RTI Judgement Series
RTI Judgement Series: CBI directed to provide info about proposal for phone tapping

The PIO of CBI was directed to provide the proposal sent to MHA for phone tapping by omitting names and designation of the officers mentioned therein. This is 166th in a series of important judgements given by former Central Information Commissioner Shailesh Gandhi that can be used or quoted in an RTI application

The Central Information Commission (CIC), while allowing an appeal, directed Public Information Officer of Central Bureau of Investigation (CBI) to provide information about the proposal sent to Ministry of Home Affairs (MHA) for phone tapping.

 

While giving this judgement on 18 June 2011, Shailesh Gandhi, the then Central Information Commissioner said, “The PIO is directed to send attested photocopies of the proposals sent to MHA for permission to intercept the phone numbers after severing any names in the proposals. The information will be sent to the appellant before 15 July 2011.”

 

New Delhi resident Dharambir Khattar, on 31 May 2010, sought from the PIO information about interception of phone numbers 56008084, 56008085, 56002727, 56000067 and 55655200. Here is the information he sought under the RTI Act...

 

1.Regarding interception of phone numbers:

(a)  When you first received the information regarding aforementioned phone number and the mode of information.

(b)  What information you received regarding aforementioned phone number.

(c)  From which source you received information regarding aforementioned phone number.

(d)  Initially who has received information against the aforementioned phone number (name of officer).

(e)  After receiving information regarding aforementioned phone number, what investigation you made. Copy of investigation report be supplied.

(f)  What incriminating material was found against the aforementioned phone number?

(g)  After receiving initial information in how many days you applied for permission for interception for aforementioned phone number.

(h)  Kindly supply a copy of the request / proposal sent to the Home Ministry.

(i)  At the time the request for interception was applied to the Home Ministry, in whose name aforementioned phone number was registered.

(j)  What material you sent along with request letter to the ministry of Home for obtaining interception order.

(k)  Kindly supply a copy of the note portion of the file in which request / proposal for getting permission for interception were processed in your office.

(l)  Who is the competent authority in the CBI to direct for getting / processing the file for orders for interception?

(m) By which mode of communication (by hand or by post) the proposal I request for interception of aforementioned phone number was sent to the Home Ministry.

(n)  Kindly supply a copy of acknowledgement I receipt of communication mentioned in pan (m) of this application.

(o)  To whom the orders are sent by the Ministry in ‘Top Secret’ cover.

(p)  Whether the alleged orders of the Home Secretary were obtained, please supply the copies of the same.

(q)  Whether those orders were reviewed by the high level Review Committee appointed by the Government of India.

(r)  Please supply the copies of the minutes of the meeting of the Review committee which must have been received in the CBI because without review of the orders of the committee within the stipulated period, as prescribed under the Indian Telegraph Act (Rule 419-A) the cases could not been made out or registered against any one by the CBI Therefore, these documents are most important for the applicant. Now there is no secrecy because the cases are in the Court of law and every document has become a public document and there is no question of hiding the said information from the public/applicant.

 

In his reply, the PIO stated...

 

The required information/documents in respect of point at SI. No. 1 sub para (a) to (r) of your RTI application are denied as the same are covered under the exemption under Section 8(1) (a), (g) &(h) of the RTI Act, 2005.

Section 8(1) (a) reads as “Information”, disclosure of which would prejudicially affect the sovereignty of India, the security, strategic, scientific or economic interests of the State, relation with foreign State or lead to incitement of an offence”.

Section 8(1) (g) reads as “Information”, the disclosure of which would endanger the life or physical safety of any person or identity the source of information or assistance given in confidence for law enforcement or security purposes”.

Section 8(1)(h) reads as “Information”, which would impede the process of investigation or apprehension or prosecution of offenders”.

3. The interception by CBI is done with the approval of the Competent Authority as per the provisions of Sec. 5(2) of the Indian Telegraph Act, 1885 for the reasons of occurrence of any public emergency, or in the interest of the public safety, in the interest of sovereignty and integrity of India, the security of State, friendly relations with foreign States or public order or for preventing incitement to commission of offence.

