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Pickup in Factory Output Not Assuring; Further Price Shocks Cannot be Ruled Out
Aug 17,2016

India Ratings and Research (Ind-Ra) opines the industrial growth will not return to a sustained and high growth path so long as excess capacity in the manufacturing sector remains and private sector investment cycle does not revive. A consecutive month of positive growth in the Index of Industrial Production (IIP) though is encouraging, Ind-Ra believes it is still too early to expect an improvement and stability in industrial growth. Also, Ind-Ra believes that food inflation despite favourable monsoons could surprise on the upside and food items could be anything ranging from potato, tomato, onion, milk, egg, pulses etc., as has been the case in the past.

The retail and wholesale inflation for July 2016 at 6.07% and 3.55% came in higher than Ind-Ras expectation of 5.83% and 1.8%, respectively. IIP maintained its second consecutive month of positive growth at 2.1% in June 2016 as against 1.1% yoy in May. The IIP growth had turned positive in February and March and negative in April 2016.

Manufacturing output (75.5% weight in IIP) increased to 0.9% yoy in June 2016 from 0.6% in the previous month. Such a marginal increase in manufacturing does not generate confidence that the downtrend in manufacturing has been reversed. The capacity utilisation in manufacturing has been hovering in the range of 70%-75% now for nearly five years.

Food products & beverages, chemicals & chemical products, petroleum products, motor vehicles & trailers, non-metallic mineral products and textiles, which together have a weight of 51% in manufacturing, clocked higher growth rates in June 2016 than in the previous month. Mining and electricity grew 4.7% and 8.3% in June 2016 as against 1.4% and 4.7%, respectively, in the previous month.

The disconnect between IIP and industrial gross value added data is making it increasingly difficult to discern the sectoral as well as overall industrial and manufacturing output growth trend. The base year used for IIP calculation is 2004-05, while industrial gross value added is based on 2011-12 prices. The use of 2004-05 means a lot of data relating to industrial/manufacturing output is not captured by IIP.

At the use-base level, capital goods output continued its negative trend. Capital goods output contracted 16.5%yoy in June 2016 against a contraction of 12.3% in May 2016. This reinforces the lacklustre investment demand in the economy. Basic and intermediate goods continued with the positive trend and clocked higher growth rates than the previous month. Consumer durables maintained the positive growth trend, although growth rate moderated to 5.6% in June from 6% in May 2016. Consumer non-durables reversed the seven months of negative growth rate and clocked 1% in June 2016 as against negative 2.3% in May 2016.

Inflation, both retail and wholesale, surprised on the upside, reinforcing the upside risks to the inflation trajectory emphasised upon by the central bank in its second and third bi-monthly monetary policy reviews. Rainfall has been above normal so far and the area sown under pulses and cereals, as reported by the agriculture ministry, is larger than in the previous year. This has raised the expectation that food inflation will moderate in the coming months and bring down the overall inflation.

Retail price inflation rose further to 6.07% in July 2016 from 5.77% in June 2016, led by higher food price inflation. Among the various components of retail inflation, food prices rose for the fourth consecutive month in July 2016 (8.4% in July versus 7.8% in June). Vegetable prices moderated to 14.1% in July from 14.8% in June 2016; however, this was more than offset by a sharp rise in prices of sugar, cereals, egg, milk and pulses. Sugar prices increased to 21.9% in July 2016 from 16.8% in the previous month. Services inflation showed a slight uptick to 4% in July 2016 from 3.8% in June 2016, led by higher inflation in the personal care category (July: 7.3%; June: 5.9%).

Wholesale Price Index (WPI) inflation increased to 3.55% in July 2016 from 1.62% in the previous month, led by the sharp rise in food inflation. WPI excluding fruits, vegetables, pulses and sugar stood at 1.75% in July 2016. Although these four commodities have been the key drivers of WPI, even with the exclusion of these items WPI has picked up pace in the last two months. Core (non-food non-fuel) inflation turned positive and came in at 0.09% in July 2016 after 16 months of consecutive deflation.

