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Posts Tagged ‘Monsoon session’

Government and RBI response to contain a depreciating rupee

September 9th, 2013 7 comments

The depreciating Indian rupee was a recurring topic of discussion and debate in the Monsoon Session of the Parliament.  The USD/INR exchange rate depreciated 9% during this Monsoon Session, hitting a record low of INR68 to a dollar on August 28.  The Indian Rupee also depreciated 11% against the British Pound and 8% against the Euro during this session.  The rupee depreciation may feed into inflation by affecting the price of imported goods, especially of oil.  However, a cheaper rupee may boost exports, improving the Current Account Deficit (CAD).  This post discusses the reasons for the decline in the value of the rupee, and the steps taken to contain it.

The Prime Minister and the Finance Minister made statements in Parliament regarding the economic situation of the country and the currency.  The key reasons cited by the government for the decline in the value of the rupee are:

  • Large Current Account deficit: The current account (net exports of goods and services, remittances, and net dividend payments) has been in a deficit continuously for the last eight years.  Falling growth rate of Indian exports, coupled with a sharp rise in imports, especially of crude oil and gold, have increased this deficit.
  • Weakening capital inflows: The capital account (the net flow of funds through equity investments and borrowings) surplus has been used to finance the current account deficit for many years.  Capital inflows have reduced due to the improving economic situation in the US and other developed countries.  Investors are exiting developing markets in expectation of the US Federal Reserve increasing the interest rates, impacting the currencies of emerging markets, like India, Brazil, Russia, Indonesia, Turkey and South Africa.
  • Inflation: The PM said that part of the depreciation is attributable to the adjustment of the rupee exchange rate to the inflation differential, i.e. India’s relatively high rate of inflation versus other economies.

Figure 1: Excess of Capital Account surplus over Current Account deficit has been shrinking (in USD million)

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Source: Reserve Bank of India; PRS. Note: FY refers to financial year; for example, FY06 is financial year 2005-2006.

Table 1: Steps taken by the RBI and the government of India to stabilise the currency markets

Issue Details
Capital Outflow The RBI reduced the limit for outbound investment and remittances from India.
Encouraging Capital Inflows RBI has removed administrative restrictions on investment schemes offered by banks to non-resident Indians, and removed ceiling on interest rates on deposit accounts held by NRIs.

The government liberalised the FDI limits for 12 sectors, including oil and gas.  A Bill is pending in the Parliament to revise the FDI limit to 49% in the insurance sector.

RBI increased the current overseas borrowing limit for banks from 50% to 100%, and allowed it to be converted into rupees and hedged with the RBI at concessional rate.

RBI also allowed banks to swap fresh NRI dollar deposits with a minimum duration of 3 years with the RBI.

Limiting Imports and encouraging exports The Finance Ministry increased the customs duty on importing precious metals including gold and platinum.

20% of every lot of import of gold must be exclusively made available for the purpose of export.

Oil Import Needs

 

RBI decided to provide dollar liquidity to three public sector oil marketing companies (IOC, HPCL and BPCL) to help them meet their entire daily dollar requirements.

Government is also considering increasing its import of crude oil from Iran, and pay for it directly in Indian rupees.

Trade Deficit Ministry of Commerce is exploring the possibility of using local currency for trade with major trading partners.

RBI allowed exporters and importers more flexibility in management of their forward currency contracts.

Curbing Speculative  in currency RBI increased the short-term emergency borrowing rates for banks.

The daily holding requirements under the Cash Reserve Ratio for banks have been modified.

International Cooperation Government increased its currency swap limit with Japan from USD15 billion to USD50 billion.

The BRICS nations also agreed on a USD100 billion foreign currency reserve pool as part of their plan to create a BRICS New Development Bank.  India will contribute $18 billion to this fund from its reserves.

Source: Reserve Bank of India; PRS.

