Nomura expects high food inflation and external sector risks to force the RBI to stay on hold at the 30th July policy meeting
India’s industrial output growth fell -1.6% y-o-y in May from 1.9% in April, way below consensus expectations (1.5% y-o-y). Continued contraction in mining and manufacturing sectors offset the pickup in electricity output growth. While base effects were adverse, clearly domestic demand remains very sluggish with both consumption and investment demand slowing. Meanwhile, CPI (consumer price index) inflation surged to 9.9% y-o-y in June from 9.3% in May, above expectations (9.3%) led by a surge in seasonal food prices (vegetables), even as core CPI inflation moderated marginally.
Overall, even as demand remains very weak, Nomura expects high food inflation and external sector risks to force the central bank to stay on hold (at the 30th July policy meeting). As such, the brokerage expects growth to remain weak. It is below consensus on
FY14 growth at 5.6% y-o-y (Consensus: 5.9%) and sees downside risks to its forecast.
As some in Congress question a State Department report downplaying Iranian influence, intelligence officials say covert Iranian cooperation with Venezuela has been a gateway for hostile activities in the region
Last year, Iranian President Mahmoud Ahmadinejad visited his ally President Hugo Chavez in Venezuela, where the firebrand leaders unleashed defiant rhetoric at the United States.
There was a quieter aspect to Ahmadinejad's visit in January 2012, according to Western intelligence officials. A senior officer in the Iranian Revolutionary Guards Corps (IRGC) traveled secretly with the presidential delegation and met with Venezuelan military and security chiefs. His mission: to set up a joint intelligence program between Iranian and Venezuelan spy agencies, according to the Western officials.
At the secret meeting, Venezuelan spymasters agreed to provide systematic help to Iran with intelligence infrastructure such as arms, identification documents, bank accounts and pipelines for moving operatives and equipment between Iran and Latin America, according to Western intelligence officials. Although suffering from cancer, Chavez took interest in the secret talks as part of his energetic embrace of Iran, an intelligence official told ProPublica.
The senior IRGC officer's meeting in Caracas has not been previously reported.
"The aim is to enable the IRGC to be able to distance itself from the criminal activities it is conducting in the region, removing the Iranian fingerprint," said the intelligence official, who requested anonymity because he is not authorized to speak publicly. "Since Chavez's early days in power, Iran and Venezuela have grown consistently closer, with Venezuela serving as a gateway to South America for the Iranians."
A year and a half later, Chavez has died and Ahmadinejad is no longer president. But the alliance they built is part of an Iranian expansion in the Americas that worries U.S., Latin American, Israeli and European security officials.
Experts cite public evidence: intensified Iranian diplomatic, military and commercial activity in the region; the sentencing this year of an Iranian-American terrorist in a plot to assassinate the Saudi ambassador in Washington; U.S. investigations alleging that Hezbollah, Iran's staunch ally, finances itself through cocaine trafficking; and a recent Argentine prosecutor's report describing Iran's South American spy web and its links to a 2007 plot to bomb New York's JFK airport.
There is considerable debate inside and outside the U.S. government about the extent and nature of Iran's activities, however. That debate dominated a U.S. congressional hearing this week about a new State Department report that assesses the Iranian threat in Latin America, a region made vulnerable by lawlessness and an increasingly anti-U.S. bloc of nations.
The report resulted from a bipartisan bill, the Countering Iran in the Western Hemisphere Act, signed into law by President Obama in January. That measure called for a comprehensive U.S. response to Iranian incursions and a study based on threat assessments by intelligence and law enforcement agencies. Most of the study is classified. A two-page unclassified section says that "Iran has increased its outreach to the region working to strengthen its political, economic, cultural and military ties."
Nonetheless, the State Department assessment concludes that "Iranian influence in Latin America and the Caribbean is waning" as a result of Western sanctions, U.S. cooperation with allies and "Iran's poor management of its foreign relations."
In a recent interview about the issue, a senior U.S. government official gave a measured assessment comparable to the new report.
"The countries of the region need to watch carefully for Iran as a threat within a spectrum of issues of concern in the region," said the official, who was not authorized to speak publicly. "I don't see it as a major threat now. This is worth watching. It is something there is legitimate attention to given Iran's history."
The law's sponsor, Rep. Jeff Duncan, R-S.C., criticized the State Department's findings Tuesday at a hearing of a House homeland security subcommittee that he chairs. Duncan does not think Iranian influence has declined so soon after a series of events and trends — including recent public warnings by intelligence and Pentagon chiefs — that brought about the passage of the Countering Iran Act.