Food inflation component of wholesale inflation rose to 11.82% in July from 8.18% in June 2016, once again led by a sharp rise in prices of pulses, fruits, vegetables and sugar. Prices of fruits and vegetables rose to 22.33% in July 2016 from 11% in the previous month. Food grains (cereals and pulses) and sugar prices rose to 13.57% (June: 10.90%) and 32.33% in July 2016 (June: 26.09%). Although part of the reason for price rise could be attributed to the base effect, it is time to question our current understanding of the food economy and its demand and supply dynamics.

An analysis of food inflation data over the past six to seven years suggests that nothing has been able to tame food inflation. The goal post shifts each time food inflation surprises on the upside. It has become routine to put the blame on the failure of monsoon, unseasonal rainfall, the futures market in agricultural commodities and sometimes on hoarding/ black-marketing and so on. Ind-Ra believes that something more structural has happened in the economy about which we talk but are still not ready to admit - shift in the income, consumption and the aspiration dynamics of people who are at the bottom of the pyramid. So long as we do not get this right, addressing food inflation on a sustained basis will remain a pipe dream.

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India set to seize big opportunity in logistic costs saving through Sagarmala
Aug 17,2016

Augmenting operational efficiency of ports & optimizing logistics evacuation can give boost to Indian trade and help seize the big opportunity of growth in Indian cargo traffic at ports which is estimated to increase to 2.5 bn MMTPA by 2025, says a report prepared under the Sagarmala port-led development programme of Ministry of Shipping. The Origin Destination study on cargo traffic projections & logistics bottlenecks emphasis on the need for creation of efficient infrastructure at requisite demand and logistic chain centres.

Currently 95% of Indias trade by value and 70 % by volume take place through maritime transport. Globally, maritime nations such as China, South Korea and Japan have effectively used their coastline for port-led development. It is therefore essential for India to optimize logistics cost and identify capacity additions required at different ports to prepare for future traffic flow. Focusing on the total demand and supply situation of major EXIM flow of key commodities currently being handled by ports, the report suggests i) the opportunities to optimize logistics cost for existing and future cargo capacities and ii) Capacity additions or reconfigurations needed at various ports to prepare for future traffic flow, including new ports development.

The study estimates the potential to save around INR 35,000-40,000 Crores per annum by optimizing logistics flows for key commodities by 2025. Some of the key drivers identified for this are promoting coastal shipping of bulk commodities like coal, setting-up coastal clusters for bulk commodities like cement & steel and providing last-mile connectivity of ports with National Highways and Railway network.

Identifying the opportunity of increase in cargo traffic to 2.5 bn MMTPA by 2025, the report suggests various enablers for unlocking this opportunity under Sagarmala. Establishing new transshipment port, creating dedicated coastal berths ports for coastal shipping, setting up storage capacities at origin-destination ports to shorten turnaround time and developing adequate ship-repair facilities in the maritime states are some of these key enables suggested in the study.

It also captures the overall opportunity with India to save on logistic costs, make Indian goods more competitive in the global markets and hence drive its port-led-development agenda under Sagarmala. The programme aims to change the way logistics evacuation happens in India, save logistics costs nationwide for cargo handled and evacuated through seaports, boost overall economic development through ports and empower coastal communities.

The vast scope of Sagarmala implies that partnership with and support from key stakeholders is essential for success of the programme. Aligning with the governments Make in India campaign, private-sector participation through PPP models will be explored for developing port infrastructure, railway infrastructure and coastal shipping. The Ministry is also reaching out to relevant stakeholders through workshops and meetings with the project development consultants for alignment on proposed ideas under the programme.

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Record handling of automobiles at Mumbai port
Aug 17,2016

Continuing its march to set ever higher records of handling cars, Mumbai Port has set a new record of shipment of 6316 cars on a single ship on its new berth OCT- 2. This is a quantum jump over the previous record of shipment of 5376 cars.

The ship M. V. HOEGH ST PETERSBERG berthed on 6th August 2016 and sailed on 9th August 2016 with 6316 cars shipment mainly consisting of 3115 cars of general motors and 3093 cars of Volkswagen and exported mostly to Mexico.

Mumbai Port Trust is consistently contributing to the Make in India campaign by facilitating the export of Made in India cars.

Mumbai Port has been focusing on the export and handling of cars and has emerged as number one port on the West Coast of India growing at about 25% for last few years. It is committed to improve the facilities & help reducing the cost of handling cargoes.