 

Citing denial of information by the PIO as unjustified, Khattar, the appellant, filed his first appeal. In his order, the First Appellate Authority (FAA) stated...

 

"The CIC has observed in its Order dated 5 May, 2006, in State V/s SC Sharma, that the orders of interception of telephones u/s 5(2) of the Indian Telegraph Act, 1885, were themselves sensitive for national security, sovereignty & integrity. Therefore, these are firmly within the ambit of Section 8(1)(a) of the RTI Act, and cannot, thus, be disclosed. The process of review of a matter connected with any top secret interception order must stand on the same footing as the main order itself and by inference be exempt from disclosure requirement u/s 8(1)(a) of the RTI Act. It would be both imprudent and improper to apply the criteria of severability and to determine one part of the process as classified and other as open. The entire process of telephone interception is one and indivisible and thus, not liable for disclosure. Therefore, the information as sought by the Appellant in his RTI request attracts exemption under Section 8 (1) (a), (g) & (h) of the RTI Act. In any case, the deliberations of the Review Committee are maintained with the Ministry of Home Affairs and, therefore, the CBI is not the custodian of such information. The CPIO is directed to transfer the application under Section 6(3) of the RTI Act within 5 working days from issue of this order in respect of information sought by the appellant vide para 1(o), (q) & (r) of the application."

 

Khattar, citing the information sought by him was not exempted, then approached the CIC with his second appeal.

 

During the hearing on 10 May 2011, Mr Gandhi, the then CIC observed that the appellant had sought information on a very large number of queries but stated that he would be satisfied if he is given following two points of information:

 

1. The proposal sent to MHA for permission to intercept the phone numbers.

2. The minutes of the review committee and the review committee report on this.

 

The PIO stated that information at point2 was not held by the department. Mr Gandhi said, "The PIO has claimed exemptions (for point1) under Section 8(1) (a), (g) & (h) of the RTI Act. The PIO claims that revealing the proposal is likely to have an impact on the safety and security of the Nation, disclose the sources of information and impede the process of prosecution. The appellant states that this claim is not true and states that if necessary some information can be severed under Section 10 of the RTI Act. Both sides are arguing for their view points. It is difficult for the Bench to decide on this matter without looking at the actual proposal. The Bench therefore directs the PIO to bring the proposals to the CIC on 25 May 2011 at 5:30pm."

 

During the hearing on 25 May 2011, the appellant was not allowed to participate initially. Mr Gandhi asked the PIO to show relevant records or information. The PIO produced a file in which there were handwritten notings on green coloured noting sheets for each proposal.

 

"On careful perusal of the same, the Bench noted that the information contained in the proposals were broad statements to the effect that the accused had connections with government servants holding high positions including the judiciary. The proposal also mentioned that the accused was indulging in bad practices and hence permission should be granted to tap his phone," Mr Gandhi said.

 

He said, he could not find anything which could remotely be connected with any matter of security or anything with names of persons or anything specific which was being revealed.

 

The Bench then asked the PIO to identify any words, phrases or lines for which the exemptions of Section 8 (1)(a), (g) or (h) of the RTI Act would apply. "They (PIO) were unable to identify any material which they could claim would harm the security of the country or impede the process of prosecution. The only specific claim they made was that if the names of officers who made the proposal was disclosed, it might endanger their safety. Despite repeated prodding by the CIC to identify any material for which exemption was being claimed under Section 8(1) of the RTI Act, the PIO did not identify anything in the proposals ‘which would prejudicially affect the sovereignty and integrity of India, the security, strategic, scientific or economic interests of the State, relation with foreign State or lead to incitement of an offence; ’or anything ‘which would impede the process of prosecution’-(since the investigation is over). The PIOs did not even make any attempt to point out anything to the Commissioner, because there was nothing. There was nothing specific in the proposals which were shown to the Information Commissioner," it said.

