In a first for Asia, the International Monetary Fund (IMF) will set up a knowledge-sharing centre in India, to provide technical support and assistance here and to five other South Asian nations. Their team will extend expertise in core macroeconomic and financial management areas, said an unnamed government source. An agreement is likely to be signed here on Saturday by IMF Managing Director Christine Lagarde with Prime Minister Narendra Modi.
The new IMF centre, being set up amid global economic uncertainty, will provide assistance to India, Nepal, Bangladesh, Sri Lanka, Pakistan and Bhutan. Since the IMF team will be based out of the region, it will ensure better understanding of regional concerns, including trade, agriculture, climate change, facilitating a reform process and support to regional integration. The knowledge centre will come up in the wake of IMF announcing implementation of its long-pending quota reform, giving more voting rights to emerging economies.
With these changes, to be effected in the coming days, India’s quota in the IMF would rise to 2.7 per cent from the existing 2.44 per cent. Also, the voting share of India would increase to 2.6 per cent from 2.34 per cent. For the first time, four emerging market (EM) countries of the Brics bloc — Brazil, China, India and Russia — will be among the 10 largest members of IMF.
Two new multilateral agencies are also being set up — a New Development Bank of the Brics countries and an Asian Infrastructure Investment Bank.
An Asian economic crisis did occur in the late 1990s but from the Southeast Asian ‘tigers’ of that time. This time, one could emanate from China or another large economy from the EMs. According to the Economic Survey of 2015-16, if this kind of crisis does emerge, it would be very different from those of earlier decades. Since the 1980s, it said external financial crises have followed one of three basic forms — Latin American, Asian or global models.
In a Latin American debt crisis, governments went on a spending binge, financed by foreign borrowing (of recycled petrodollars) while pegging their exchange rates. In the Asian one of the late 1990s, the transmission mechanism was similar — overheating and unsustainable external positions under fixed exchange rates — but the instigating impulse was private borrowing rather than governnment borrowing.
The global one of 2008, with America as its epicentre, was unique in that it involved a systemically important country and originated in doubts about its financial system.
If a crisis occurs in China or another large EM, it is more likely to resemble events of the 1930s, when the UK and then the US went off the gold standard, triggering a series of devaluations by other countries and leading to a collapse of global economic activity.
If such a crisis hits India, it will require fresh prescriptions and it is here that the IMF centre would be of help, a source said.
India’s booming online marketplace business has attracted a new wave of merchants and sellers from countries such as China, South Korea, Japan, Singapore and the US. In fact, thousands of sellers are getting into tie-ups with Indian e-commerce players to kick-start operations in the country.
According to industry insiders, around 50,000 sellers from China, South Korea and Singapore are planning to enter India through online marketplace players.
“In business-to-business (B2B) segment, there is no online organised player in the country right now. The market is being created for the online businesses,” said Sanjay Sethi, co-founder and CEO of Shopclues. The company has brought in DHgate, the second largest player in China after Alibaba, on to its platform. It’s also getting 25,000 South Korean merchants on board. Tie-ups are also in process with Singapore Traders Association to enable them to sell on Shopclues.
American retail major Walmart is also exploring ways to tie up with leading e-commerce companies in India, including Flipkart, Snapdeal, ShopClues, Grofers and Bigbasket. It is learnt that German wholesale giant Metro Cash and Carry is also in talks with e-commerce marketplace players to sell its products online.
Meanwhile, e-commerce giant Alibaba is looking to make a big bang entry into India’s marketplace via One97 Communications-owned Paytm.
Alibaba is expected to be the support behind Paytm’s China product portfolio. With that in place, Paytm will aim to become the biggest Indian player insofar as the number of sellers on the platform is concerned. With eight million sellers, Alibaba has the widest seller range as well as product portfolio.