"This administration refuses to see Iran's presence — so near U.S. borders —as a threat to U.S. security," Duncan said. "We know that there is no consensus on this issue, but I seriously question the administration's judgment to downplay the seriousness of Iran's presence here at home."
State Department officials contacted by ProPublica declined to respond because the report is classified. They said they will discuss the issue with legislators in private.
As a sign of growing Iranian influence in South America, Duncan cited the absence of a key witness at the hearing: Alberto Nisman, an Argentine special prosecutor.
In May, Nisman released a 502-page report as part of a long investigation of a car-bombing that killed 85 people at the AMIA Jewish community center in Buenos Aires in 1994 — the deadliest terror attack in the Americas before 2001. The report describes the evolution of Iranian spy networks in the region and shows their role in attacks in Argentina and the foiled New York airport plot.
Although Nisman had initially accepted the congressional invitation to discuss his investigation, last week his government abruptly barred him from traveling to Washington.
The Argentine attorney general said that the topic of the hearing "had no relation to the official mission of the [Attorney General's] office," Nisman wrote in a July 1 letter to Rep.
Michael McCaul, R-Texas, chairman of the House Committee on Homeland Security.
"The government of Argentina has silenced this prosecutor," McCaul declared at the hearing Tuesday. "I consider this to be a slap in the face of this committee and the U.S. Congress."
Expressing disappointment in a letter to Argentine President Cristina Fernández de Kirchner, McCaul and Duncan said the attorney general's decision "[calls] into question the authenticity of your intentions" to "pursue justice and truth on Iranian involvement in the AMIA bombing."
The context for the unusual move to block the testimony is Argentina's pro-Iranian shift. Argentina has had tense relations with Iran since the AMIA attack. A previous bombing in 1992 — also blamed on Iran — destroyed the Israeli embassy in Buenos Aires and killed 29 people.
In 2003, Nisman was appointed special prosecutor with a mandate to revive a probe that had bogged down in dysfunction and corruption. He indicted seven Iranian officials and a Hezbollah chief as the masterminds three years later, and Interpol issued arrest warrants for them. Iranian officials denied any role and described Nisman, who is Jewish, as "a Zionist."
But six months ago, the Fernández de Kirchner government agreed with Iran to form an independent "truth commission" about the AMIA case. Argentina's about-face was blasted by Jewish groups, the political opposition, the Israeli government and U.S. officials. Critics call it a political maneuver that makes justice even less likely at this late date. Argentina's growing ties to Iran coincide with an increasingly confrontational attitude toward the United States, Spain and other Western nations.
"The Argentine president has already made her decision to curtail DEA activities, publicly and repeatedly attack the United States as an imperialistic and warmongering nation, and reopen relations with Iran that make a mockery of the rule of law," Douglas Farah, president of the IBI Consultants national security consulting firm, testified at the hearing.
Duncan said in an interview that he believes Argentina's policy change results partly from economics. Iran-Argentine trade has increased by more than 500 percent to $1.2 billion annually in the past eight years, according to the testimony of Ilan Berman, vice president of the American Foreign Policy Council, a think-tank in Washington.
The attacks in Buenos Aires in the 1990s revealed the existence of Iranian terror networks in the Americas. The Argentine investigation connected the plots to hubs of criminal activity and Hezbollah operational and financing cells in lawless zones, such as the triple border of Argentina, Brazil and Paraguay and the border between Colombia and Venezuela.
Indicted AMIA plotter Mohsen Rabbani, an alleged spymaster using the cover of Iranian cultural attaché in Buenos Aires, oversaw the establishment of intelligence networks in embassies, front companies and religious and cultural centers in Argentina, Brazil, Colombia, Chile, Guyana, Paraguay and Uruguay, according to the Argentine prosecutor's report. The Iranian spies teamed with Hezbollah to carry out both bombings, according to Argentine, Israeli and U.S. investigators.
Today, the fugitive Rabbani is based in Iran and continues to play a key role in Latin American espionage, directing ideological and operational training for recruits who travel from the region, according to U.S. law enforcement officials and witnesses at the hearing.
The election of Ahmadinejad in 2005 spurred an Iranian outreach campaign in Latin America intended to find new allies and markets and counter Western pressure over Iran's nuclear ambitions, according to Berman. Iran increased the number of its embassies in the region from five to 11, launched a Spanish-language television channel and doubled its regional trade to $3.67 billion today, though many of its economic commitments have not materialized.