 

Mr Gandhi told the PIO that he could not see anything in the proposals which could be claimed to be protected under Sections 8(1)(a) or (g), nor were they able to point out any material in support of their contention. The proposals contained generic statements and had nothing which was specific or disclosed anything which could be claimed to be sensitive or specific. The PIO only stated that the matter must be looked at in a holistic manner.

 

After this, Khattar, the appellant, was called in and both sides argued the matter with a lot of heat. The PIO argued that names of officers who made/processed the reports and the file notings should not be revealed. They also argued that revealing the information would reveal the modus operandi and methods that they use to investigate offenders. They also gave written submissions and claimed that since the appellant had sought the same information in the trial court and High Court, which was denied, the CIC should not ask for the information to be revealed.

 

Mr Gandhi said, the Bench would go through the written submissions before arriving at a decision.

 

Khattar contested the PIO’s claim that the trial court and High Court have denied the information being sought in the RTI application. The PIO claimed that this was mentioned on pages 53 and 54 of the submissions provided to the CIC.

 

Khattar stated that what has been shown by the PIO mentioned only that the Court will not direct the prosecution to furnish copies of documents other than that which it proposed to rely upon or which had already been sent to the Court during investigation at the pre-charge stage. The PIO also stressed that at pg70 (v), it was stated that “in terms of Section 207 (v) read with Section 173 (5) (a), CRPC the prosecution is obliged to furnish to the accused copies of only such documents that it proposes to rely upon as indicated in the charge sheet or of those already sent to the court during investigation”.

 

The appellant stated that the order should be read as a whole. The arguments being proposed by the PIO did not restrict themselves to the exemptions of Section 8(1) of the RTI Act, Khattar said.

 

The PIO stated that releasing the information would affect its chances of a fair trial.

 

Khattar stated that he was not aware that the PIO would file a 100- page submission. He stated that he would like to submit written submissions before the Bench.

 

Mr Gandhi, then gave both sides an opportunity to file their written submissions before the CIC before 6 June 2011.

 

During the hearing on 21 June 2011, Mr Gandhi, the then CIC, noted that both parties were given an opportunity to submit written submissions to the Bench before 6 June 2011. However, no written submissions were received from Khattar, the appellant. The PIO had submitted certain written submissions to the Commission at the hearing held on 25 May 2011 (enclosing submissions dated 10 May 2011) and furnished additional written submissions on 6 June 2011. Therefore, the Bench shall decide the matter based on the arguments raised before it and on perusal of the written submissions submitted, the CIC added.

 

At the hearing held before the Commission on 10 May 2011, it was established that the appellant was seeking only the proposal sent to MHA for permission to intercept the phone numbers. The main contention of the PIO is that disclosure of this information was exempted under Sections 8(1)(a), (g) and (h) of the RTI Act.

 

In this regard, the PIO has placed reliance on the decision of the Commission in  SC Sharma v/s Ministry of Home Affairs (CIC/AT/A/2006/00056 dated 05/05/2006). In the SC Sharma Case, the Commission held that it was an accepted fact that the orders of interception of telephones under Section 5(2) of the Indian Telegraph Act, 1885 were themselves sensitive for national security, sovereignty and integrity. Therefore, these were firmly within the ambit of Section 8(1)(a) of the RTI Act and cannot, thus, be disclosed. The Commission accepted the appellate authority’s argument that the process of review of a matter connected with any top secret interception order must stand on the same footing as the main order itself and by inference be exempt from disclosure requirement under Section 8(1)(a) of the RTI Act. It would be both imprudent and improper to apply the criterion of severability and to determine one part of the process as classified and other as open. The Commission had agreed with the appellate authority’s view that the entire process was one and indivisible and thus not liable for disclosure.

