Friday, January 23, 2015

Not so random thoughts

Thought for the day
"If there existed no external means for dimming their consciences, one-half of the men would at once shoot themselves, because to live contrary to one's reason is a most intolerable state, and all men of our time are in such a state."
-          Leo Tolstoy (Russian,1828-1910)
Word for the day
Pyrophoric (adj)
Capable of igniting spontaneously in air.
(Source: Dictionary.com)
Teaser for the day
The rich and famous have forgiven and forgotten Kejriwal almost as fast as they had embraced AAP!

Not so random thoughts

Following on the heels of Swiss and Danish Central Banks, the Bank of Canada also delivered a shocking surprise to the market by unexpectedly cutting its key policy rate by 25bps. Apparently, the Canadian move came in response to a sharp drop in oil prices hitting the commodity-dependent economy, that is expected to grow by just 1.5 percent in the first half of this year compared with the central bank's previous forecast of 2.4 percent.
The move, in my view, should be seen as "no confidence" in the ECB's "whatever it takes" policy.
On a side note ECB has just repeated its pledge by committing yet another trillion Euros to the ongoing bond buying program that has brought the cost of borrowing for infamous PIGS below US government bonds.
I subscribe to the fears that the probability of a widespread movement against deeper integration of Europe may erupt before the common currency area slithers into a Japanese style labyrinth of lost decades.
Back home, in a decision that may have far reaching impact, CCEA has decided to give flexibility to state governments to set retail price of PDS sugar that has been kept unchanged at Rs 13.50 per kg since 2002. On implementation of this decision the Centre would reportedly continue to give the sugar subsidy for state purchases at Rs 18.50 per kg. The balance subsidy, if any, would have to be borne by the respective state governments.
The direct implication is that it may make fixing of sugar cane prices in a more rational manner to keep the cost of production under control and helping the industry and farmers to grow together. In the states like Uttar Pradesh, sugar cane pricing has been a controversial issue since ever. The industry had consequently stopped growing long ago.
However, in my view, the more important implication is the Signal that would travel from the Union Government to the Federal States. The State Government need to understand that in the process assigning of a true federal structure to the Union of India, as promised by the PM Modi, the States will have to assume more responsibilities as well. Deeper and stricter fiscal discipline may just be an additional responsibility.
Nonetheless, this decision should heartened RBI and global investors who are closely looking for hints of a quality fiscal consolidation.
As per some media reports, the Finance Minister may be considering extending some taxations to bank deposits for more than three year term. This move may be good for banking sector and industry as well, inasmuch as it brings more long term money to the struggling banking sector. However, the benefit would come mostly at the expense of mutual fund industry.
The small savings sector that is likely to suffer most from PM Jandhan Yojna (Prime Minister Financial Inclusion Program) may also see some adverse impact due to this move  also.
Pertinent to note that the State Governments are largest beneficiaries of the deposits collected under various small saving schemes.

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