Another Asian financial crisis.........SOON!!!!!!!!!

Another Asian financial crisis to hit in next 12-18 months, there's no way FM can stop it now
By Swaminathan S Anklesaria Aiyar, ET Bureau | 29 Aug, 2013, 06.30AM IST

Make no mistake, a second Asian Financial Crisis is on its way. This storm will not blow over soon. It originated in the US, when the Fed proposed to taper and end quantitative easing.The frightening thing is that this will happen in stages over the next 12-18 months, and each turn of the liquidity screw can cause a fresh financial storm. Nothing Chidambaram or Raghuram Rajan says can avert the storm.Learning from the 1997-99 experience, allAsian countries (including India) have built up large forex reserves, reduced leverage compared with 1997, and shifted to floating exchange rates. This makes them far more resilient, so they should not collapse as in 1997-99. But they will suffer severe damage regardless.Depreciation raises the price of all items that can be exported or imported. Estimates differ, but a 10% depreciation probably sucks out 1-1.2% of purchasing power through inflation.At Rs 68 to the dollar, currency depreciation is around 25% since May, implying a loss of purchasing power of 2.5-3% of GDP. That is hugely recessionary. It will be reflected in much higher prices of petroleum products, fertilisers, most commodities, and knock-on transport and material costs.Chidambaram wants people to invest, but the coming recession will induce every corporate to postpone investment. A falling rupee keeps making Indian assets cheaper in dollar terms, so foreigners thinking India has good long-run prospects will wait till the Fed's storm ends.
The fall in purchasing power created by a falling rupee cannot be offset by a huge fiscal and monetary stimulus, as in 2008.
Storm will Continue
Chidambaram has sworn to hold fiscal deficit at 4.8% of GDP. With slowing revenues and rising subsidies, only slashing Plan spending can check fiscal deficit.
Money must be kept tight to check inflation. So, the crashing rupee will generate pro-recessionary fiscal and monetary forces. This in turn means corporate earnings will crash, a good reason to dump shares.Corporates with large unhedged dollar borrowings will suffer huge balancesheet losses, jeopardising banks that have financed them. International rating agencies will have good reasons to downgrade India, worsening the climate further.Rohini Malkani of the finance minstry wrote in this newspaper on Tuesday that using a model based on relative inflation with trading partners, India's equilibrium exchange rate should be the July level of Rs 58-60 to the dollar.Many experts say the rupee has overshot and will come back. Really? Remember the same thing was said about the Indonesian rupiah when it depreciated from 2,500 to 3,000 to the dollar in 1997, but it eventually went all the way to 18,000.Estimates based on fundamentals quickly become meaningless because a crisis changes fundamentals hugely. The crashing rupee has already changed the economy's fundamentals. Do not think that the rupee has just temporarily overshot, and will revert soon to Rs 60 per dollar. The storm is going to continue well into 2014.

http://economictimes.indiatimes.com/opinion/columnists/swaminathan-s-a-aiyar/another-asian-financial-crisis-to-hit-in-next-12-18-months-theres-no-way-fm-can-stop-it-now/articleshow/22128202.cms

INDIA-Land Acquisition Bill

Sreelatha Menon  |  New Delhi  August 30, 2013 Last Updated at 00:35 IST

Things you must know about the Land Acquisition Bill

The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill, 2012

The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill, 2012 –

 The Bill will replace the existing Land Acquisition Act, 1894. 