 

The PIO has also relied on another decision of the Commission in SP Singh v/s Ministry of Home Affairs (CIC/AT/A/2006/00379 dated 27/11/2006). The Commission relied on its decision in the SC Sharma Case and noted that in the said decision, the Commission had taken a view that matters connected with interception of telephones were governed by the provisions of the Indian Telegraph Act, 1885 and were distinctly related to the security of India. Any matter, except the most obvious such as the officer designated to authorize interception of messages and the organisation so authorized, must therefore be construed to be security related. In that sense disclosure of the category of information required by the applicant necessarily attracted the provisions of Section 8(1)(a) of the RTI Act. The Commission further observed that the character of the information will not be altered if the charges subsequently brought against the person were not for violation of any security related law but under the provisions of an anti-corruption law. It was held that the information sought by the applicant related to security and strategic interest of the state and must therefore be exempted from disclosure under Section 8(1)(a) of the RTI Act.

 

Mr Gandhi, said, on perusal of the decisions cited above, this Bench noted that in the said decisions, the applicant(s) had sought from MHA copies of interception order(s) and/ or reports on the basis of which interception order(s) were issued and note sheets where the reports were processed and decision to sanction interception of phones was taken. Disclosure under the RTI Act of proposals received by MHA from an investigating agency such as CBI seeking permission for interception of phones (consequent to which a review committee may be set up and on the basis of the review committee’s report, an interception order may be passed by MHA) was not the subject matter of discussion before the Commission in both SC Sharma Case as well as the SP Singh Case. "Given the fact that the Appellant in the present matter is not seeking the review committee report/ minutes of the review committee, this Bench does not find the decisions cited above relevant," Mr Gandhi said.

 

"At the hearing held before the Commission on 25 May 2011, the PIO produced the file notings in which the proposal sent to MHA was present. On careful perusal of the same, the Bench noted that the information contained in the proposal were broad statements to the effect that the accused had connections with government servants holding high positions including the judiciary. The proposal also mentioned that the accused was indulging in undesirable practices and hence permission should be granted to tap his phone. There was no specific mention of anybody, or any specific actions or anything which could be construed as specific. There was no description of any modus operandi in the proposals shown to the Bench," the CIC observed.

 

Mr Gandhi said, "The information contained in the proposal was general and certainly did not reveal any mechanism by which intelligence was being gathered by the PIO. Given the same, the Bench does not understand how disclosure of such information would have any prejudicial effect on the sovereignty, security, integrity and economic interest of India and may lead to incitement of an offence, as stipulated under Section 8(1)(a) of the RTI Act. Moreover, reliance placed by the PIO on the decision of the Supreme Court of India in Union of India v/s Tulsiram Patel (1985) 3 SCC 398, which elucidates the expression 'security of the State' does not appear to provide any additional support to PIO’s argument. In view of the same, the contention of the PIO that the information sought was exempted under Section 8(1)(a) of the RTI Act is rejected."

 

Then the PIO brought to the Bench's notice, a decision by the High Court of Delhi in Dharambir Khattar v/s CBI (Crl MC 1980/2006, Crl MC 6476/2006 and Crl 3657/2007 dated 11/03/2008). "The said decision pertains to the trial of the appellant in four corruption cases filed against him by the CBI. It was held by the High Court that in terms of Sections 207 (v) read with Section 173 (5) (a) Cr PC, the prosecution was obliged to furnish to the accused copies of only such documents that it proposed to rely upon as indicated in the charge sheet or of those already sent to the court during investigation. The PIO has not established the relevance of the decision of the High Court to the instant case," Mr Gandhi said.

 

Further, as per the written submissions dated 6 June 2011, the Court of Special Judge CBI, Rohini, Delhi vide order dated 20 May 2011 has directed the CBI/PIO to produce the records pertaining to the proposals pursuant to which orders/ permissions for interception of phones were issued. The PIO argued that since the order of the Special Judge was sought to be challenged by it, if the CIC issued a direction for supply of documents, it would frustrate the legal right of the PIO to appeal against the order of the Special Judge. "However, the PIO failed to establish before the Bench how the argument raised by it would come within any of the exemptions mentioned in Section 8(1) of the RTI Act. The RTI Act codifies the citizens’ fundamental right to information. It is established that information may be exempted from disclosure in accordance with Section 8 and 9 only and no other exemptions can be claimed while rejecting a demand for disclosure. If the Commission were to accept the argument of the PIO, it would imply reading in an additional exemption in Section 8 of the RTI Act, which was hitherto not envisaged by the Parliament. In view of the same, the argument of the PIO cannot be accepted by the Commission," the Bench said.

