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Reforms, rate cut and rupee movement to propel markets

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By Rohit Vaid

Mumbai, Hopes of further economic reforms, rate cuts, range-bound commodity prices and stabilisation of the yuan and rupee are expected to propel the Indian equity markets during the upcoming week, experts said.

 

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“Investors have appreciated the government’s effort in trying to pass key economic legislation in the (just-concluded) monsoon session (of parliament). Markets believe that the government will be able to meet the GST (Goods and Services Tax) roll-out deadline,” Devendra Nevgi, chief executive of ZyFin Advisors, told IANS.
“There are solid hopes that the government will either call a special or joint session of parliament to get the GST bill passed. If this happens then it will send in a very positive signal to the world that India is serious about reforms and ease of doing business,” he added.

Lately, investors have been reluctant to place bets given the possibility that the whole reforms process might be stalled due to the government’s inability to conduct business in parliament.

Nevertheless, the key macro-economic data points released last week is expected to keep the investors solely focused on the apex bank’s moves on a rate cut.

Investors are hopeful of a rate-cut based on healthy macro-economic data points including the Consumer Price Index (CPI), the Index of Industrial Production (IIP) and the Wholesale Price Index (WPI).

The macro-economic data points showed a fall in India’s annual retail inflation rate to 3.78 percent in July, the annual wholesale inflation to (-) 4.05 percent, there was a rise in the factory output to 3.8 percent in June.

The WPI, coupled with the CPI, have pointed out at a gradual reining in of prices. The RBI has set a target for CPI inflation at 6 percent by January 2016.

“The double of joy of growth and inflation numbers have stoked optimism for an inter-policy rate cut, which could support banks’ run in the week ahead,” Anand James, co-head, technical research desk, Geojit BNP Paribas.

Banks will be at the centre of the markets attention, especially in the light of government’s announcements on recapitalisation of public sector banks and setting-up of a Banks Board Bureau.

“The announcements by the finance ministry on the PSU banks should have positive impact on the PSU banks’ functioning over the medium to long term perspective,” Dipen Shah, head of private client group research, Kotak Securities.

The government on August 14 announced its plans to provide Rs.25,000 crore capital in the current and next fiscals to banks, while Rs.20,000 crore would be provided during 2017-18 and 2018-19.

The Rs.25,000 crore this year will be provided in three tranches.

At the same time, Indian markets will be impacted by global trend in commodity prices, rupee and yuan movements.

The yuan’s surprise devaluation last week had stroked fears of competitive devaluation across Asia, especially before the (US) Fed’s monetary policy decision due in September.

The yuan has fallen by 4.6 percent since August 11, its biggest devaluation since 1994.

The devaluation, intended to boost exports, has made investment in China cheaper, thereby leading foreign funds away from India.

This also impacted the rupee, which on August 13 fell to its lowest level against the US dollar in 24 months at Rs.65.23.

However, relief came to the global markets when yuan rose 0.05 percent on August 14. This helped stabilised rupee which stood at Rs.64.99 against the dollar.

“The trend in commodity prices globally, rupee movement and the sharp bounce back on Friday seems to continue in the week ahead,” Vineeta Mahnot, equity research analyst, Hem Securities.

(IANS)

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How telecom has become driver of economic change in India

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The country's hyper-competitive telecom sector has led the revolution from the front.
The country's hyper-competitive telecom sector has led the revolution from the front. Wikimedia Commons
  • India has done well to stay ahead of the curve in the technological revolution
  • The sectoral change in productivity has been the highest in the telecommunications sector since the reforms of 1991
  • India has managed to provide the cheapest telephony services around the world

For the most part of human history, the change was glacial in pace. It was quite safe to assume that the world at the time of your death would look pretty much similar to the one at the time of your birth. That is no longer the case, and the pace of change seems to be growing exponentially. Futurist Ray Kurzweil put it succinctly when he wrote in 2001: “We won’t experience 100 years of progress in the 21st century – it will be more like 20,000 years of progress (at today’s rate).” Since the time of his writing, a lot has changed, especially with the advent of the internet.

