Economic Highlights

New Delhi, 24 June 2024

Shady Coaches, Huge Costs

ONE TEST NOT FOR INDIA

By Shivaji Sarkar

The country needs to go back to the drawing board on centralising entrance tests as the big ones – JEE, NEET, CUET and UGC-NET–are having far too many glitches and questions raised on the National Testing Agency (NTA).The NEET scam and NET cancellation have shocked the youth and raised questions on the credibility of the testing agency. Let the country note that within48 hours of NEET results, four students took their own lives.

Should not the country rethink on ‘One Nation-One Test’? The tests be designed to make coaching redundant.Few have idea of the cost of one NEET – National Eligibility-cum-Entrance (Undergraduate) Test, previously called Pre-Medical Exam. It costs over Rs 400 crore borne by the parents of 2406079 candidates registered for the 2024 exam at the rate of Rs 1700 fee per applicant. The system does not say how much is the profit for NTA. It is common knowledge that no entrance fee is fully spent. Should it not be considered as a tax on the unemployed knowledge seekers!

There are approximately 108,915 MBBS seats available across 706 medical colleges for NEET 2024. Around 55,000 of these seats are in government medical colleges; the rest are in private medical colleges. One wonders why private colleges are included which have devious fee structure backed by severe capitation fees. The quality of faculty is also questionable. Of course, even newly set-up many state medical colleges too have such issues. Many even do not have a cardiologist or neurologist.

Add the cost of coaching, travelling, and other expenses, together to cost quite a few hundred crores more, big drain on the economy plus parental and societal stress. The Kota coaching system has an estimated business of Rs 600 crore.There are reports that the UGC-NET having nine lakh aspirants was cancelled as there was paper leak. Each question paper was sold for Rs 5,000 for transfer to the students’ Telegram app.

For NEET Rs 30-35 lakh per student was charged as alleged by a student witness, who got the paper with its answers a day before. It is possibly one of the biggest scams that spanned from Vadodara and Godhra to Patna and where not! It has sparked countrywide protests.No wonder the moves against generation of black money have not succeeded. Add to this the various recruitments stalled for scams, 13 in Uttar Pradesh, many in West Bengal and the worst known VYAPAM in Madhya Pradesh. The irregularities are thriving with the highest jobless numbers.

The NEET scam got exposed and how parents paid Rs 66 lakhs and more. Eight students from the same examination centre in Haryana who secured all-India rank (AIR) 62 to 69, had largely similar roll numbers. On 5 May 2024 at two NEET centres in Haryana, students received wrong question-paper set, which was taken back after 25 minutes.

A paper scam in Gujarat, featured Vadodara-based coaching centre, and at least 16 students who each paid Rs 10 lakh to pass the exam. Fresh accusations arose when news reports of a paper leak emerged only days after conduction of the competitive exam.A Godhra school teacher is accused of the NEET exam cheating scandal, Rs 7 lakh were found in his car, while cheques worth 2.50 crore were found from the office of the director of the coaching centre. Reportedly, this money was given by the students.

“There is a perception of mismanagement by the NTA”, says ABVP General Secretary Yagyawalkya Shukla. BJP MP Rakesh Sinha calls for severe criminal action against any nexus found between paper setter and coaching institutes. It has rattled everyone.

The reality is the NTA does not have competence to hold the examinations as many professional autonomous institutions have been doing for decades. None could raise a finger against any of them, including the All India Institute of Medical Science (AIIMS). They also selected students with proper aptitude. An issue that has cropped up now with many of the national institutions, with CUET in particular. The only action against weeks after the NEET fiasco has been the cancellation of the examination for grace mark students.

The NTA appears to be loosely controlled organisation. The tests are gateway to careers and future professional excellence. If it is mired with malpractices and money power, the future of the nation is at stake. Would those adapting devious methods could ever have ethical bindings! The implementation is shoddy. The NTA does not conduct the tests on its own. Implementers are largely burgeoning private sector ‘service providers’, IT companies and emerging outsourcing infra organisations for conducting such mammoth tests. The competence of NTA for ensuring cyber-security at thousands of centres is doubtful.

Even invigilators and other staff are hired casually leaving the system vulnerable to attacks, pilferage and compromise.The suspicion over the countrywide coaching organisations calls for rethink on the composition of the tests. Are they giving instructions, or has it emerged as the most corrupt money-minting machines? Should not the country do away with this organised malpractice? The examinations need to be tailored in a way that students do not need any coaching.