 

Additionally, the PIO has argued that the matter is sub-judice before the Court and if the information was directed to be disclosed, it would adversely affect the right of the PIO. Mr Gandhi said, "This argument of the PIO cannot be accepted by the Commission. Section 8(1)(b) of the RTI Act exempts from disclosure 'information which has been expressly forbidden to be published by any court of law or tribunal or the disclosure of which may constitute contempt of court'. From a plain reading of Section 8(1)(b) of the RTI Act, it is clear that it does not include sub-judice matters."

 

Further, the PIO has argued that the information sought by the Appellant was exempted under Section 8(1)(h) of the RTI Act. The Appellant was an accused in four CBI cases related to corruption which were under trial and by obtaining the information at the given stage of trial, he was attempting to subvert the process of prosecution/ trial.

 

Section 8(1)(h) of the RTI Act exempts disclosure of information which would impede the process of investigation or apprehension or prosecution of offenders. "Merely because the process of investigation or prosecution of offenders is continuing, the bar stipulated under Section 8(1)(h) of the RTI Act is not attracted; it must be clearly established by the PIO that disclosure of the information would impede the process of investigation or apprehension or prosecution of offenders," the Bench said.

 

"In the instant case," Mr Gandhi said, "the argument raised by the PIO to justify the denial of information on the basis of Section 8(1)(h) of the RTI Act appears to be nothing more than a mere apprehension. As mentioned above, the information contained in the proposal was in the nature of generic statements and without any specific and concrete allegations against the accused. The PIO has failed to establish how disclosure of this information would impede the process of investigation or prosecution of the Appellant. The Bench has come to the conclusion after reading the said proposals that there is nothing in them, which could qualify for exemption under Section 8 (1) (h). In other words, the PIO has not been able to discharge the burden placed upon him under Section 19(5) of the RTI Act to prove that the denial of information under Section 8(1) (h) of the RTI Act was justified. Given the general nature of the information contained in the proposal, the reason for its non- disclosure does not appear to meet the criteria laid down in Section 8(1)(h) of the RTI Act. Since this Commission is rejecting the contention of the PIO on factual grounds, the decision of the Commission in Anita J Gursahani Case becomes irrelevant to the instant case."

 

The PIO also claimed Section 8(1)(g) of the RTI Act for non-disclosure of information and argued that the identity of the source and officials handling and processing the information would be revealed, who work in confidence that their identity would not be revealed considering the sensitive nature of their job. The disclosure of the information sought by the appellant would endanger their physical safety. 

 

Mr Gandhi said, the Bench was of the opinion that there may be some merit in the contention raised by the PIO. Disclosing the names/ identity of the officers mentioned in the proposal may attract the exemption contained in Section 8(1)(g) of the RTI Act.
 

Section 10(1) of the RTI Act provides as follows:

“10. Severability.- (1) Where a request for access to information is rejected on the ground that it is in relation to information which is exempt from disclosure, then, notwithstanding anything contained in this Act, access may be provided to that part of the record which does not contain any information which is exempt from disclosure under the RTI Act and which can reasonably be severed from any part that contains exempt information.”

 

"Under Section 10 of the RTI Act, it is possible to severe certain portions of the information before disclosing it to an applicant to ensure that information that is exempt from disclosure under the RTI Act is not disclosed. Therefore, this Bench has decided to apply Section 10 of the RTI Act to the proposal sought by the appellant. The PIO is directed to provide to the appellant the proposal sent to MHA by omitting the names/ designation of the officers mentioned therein," Mr Gandhi said, while allowing the appeal.

