Subbarao said the new CPI has only 19 data points which is not sufficient for a statistically robust analysis as the central bank need to develop a series of producer price indices that will help gauge how price momentum builds up in the economy
Reserve Bank of India (RBI) governor D Subbarao has said the new series of consumer price index (CPI) is not enough for a robust statistical analysis of prices.
"The new CPI has only 19 data points, which is not sufficient for a statistically robust analysis," Subbarao, who demits office on 5th September, said while speaking at the Statistics Day conference at the RBI headquarters.
He also said the new CPI has an excess focus on food prices, which has a 50% weight. House rents, which account for 10%, are also a cause for concern given doubts over the efficacy of the prices, he added.
Replying on a question if there is a case for shifting focus to the CPI, the RBI governor said even in case of such an eventuality, the central bank will not abandon the wholesale price index (WPI) as a tool to monitor producer prices.
"My own view is we will not, because analytically we need to develop a series of producer price indices that will help us gauge how price momentum builds up in the economy," he said.
RBI has traditionally focused more on WPI because of the deeper analytical insights it offers.
"We've traditionally used WPI because we thought the legacy CPI is not representative enough for the entire population. WPI is more extensively researched by way of its empirical relationship with other variable like output, monetary aggregates and interest rates and presents richer analytical insight," he said, conceding that other central banks use CPI for policy formulation.
The new more inclusive CPI was introduced in 2011 and ever since that Subbarao has been repeatedly asked if the RBI will rely more on the new index. His uniform response has been that the central bank uses all the available data points, including the CPI and WPI, in its policy formulation.
The wedge between the WPI and CPI number has consistently been high. For July, WPI came in at 5.71% while the CPI was still hovering around the double-digit mark.
"We have had a problem in calibrating our policy whenever there has been a divergence between CPI and WPI and more importantly, in communicating our policy...It poses a major challenge in assessing inflation dynamics in the short term," Subbarao said talking of RBI's predicament.
"In our country, we have a problem of excess of inflation measures," the RBI chief said, adding there is the WPI, three legacy CPI indices and the new CPI indices.
He acknowledged that the analysts have criticised the WPI for being flawed and also for not considering the services sector, which contributes two-thirds of the economy.
Maintaining that other central bankers are "reticent" talking about it, Subbarao said there is no single equilibrium exchange rate which is the most acceptable one to predict the real value of a currency.
He stressed the need to deepen the statistical research capabilities to understand how developments in the external economy spillover in our economy.
Life insurance is being sold fraudulently with a corporate approach to defraud gullible people. Intermediaries have neither been penalised nor have they lost their license. There is a need for stern action from IRDA and insurers to curb the menace. Will the regulator act?
Mis-selling of life insurance is ubiquitous. It can be about giving wrong information about product features or exaggerated returns. The new trend is fraudulent selling of policies with offers that may just lure the greedy and the gullible by offers of “interest-free” loan, mobile tower rent, helping to get company bonus, surrender of a policy without loss, etc. If you happen to lower your guard, you may a royal run around after getting stuck with a policy of trivial value. We have written several stories detailing this fraud
Moneylife spoke with senior officials from an insurance company to piece together this disturbing trend. The fingers point to a few brokers and corporate agents. They work with multiple distance marketing agencies who in-turn log the sales. The arrangement is convenient as the brokers and corporate agents can feign ignorance of the fraudulent selling due to business agreements with multiple agencies. Even if their own employee is involved, they can terminate the employment after passing the blame solely to them. It is unfortunate that insurance brokers who are supposed to represent clients by offering the best products for their needs are taking consumers to cleaners and that too without even meeting them in many cases. The insurance company we spoke distanced itself from few brokers to avoid suspicious policies being sold.
It is also perplexing that an estimated that "95% of the fraudulent" cold calls originate from NCR. According to one official, “It could be due to ease of infrastructure to setup calling centre or it may be to do with culture of the place.” Most of the phone numbers reported by Moneylife readers to us have New Delhi area code (011). Moneylife has spoken with these shady characters few times on the phone (011-65981239/011-65695595). The fraudsters, who were based in New Delhi gave their address as 13th floor, Lalit Towers, Connaught Place. They were peddling Reliance Life Money Multiplier policy with the carrot of “interest-free loan”.
Moneylife has taken up the issue with IRDA Chairman during 16th CII Insurance Summit on 14th August. IRDA is aware of the peril and have initiated steps, but a strict action involving penalties and license revocation is necessary to show a will to crack down. While IRDA has penalised a few life and non-life insurance companies with hefty fines in recent times, it has levied penalty only on two corporate agents and that too for violation with respect to non-life insurance company. Life insurance intermediaries are involved in dubious activities with impunity. It has been a scot-free run for them till now.
According to insurance company official, “IRDA has setup working committee of life insurers through life insurance council. There has been data collected on agencies involved in dubious calls, phone numbers from which calls are made and so on to help create database of fraud.” Media reports suggest that IRDA has already registered a case with the cyber police.