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NHAI collaborates with PFC under Adopt a Green Highway Program
Aug 17,2016

National Green Highways Mission (NGHM) under NHAI has collaborated with Power Finance Corporation Ltd. (PFC) for plantations work on NH 7 in Nagpur region (Borkhedi - Wadner, & Khatara - Kelapur) covering 87 km stretch. Power Finance Corporation has provided financial assistance of Rs. 13 crore for plantation and five year maintenance under their CSR funds.

This event is historic as this marks the first collaboration with the National Green Highways Mission - NHAI under their Adopt a Green Highways Program. Adopt a Green Highway Program is an initiative by NGHM to engage Corporates, Public Sector Units, Governmental organizations, institutions and individuals under CSR and Public Private Partnership for developing green corridor along NHs.

A formal MoA was signed between PFC and NHAI today at NHAI headquarters in the presence of Shri Raghav Chandra, Chairman - NHAI, Shri G.S. Ghai, Executive Director - PFC, Dr. A.K. Bhattacharya, MD NGHM and other senior officials of PFC and NHAI. The project will initiate with immediate effect after signing of MoA.

Dr. A.K. Bhattacharya, MD, NGHM informed that this will open new vistas for PSUs & Corporate houses to utilize their CSR funds for greening of highways and creation of ecological assets. Discussions with other PSUs such as Coal India Ltd and other corporates are under process to promote Greening of Highways.

For the proposed work in Nagpur, NGHM has engaged four empanelled agencies to execute plantation and maintenance work. The agencies have been mandated to engage atleast 70% work force from the local community, thereby enhancing livelihood opportunity. Out of these four agencies, 3 are start-ups, which is in line with the vision of Honble Prime Minister Shri Narendra Modi to promote startup India campaign.

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Inter ministerial committee discusses alternative mechanism to release pulses besides allocation to the States
Aug 17,2016

The Government has decided to import further 20,000 MT Chana, 80,000 MT Masoor to strengthen buffer stock. Inter Ministerial Committee on prices of essential commodities headed by Union Consumer Affairs Secretary, Shri Hem Pande reviewed availability and prices of essential commodities specially pulses here today. The meeting also reviewed the procurement and distribution of pulses from buffer stock.

It was observed that there are declining trends in the prices of pulses in recent weeks and these are expected to fall further in view of good sowing of pulses. The Government agencies have procured about 1, 39,000 MT pulses from the domestic market and farmers and 56,000 MT pulses have been contracted for import. Thus 1, 95, 000 MT pulses are available with the buffer stock.

The Department of Consumer Affairs has requested State Governments to expedite lifting of pulses Tur and Urad from the buffer stock for distribution not more than Rs. 120/kg. These pulses are provided to the States- Tur at the rate of Rs. 67/kg and Urad at the rate of Rs. 82/kg. Lifting of pulses by the States is picking up.

The meeting also discussed in detail alternate mechanism for the release of pulses at appropriate time for effective market intervention if sufficient quantity is not lifted by the States.

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739 cities to achieve ODF status this financial year
Aug 16,2016

The union Minister for Urban Minister Shri Venkaiah Naidu inaugurated a consultative workshop on Scaling Up Citizens Participation in Swachh Bharat Mission (Urban) {SBM(U)} to a Jan Andolan. The two day workshop is being organised jointly by Ministry of Urban Development and Tata Institute of Social Sciences.

On the occasion, Shri Venkaiah Naidu said that with the participation and involvement of all the stakeholders, the SBM will transform rapidly into a full-scale Jan Andolan of citizens. Shri Naidu said that, in India, there are different culture, different tradition, different languages and different habits, which poses a huge challenge in communicating to the masses. He said that, this workshop will help to share ideas, experiences and also to know the good practices which will help to bridge the gaps in SBM.