National Convenor of SanskritiUtthanNyasDevendra Singh has demanded cancellation of the NEET test. The ShikshaBachaoAndolan founded by Dinanath Batra and Atul Kothari also wants the test cancelled. Too much centralisation could be breeding irregularities. It is a diverse country with diverse state boards, languages and systems. This apart each genre of professional institutions has varied needs for selections. The previous systems of selections by many professional institutions, organised by themselves have rarely raised an eyebrow.

The NTA needs structural reforms. Conducting professional examinations are a challenge. Minister for Education Dharmendra Pradhan says, “We will take the final call”.The entire university system cribs over CUET – Central University Entrance Test. It forces students to take a test even for subjects, which are not in demand. The huge numbers have put off academic calendars for the past few years. Let universities conduct their own admissions as before to rid the system of over centralisation, delays and trauma to the students and their families.

The academics must put their heads together to have least of central admission examinations and more decentralised process not only to keep the process sanitised but also put India on the world map for its education, that such compromised systems sully.---INFA

(Copyright, India News & Feature Alliance)

Economic Highlights

New Delhi, 17 June 2024

New Saudi Petro-$ Regime Begins

INDIA PRESSES FOR RUPEE TRADE

By Shivaji Sarkar

Indians are hopeful of a new petroleum pricing regime with Saudi Arabia refusing to renew the 50-year-old US-Saudi Petrodollar Agreement that expired early June. Indeed, there may be a new agreement with Saudi Arabia, but expecting a cheaper deal is to remain a dream as the Rial is pegged to the dollar.

It may gradually open up new avenues in the global economy. The petrodollar system replaced gold as the standard of value which enabled the US to maintain dominance over international trade and allowed the US government to control the world’s energy market.

The Saudi decision marks a significant departure from the longstanding financial arrangement between the two nations that was established in 1974. The arrangement to recycle petrodollars positioned the US dollar as the primary currency for international oil transactions.

The crucial decision to not renew the contract enables Saudi Arabia to sell oil and other goods in multiple currencies, including the Chinese RMB, Euros, Yen, and Yuan, instead of exclusively in US dollars. Additionally, the potential use of digital currencies such as Bitcoin may also be considered. In all it’s more theoretical. Despite scrapping of the agreement, the ties are to continue.

The benefit to India could be minimal. The Saudis want a deal in Rial or dollar and not so much in rupee. Even a rupee deal if hypothetically agreed would not help India as the outgo would remain the same. A better option available to India is trading with Iran in rupee. The Iranian crude is supposed to be one of the best. The US has forced India to scuttle its ties with Iran.

The original petrodollar agreement was signed on 8 June 1974 by the US Secretary of State Henry Kissinger and Prince Fand Ibn Abdel Aziz of Saudi Arabia. It was a period marked by the aftermath of the Arab oil embargo and a notable spike in international oil prices.Under the agreement, Saudi Arabia agreed to price its oil exports exclusively in US dollars and invest its surplus oil revenues in US Treasury bonds, and in return it was promised US military, security, and economic development assistance.

This system replaced gold as the standard of value which enabled the US to maintain dominance over international trade and allowed the US government to control the world’s energy market. Although the agreement was signed by the Saudi government, almost all OPEC countries use the US Dollar to sell their oil in the international market.Though the agreement was meant to stabilise the oil market, this never happened.

The petrodollar influenced the global economic dynamics. It was a clever US ploy to create a constant demand for US dollars as the currency was required for oil transactions. The value of the US dollar increased significantly, and it reinforced the currency’s status as the primary reserve currency of the world. It allowed the US to run larger trade deficits and maintain lower interest rates than would otherwise be possible.

In the changed situation, it would be interesting to watch whether the value of the dollar changes or not. In the immediate context, India cannot expect lower value of the dollar. That is why the Reserve Bank of India is gradually shifting to gold as a parallel currency for international trading. The gold despite appreciating has less market cost than the dollar. If the dollar falls, which at present looks improbable, gold would provide the cover.

According to data from the Centre for Monitoring Indian Economy and the Bank of Baroda, Saudi Arabia accounted for about 16.6 percent of India's crude oil imports.India imported $170B crude petroleum in 2022, becoming the third largest importer in the world. In the same year, crude was the first most imported product in India.

India's trade with Saudi Arabia in 2022-23 amounted to $52.76 billion, with exports at $10.73 billion and imports at $42.04 billion. As such, India had a trade deficit of $31.31 billion with Saudi Arabia in the last financial year.