Reliance Life, ICICI Prudential Life Insurance, HDFC Life Insurance, Birla Sun Life Insurance, SBI Life Insurance and Aegon Religare Life Insurance have formally filed a complaint with the economic offences wing (EOW) of the government in this regard. The insurance company we spoke has hired retired police officials to help them investigate cases of fraud selling.
According to a press release issued by Reliance Life Insurance on 20th August, the insurer has got seven such callers arrested and 12 others have been detained. It has filed around 200 cases with the police so far.
Moneylife Foundation Insurance Helpline has been in the forefront to help victims of fraud selling to get back their investment. We have helped 15 victims recover Rs14.70 lakh from Reliance Life Insurance with amounts ranging from Rs10,000 to Rs2 lakh. All of them were fraudulently sold policy by Reliance Life corporate agent AB Capital with lure of “interest-free” loan. The customers even get a fake loan reference number to make it look authentic. The waiting period for the fake loan is ‘forever’. The ploy is to ensure that the “free-look” period of the policy is over during the interim period of waiting for the “interest-free” loan.
Ironically, while Reliance Life feels it is a victim of such fraud, the same is the stance taken by AB Capital who wrote to Moneylife stating that “Based on our internal vigilance, we plan to lodge FIRs against the perpetrators and terminate their employment.”
Should we give a clean chit to all the insurance companies? A policy is sold by an entity authorised to sell insurance. A trail of insurance policy will help to nab the culprits. If only insurance companies and IRDA follow the footprints of the policy for which grievance of fraudulent selling has been raised.
Food Security Bill and Land Acquisition Bill are the two main election planks for the UPA government. However, if companies defer their capex plans due to the steep rise in land costs, then transactions may fall and the supposed gains to farmers may be minimal, Nomura says
The Lok Sabha debated and passed an updated version of the 19th-century legislation governing land acquisition. The ‘Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation & Resettlement Bill, 2012’ seeks to give a fair deal to farmers losing their land, especially multi-crop land, to industrial needs.
In a research note, Nomura Financial Advisory and Securities (India) Pvt Ltd, said post the Bill, land acquisition in India would become a costly affair. "The challenge with the land bill is to balance the benefit to farmers with the cost to industry. The bill fits well with the government’s 'inclusive growth' agenda, also furthered by the Food Security Bill. In fact, the Food Security Bill and the Land Acquisition Bill are the two main election planks for the United Progressive Alliance (UPA) government. However, if companies defer their capex plans due to the steep rise in land costs, then transactions may fall and the supposed gains to farmers may be minimal. From a macro perspective, the Land Bill is a negative for the private sector, as it increases land costs significantly and extends the acquisition process," the report said.
Here are the key features of the bill
1. Pre-conditions for land acquisition:
Mandatory social impact assessment (SIA) to identify families that would be affected.
In the case of land acquisition for use by private companies or public private partnerships (PPP), consent of 80% and 70%, respectively, is required from the people that would be displaced.
Payment of compensation and a provision for rehabilitation and resettlement (R&R).
2. Compensation policy: Up to four times the market value in rural areas and twice in urban areas. If the acquired land is sold to a third party for a higher price, 40% of the appreciated land value (or profit) will be shared among the original owners.
3. Rehabilitation & resettlement rules: Families affected by land acquisition (farm labourers, tenants, sharecroppers and workers) need to be given compensation of Rs5 lakh or a job; a subsistence allowance of Rs3,000 per month for a year; miscellaneous allowances of up to Rs1.25 lakh per family.
4. Retrospective clause: The new rules will apply retrospectively to cases where no land acquisition award has been made and to those where land was acquired up to five years prior, but no compensation was paid or no possession took place.
5. Definition of market value: The market value of the acquired land shall be based on the higher of (i) market value specified in the Indian Stamp Act for the registration of sale deeds; or (ii) the average of the top 50% of all the sale deeds of similar types of land situated in the vicinity; or (iii) an amount agreed upon as compensation for acquisition of land for private companies or PPPs.
6. Lease option: Companies can lease the land instead of purchasing it, but the decision is that of the state rather than the landowner.
According to Nomura, the main benefit of Land Acquisition bill is that it ensures equity and fair dealing with farmers. Clear guidelines on the process of acquiring land and rules for compensation packages will ensure that the process of land acquisition is clear.
"However," Nomura said, "the bill has negative consequences for industry. First, market prices of land have already been rising. By providing a compensation package that is a multiple of the current market price, the bill can raise the cost of land acquisition significantly, increasing the overall cost of a project. In some cases, this could make the overall project unviable and hurt capex. Second, rising land costs will have an overall inflationary impact on the economy. Third, the bill will elongate the process of land acquisition."
The Bill, which replaces the British-era Land Acquisition Act of 1894 provides for land acquisition as well as rehabilitation and resettlement. It will now be taken up by the Rajya Sabha.