The Iranian expansion dovetailed with the rise of the Bolivarian Alliance for the Americas (known by the Spanish acronym as ALBA), a bloc of leftist, populist, anti-U.S. governments including Venezuela, Cuba, Bolivia, Ecuador and Nicaragua.
In 2008, the U.S. Treasury Department designated a Venezuelan diplomat and a Venezuelan businessman as terrorists for allegedly raising funds for Hezbollah, discussing terrorist operations with Hezbollah operatives, and aiding travel of militants from Venezuela to training sessions in Iran. In 2011, Iranian Defense Minister Ahmad Vahidi, who is wanted by Interpol for the AMIA bombing, attended the inauguration of ALBA's regional defense school in Bolivia, according to testimony at the hearing.
Director of National Intelligence James Clapper told a U.S. Senate hearing last year that Iran's alliances could pose "an immediate threat by giving Iran — directly through the IRGC, the Quds Force [an external unit of the IRGC] or its proxies like Hezbollah — a platform in the region to carry out attacks against the United States, our interests, and allies."
The aborted 2007 plot to attack JFK was an attempt to use that platform, according to the Argentine special prosecutor. A Guyanese-American Muslim who had once worked as a cargo handler conceived an idea to blow up jet fuel tanks at the airport. He formed a homegrown cell that first sought aid from al Qaida, then coalesced around Abdul Kadir, a Guyanese politician and Shiite Muslim leader.
The trial in New York federal court revealed that Kadir was a longtime intelligence operative for Iran, reporting to the Iranian ambassador in Caracas and communicating also with Rabbani, the accused AMIA plotter.
"Kadir agreed to participate in the conspiracy, committing himself to reach out to his contacts in Venezuela and the Islamic Republic of Iran," Nisman's report says. "The entry of Kadir into the conspiracy brought the involvement and the support of the intelligence station established in Guyana by the Islamic regime."
Police arrested Kadir as he prepared to fly to Iran to discuss the New York plot with Iranian officials. He was convicted and sentenced to life in prison.
The Argentine investigation unearthed other signs of Iranian terrorist activity. It cites the testimony of the former director of Colombia's intelligence agency, Fernando Tabares. He described a mission by an Iranian operative to Colombia via Venezuela in 2008 or 2009. Working with Iranian officials based at the embassy in Bogota, the operative "was looking at targets in order to carry out possible attacks here in Colombia," Tabares testified.
Witnesses at the House subcommittee hearing Tuesday described Venezuela as a gateway through which Iranian operatives travel to and from the region unmolested and obtain authentic Venezuelan documents to enhance their covers.
Witness Joseph Humire, a security expert, cited a report last year in which the Canadian Border Services Agency described Iran as the top source of illegal migrants to Canada, most of them coming through Latin America. Between 2009 and 2011, the majority of those Iranian migrants passed through Caracas, where airport and airline personnel were implicated in providing them with fraudulent documents, according to the Canadian border agency.
The allegations are consistent with interviews in recent years in which U.S., Latin American and Israeli security officials have told ProPublica about suspected Middle Eastern operatives and Latin American drug lords obtaining Venezuelan documents through corruption or ideological complicity.
"There seems to be an effort by the Venezuelan government to make sure that Iranians have full sets of credentials," a U.S. law enforcement official said.
Last year's secret talks between Iranian and Venezuelan spies intensified such cooperation, according to Western intelligence officials who described the meetings to ProPublica. The senior Iranian officer who traveled with the presidential entourage asked Venezuelan counterparts to ensure access to key officials in airport police, customs and other agencies and "permits for transferring cargo through airports and swiftly arranging various bureaucratic matters," the intelligence official said.
Venezuelan leaders have denied that their alliance with Iran has hostile intent. They have rejected concerns about flights that operated for years between Caracas and Tehran. The State Department and other U.S. agencies criticized Venezuela for failing to make public passenger and cargo manifests and other information about the secretive flights to Iran, raising the fear of a pipeline for clandestine movement of people and goods.
The flights have been discontinued, U.S. officials say.
State Department officials say the Iran report reflected a consensus among U.S. government agencies. In contrast, homeland security Chairman McCaul said the intelligence community is more concerned about the Iranian threat than the State Department.
The DEA and Treasury Department have been especially active on the issue. Recent indictments and enforcement actions have revealed a complex global network of cocaine trafficking and money laundering networks that allegedly poured millions of dollars into the coffers of Hezbollah in Lebanon. Those mafias, led by accused gangsters of Lebanese origin operating in Colombia, Venezuela and Panama, allegedly have links to the Iranian government as well, according to U.S. court documents.