In response to questions raised about the economic situation in the country, the Finance Minister and the Prime Minister in Parliament emphasised that there were sufficient foreign exchange reserves to meet the external financing needs.  The government targets to limit the fiscal deficit to 4.8% of GDP, and the CAD to under USD70 billion in 2013-14.  More recently, the new RBI Governor, upon taking office on September 4, 2013, re-affirmed the central bank’s commitment to sustain confidence in the currency and to gradually liberalise the financial market.At the G-20 summit in St. Petersburg, the G-20 agreed to be mindful of the repercussions of the withdrawal of monetary stimulus by developed countries on emerging markets.  The G-20 central banks agreed to “properly calibrate and communicate” their monetary policy to minimise volatility of capital inflows and exchange rates to avoid adverse implications for economic and financial stability in emerging markets.

 

Status of Legislation in the 15th Lok Sabha

August 19th, 2013 3 comments

The ongoing Monsoon Session of Parliament is being widely viewed as the ‘make or break’ session for passing legislation before the end of the 15th Lok Sabha in 2014. Hanging in balance are numerous important Bills, which will lapse if not passed before the upcoming 2014 national elections.

Data indicates that the current Lok Sabha has passed the least number of Bills in comparison to other comparable Lok Sabhas. The allocated time to be spent on legislation in the Monsoon Session is also below the time recommended for discussion and passing of Bills by the Business Advisory Committee of the Lok Sabha. Eight out of a total of 16 sittings of the Monsoon Session have finished with only 15 percent of the total time spent productively.

Success rate of the 15th Lok Sabha in passing legislation

India’s first Lok Sabha (1952-1957)  passed a total of 333 Bills in its five year tenure. Since then, every Lok Sabha which has completed over three years of its full term has passed an average of 317 Bills. Where a Lok Sabha has lasted for less than 3 years, it has passed an average of 77 Bills. This includes the 6th, 9th, 11th and 12th Lok Sabhas. The ongoing 15th Lok Sabha, which is in the fifth year of its tenure, has passed only 151 Bills (This includes the two Bills passed in the Monsoon Session as of August 18, 2013).

In terms of parliamentary sessions, Lok Sabhas that have lasted over three years have had an average of fifteen sessions. The 15th Lok Sabha has finished thirteen parliamentary sessions with the fourteenth (Monsoon Session) currently underway.

Bills Passed by Lok Sabhas

Legislative business accomplished in the 15th Lok Sabha

For the 15th Lok Sabha, a comparison of the government’s legislative agenda at the beginning of a parliamentary session with the actual number of Bills introduced and passed at the end of the session shows that: (i) on average, government has a success rate of getting 39 percent of Bills passed; and (ii) on average, 60 percent success rate in getting Bills introduced.

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The Monsoon Session of Parliament was scheduled to have a total of 16 sitting days between August 5-30, 2013. Of the 43 Bills listed for consideration and passage, 32 are Bills pending from previous sessions. As of August 18, 2013, the Rajya Sabha had passed a total of five Bills while the Lok Sabha had passed none. Of the 25 Bills listed for introduction, ten have been introduced so far.

The Budget Session of Parliament earlier this year saw the passage of only two Bills, apart from the appropriation Bills,  of the 38 listed for passing. These were the Protection of Women Against Sexual Harassment at Workplace Bill and the Criminal Law (Amendment) Bill.

Time allocated for legislation in the Monsoon Session

The Lok Sabha is scheduled to meet for six hours and the Rajya Sabha for five hours every day.  Both houses have a question hour and a zero hour at the beginning of the day, which leaves four hours for legislative business in the Lok Sabha and three hours in the Rajya Sabha. However, both Houses can decide to meet for a longer duration. For example, Rajya Sabha has decided to meet till 6:00 PM every day in the Monsoon Session as against the normal working hours of the House until 5:00 PM.

The Business Advisory Committee (BAC) of both Houses recommends the time that should be allocated for discussion on each Bill. This session’s legislative agenda includes a total of 43 Bills to be passed by Parliament.  So far, 30 of the Bills have been allocated time by the BAC, adding up to a total of 78 hours of discussion before passing.

If the Lok Sabha was to discuss and debate the 30 Bills for roughly the same time as was recommended by the BAC, it would need a minimum of 20 working days.  In addition, extra working days would need to be allocated to discuss and debate the remaining 13 Bills.

With eight sitting days left and not a single Bill being passed by the Lok Sabha, it is unclear how the Lok Sabha will be able to make up the time to pass Bills with thorough debate.

