatt of Alpari feels the rupee is likely to consolidate its position further today with support from a positive stock market, lower then expected current account deficit (CAD) and on comments by Fed officials that there is still time before QE (Quantitative Easing) can be phased out.

“However, a strong dollar could act as a deterrent. The range for the day is seen between 59.86-60.85/USD,” he adds.

EMs haven’t lost sheen yet; cherry pick stocks: Nilesh Shah

Emerging Markets (EMs) have been the worst hit in the last few days after indications of stimulus rollback later this year took a toll on global markets. However, Nilesh Shah of Axis Direct is of the view that EMs haven’t lost sheen yet and this gloomy sentiment is only a temporary feature, not a permanent one.

Shah says the CCEA hiking the gas prices to USD 8.4/unit is a positive for the sector as the gas based power plants, that were sitting idle for long, will now come back into production.

“What will be most important will be to see how State Electricity Boards (SEBs) absorb this additional power hike. With this new gas pricing, probably the gas based power plants will sell their electricity somewhere over Rs 5,” he adds in an interview to CNBC-TV18.

Below is the edited transcript of Shah’s interview to CNBC-TV18.

Q: What is your general sense of this whole emerging market (EM) gloom that has come about over the last fortnight? Do you think it is temporary or could the asset class really be loosing its sheen?

A: I don’t think it is temporary, it has long-term implications. However, at the same time I don’t agree that asset class is losing its sheen. We are going to see these kind of bouts of liquidity love and hate relationship with EMs. Right now, the fortunes of EM more in peer group countries than in India are on the way down. China growth is slowing down, Brazil is seeing an Arab Spring happening over there, Russia commodity price softening will always have a negative impact on them and things are not that bright in India, the way they were in 2007-2008. So yes, right now the EM trade is getting impacted because of events happening in the western world, but it is going to be little bit more than temporary but not permanent.

Q: The big news is with the gas price hike. What have you made of that in terms of an impact on the sector as also impact on sentiment because such a big policy move has finally come through?

A: Firstly on the IT space, the one thing that is impacting IT sector stocks is yesterday’s Accenture guidance. So, apart from immigration bill it is the guidance which is impacting IT stocks today.

On the gas price hike, the immediate benefit which will be factored in by the market but will be available to economy probably a year down the line, is that the gas based power plants which are sitting idle will come back into production hoping that this gas price hike will encourage investment and flow of gas. That territorial impact will be felt on many industries especially in southern states where power crisis is acute.

The second benefit which will come is for all stocks like Reliance Industries and Oil and Natural Gas Corporation ( ONGC ) and Oil India which is producing gas where because of the lower than market prices the stocks were taking a beating. Now, with this gas price hike the stocks have moved up already.

What will be most important will be to see how State Electricity Boards (SEBs) absorbs this additional power hike. With this new gas pricing, probably the gas based power plants will sell their electricity somewhere over Rs 5. Will SEBs be able to absorb this and not impact their financials, is something which the market will be watching over a period of time.

Q: What do you make of this complete collapse in the price of gold below USD 1200 per ounce internationally and the damage that it is inflicting on the whole ecosystem of anything to do with gold from Titan Industries to jewellery companies to gold loan companies, they have all completely collapsed?

A: In some sense these are two opposite forces which are working. The global correction in gold prices is more a function of dollar strengthening; it is more a function of less risk aversion as the global economies led by US has started stabilising. However, in India typically, lower gold prices should have resulted into higher gold buying and we did see fair amount of buying happening in the month of April and May. Our gold imports almost doubled in April and May.

However post May, government started taking several actions on controlling the gold consumption and along with drop in international gold prices even though rupee depreciated, gold prices have come down. So, a combination of these factors especially the government’s proactive steps on controlling gold consumption is resulting into gold stock prices coming down. And it is necessary from an overall economic point of view, that Indians stop consuming gold like they were consuming few months back.

Adobe to buy digital marketing software company for $600m

Adobe Systems Incorporated said it had agreed to acquire privately held Neolane, which operates a software platform for managing digital marketing campaigns over multiple platforms, for USD 600 million in cash.

The maker of Photoshop and Acrobat software said the move would “bring critical cross-channel campaign management capabilities to the Adobe Marketing Cloud.”

Adobe Marketing Cloud is a set of tools encompassing analytics, social, advertising, targeting, and web experience management solutions.