The State Department says a concerted effort by diplomats, intelligence officers and law enforcement investigators has stymied Iran's advances. The end of the personal bond between Chavez and Ahmadinejad was another blow, officials say.
"The death of … Chavez and the election of a new president in Iran has changed the landscape of Iran's relationship in Venezuela and further weakened Iranian ties in the West," said Rep. Bennie Thompson, D-Miss., the ranking member of the Homeland Security Committee.
The foreign policy of new Venezuelan President Nicolas Maduro is a work in progress. But as Duncan and others pointed out this week, Maduro was a point man for the alliance with Iran when he led served as foreign minister from 2006 to 2012.
“Banks Vs depositors” (Moneylife, 27 June 2013) is an excellent article. Even I have presented many of my personal experiences in an article on your website. Small depositors should be protected and their money should not be used to prop up failing banks. Instead, shareholders and bondholders should bear the losses. Government should look elsewhere for resources to support struggling banks. How about bringing back money stashed away abroad? Certainly, there should be strict rules for using taxpayers’ money.
A bank, technically is at risk if it owes more money than it holds or is owed to itself. Banks lend out money, which has been given by depositors and bondholders, rather casually. In fact, when many of the loans they provide go bad, banks are not able to pay the interest. The depositors and bondholders are entitled to outside help in order to survive. This is referred to as ‘resolving’ a bank.
Is there any light at the end of the tunnel? Depositors should not be affected and made to bear the losses as their deposits fall under the deposit guarantee limited to Rs1 lakh. Using depositors’ funds was considered during the Cyprus banking crisis but was subsequently given up. In the rarest of rare cases, taxpayers’ money may also be considered to support struggling banks but under stringent conditions. The State can issue guarantees or take an ownership stake in the failing bank. Or, the bank can be nationalised or merged with a government bank. Why not set up a ‘resolution fund’, financed by the bank concerned or a possible federation of banks?
Subrahmanian SH, by email
VICTIM OF PERIODIC CALL AUCTION
I am a true victim of the PCA (periodic call auction). I doubt whether SEBI’s mandate is to protect investors or promoters. Recently, I sent a mail to several SEBI officials to tell them about my problem. My sincere thanks to Moneylife for supporting small investors. I sent at least 100 mails to various officials requesting them to change this mechanism but I have not received any reply from any of them. How will people like me invest in stocks through the Indian stock market when SEBI has such an attitude to small investors?
I am a small farmer and a small investor in Indian stocks. Since I have only a small amount to invest, I bought shares of a few small companies about three years back. Now, I have approached my broker to sell some of them due to some urgent need of money. But he is saying that many of my shares are trading in a system called ‘Periodic Call Auction’ and, hence, there are few buyers for such stocks; no one is interested in such stocks. Please let me know whether any of your readers are buying such shares and, if so, what is the procedure and time period for payment. I desperately, need money for treatment of my daughter. I beseech your help in this matter.
Joseph R, by email
ANNUAL CHARGE IS UNJUSTIFIED
The news item “Canara Bank to charge annual fee” (Moneylife, 27 June 2013) is rather surprising.
I would say that the annual charge is unjustified on the ground that the ATM card is issued for a period of 10 years. At the most, a one-time charge may be justified at the time of issue of the ATM card, to meet the expenses. There is no recurring expenditure involved. Not all the customers are rich and may not use the ATM as frequently as professionals and businessmen. There are senior citizens and poor people, who do not have sufficient balance in the bank account to use the ATM. They rarely go to an ATM booth. I can give my own example. I am a very senior citizen, without any regular income of my own. But I have my ATM card which I hardly use three or four times a year. Is the annual charge of Rs112 justifiable in such cases? I would urge Canara Bank to distinguish between ‘haves’ and ‘have-nots’ and charge accordingly. I suggest that there should be no ATM charge for a maximum of 12 withdrawals per year from ATMs.