India imports crude petroleum primarily fromIraq ($37.1 billion), Saudi Arabia ($32.7B), Russia ($25.5B), United Arab Emirates ($14.8B), and the United States ($10.8B). The fastest growing import markets in crude for India between 2021 and 2022 were Russia ($24.6B), Saudi Arabia ($14.8B), and Iraq ($12B).

India also exports crude petroleum. In 2022, $2.3 million worth crude were exported, making it the 99th largest exporter of crude in the world. The main destination of crude exports from India are South Korea ($2.19M), El Salvador ($86.8k), New Zealand ($19.1k), Tanzania ($1.41k), and Spain ($227).

Primarily, India is an importer. The benefit of refined Russian crude to Europe is pocketed by two private refineries. Now as the new Saudi system unfolds, India’s import bills are not likely to come down.Major commodities of export from India to Saudi Arabia include engineering goods, rice, petroleum products, chemicals, textiles, food products, ceramic tiles. Whereas major commodities of import for India from Saudi Arabia are crude oil, LPG, fertilizers, chemicals and plastic.India and Saudi Arabia have begun discussions on settling their trade in local currencies.

Over the past year, India has pushed the use of the rupee globally, with the RBI announcing the setting up of a mechanism to settle global trade in rupees in July 2022. Early use of this system was seemingly for the purchase of discounted oil from sanction-hit Russia following its invasion of Ukraine in February 2022. However, the mechanism has not taken off, with reports emerging that negotiations over the settlement of bilateral trade in rupees between India and Russia had been suspended after Russia had accumulated billions of rupees in Indian banks which it could not use.

In recent months, India has entered into bilateral agreements to settle trade in local currencies, with a Memorandum of Understanding (MoU) to set up a Local Currency Settlement System being signed with the United Arab Emirates in July2023. Discussions with Indonesia to settle cross-border transactions in local currencies have too begun. It is trying to have talks with Brazil, Argentina, South Africa, Senegal, and Tanzania. Not much progress ismade.

India would have to continue with the present system and may have little relief in terms of global trade. International petroleum prices are unlikely to soften. The forex outgo would continue at the present level till the rupee attains an international status and Indian consumers would have to pay domestically a higher price.---INFA

(Copyright, India News & Feature Alliance)

Economic Highlights

New Delhi, 10 June 2024

Families Economies Hurt

COALITION TO TAKE ‘STOCK’

By Shivaji Sarkar

Coalition is natural in a diverse country such as India, with a variety of people, practices, customs, living style law and worship. Micro economic practices too are different from the North-East to Gujarat and Kashmir to Kanyakumari.And, the two coalitions, BJP led-National Democratic Alliance (NDA) (293 seats) and Congress-led INDIA (234), are as diverse as the country, which has observed it functions best in a coalition. It manages its economy better in a transparent manner and does have far less probability of being authoritarian. Checks and balances in the polity are more effective as also the less chances of scams.

The start, however, has been aggressive, equally as was the campaign of allegations from the bid to amend the Constitution, to inflation, unemployment, electoral bond scams, covid excesses to ruining of family economies and indecent diatribes.Congress leader Rahul Gandhi has kept on the pressure and alleges the biggest scam on the sharp stock market zoom of June 3 and demandsa JPC probe into it. Incidentally, it’s said TDP leader Chandrababu Naidu’s wife made Rs 569 crore in a day. Even on Friday the stocks zoomed again as anxiety over government fades. It is being closely watched.

In previous coalition governments, the market was seen to behave. The country has seen the best phase of its administration, policy making and almost a scam-free regime between 1996 and 2004 under the United Frontgovernment led by HD Deva Gowda and IK Gujral, and the Atal Behari Vajpayee’s BJP-ledNational Democratic Alliance. Every decision was taken in consultation with 24 to 48 partner parties.

These governments took critical decisions, including the second significant Pokharan nuclear test. Though Vajpayee is rightfully credited for the nuclear test, it actually started much earlier, during the regime of PV Narasimha Rao. Gowda and Gujral continued with the policy and in 1997, Atomic Energy Commission Chairman R Chidambaram told a select group of journalists that the country was prepared for a test at short notice.

The NDA of Vajpayee and LK Advani gallantly fought the Kargil conflict with Pakistan and kept China under check. The economy did well with Bombay stock index growing 5.9 percent annually. Buoyed by a rebound in the agriculture and allied sector, and strongly helped by improved performance in industry and services, the economy had registered a growth rate of 8.5 per cent in 2003-04, the highest ever except in 1975-76 and 1988-89.