State still holds crucial strings The first steps towards drafting a new Bill that includes relief and rehabilitation (R&R) began under the NDA government a decade earlier. The government fell after readying the R&R policy. The first UPA government introduced two proposed laws in the Lok Sabha in 2007. But these were redrafted after Jairam Ramesh took over as minister for rural development. The present version — The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill, 2012 — underlines the government's stated focus on fair compensation rather than fast acquisitionWhen land can be acquired: For private projects, public-private partnerships (PPPs) and for government projects, provided it is for a public purposeWhat is public purpose for land acquisition: Strategic use by the armed forces, paramilitary, state police; for national security; for infrastructure projects, including activities listed under the department of economic affairs (infrastructure section), excluding private hospitals, private education institutions and private hotels; projects related to industrial corridors, mining, national investment and manufacturing zone, sports, healthcare, tourism and space programmes; housing projects for income groups specified by government, projects planned for development of village sites, residential areas for lower income groups in urban areas; projects involving agro-processing, warehousing, cold storage, marketing infrastructure, dairy, fisheries and meat processing cooperativesPre-condition for acquiring: For a private entity or a PPP project, state has to conduct a social impact assessment (SIA) and an environmental impact assessment (EIA), to identify the families who would be affected if land was acquired. The private entity seeking land must then get the consent of 80 per cent of the affected families before it gets the government to acquire land for it. In the case of PPPs, the entity has to secure consent of 70 per cent of affected families. The third condition for getting possession of land acquired through state intervention is payment of compensation and fulfilling of R&R requirementsCompensation package: Up to four times the market value in rural areas and twice the market value in urban areas; the Bill provides compensation to those dependent on the land for livelihood; where acquired land is sold to a third party for a higher price, 40 per cent of the appreciated land value (or profit) will be shared with the original owners. This would be exempt from tax and stamp dutyR&R package: The definition of affected family includes farm labourers, tenants, sharecroppers and workers in the area for three years prior to acquisition. The compensation would be Rs 5 lakh or a job, if available, to the affected family; subsistence allowance of Rs 3,000 a month for one year; miscellaneous allowances of up to Rs 1.25 lakh for each familyDispute authority: A Land Acquisition and Rehabilitation and Resettlement Authority to be establishedRetrospective clause: Applicable on cases where no land acquisition award made. In cases where land was acquired five years ago but no compensation has been paid or no possession happened, the acquisition process to start againLease option: The Bill allows industry to take land on lease, instead of buying. But the decision rests with the state rather than the landownerWhy industry is upset: Make the land acquisition process slower; compensation would raise costs of projects fivefold; retrospective application clause not favourableMulticrop farmland: Irrigated farmland out of acquisition ambit for non-farm uses. But state can decide to what extent farmland should be protected. The farmer does not have any say in the matterProblematic clauses: No guarantee of jobs in R&R package; compensation calculated according to circle rates much less than market prices; no protection to farmland; state government to decide if unused acquired-land should be returned to the farmer or added to its land bank. This applies even if owners return the compensation

http://www.business-standard.com/article/economy-policy/things-you-must-know-about-the-land-acquisition-bill-113082900824_1.html