Venkatesh Sharma, by email
I would like to share with readers of Moneylife my bitter experience with the income-tax (I-T) authorities. My son has been working with a multinational company for more than 20 years and was filing his returns in physical form from Gujarat where he was posted. Until 2009-10, he filed his returns in Bharuch (Gujarat). In 2011, his services were transferred to Mumbai. He has e-filed his returns for 2010-11 and 2011-12. The I-T department had sent a demand notice for Rs48,230 which, unfortunately, was not received by us and we came to know about it only when we received online intimation under Section 143 passing assessment order for the year 2010-11, wherein refund of Rs6,295 was shown adjusted against Rs48,230 as claimed by tax authorities. Subsequently, another intimation was sent to him u/s 245 showing details of adjustment. In fact, Rs48,230 represented unmatched payments made to the I-T department by the employer. On scrutiny under 26-AS, all the payments made to I-T department tallied with the details of payments shown under Form 16 and, therefore, a letter was submitted for cancelling the order. No reply has been sent by the I-T department. We received an intimation u/s 143(1) passing an assessment order for 2011-12 showing tax payable Rs2,06,710 comprising unmatched items of Rs1,78,960 plus interest of Rs29,578 less refund of Rs1,823. At first glance, my impression is that the I-T department has not considered Rs1,78,960, which is deducted and shown as paid under a different challan. The error on the part of the department seems to be due to the fact that the services were transferred from one unit of Bayer to another unit of Bayer. However, all relevant documents were submitted including Form 16 of both the units.
On top of it, the I-T department is penalising a genuine and honest taxpayer. This was never the case in the past when physical returns were filed. The system has to be changed to encourage taxpayers to file returns.
The I-T department allows the refund claimed and, at the same time, charges interest on unmatched items! Further, Rs6,295 (refund) adjusted against unmatched items of Rs48,230 is conveniently ignored. I wonder when the I-T department will refund this amount.
Ramesh Kapadia, by email
Errata: The answer to question 7 of quiz no. 155 (RyanAir) is given on page 56 of the issue dated 27 June 2013. But the question was published in the issue dated 13 June 2013. Yet, we are pleased that two persons knew the answer and got the quiz right. Hence Moneylife is giving a prize to both readers, who got the quiz right. The winner, selected by a lottery process, was Vinay Gopalkrishnan. He gets the usual gift from Surat Diamonds. Ramesh Kapadia gets a copy of the The Scam from Moneylife. The error is regretted. — Editor
ESTABLISH A FARMERS’ MARKET!
This is with regard to “Why are vegetable prices touching sky high?” by Yogesh Sapkale. The actual blood-suckers are the middlemen, who pay less to the farmer and collect more from the wholesaler. The middleman adds his own profits before it reaches the aam aadmi buyer. In Bengaluru, for instance, one can buy vegetables at competitive prices from government-sponsored Hopcoms; other reasonably-priced retailers are: Reliance Fresh, Big Bazaar, etc. Also, kirana shops at street corners have some standard items like onions, potatoes and tomatoes which are at least 10% more expensive than the market. Not everyone has the time to go to mandis to buy. Everyone takes into account the time spent, cost of transportation to and from the markets. Actually, it is a helpless situation, unless the local corporations whole-heartedly establish a farmers’ market where farmers can sell and get a reasonable profit and the consumer buys at a competitive price.
Dr Anantha K Ramdas
NO EXIT TILL THE END!
This is with regard to “A yield of 19.4%?” by
R Balakrishnan. You couldn’t have said it better sir... no exit till the end!
MEAGRE CORPUS MFs
This is with regard to “SEBI plans to disincentivise the ‘non-serious’ mutual funds” by Jason Monteiro. SEBI's minimum corpus and membership requirements are a big joke. Why have they not revisited these for years? No scheme should be allowed unless it gets at least 5,000 subscribers and has a corpus of Rs200 crore minimum. At least 50% of subscribers must be retail.
MFs have to be sold like insurance. What has been done is that brokers targeted HNIs and restricted selling to metros and Tier-I cities. There is a need to penetrate in semi-urban and rural areas. That will require huge effort and the industry is not willing to do that.
All schemes and funds which have meagre corpus must be closed immediately. Also, consolidation of schemes must be ruthlessly enforced.
This is with regard to “Reliance Capital suspends gold sales to curb gold imports”. This is a good gesture on the part of Reliance Capital. Hope, more fund houses follow suit.
MAKES CUSTOMERS ANGRIER?
This is with regard to “Banks start charging money for SMS alerts, mobile banking” by Vishrut Patel. IDBI Bank, a public sector bank, is perhaps the only bank in India that does not levy any charge whatsoever; this has increased its share of CASA (Current Accounts-Savings Accounts). Levying charges for technology-driven services does not bring in more customers. But it makes customers angrier!
UTTARAKHAND FLOODS DUE TO FAILURE
This is with regard to “Yash Birla mourning over a property, investors over their FDs in his companies” by Yogesh Sapkale. The deeper issue here is about how Birla got permissions to build that house in the hills in the first case. It is symbolic of all that went wrong in Uttarakhand, the results of which we see now.