Shri Naidu said that the Mission has reached a new heights in its journey and pointed out some of the inspiring examples, like

n++ A doctor couple from Chalapalli district have been undertaking cleanliness drives in their surroundings every day of the year.

n++ A 104-year old lady in Ahmedabad devotes her time selflessly to educating shopkeepers against littering.

n++ Women and girls are taking a stand against marriage into families without toilet facilities.

n++ Celebrity icons are coming forward to contribute their time and efforts to the cause of the SBM.

n++ Highly qualified professionals are giving up lucrative careers to devote time and efforts to swachhata-related technology and services,

n++ Media houses are devoting programs and channels to the cause of SBM.

n++ Religious leaders and monks are devoting time and energy in motivating followers and volunteers to take up cleanliness drives.

n++ Corporates are building in swachhata related initiatives as part of their business practices

n++ RWAs are proactively taking up decentralized composting and waste management initiatives

n++ School children are becoming more aware of the concept of cleanliness and motivating their parents to adopt sanitary habits and practices.

Shri Venkaiah Naidu said that all these instances and along with some of the initiatives, such as the Swachh Survekshan, thematic drives with citizen participation, engaging students and Self-Help Groups to be the drivers and change agents for social behaviour change, engaging nearly 20,000 swachhagrahis across the country to motivate communities to stop open defecation, intensive PR and social media campaigns being run continuously to engage with citizens to trigger and sustain their motivation to participate in cleanliness drives, reinforces the fact that citizens are becoming active participants.

The Minister said that, along with these initiatives, the creation of infrastructure is also important, be it construction of individual and community / public toilets, facilitate waste processing into value-added products, setting up technology-enabled collection and transportation systems for solid waste, setting up waste-to-compost and waste-to-energy plants for waste processing.

Speaking on Waste to Compost and Waste to Energy, Shri Naidu said that, the Cabinet has introduced a series of policy interventions to promote the processing of waste. He said that, to encourage production of city compost from solid waste, it has now been made mandatory for fertilizer companies in states to purchase the compost produced by city compost manufacturers. He said that India is now looking at a potential compost production of 23 lakh MT per annum by March 2017, which is likely to go up even further.

Shri Naidu said that 122 cities have achieved Open Defecation Free (ODF) status so far and a total of 739 cities will achieve ODF status in this financial year. He said that three States - Andhra Pradesh, Gujarat and Kerala have committed to be 100% ODF by March 2017. The Minister said that 21 lakh individual household toilets and 90,000 community and public toilet seats have been constructed so far and another 21 lakhs individual household toilets and 1.4 lakh community and public toilet seats are under construction.

The Minister said that there is a need to scale up citizen engagement and participation, in a more structured and institutionalized manner. He said that, for SBM to become a true peoples movement, it will have to become institutionalized within the Mission framework itself, with necessary policy interventions, and supplemented by capacity building of the states and cities in engaging peoples participation.

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This will finally pave the way to create more inclusive work environment and promote gender diversity in workplace
Aug 16,2016

FICCI Ladies Organisation (FLO) applauds the decision of the Government for giving ex-post facto approval for amendments to the Maternity Benefit Act, 1961 by introducing the Maternity Benefit (Amendment) Bill, 2016 in Parliament, which aims to raise maternity leave from 12 weeks to 26 weeks, as an Amendment to the original Bill of 1961.

As a 33 year old Business Chamber, working towards women empowerment in India, FLO has always been reiterating on the need of looking at maternity benefits as a tool for attracting and retaining women in the work force.

A recent report by the McKinsey Global Institute points out that Indias 2025 GDP can increase from 16% to 60% by simply increasing female workforce participation by giving them same opportunities as men.

We at FLO, believe in creating an environment that is conducive to the personal and professional growth of all employees. Whether it is safety in the work place or realistic maternity leave and benefits or flexible working hours and most importantly existence of quality crn++ches.

n++This initiative would be a good step towards finding solutions to retain female employees and simultaneously it would also be a strengthening move towards increased return to work postmaternity and greater employee retention in the long runn++, said Ms. Vinita Bimbhet, President, FLO. n++This will finally pave the way to create more inclusive work environment and promote gender diversity in workplacen++, added Ms. Bimbhet.

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Lot of scope to reduce repo rate, competitive economies significantly better in costs of credit : PHD Chamber
Aug 16,2016

While welcoming the third Bi-monthly Monetary Policy Statement for 2016-17 by RBI, Dr. Mahesh Gupta, President, PHD Chamber of Commerce and Industry said that there is a lot of scope to reduce the repo rate as good monsoon is visible and inflationary expectations are also benign.

At this juncture, economy should be supported by lower interest rates to enhance the demand for durables and to boost up the manufacturing sector, said Dr. Gupta.