Neolane, whose clients include Barnes & Noble and Bridgestone Tires, operates a software platform for automation and execution of campaigns across the Web, email, social, mobile, call center, direct mail and point of sale.

Adobe said the acquisition, expected to close next month, will not materially affect its revenue forecast and adjusted financial results for the current fiscal year.

Neolane CEO Stéphane Dehoche will continue to lead the former Neolane team as part of Adobe’s digital marketing business.

Panel finds fault with GST draft, sends it back to fin min

The House Panel on Finance has said that the GST (Goods and Services Tax) Bill in its current form was not well drafted and required amendment, reports CNBC-TV18 economic policy editor Siddharth Zarabi.

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A whole set of important inclusions in this 115th Constitution Amendment Bill essential for the rollout of GST such as rates, threshold structures and administrative arrangements have been recommended by the panel to be excluded from the Bill.

The panel has also made specific suggestions including the states’ right to levy entry tax and subsuming the entry tax into the GST.

Once this report is formally adopted at a meeting of the Standing Committee on Finance in Parliament on Friday, the recommendation will go to the finance ministry which will examine the recommendations and perhaps redraft the bill.

Experts add that this will delay the final rollout of the GST and the Prime Minister has also indicated that it will probably be implemented only after a new government is elected. The finance ministry will now focus its energies on the Direct Tax Code (DTC) and in tabling that Bill to Parliament in the monsoon session.

Citigroup may add 3 new directors, chairman says

Citigroup Inc may name as many as three more directors to its 11-member board to add skills and share the work load, Chairman Michael O’Neill said on Thursday.

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O’Neill, speaking at a conference on corporate governance, said he is not “totally satisfied that we have all of the right skills” on the panel and that he is working to bring people with additional knowledge.

“We would consider adding up to three more directors to add specific competencies and more evenly spread the considerable amount of work,” he said.

The panel schedules seven two-day meetings each year and held about 10 additional meetings each of the past two years, he said. Several committees meet monthly.

O’Neill did not say exactly which additional talents he seeks for Citigroup, but he noted that banks today need to have a board member who understands digital trends.

The board is considering hiring a new director with technology expertise to better monitor the bank’s efforts to improve and integrate its information systems, Reuters reported earlier this month.

Citigroup’s stated strategy is to align its business with the trends of globalization, urbanization and digitization. The bank has the most international business of any U.S. bank and ranks third in size by assets.

Last year O’Neill, 66, led the board to abruptly replace then CEO Vikram Pandit with Mike Corbat who had held a range of executive posts at the company.

China cash rates ease further, stocks jump 2 percent

China’s one-week cash rate fell to its lowest since before last week’s sharp credit squeeze and stocks rose as much as 2 percent on Friday morning, with banks having little trouble securing funds to meet their end-of-quarter requirements.

The central bank allowed short-term borrowing costs spike up to record highs last week to send a message to banks that they could no longer count on cheap cash to fund riskier operations.

Earlier this week it moved to allay fears the crunch could escalate into a financial crisis, bringing a measure of calm to markets after days of turbulence and heavy stock market losses.

“Banks have nearly all finished attracting new deposits for the end of this quarter, so we expect money rates should have relatively big room to fall today,” said a trader at a state-owned bank in Beijing.

“But overall market liquidity is expected to remain relatively tight over the next two weeks, partly because it takes time for the market to digest the aftermath of the recent acute squeeze.”

The improvement in short-term funding conditions propped up stocks, which have trailed its Asian peers so far this week, weighed down by concerns that even after the crunch blows over funding conditions would remain tougher than before.

The CSI300 index of the largest Shanghai and Shenzhen stocks rose as much as 2 percent, after falling 0.35 percent on Thursday. It is still down sharply since the middle of last week.

The weighted average for the benchmark seven-day repo rate fell 61 basis points to 6.13 percent in early trade, still above its usual range of 3-4 percent. The overnight rate fell by 52 basis points to 4.92 percent.

The weighted-average seven-day rate hit a record 11.62 percent last Thursday, though some trades were seen as high as 28 percent, as the central bank allowed conditions to tighten and panic grew in the market about a potential credit crunch.

This week, the People’s Bank of China pledged to provide emergency liquidity to any bank short of cash, and revealed that it had already done so for some institutions.