This is not for the first time that Paytm is planning to sell Alibaba’s product range. During Diwali last year, Paytm had the whole product catalogue sourced from Alibaba and merchants from China were directly shipping products to customers in India, saving Paytm the hassle of finding warehouses.
As for the second top player in China, DHgate, online B2B would be a gateway into India and an opportunity to get connected to 350,000 sellers through the Shopclues portal.
DHgate plans to list its products across categories, including electronics, accessories, beauty products and sports. “From China we are getting around 10,000 SKUs (stock keeping units) listed. It is not a retail business and the target audience for this business are other businesses in India,” said Sethi.
The foreign investment rules vary across retail platforms and companies often resort to complex structuring to bypass policy. While foreign direct investment (FDI) is capped at 51 per cent in multi-brand retail with states having the last say on whether international players would be permitted to operate or not, there’s no limit of foreign investment in single-brand and business-to-business or cash and carry.
In e-commerce, however, FDI is not permitted. But, e-commerce players are mostly run with foreign money by operating marketplace platforms, where rules have not been framed yet.
India has showed some improvement in addressing corruption this year, ranking 85th among 175 countries as against 94th last year, graft watchdog Transparency International India (TII) said on Wednesday.
Denmark retained its position as the least corrupt country in 2014 with a score of 92 while North Korea and Somalia shared the last place, scoring just 8, it said.In India’s neighbourhood, China moved to 100th place, down from 80th last year, while Pakistan and Nepal were at 126th position. Bangladesh was 145th and Bhutan 30th in the ranking. Sri Lanka was ranked 85th with India. Afghanistan was at a bleak 172.According to the Corruption Perception Index (CPI) report by TII, “the CPI score for India increased by 2 points in 2014 from its 2013 score, helping India’s rank move up to 85 in 2014 from 94 in 2013”. India’s score stood at 38 as compared to 36 last year.
The improvement in CPI for India was driven primarily by two data sources — from the World Economic Forum and World Justice Project’s (WJP) index.
“A score increase on WEF suggested businesses in India were viewing the environment favourably with regards to their perception of corruption and bribery in the country”.
The WJP score also went up reflecting the perceptions of public sector corruption coming down slightly in India, the report said.
The report noted that in terms of the new government, the CPI possibly captured the anti-corruption mandate on which the new government was elected and the possibility of some new reforms in this area.
“However, the data used for CPI mostly was collected prior to the change of government and therefore this will not reflect directly into any of the CPI sources,” it said.
To calculate India’s position this year, 9 out of 12 independent data sources specialising in governance and business climate analysis were also used.
These included Bertelsmann Foundation, World Bank and World Economic Forum. They helped in measuring perceptions of corruption in public sector and cross country comparability.
In his reaction, chairman of TII S K Agarwal, said the “new Government has got fully majority on agenda of good governance and now it’s high time to act and pass all pending anti corruption bills including the right of citizens for time bound delivery of goods and services and Redressal of their Grievances Bill”.
* Dollar at highest since March vs currency basket, euro down
* China’s yuan strengthened after IMF decision
* U.S. stocks down ahead of data; Asia dips, Europe up
* ECB stimulus expectations lift European stocks
* Oil rises ahead of ECB meeting, OPEC on Friday (Updates to afternoon, adds commentary)
* * * * * * * * * *
The dollar hit an eight-and-a-half-month high against major currencies Monday as the prospect of further European Central Bank stimulus dragged the euro down to its weakest since mid-April, while oil prices retreated.
Global stock markets were mixed, with Wall Street falling ahead of a crucial payroll report Friday, while European shares rose. Still, the three major U.S. indexes were set to end the month higher for a second straight month.
The jobs report is arguably the most important U.S. economic indicator due out before the Federal Reserve decides on Dec. 16 whether or not to raise interest rates for the first time in nearly a decade.
“The market has largely priced in a December hike and it would have to take a pretty significant miss with the jobs report to give the Fed some pause before its next meeting,” said Randy Frederick, managing director of trading and derivatives for Charles Schwab in Austin.