Cost of credit to businesses is high as compared with many competitive economies, impacting not only in the domestic market but also in the international markets, he said.

Indias repo rate at 6.5% is significantly higher as compared with the worlds 5 largest manufacturing countries including China (4.35%), United States of America (0.5%), Japan (-.1%), Germany (0) and Republic of Korea (1.25%).

Other competitive economies such as Thailand (1.5%), Hong Kong (0.75%), Malaysia (3%), Singapore (0.37%), Taiwan (1.38%) are significantly better than India in the costs of credit.

Going ahead, we expect a significant cut in repo rate to facilitate the competitiveness of the manufacturing sector and to compete in the international market, said Dr. Mahesh Gupta.

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Vegetable prices soar while wholesale-retail price gap as high as 80%: ASSOCHAM study
Aug 16,2016

Prices of most of vegetables like potato, cabbage, chilly, tomato, cauliflower, brinjal and okra have seen a price rise between 20 and 100 per cent, hit by low arrivals of the harvest in the mandis during the April-July period of 2016 and what is most worrying is that the trend is visible during the peak season of production, an ASSOCHAM comprehensive study on vegetables noted.

At the retail level, potato store went up by over 100 per cent during April-July this year over the same period of 2015, cabbage (49.3 percent), chilly (47.8 percent), garlic (37.0 percent), cauliflower (33.9 percent), tomato local (26.0 percent), tomato hybrid (25.6 percent), potato fresh (25.0 percent), okra (22.3 percent), and brinjal round (20.8 percent).

The study which covered several mandis noted with concern, n++it indicates a worrying situation where market arrivals of vegetables have recorded contraction despite being peak season for production. In the shorter horizon, there will be more pressure on the market arrivals of vegetables as production season easesn++.

ASSOCHAM Secretary General Mr D S Rawat noted another worrying trend emerging out of the study. n++There is a huge gap between retail and wholesale price of vegetables. On an all - India average, retailers are selling at more than 52.7 per cent of wholesale prices n++.

The situation has been compounded by lower level of arrivals in the mandis, for the period under review.

As for the gap between the wholesale and retail prices, it is as much as over 75 in some cases like brinjal (round) and over 62 per cent for tomato (desi or local). Likewise, in terms of locational gaps, it is notoriously high by as much as over 80 per cent and places like Mumbai, Delhi and Patna while in several other cities, it is well over 50 per cent.

Lack of basic infrastructure puts further strain in the arrival of vegetables which results in more wastage of vegetables during peak time of production and because of their perishable nature producers have to sell immediately. In general, producers do not gain when prices increase.

n++Therefore there is a need of building cold storage facilities in production centers. Government should improve infrastructure facility by encouraging PPP initiative for the development of cold storage. Also there is need to develop infrastructure that could be directly accessible to the farmers and bridge the gap between fields and markets n++, the study emphasized.

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State and forest toll plazas should be rationalized: Raghav Chandra, Chairman, NHAI
Aug 16,2016

State and forest toll plazas should be rationalized, Mr Raghav Chandra, Chairman, National Highways Authority of India (NHAI) at an ASSOCHAM event.

We will work with other state government and ministries to identify the problems at various check post where multiple agencies connect tolls of various time, the state excise toll and forest toll should be rationalized, said Mr Chandra while inaugurating conference on Roadtech: Sustainable Roads and Highways, organised by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

Mr Raghav Chandra, Chairman, National Highways Authority of India (NHAI) said in past, maintenance gets low priority due to poor capital budgeting. He said that the developers being incentivized not just build a road but to also maintain it for the life cycle of the concession of the contract.

n++Maintaining Opex is difficult for governmentn++, said Chandra. We are looking at economically efficiency corridors and have identified some 15,000 Km of roads where we will have to convert two lanes to four lanes, to increase economic efficiencies by connecting points which have been left out historically.

We should have four lanes access controlled highways which will ensure the quality of the safety feature etc and ensure the six lanes can widened up later on. Greenfield expressway and greenfield corridors should be further upgradable with highest quality safety features land acquisitionn++, added NHAI Chairman.