India has done well to stay ahead of the curve in the technological revolution. The country’s hyper-competitive telecom sector has led the revolution from the front. In fact, according to Reserve Bank of India data, the sectoral change in productivity has been the highest in the telecommunications sector since the reforms of 1991, growing by over 10 percent. On the other hand, no other sector has had a productivity growth of above five percent during the same period. It is no wonder that it has also been one of the fastest-growing sectors of the Indian economy, growing at over seven percent in the last decade itself.

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Such an unprecedented pace of growth has been brought about the precise levels of change that Kurzweil was so enthusiastic about. Today’s smartphones have the power of computers that took an entire room in the 1990s, and the telecom sector has had to keep up with a provision of commensurate internet speeds and services. Meanwhile, India has managed to provide the cheapest telephony services around the world, which has hit rock bottom after the entry of Reliance Jio. This has ensured access to those even at the bottom of the pyramid.

A rise in internet penetration has distinct positive effects on economic growth of a country.
A rise in internet penetration has distinct positive effects on economic growth of a country. Wikimedia Commons

Even though consumers have come to be accustomed to fast-paced changes within the telecom sector, the entry of Jio altered the face of the industry like never before by changing the very basis of competition. Data became the focal point of competition for an industry that derived over 75 percent of its revenue from voice. It was quite obvious that there would be immediate economic effects due to it. Now that we’re nearing a year of Jio’s paid operations, during which time it has even become profitable, we saw it fit to quantify its socio-economic impact on the country. Three broad takeaways need to be highlighted.

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First, the most evident effect has been the rise in affordability of calling and data services. Voice services have become practically costless while data prices have dropped from an average of Rs 152 per GB to lower than Rs 10 per GB. Such a drastic reduction in data prices has not only brought the internet within the reach of a larger proportion of the Indian population but has also allowed newer segments of society to use and experience it for the first time. Since the monthly saving of an average internet user came out to be Rs 142 per month (taking a conservative estimate that the consumer is still using 1 GB of data each month) and there are about 350 million mobile internet users in the country (Telecom Regulatory Authority of India data), the yearly financial savings for the entire country comes out to be Rs 60,000 crore.

To put things in perspective, this amount is more than four times the entire GDP of Bhutan. Therefore, mere savings by the consumer on data has been at astonishing proportions.

Today's smartphones have the power of computers that took an entire room in the 1990s, and the telecom sector has had to keep up with a provision of commensurate internet speeds and services. Wikimedia Commons
Today’s smartphones have the power of computers that took an entire room in the 1990s, and the telecom sector has had to keep up with a provision of commensurate internet speeds and services. Wikimedia Commons

Now, this data has been used for services that have brought to life a thriving app economy within the country. So, the second level of impact has been in the redressal of a variety of consumer needs — ranging from education, health and entertainment to banking. For instance, students in remote areas can now access online courseware and small businesses can access newer markets. Information asymmetry has been considerably reduced.

Third, a rise in internet penetration has distinct positive effects on economic growth of a country. These effects arise not merely from the creation of an internet economy, but also due to the synergy effects it generates. Information becomes more accessible and communication a lot easier. Businesses find it easier to operate and access consumers. Labour working in cities has to make less frequent trips home and becomes more productive as a result. Education and health services become available in inaccessible locations. Multiple avenues open up for knowledge and skill enhancement.

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An econometric analysis for the Indian economy showed that the 15 percent increase in internet penetration due to Jio and the spill-over effects it creates will raise the per capita levels of the country’s GDP by 5.85 percent, provided all else remains constant.

Thus, India’s telecom sector will continue to drive the economy forward, at least in the short run, and hopefully catapult India into 20,000 years of progress within this century, as Kurzweil postulated. The best approach for the state would be to ensure the environment of unfettered competition within the industry. Maybe other sectors of the economy ought to take a leaf out of the telecom growth story. The Indian banking sector comes to mind. However, that is a topic for another day. (IANS)

(Amit Kapoor is Chair, Institute for Competitiveness, India. He can be contacted at Amit. Kapoor@competitiveness.in and tweets @kautiliya. Chirag Yadav, a senior researcher at the institute, has contributed to the article.)