The process continued to a certain extent till 2007 in the next coalition government of the UPA led by Manmohan Singh of the Congress, when the Left Parties in an unwise decision parted with it on a silly pretext of the government signing a nuclear agreement with the US.The Left parties had been maintaining pressure onthe government to follow a pro-people path. As they quit, the UPA did go wayward and the very next year, 2008, when under pretext of Lehman Brother global sub-prime crisis, it opened up the bank coffers to large business houses. It gradually led to a crisis situation of rising bank non-performing assets, and severe inflation under which the UPA wilted.

People had high expectations from Narendra Modi’s new NDA government in 2014. Initially it did well and gradually started to take decision. Some schemes such as skill development, Ujjwala, and direct benefit among the 50-odd new schemes caught their fancy. However, in its over enthusiasm for doing better since 2016,it started taking unilateral decision such as demonetisation at a time it was recovering from the lows of Manmohan Singh regime. It wiped off a parallel cash economy of the poor, which sustained the country during the 1990-91, a phase of various stock scams during the 1992-96 and later during the Lehman crisis.

The inflationary trend returned, and prices further shot up with the introduction of GST in 2018. The government was taking decisions for “reforming the economy” but was not listening to its partners or party members. The 2019 victory established that brand Modi not only remained intact but increased the strength of the BJP.

The 2024 election proved different as Modi gave the call for “400-paar” or 400 plus seats for NDA. This was after a buoyant syndrome of “pranpratishta” at the newly built Ayodhya Ram temple with an elaborate plan to revamp it as a Disney type game to conference city. It did not pay off the political dividend.

Consequent, invigoration of the Congress-led INDIA, despite Janata Dal-U of Nitish Kumar deserting it, stood up as strong challenger to the NDA. It hit the NDA hard in Uttar Pradesh and for the lack of RSS cadre support the BJP tottered and suffered losses at key constituencies of Faizabad (Ayodhya), Allahabad, Vindhyachal, Sitapur and its tally fell to 33.

This was not an isolated phenomenon. Reckless demolitions of over 500 temples in Varanasi, 5000 houses and temples in Ayodhya, Vindhyachal and Allahabad, a city named after daughter puranical Manu, Eela, getting its name changed, hurt the electorate and they voted overwhelmingly for the INDIA parties Samajwadi (SP) and Congress in UP.  There was ire as the inflation and joblessness hurt family economies. The SP got 37 of 80 seats, Congress 6 and the BJP 33. The BJP vote share fell in 72 seatsin UP and over 30 Maharashtra constituencies.

The ruling NDA has now to depend on the support of the JD-U and TDP. The ensuing budget within a month has to address the people’s issues and ensure expenditure cut on high-cost infra projects. Being under the strong gauge of the two allies, how much liberty it could take has to be noted. Both the parties want an end to Agniveer or short contractual employment of soldiers,and solution to many issues and special status for Bihar and Andhra Pradesh.

The Reserve Bank of India’s refusal to reduce rates in its monetary policy, even if the US cuts it, is a grave statement on the economy by its Governor Shaktikanta Das. The RBI also flags usurious high interest rates by non-banking financial and microfinance institutions.  There are complaints against digital lenders as well. The RBI foresees building up risks to the lenders that could severely impact the finance sector.

The 18thLok Sabha might be stormy not only because Rahul Gandhi would be the Leader of the Opposition but also for, both Chandrababu Naidu and Nitish Kumar known for their transactional outlook and maximalistic approach. The possibility of them using their leverage, encouraged by feelers from Congress and others in the Opposition, could be a constant worry for the ruling NDA.---INFA

(India News and Feature Alliance)

Economic Highlights

New Delhi, 3 June 2024

Long Poll Hits Stocks

Rs 27,500 Cr LOST IN MAY!

By Shivaji Sarkar 

Global uncertainties over rising interest rates, jittery noises of Lok Sabha elections surpass the Reserve Bank of India’s Rs 2.10 lakh crore dividend boons, pushing down the Sensex by 2100 points.From its highest 76,010 in the beginning of the week it plunged to 73,866 as the BSE and Nifty indices close in the last six sessions. The RBI forecast of 7 percent growth too has not boosted the spirits as the equity market has been pining for a higher growth. 

However, RBI claims that even at 7 percent the country would be one of the fastest growing economies in the financial year 2025. The Asian Development Bank and Fitch also concur. But IMF, S&P and Morgan Stanley put it at 6.8 percent and the World Bank, Moody’s and Deloitte put it at 6.6 percent.The RBI has set a target of inflation at 4.5 percent though the central bank repeatedly has said that for the last 10 years average inflation hovered over 5.5 percent. The central bank also notes a slowdown in the last quarter of 2023-24.               