The Dow Jones industrial average fell 49.9 points, or 0.28 percent, to 17,748.59, the S&P 500 lost 6.37 points, or 0.3 percent, to 2,083.74 and the Nasdaq Composite dropped 16.24 points, or 0.32 percent, to 5,111.28.
The week is expected to highlight the divergent economic policies in the United States and the euro zone, which may set the tone for markets early next year.
European shares were lifted by the prospect of the ECB unveiling an extension of its bond-buying program at a Thursday meeting. The pan-European FTSEurofirst 300 index rose 0.4 percent for a 2.3-percent monthly gain.
The dollar index, which measures the greenback against a basket of major currencies, was up 0.16 percent despite disappointing data on U.S. business sentiment and pending home sales. It hit its highest point since mid-March and was set for its biggest monthly rise since January.
“The market’s really kind of looking through the numbers that are coming out right now and more looking towards the end of the week and central bank discussions,” said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in New York.
The euro fell 0.2 percent against the dollar to its lowest point since April.
The MSCI index of world stocks was off 0.4 percent and on track for a 0.9 percent decline for November.
Brent futures were lower and U.S. crude gave back earlier gains on Monday as a pre-OPEC-meeting rally and run-up in U.S. refined oil products faltered.
U.S. crude futures settled down 6 cents, at $41.65. Brent crude, the global benchmark ended down 25 cents, at $44.61 per barrel.
Gold, on track for its worst month since June 2013, traded up 0.7 percent at $1,065.86 an ounce.
U.S. Treasuries prices rose modestly Monday on hesitation ahead of speeches from top Federal Reserve speakers throughout the week. Benchmark 10-year Treasuries rose 2/32 in price to yield 2.221 percent, down from 2.222 on late Friday. The 30-year bond was up 6/32 in price to yield 2.99 percent.
The IMF will add the yuan to its basket of reserve currencies, an international stamp of approval of the strides China has made integrating into a global economic system dominated for decades by the U.S., Europe and Japan.
The International Monetary Fund’s executive board, which represents the fund’s 188 member nations, decided the yuan meets the standard of being “freely usable” and will join the dollar, euro, pound and yen in its Special Drawing Rights basket, the organization said Monday in a statement. Approval was expected after IMF Managing Director Christine Lagarde announced Nov. 13 that her staff recommended inclusion, a position she supported.
It’s the first change in the SDR’s currency composition since 1999, when the euro replaced the deutsche mark and french franc. It’s also a milestone in a decades-long ascent toward international credibility for the yuan, which was created after World War II and for years could be used only domestically in the Communist-controlled nation. The IMF reviews the composition of the basket every five years and rejected the yuan during the last review, in 2010, saying it didn’t meet the necessary criteria.
“The renminbi’s inclusion in the SDR is a clear indication of the reforms that have been implemented and will continue to be implemented and is a clear, stronger representation of the global economy,” Lagarde said Monday during a press briefing at the IMF’s headquarters in Washington. Renminbi is the currency’s official name and means “the people’s currency” in Mandarin; yuan is the unit.
The addition will take effect Oct. 1, 2016, with the yuan having a 10.92 percent weighting in the basket, the IMF said. Weightings will be 41.73 percent for the dollar, 30.93 percent for the euro, 8.33 percent for the yen and 8.09 percent for the British pound. The dollar currently accounts for 41.9 percent of the basket, while the euro accounts for 37.4 percent, the pound 11.3 percent and the yen 9.4 percent.
The yuan weakened in offshore trading Tuesday amid speculation China’s central bank will rein in intervention now that the IMF vote on reserve-currency status is out of the way. The long-term goal is for very few interventions, People’s Bank of China Deputy Governor Yi Gang said at a briefing, adding that bigger two-way fluctuations are normal.