 

CENTRAL INFORMATION COMMISSION

 

Decision No. CIC/SM/A/2011/000308/SG/13000

http://www.rti.india.gov.in/cic_decisions/CIC_SM_A_2011_000308_SG_13000_M_58883.pdf

Appeal No. CIC/SM/A/2011/000308/SG

 

Appellant                                                     : Dharambir Khattar,

                                                                           New Delhi- 110016

 

Respondent                                               : Jagroop S. Gusinha,

                                                                     AIG (P) & CPIO,

                                                                     Central Bureau of Investigation,

                                                                     Policy Division, North Block,

                                                                     New Delhi

User

Govt. spending pushing up GDP growth but also fiscal deficit

If not for government spending, GDP growth would have been under 4%. A higher government spending will only mean higher fiscal deficit

Real GDP growth registered a below-expectations 4.4% y-o-y in Q2 2013 after 4.8% in Q1. Agriculture growth rose to 2.7% y-o-y in Q2 from 1.4% due to better monsoons, but GDP growth ex-agriculture moderated to 4.6% from 5.3%, Nomura says in its research note on GDP growth.

 

Higher government spending was the key saviour in Q2. Excluding that, GDP growth would have been under 4%. Private consumption growth hit at a record low, investment demand contracted and services GDP has also fallen sharply, sums up Nomura in its research note.

 

Downside risks to India’s growth outlook have materialized with financial conditions tightening much more than anticipated. Nomura in its research note says that it is cutting India’s real GDP growth estimates to 4.2% y-o-y in FY14 from 5.0% earlier.

 

Nomura has pointed out that firstly, a sharp pick-up in government spending (10.5% y-o-y in Q2 versus 0.6% in Q1) was the main positive driver of growth this quarter. If not for government spending, GDP growth would have been under 4%.

 

Secondly, domestic demand is going from bad to worse, argues Nomura. GDP at market prices, which better captures demand, grew at a dismal 2.4% y-o-y versus 3.0% in Q1. Private consumption growth slowed sharply to 1.6% y-o-y in Q2 (lowest in recorded history) versus 3.8% in Q1. In Nomura’s view, both discretionary and non-discretionary consumer demand is declining. Fixed investment contracted 1.2% y-o-y in Q2 on top of negative growth in the corresponding period last year. The slowdown in domestic demand is reflected in weakening imports. As a result, net exports dragged 0.6pp from GDP growth in Q2, less than a 1.2pp drag in Q1.

 

Thirdly, according to Nomura, the slowdown in industrial activity – both mining and manufacturing output contracted in Q2 – is reflected in slowing demand for services. While financial services have moderated, the biggest hit has been to the trade, hotels, transport & communication sector, which accounts for 28% of GDP. Growth in this sector slumped to 3.9% y-o-y in Q2, down from 6.2% in Q1, and a far cry from the sustained double-digit growth during its heyday. This sector has been an important employment generator and is closely linked to industrial activity. 

 

Looking ahead, good monsoons and a gradual recovery in global demand are positives, but the question is whether they will be able to offset the drag from the ongoing balance of payment (BOP) stress, points out Nomura.

 

Nomura expects BOP pressures to continue over the next three to six months, which would have an adverse impact on the economy through multiple channels: cost-push inflation and margin pressures, higher short-term funding costs, asset price volatility and falling confidence, among others.

 

Additionally, with fiscal pressures building, Nomura concludes that the government will not be able to continue its current pace of spending without risking substantial fiscal slippage, implying spending will have to be sliced in the second half of FY14. Hence, the risk of a pro-cyclical fiscal and monetary policy tightening is rising and the downside risks to our growth outlook have materialized with financial conditions tightening much more than anticipated.

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Nomura sees rupee at 75 against US dollar, negative on Indian economy

With the worsening current account and fiscal deficits and rushed policy-making, Nomura feels that Indian economy will have a tough time bouncing back, with balance of payments issues to be the cornerstone of her recovery

In a Special Report, Nomura Singapore is bearish on the Indian economy, critical of the Reserve Bank of India (RBI) policies and sees the Indian rupee (INR) depreciating to 75 to the US dollar, from current levels. “Based on our FX valuation analysis, INR is still around 10% overvalued, which means that spot USD/INR could move toward 75 to reach an equilibrium value,” said the note.
 