Mumbai to Kolkata corridor can be made more efficient by creating a new connection of about 665 Km; the road transcend from 4 lane to 2 lanes in several places, 2 lanes to 4 lanes and zigzag at many places. So, all those need to be rationalized and so that traffic can move more efficiently and faster, said NHAI Chairman.

We are also identifying the choke points in cities, places which require bypasses, flyovers, interchanges and in days to come another area of focus for us, mentioned Mr. Chandra.

n++We have also introduced electronic tolling on our corridors and 365 toll plazas along national highways, electronic equipment facility is available all about 355 only about 10 are left where still using handmade devices.

He mentioned, CRRI conducted a study by collecting 70 tonnes of municipal solid waste from different locations of 5/10/15 years old from Ghazipur land fill site of Municipal Corporation of Delhi and have recommended the municipal solid waste contains about 65 to 70% of soil components which can be used in embankment construction after segregation from the municipal solid waste.

He further said, the quality of paints which are used in highways are very poor in India. In this regard, I have set up a small committee headed by Mr. Patankar to look into. We are not looking cost of the paints only but also how long the paints should last.

The Urban development in India has been good but country development is bad. The highways suffer because of the poor country planning hampering highway development, said Mr. Chandra.

We will be planting 1,000 trees per km and looking at 10 crore trees over the next seven-ten years; lot of public sector organization like a Power Finance Corporation and Coal India etc coming forward as a part of CSR to ties up with us and part of green highway initiated under the National Authority of India, said Mr. Chandra.

We have identified 184 flyovers to be done next 4-5 years, about 294 under passes, 5000 km left over service raods, 2 lakhs signage, 550 junction points etc and the work is going and Im sure this number will keep increasing. Industry should get in involved in these areas and able to focus on them.

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Raising EPFs equity exposure imperative to realise Indias demographic advantage: ASSOCHAM-Crisil study
Aug 16,2016

There is a need to increase the asset allocation to equity allowed in retirement funds from current level at 5-15 per cent of incremental flows as it will help in realising the countrys huge demographic advantage, an ASSOCHAM-Crisil joint study has said.

n++At five per cent, overall exposure to equity could barely reach five per cent in 20 years, and even if allocation was increased to 15 per cent, it may take three more years to cross the five per cent overall mark,n++ highlighted the ASSOCHAM-Crisil joint study titled For greater good.

n++The global exposure level is much higher - in OECD countries, for instance, the average is near 30 per cent, it is imperative, therefore, to increase this exposure level,n++ it said.

The opportunity is much bigger for exempt trusts since they have greater flexibility to invest compared with EPFO, further stated the study.

n++There is no denying that equity investments are fraught with risks and require relevant infrastructure and risk management expertise, which these bodies may not possess. But, the risks tend to level out over the long term,n++ it added.

The study suggested for appointing professional fund managers to take apt investment decisions for the retirement fund body.

n++Besides, they can consider outsourcing this risk management function to independent third-party investment analytics firms which have no conflict of interest, and which can guide and monitor investment management,n++ it said.

The study has suggested the exempt trusts to emulate the Employees Provident Fund Organisation (EPFO) to adequately monitor and professionally manage the investments with sound investment, governance practices and processes.

This is because most have only a rudimentary form of investment management at the moment - operating largely on the basis of advice at the time of investment. n++Exempt trusts need to address this, by putting in place requisite infrastructure and expertise.n++

It also said that PFs need to define investment policy in a well-articulated manner, clearly charting out roles and responsibilities of the investment team and committee, the investment universe, the monitoring framework for exposure limits at rating, issuer and sector levels and framework for performance and portfolio review.

Regular and independent review of portfolio by experts can help. And since credit quality of issuers forming part of the portfolio needs constant vigil, early warning systems for credit assessment can be put in place.

The study highlighted that as per a global analysis of investments, the OECD countries, despite having an ageing economy, they continue to remain strongly invested in long-term asset classes like equity and even the non-OECD countries are putting their demographic advantage to better use by investing in equities.

In India, however, pension assets are predominantly invested in debt. This is despite the demographic advantage the country has and is expected to enjoy over a long term.

Currently, 44 per cent Indias population is working age, and this is estimated to become 48 per cent by 2050.

n++The young population has a long-term investment horizon, which calls for greater allocation to long-term asset class (such as equity) for wealth creation to meet the needs in sunset years,n++ suggested the ASSOCHAM-Crisil study.