In a preliminary report in July, IMF staff estimated the yuan would have a weight of about 14 percent to 16 percent. The weighting will affect the interest countries pay when they borrow from the IMF. It may also affect the scale of inflows the Chinese currency receives in the coming months.
Monetary System
The decision establishes the yuan as a fixture in the very international monetary system Chinese leaders criticized following the global financial crisis. In a landmark 2009 speech, PBOC Governor Zhou Xiaochuan argued a global system so reliant on a single currency — the U.S. dollar — was inherently prone to shocks. That conviction set off a global push by China’s leaders, including now-President Xi Jinping, to have the yuan included in the SDR, which countries can use to supplement their currency reserves.
The IMF staff recommendation was based on increasing international use and trading of the yuan, policy reforms that allow yuan to be used smoothly in SDR operations, and steps by China to step up data disclosure, the fund said. A more detailed staff report will be released later Monday or Tuesday, IMF officials said.
“It’s a big win for Beijing as they look to bolster their image and to get the respect they think they deserve,” said Timothy Adams, president of the Institute of International Finance and a former U.S. Treasury undersecretary.
The IMF endorsement is a bright spot in what has been a tumultuous year for the world’s second-biggest economy, which has been buffeted by slowing growth, a tumbling stock market and a shift by authorities toward a more market-oriented exchange rate.
The IMF’s decision is a “win-win” for both China and the world and acknowledges China’s achievements in economic development and reform, the PBOC said in a statement on its website. The U.S. supported the fund’s staff recommendation to add the yuan, the Treasury Department said in an e-mailed statement without elaborating.
Approval is unlikely to have much impact on short-term demand for the yuan, given the SDR’s minor share of global reserves, according to economists at banks including HSBC Holdings Plc and ING Groep NV.
Adams said that rising demand may be “evolutionary” and “a process that will likely be pronounced.”
The decision should boost efforts by Xi to open up China’s financial markets. China implemented a series of reforms to win IMF support, such as opening its onshore bond and currency markets to foreign central banks and reporting its reserves to the IMF.
G-20 Host
The question is whether China, which will host meetings of the Group of 20 economies next year, will try to leverage the IMF’s support to pursue broader changes to the global monetary system. In his 2009 speech, Zhou suggested the IMF expand the use of the SDR to tap its potential as a “super-sovereign reserve currency.”
The IMF’s move may also spur political blowback in the U.S., where Republican lawmakers have blocked efforts to expand the voting shares of China and other emerging-market economies at the fund. Senator Bob Casey, a Pennsylvania Democrat, said in an e-mailed statement that the decision “validates China’s history of cheating on its currency,” a history that’s hurt jobs and wages in his state.
The Washington-based fund created the SDR in 1969 to boost global liquidity. Under the Bretton Woods system of fixed exchange rates, countries pegged their currencies to the U.S. dollar. But for nations to increase their dollar reserves, the U.S. would have to run persistent current-account deficits, threatening the value of the greenback.
The SDR addressed this dilemma by serving as a supplementary reserve asset to augment countries’ gold and dollar holdings. While the SDR isn’t technically a currency, it gives IMF member countries who hold it the right to obtain any of the currencies in the basket to meet balance-of-payments needs.
The New Development Bank (NDB), referred to as Brics bank, may give the first batch of loans to India and China in their respective currencies in April, sources said, even though the default operating currency of the NDB is US dollar.
The New Development Bank (NDB), referred to as Brics bank, may give the first batch of loans to India and China in their respective currencies in April, sources said, even though the default operating currency of the NDB is US dollar.
The move is aimed at allowing the new multilateral agency headquartered in Shanghai to use a larger basket of currencies for lending and borrowing.
The NDB could raise funds by issuing rupee bonds in India or rupee-linked bonds overseas (masala bonds) for its rupee loans operations in the country.
In the past, the Asian Development Bank (ADB) has issued both domestic and overseas rupee bonds to finance projects in India.