FIIs - RELENTLESS SELLING

Akash Prakash  |  New Delhi  August 29, 2013 Last Updated at 21:50 IST
Why are FIIs selling?
The catalyst is the run on emerging market equities, but many investors are just tired of waiting for India to get its act togetherSelling by foreign institutional investors (FIIs) has clearly accelerated. Almost $4 billion (Rs 24,000 crore) exited India's equity markets in the past three months. In the last two days alone, global investors sold equities worth over $400 million (Rs 2,400 crore). It is no longer just hedge funds shorting stocks or even selling based on exchange-traded funds. We are now seeing large, long-term capital providers selling down their holdings in India, as evidenced by the price damage in stocks like the HDFC twins, ITC and Sun Pharma.
Why are FIIs giving up on India? Why are they willing to exit now, even though the markets are down over 30 per cent in dollars for the year? It is not because it is hot money, prone to running at the first sign of stress. Instead, investors now finally seem to be throwing in the towel. They are unable to deal with India's volatilityor the need to constantly defend the country internally to an investment committee. Investors fear that a crisis is brewing, thanks to Indian policy makers' inability to bring the situation under control.
First of all, there is great fear surrounding the fiscal deficit given the fact that, in rupee terms, the Indian oil basket (for imports) is at an all-time high. It is inconceivable that Finance Minister P Chidambaram could have any chance of meeting his 4.8 per cent fiscal target. Oil and fertiliser subsidies have multiplied. The projected revenue targets seem unrealistic (tax revenue is already down to single-digit growth) and the revenues projected from disinvestment and spectrum sale are nowhere in sight. Moreover, the food security Bill will only add to the burden.
Yet, the finance minister will have to deliver on the fiscal target to avoid a ratings downgrade. The road to a ratings downgrade is a path no one wants to even contemplate. The only route open to him to meet the deficit target is to once again savagely chop all Plan expenditure, as he did in 2012-13. Yet, if he slashes Plan expenditure, how will we get the push to kick-start investment? There is absolutely no confidence, balance sheet strength or willingness on the part of the private sector to make fresh investments in the country. So the investment cycle can only be kick-started by the government. But if we are going to slash Plan expenditure, this push to investment cannot happen. The skewed mix of growth (consumption at the cost of investment) will also remain unchanged, and surely there are limits to how long this growth imbalance can continue. India's problem is more supply-side than demand-side, and a savage cutting of Plan expenditure will do nothing to remedy the supply-side issues. Without a push from the public sector, we will remain stuck at five per cent growth.
Investors also worry about inflation. Any attempt to cut fuel subsidies will lead to a spike in inflation, as we align diesel prices to global levels. Besides, rising prices of imported coal will also cascade through the system. And what if China starts recovering and commodity prices move up in tandem? Imported inflation is going to be a major issue; it seriously reduces any space the central bank may have to cut rates. Again, without rate cuts, how will we get the economy moving again?
The banking system is a huge pain point. Financial stocks were over-owned and have got battered in the last three weeks. None of the banks had expected the reversal in interest rates and the tightening of short-term liquidity (to defend the rupee) engineered by the Reserve Bank of India (RBI). Consequently, we have huge marked-to-market losses of almost Rs 40,000 crore on the portfolio of government securities the banking system holds. Add to these the losses on corporate bond portfolios. Asset quality continues to deteriorate. Also, now that the rupee is near 70, more than a few large groups are in stress on their unhedged foreign currency borrowings. The RBI has already given some dispensation and will have to give more to allow banks to not report these large marked-to-market bond losses. One should also expect the RBI to be lenient on restructuring and recognising non-performing assets. "Extend and pretend" will have to be the mantra, so that there is no loss of confidence in the banking system. Banks' net interest margins are also under pressure since wholesale funding costs have moved to 10.5 to 11 per cent. System credit growth is, at best, going to be 12 to 13 per cent. Investors are beginning to look through all the regulatory dispensation and focus on economic earnings, which do not look pretty.
The government lacks credibility in the eyes of investors. The finance minister, in trying to get the economy out of its funk, continues to cut a lonely figure. No one else in government seems to have any sense of urgency as to how close to the edge we are.
It is amazing that no public sector undertaking has yet tapped global capital markets. What are we waiting for? If the rupee keeps sliding, the markets may shut for Indian paper. We cannot wait for weeks for boards to meet - the Indian government is the majority owner, and it should act. Why are we delaying putting in place swap lines and non-resident Indian bonds? To stabilise the rupee in the short term, we need to rebuild confidence. The markets are still open for India to access capital, but this can change quickly.
On politics, it is amazing that the only thing to have come out of the monsoon session of Parliament so far is the food security Bill. Political parties cannot agree on the goods and services tax; coal block auctions; pension and insurance reforms; environmental issues or foreign direct investment; and judicial, police and governance reforms. There is, however, unanimity on the food security Bill. The Bharatiya Janata Party and Narendra Modi even wanted to universalise the legislation and raise the amount of grain to the poor to 35 kilogrammes. Investors are questioning the political class' priorities and the willingness to appear populist at any cost. What about jobs and income growth? Are these factors not politically relevant? No one seems capable of looking beyond populism and hand-outs, let alone improving governance and carrying out structural reforms to regain growth. The political system in India seems either incapable or uninterested when it comes to taking tough decisions. Why invest in a country where the entire political system seems to be in denial?
Investors are beginning to lose hope and give up on the country. Redemptions out of the emerging market equity asset class are the catalyst, but many are just tired of waiting for India to get its act together. With zero returns in dollars over a five-year period, many are asking how much longer they are expected to wait to see positive numbers.
Nothing they see inspires confidence. Growth is slowing; inflation and the fiscal deficit remain high; the government lacks co-ordination; and there seems to be no end to India's currency woes. We should maybe hope for another crisis in the West. That could perhaps give us the breathing space to continue.

http://www.business-standard.com/article/opinion/why-are-fiis-selling-113082901166_1.html