Global markets remained under pressure due to rising bond yields and denting hopes of a rate cut. A major concern is the spike in the US bond yields pushing the 10-year yield above 4.6 per cent. Some of the top companies that raised dollar bonds include India Bulls HF-$ 350 million; IRB Infra - $540 million; Adani Green Energy - $409 million and Sriram Finance - $750 million, as per Bloomberg. 

The bond market can trigger continuation of the FII selling, which will depress the prices of large stocks further.Volatility is likely to continue in the next week as well due to political uncertainty and global developments. This has been a phenomenon since the elections began in April and now it is spiking to 24.8 – a more than two-year high on the benchmark for volatility India VIX. Except for occasional rises, the stocks remained stagnant. 

In different phases the losses to investors have been heavy. In the present melee, foreign funds were major sellers at Rs 3,050 crore. Earlier, trading also the FPIs sold stocks worth Rs 27,500 crore. The domestic funds were net buyers at Rs 53,600 crore. It means largely the PSU funds were the buyers.This has a risk to mutual fund investors. During the weekend, the BSE sensexhad a minor rise of 0.18 percent or 132.44 points and the NSE Nifty 50 closed 61.75 points or 0.27% higher. These minor movements are not capable of recovering the losses. 

It is found that some of the major corporates like the Tata Steel’s profit slides 65 percent to Rs 555 crore down from Rs 1566 crore. It suffered a loss of Rs 594 crore. Of the 12 startups looking to launch IPOs in 2024, eight have incurred a cumulative loss of Rs 8,000 crore, including Swiggy, and Ola Electric. 

A prolonged election has seen investor confidence being hit. Foreign portfolio investors preferred to unload more than buying. Election is a democratic necessity. The rulers, however, need to see it beyond political compulsions. Ideally, an election could be held in far fewer phases stretched to not more than a fortnight. Most of the southern states had a one-day poll schedule. Only in states of northern and eastern India had multi-phase polls. Even Tripura, one of the tiniest states with two seats, witnessed polls being held in two phases. 

The longer an election stretches, the administrative cost multiplies. All political parties should sit together with the Election Commission of India (ECI) to discuss how the modalities could be simplified to hold elections in the shortest possible time to take care of administrative, economic and trading activities. This apart, it also needs to decide whether announcing dividends by organisations such as the RBI or other PSUs could be announced during the elections. Such moves tilt the balance. 

Profit booking at higher levels in the stock market has been a synonym to political or economic uncertainties. This needs to be avoided to the maximum. Elections must not come in the way of policy decisions, either at the government level or corporate and other institutional functioning. 

Election schedules are not a matter of mere political management. Polls are held to improve systems. If these affect any aspect of the governance, it must be corrected for all times and should be part of the standard operating procedures of the ECI. 

Overall, there are risks to the economy, the RBI says in its annual report. It has asked banks to address trading norms, banking book risks, and diversify deposit sources to mitigate risks associated with interest rate fluctuations. This variation has also its impact on the stock markets. Its decision to review priority sector lending guidelines and work towards formulating norms for the National Strategy for Financial Inclusion up to 2030 could have wider impact on trading and businesses. 

The RBI functioning is also being discussed. Its dividend payment of Rs 2.10 lakh crore is linked to 17 percent rise in income, 56 percent drop in expenses due to a much lower transfer to contingency provisions during 2023-24. As against Rs 1.3 lakh crore in 2022-23, only Rs 42,819 crore was transferred to the contingency fund in 2023-24. 

Another matter that has drawn attention is the domestic assets made up 23.3 percent against 76.7 percent in foreign currency assets, including gold deposits and gold held in the country as also loans and advances to financial institutions outside India. The RBI, its annual reports states, holds 822.1 metric tonnes of gold. The value of gold held as an asset increased by 16.9 percent to Rs 1,64,604.9 crore on March 31, 2023.  It also mentions heavy liabilities other than deposits and notes issued at 92.57 percent. 

The recent trend in the US inflation data could make an interest rate cut this year. This could cause further flight of capital from India even as the rupee continues to fall against the dollar and further fall in the equities are not ruled out. 

The market awaits new policy formulations. Till such time the volatility is likely to continue. It would require innovative approach to the financial and budgetary policies to boost the overall market so that investors from across the globe are tempted to put their funds in Indian scrip and other instruments.The new government has to trudge cautiously and intelligently to rev up the contours of the market and economy.---INFA 

(Copyright, India News & Feature Alliance)