According to an analysis, equity has the ability to generate stable positive returns over the long term, evidently as the S&P BSE Sensex has not given negative return in any 15-year period, and 93 per cent of the times given returns more than 10 per cent.

Besides, in the 10-year investment horizon, 82 per cent of the times returns have been more than 10 per cent.

n++To be sure, as the investment horizon increases, the volatility in equity returns decreases significantly,n++ said the study.

It also noted that being one of the fastest-developing economies, India certainly presents a positive case for equity investment.

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WPI inflation rises to 23-months high of 3.55% in July 2016
Aug 16,2016

The Wholesale Price Index (WPI)-based inflation jumped to 23-months high of 3.55% in July 2016. An increase in inflation was driven surge in inflation for all three major sub-groups- primary articles, fuel & power and manufactured products in July 2016.

Inflation of primary articles increased to 9.4% in July 2016 from 5.5% in June 2016. The inflation for manufactured products accelerated to 1.8% in July 2016. Further, the inflation for fuel items jumped to (-) 1% in July 2016 from (-) 3.6% in June 2016.

As per major commodity group-wise, inflation increased for foodgrains, vegetables, fruits, egg, fish, raw cotton, oilseeds, raw rubber, crude petroleum, coal, mineral oils, sugar, grain mill products, edible oils, textiles, chemical products, cement, and gold & gold ornament in July 2016. On the other hand, inflation declined for spices, flowers, and electricity in July 2016.

Inflation of food items (food articles and food products) surged to double-digit level of 11.3% in July 2016 from 8.2% in June 2016. Meanwhile, inflation of non-food items (all commodities excluding food items) moved up to 0.1% in July 2016 from (-) 1.3% in June 2016.

Core inflation (manufactured products excluding foods products) rose to 0.1% in July 2016, from (-) 0.4% in June 2016.

The contribution of primary articles to the overall inflation, at 3.55%, was 262 basis points (bps) in July 2016 compared with 154 bps in June 2016. The contribution of manufactured products was 102 bps compared with 65 bps, while that of fuel product group was (-) 16 bps against (-) 58 bps in June 2016.

The contribution of food items (food articles and food products) to inflation rose to 342 bps in 3.55% in July 2016 compared with 249 bps to 1.62% in June 2016. Meanwhile, the contribution of non-food items (all commodities excluding food items) was 08 bps in July 2016 compared with (-) 89 bps in June 2016.

As per the revised data, the inflation figure for May 2016 was revised up to 1.2% compared with 0.8% reported provisionally.

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Fitch Affirms Indian Bank at BB+; Withdraws All Ratings
Aug 16,2016

Fitch Ratings has today affirmed and withdrawn the ratings of Indian Bank. Fitch has chosen to withdraw the ratings of Indian Bank for commercial reasons. A full list of rating actions is at the end of this rating action commentary.


There has been no material change in Indian Banks credit profile since the previous rating actions on 5 July 2016. For more information on the rating drivers, please see Fitch Affirms 9 Indian Banks IDRs; Downgrades VRs of Canara, IDBI and Indian Bank - Ratings Navigator.


Rating sensitivities are not applicable as the ratings have been withdrawn.

Fitch has affirmed and withdrawn the following ratings:

-- Long-Term Issuer Default Rating (IDR) at BB+; Outlook Stable;

-- Short-Term IDR at B

-- Viability Rating at bb+

-- Support Rating at 3

-- Support Rating Floor at BB+

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Fitch: First Indian Bank Coupon Skip Shows Capital Pressure
Aug 16,2016

Dhanlaxmi Banks failure to pay a coupon on a subordinated debt instrument in July 2016 highlights the increased risk to bank capital investors from the mounting asset-quality and capital-adequacy pressures on Indias banking sector, says Fitch Ratings.

This is the first time investors in India have had to forgo interest on a bank capital instrument. We view this as a positive development for a system with a high expectation of support for banks and where moral hazard has developed around the assumption that support could be extended to regulatory capital instruments.

