Opinion: Are interest rates set to fall in India?

While RBI is looking at inflation numbers before reducing the benchmark interest rate, there are many developments which are directed towards reduction in interest rates.

• Reducing SLR: While RBI left the rates untouched during its last meeting, it reduced SLR (Statutory Liquidity Ratio) by 0.5%, this would mean increase in liquidity at banks or little more money to lend. And RBI had expressed its intentions to slowly do away with SLR that would enable banks to lend more freely than put the money into Gold & Govt. securities like they have to do now.
• Ending oil subsidy: Diesel prices are being raised 50 paisa a month thereby reducing the subsidy outgo. This is reducing the subsidy slowly and surely. When this subsidy ends, it would mean the necessity to borrow to fund these subsidies by Govt. or OMC will come down. Oil marketing companies were the biggest borrowers and when these subsidies are gone, it would leave more money on the table of the lenders. If LPG, Fertilizer, and Food subsidies also get reduced, call money market would flush with liquidity. Bankers will be able to borrow money from call market at a lower rate than RBI has set.
• Stronger rupee and softer metal prices to slow down inflation:  While subsidies reduce, deficits narrow down and help to avoid the weakness Rupee has seen in past few years. Fed getting out of QE taking out the air in gold prices. Slowing China has a lesser appetite for metal commodities. Except oil, we are importing deflation. Trends show possibility of trade deficit turning into a small surplus. This is set to make Rupee stronger. It helps our imports costs come down, which reduces fuel bills, so lesser contribution to inflation. Except food items, inflation would moderate in other components of CPI. That would set stage for RBI to act.

There are some probable factors, if and when implemented will help to ease the interest rates.

•  Tax incentives to boost savings: The new Govt. is looking into revise some of the policies aimed at boosting savings. This would mean availability of long term capital at a lower rate for the industry. Those infrastructure companies who are credit starved can reduce dependency on commercial banks for loans. And banks with surplus capital may want to lend at a lower rates. When the corporate bond market develops further it will have similar effect as both lenders and borrowers will have a platform thereby reducing the load on commercial banks to provide for long term capital needs.
•  Tax amnesty schemes: While it is not certain if an amnesty scheme will be rolled out to convert black money into white or bring back stashed cash from abroad, but if implemented it will increase liquidity in the system greatly. And the competition to lend will intensify and offer relief to borrowers.

Risks to assumptions:

Like every assumption has its risks, this too comes with its bag of risks and adverse conditions.

• If food prices go up due to insufficient rains and thus increase inflation, it may tie RBI’s hands or even make it raise the rates further.
• Govt. adopting populist schemes and giving fiscal discipline a miss, this risk looks remote in the given scenario but events like drought, war may force Govt. to consider that.
• If interest rates in US and other developed markets rise significantly and trigger a reversal of FII inflows beyond a point which cannot be supported from the forex reserves built by RBI.

Conclusion:

All in all, given the data and trends, interest rates are more likely drop than stay flat or go up further. Individuals will see relief in their EMI burden and Corporate see expanding earnings. But which sectors will benefit most? Will it be infra and real estate?

Book Introduction: The life divine

The subject of philosophy had always bored me. The idea of force fitting life into theoretical or conceptual frame did not fascinate me. Since I was not ready for this subject, I thought philosophers were failed men but intelligent enough to articulate their frustrations in a logical manner. But my innocence was broken when I arrived at this work of Sri Aurobindo.

First I had downloaded the soft copy but ended up ordering a print version soon. After going through this 1100 pages long book, I feel I am introduced to the subject, realize it has more drawing power and other subjects look less interesting now.

While I admit that I have to come back to this text several times to get to know the subject matter better, the personality of Sri Aurobindo, his understanding of Vedas and Upanishads demand a greater attention. Unlike other Yogi’s who attained spiritual heights, he has put his experiences and teachings on the paper himself.

If you want to explore, here is the link.

http://www.sriaurobindoashram.org/ashram/sriauro/writings.php

Book Review: Our trees still grow in Dehra

This is a short biography of younger Ruskin Bond, life stories mostly from the days when he was growing up. And a few of them are from recent past. This book is a collection of sixteen stories and they are a lot more than fairy tales.

‘Escape from Java’ was no less adventure for young Bond. The aircraft he took along with his father and co-passengers to fly to India crashes into the sea and all the passengers stay afloat for days until help arrives. Other tales reflect the author’s relationship with his parents, grandparents and childhood friends.

Losing his loving father would have been painful for young Bond as one of the chapters show the melancholy, hardships to be faced when one loses his loved ones. Probably that incident would have made Bond an inward looking person and pick writing as a profession.

Few chapters are about his encounters with birds and animals in his grandparent’s house, learning to swim in a pond along with buffaloes, Tonga rides etc. And they all have the flavor of Bond, appreciation of nature, an irritation towards those who cut trees in the name of development, details of landmarks and the memories attached to them.

The story ‘What’s your dream?’ shows the mistake most of us do in our lives. It says the difficult times come when one realizes his dream. He then moves on to bigger dreams, and takes things for granted, but risks losing it all, even the first dream too may vanish.

Reading Bond can make one enjoy things what he has, appreciate what nature has given to us and not to be greedy. I am sure to read more of Ruskin Bond.

Book Review: Discovering the Vedas

What are the Vedas? Are they sacred messages from gods or expressions of nomads and tribal? What time period they came into existence? And where? What is unique in each of those four Vedas?

This book answers those questions by extracting concrete information from the oral tradition and archaeology. It sheds light on mantras and rituals that became bedrock of Hinduism and also contributed significantly to Buddhism. From this book I came to know that Gayatri Mantra we recite is one of the 1028 shloka's from Rigveda.

Author of this book, Frits Staal, came to India on a scholarship from Govt. of India to study Indian philosophy and Sanskrit at a university in Madras and he stuck to those subjects and they became his career.

This is a thoughtful and a remarkable book. It helps to understand the religious subject from historical perspective.

Book Review: Rivals: How the Power Struggle Between China, India, and Japan Will Shape Our Next Decade

India, China and Japan are three largest countries of Asia. They are neighbors and fiercely compete with each other for influence, markets and resources. They trade with each other but have border disputes too. The big brothers United States and Russia watching closely the developments in Asia, are taking sides, attempting manipulations and seek opportunities to benefit from it.

The former editor in chief of the 'The Economist' explores the history of Asia focusing on these three countries, identifies the flash points and danger zones such as Kashmir, Aurnachal Pradesh, Taiwan, Islands in East China sea etc, and also offers solutions to diffuse tension.

Reading this helps to know the issues better but not to interpret the future. So the set of questions remain as questions. Is it possible to resolve disputes which are unresolved for decades? Will the rivalry intensify or is there a possibility of Asia to unite like European union? What would come first, war or peace?