The NDB, set up earlier this year, has an authorised capital of $100 billion. To start with, the it would begin with $50-billion subscribed capital, split equally among BRICS (Brazil, Russia, India, China and South Korea) countries.
It will scale up later by inducting more countries as members and raise resources from the market.
India, which needs $1-trillion investment in infrastructure in five years through 2017, could be one of the big beneficiaries of the new institution. The country is already the largest borrower of the World Bank and the ADB.
Even though NDB, sources said, is likely to give loans in local currencies to India and China, it would stick to US dollar as the default currency for raising funds from global markets as well in its lendings to countries. Exceptions will be made depending on the appetite for local currency loans in member countries, sources said.
With the process of operationalising the NDB (on the lines of the World Bank) gathering momentum, its board of directors met on November 20 to discuss and frame draft lending, borrowing and environmental policies for the bank before it commences operations in early 2016.
These norms will be ratified by the board of governors in March-April.
In the meantime, a pipeline of projects are being readied to seek the board of governors’ approval. India has already submitted three proposals including the Centre’s Green Energy Corridor and Grid Strengthening Project for evacuation power from renewable energy sources such as solar.
In this project, the NDB could be a co-financier along with the World Bank and the Asian Development Bank, sources said.
Two other projects sent to the NDB relate to a power project as well as an irrigation project in Rajasthan.
More projects will be sent to the bank after state governments submit their proposals to the Centre, sources said.
After almost five decades of having diplomatic ties, India and Singapore will become strategic partners for the first time on Monday.
The partnership will encompass all aspects of bilateral ties from expansion of defence cooperation, enhancement of trade and investment and strengthening of regional relationship with the Association of Southeast Asian Nations (ASEAN).
The decision to sign the Strategic Partnership Agreement with Singapore was taken in August 2014 based on a ‘5S Plank’. Since then both Prime Minister Narendra Modi and Singapore Prime Minister Lee Hsien Loong have been continuously discussing the contours of such a pact as they planned to take their relationship beyond just business and trade.
“It is crucial to have such a pact with Singapore considering its strategic location. Not only will it enhance India’s ‘Look East’ policy, but it will also give India a greater voice in the ASEAN region at large,” an official told BusinessLine.
This is also done keeping in mind the increasing presence of China in that region and the escalation of dispute in the South China Sea region, the official added.
As a result, Modi’s visit to Singapore assumes importance. The pact will be signed with both leaders having a summit-level dialogue where all issues are expected to be discussed, with a special focus on India’s overall strategy in the Indian Ocean region.
“Singapore is an integral part of our Look East Policy and it was announced from there by our former Prime Minister Narasimha Rao. Singapore remains one of our important defence exporters. Besides, they have been trying to act as a bridge between India and China and all these is linked to the entire Indian Ocean strategy that India is now working on,” highlighted Sanjaya Baru, Director for Geo-economics and Strategy, at the London-based International Institute of Strategic Studies (IISS).
Recently, at a meeting of the Fourth Joint Commission, which was co-chaired by External Affairs Minister Sushma Swaraj and her Singaporean counterpart Vivian Balakrishnan, issues such as maritime cooperation, trade ties and cyber security were discussed. While in Singapore, Modi is also expected to deliver the prestigious ‘Singapore Lecture’ at the Institute of South East Asian Studies.
Singapore has emerged as the second largest source of FDI amounting to $35.9 billion as of June 2015, which is 14 per cent of India’s total FDI inflow. India also has a Comprehensive Economic Cooperation Agreement with Singapore with bilateral trade reaching $17.1 billion in 2014-15.
In a first for Asia, the International Monetary Fund (IMF) will set up a knowledge-sharing centre in India, to provide technical support and assistance here and to five other South Asian nations. Their team will extend expertise in core macroeconomic and financial management areas, said an unnamed government source. An agreement is likely to be signed here on Saturday by IMF Managing Director Christine Lagarde with Prime Minister Narendra Modi.