 

Outlawing corruption

In an Indian express editorial, Mandira Kala discusses the Bills, addressing corruption and good governance, pending in Parliament.  She discusses what their fate may be given that the Monsoon session is widely being viewed as a make or break session  for the government to get its legislative agenda through Parliament.

The monsoon session of Parliament started on a stormy note last week. Question hour was disrupted on most days and only one government bill was passed. There are 11 days left in the session and more than 40 bills pending for parliamentary approval. With the 15th Lok Sabha drawing to an end, this session is being viewed as a “make or break” session for the government to get its legislative agenda through Parliament. Since 2010, there has been much debate in Parliament on corruption and an important part of the government’s legislative agenda was the introduction of nine bills in the Lok Sabha to address corruption and improve governance through effective delivery of public services.

Three of these bills have been passed by the Lok Sabha and are currently pending before the Rajya Sabha. These include legislation to address corruption in public office, enforce standards and accountability in the judiciary, and protect whistleblowers. The government has proposed amendments to each of these bills that the Rajya Sabha will have to consider and pass. If the Rajya Sabha passes these bills with amendments, they will be sent back to the Lok Sabha for approval. It is difficult to assess in what timeframe these bills will become law, given that both Houses need to agree on the amendments.

The Lokpal and Lokayuktas Bill creates a process for receiving and investigating corruption complaints against public officials, including the Prime Minister, Ministers and Members of Parliament, and prosecuting these in a timebound manner. The government amendments include allowing states the flexibility to determine their respective Lokayuktas and giving the Lokpal power of superintendence over the CBI, if the case has been referred by him. A mechanism to protect whistleblowers and create a process for receiving and investigating complaints of corruption or wilful misuse of discretion against a public servant are proposed under the Whistleblowers’ Protection Bill, 2010. The amendments proposed by the government prohibit whistleblowing if the disclosure of information affects the sovereignty of the country and its strategic, scientific and economic interest. The Judicial Standards and Accountability Bill requires judges to declare their assets, lays down judicial standards and establishes processes for the removal of judges of the Supreme Court and high courts. The bill is not listed in the government’s legislative agenda for the monsoon session and media reports suggest that the government intends to make amendments to it.

In the arena of strengthening governance and effective delivery of public services, there are three bills currently pending in Parliament. The Citizens’ Charter Bill confers the right to timebound delivery of goods and services on every citizen and creates a mechanism for redressing complaints on such matters. The Electronic Delivery of Services Bill mandates that Central and state governments shall deliver public services electronically no later than eight years from the enactment of the law. The parliamentary standing committee had highlighted that the Citizens’ Charter Bill and Electronic Delivery of Services Bill have an inherent overlap, which the government would have to resolve. While the former is listed for passing in this session, the government plans to withdraw the latter and replace it with a new bill. This new bill is not part of the list that is up for consideration and passing this session.

To create a reliable method of identifying individuals to facilitate their access to benefits and services the National Identification Authority of India Bill was introduced in Parliament to provide unique identification numbers (“aadhaar”) to residents of India. This bill has not been listed for parliamentary approval during this session. Two other pending bills do not find place in the government’s legislative agenda for the session either. These include legislation that curbs the holding and transfer of benami property and regulates the procurement process in government departments to ensure transparency, accountability and probity. The Prevention of Bribery of Foreign Public Officials Bill, which imposes penalties on Indian companies and individuals who bribe officials of a foreign government or international agency, is listed for passing this session.

Each of these nine bills were introduced in the Lok Sabha. If they are not passed by both Houses before the 15th Lok Sabha is dissolved in 2014, no matter where they are in the legislative process, the bills will lapse. This implies that the entire legislative process will have to start all over again, if and when there is political will to legislate on these issues in the 16th Lok Sabha.

The challenges in getting legislation passed by Parliament are many, given that its overall productive time, especially time spent on legislation, is decreasing. Typically, Parliament spends about 25 per cent of its time debating legislation, but in the past few years this average has declined to 15 per cent. While the time lost by the House due to frequent adjournments is difficult to make up, parliamentarians will have to cautious about passing bills without the rigours of parliamentary debate. It is uncertain what the trajectory of the anti-corruption legislation in Parliament will be — enacted as law or resigned to a pool of lapsed legislation.