The Reserve Bank of India (RBI) can prohibit banks from paying coupons on subordinated debt instruments if capital adequacy ratios fall below the minimum requirements. It raised these to 9.625% in April 2016 from 9%, exposing creditors to risks at banks with tight capital ratios. The RBI is progressively pushing minimum capital requirements higher to meet Basel III capital requirements, and will reach 11.5% by end-March 2019. Systemically important banks will have a higher threshold of an additional 0.2%-0.6%.

Market concerns about bank capital have increased because of the RBI-imposed asset-quality review, which uncovered higher non-performing loans, triggering first-time losses at some banks. This limits banks ability to generate new capital internally and makes it more difficult for them to access new sources of capital from the market.

We believe Indian banks will need to raise an additional USD90bn of capital by 2019 if they are to meet minimum capital adequacy requirements. As long as potential capital shortfalls persist, creditors will remain exposed to high non-performance risk, which will affect banks market access to new capital. This is likely to put pressure on the government to inject additional capital into the banks, over and above what it has budgeted so far.

Capital ratios are particularly thin at the state-owned banks, which represent around 75% of sector assets in India.

The RBI appears to be making a distinction between banks that have new capital lined up (which so far have been public-sector banks) in decisions about the performance of regulatory capital instruments. Where capital ratios fell below, or very near to, regulatory minimum requirements, public-sector banks have received capital injections from the government and were able to make coupon payments on regulatory capital instruments.

This was the case in 2014 at United Bank of India, and more recently at UCO Bank and Indian Overseas Bank. But Dhanlaxmi Bank is a privately owned, small regional bank that was unable to attract new capital from its shareholders. State support appears not to be on offer, and therefore creditors are more exposed to non-performance if there are capital pressures.

Sovereign support remains a relevant ratings factor for us, particularly for the large state-owned banks and systemically important private-sector banks.

We think asset-quality indicators are close to their weakest point, but expect bank earnings to remain weak at least for the next 12-18 months. Capital ratios will continue to show signs of strain over the short to medium term, and banks will remain under pressure to raise additional funds. Until they do, risks for creditors will remain high.

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RBIs Surplus Transfer to Mitigate Liquidity Impact of Pay Commission Arrears
Aug 16,2016

The outgo due to a hike in salaries and pensions, in line with the Seventh Central Pay Commissions (7CPC) recommendations, is unlikely to cause significant systemic liquidity disruptions, says India Ratings and Research. The agency estimates the combined outgo for the center on account of arrears for January to July and payments for August will total to INR346bn.

The banking system liquidity will experience transient frictional tightness ahead of the payment of arrears. The government is likely to go slow on spending as it gears up to meet lumpy payments (other than regular payments). Temporal adjustments notwithstanding, the overall liquidity conditions will be cushioned as the Reserve Bank of India (RBI) will transfer its profit to the government of India.

The INR68bn deficit arising post the redemption of bonds and payment of arrears can be met through multiple modes (i) existing cash balance with the government (INR82.49bn on 11 August 2016) and (ii) drawing down of ways-and-means-advances to tide over this mismatch. Over August-December 2016, a seasonal surge in currency in circulation and outflows on account of FCNR B (foreign currency non-resident) deposits redemption could aggravate the liquidity position. The agency believes that RBI, at its end, will support the systemic liquidity through proactive management.

Interbank liquidity slipped back into deficit mode this month, after broadly staying in surplus in July. Core liquidity surplus averaged INR120bn in July, which has slipped into deficit as payments for G-sec auction, state loan auctions, and monthly indirect tax outflows drained the system. The RBI is already front-loading liquidity provision, to move closer to its objective of bringing the ex-ante liquidity deficit close to neutrality and has already infused structural liquidity of INR905bn this fiscal. Consequently, any temporary liquidity pressure is likely to elicit a response from the RBI in the form of injection of durable liquidity through open market operations. Front-loaded liquidity infusions through open market operations will keep money market rates anchored around the policy rates.

Out of the INR1.02trn gross impact of 7CPC on the exchequer, the budget has made a provision to the extent of INR933.25bn. Any shortfall arising out of the arrears payment is likely to be marginal and will not significantly affect the countrys fiscal position.

With the recommendations of the 7CPC approved by the Union Cabinet approved earlier in June, the government demonstrated its intent to clear the arrears due before end-August 2016. The proposal for hikes in allowances has been deferred and will be taken up by a committee later. The agency, therefore, has not considered this while calculating the arrears.

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