Nomura feels that economic recovery would be difficult considering that the current account deficit (CAD) and fiscal deficit have grown too large, putting the economy in a precarious position from a policy-making perspective. “The ability of the government to stabilise INR over the medium-term will be more difficult than Indonesia (another country suffering from similar economic dilemma), as the country suffers from both a large current account and fiscal deficit. According to Nomura, the cumulative current account deficit has worsened from -4% of the gross domestic product (GDP) in 2008 fiscal to a whopping -16.7% of the GDP in 2013 fiscal. This is expected to lead to balance of payments (BoP) pressures within the next three to six months, resembling the 1991 economic crisis.
 

However, Nomura feels that the RBI (and the government) has damaged its credibility in its fight to stem the rupee slide by taking several ‘reactionary’ and short-term measures which are of little value in the long-term. The note says, “Apart from the liberalisation of FDI caps, most of the government measures were quick-fix solutions and are unlikely to yield major long-term gains. The RBI’s interest rate defence has also failed. An interest rate defence is never a costless strategy. The RBI wants to control FX but without any collateral damage to growth, which is impossible to achieve. In our view the problem is that the RBI is trying to achieve inconsistent goals, which sends confusing signals, increases volatility, and damages the RBI’s credibility.”
 

The ability to contain he deficit without damaging long term prospects is a key challenge for both the government and the RBI, particularly the challenge of repaying some of the short-term bonds maturing in FY14, amounting to $172 billion. Another key issue is question of cross-border loans, which are almost the same levels of the reserves, at $273 billion. Unlike portfolio flows (equity and debt), cross-border loans are related to bank operations, investments and trade credit. Yet, if you consider our foreign exchange reserves, it is low compared to the obligations. India’s foreign exchange reserves are currently worth $278.8 billion, down 6% from the beginning of the year. “Foreign equity holdings as a percentage of market capitalisation is at a multi-year high of 24.7%. However, India’s vulnerability relative to Indonesia’s looks even higher once cross-border loans and short-term external debt are taken into consideration. The risk of outflows (especially for India) is growing given slow growth, the prospect of rising inflation and mounting risks of negative credit events,” warned the report.
 


It is also pertinent to note that India has just roughly 6-8 months of import cover, the lowest levels since late 1990s. In other words, India has enough reserves to guarantee imports for the next six months if the economy were to come to a standstill or currency crisis blows over. The threshold level is four months.
 


To plug the current account deficit gap and raise funds, Nomura believes there are six options for the government and policy makers to consider, apart from exports.
 

  • Dipping into FX reserves:  With sufficient cover of six months, RBI is unlikely to intervene heavily and risk further capital outflows.
     
  • Bilateral swap agreements: This is an agreement between two countries to trade for dollars with local currency, with some strings attached. Nomura believes that this option is open and may not be ruled out. It believes India could consider swap agreements with countries like US, China, EU, UAE to name a few. Currently, India has a swap agreement with Japan, with an option to obtain $15 billion, only with IMF support.
     
  • NRI bond: This option is probably the most feasible one as RBI has already liberalised, partly, the interest rate of FCNR (B) deposits in 3-5 year maturity and exempted them from statutory requirements. More bonds—Resurgent India Bonds or India Millennium Deposits—may be announced.
     
  • Sovereign bonds: There were talks of India issuing quasi-sovereign bonds, though this is expected to be the last option. For this to work, India would need to work very hard to commit to an aggressive fiscal consolidation programme or risk sovereign downgrade and tougher bond repayment terms, as a result, which may lead to default, economic collapse and loss of credibility.
     
  • Gold options: There’s an option of RBI leasing gold in the international market for dollars and bring in at least $20 billion if foreign exchange reserve dips rapidly and debts are rolled over. But Nomura sees a low probability of this happening
     
  • IMF credit lines: Taking an IMF credit line, especially when there ample reserves, would be a sign of panic and would also lead to stringent terms from IMF. There would be a stigma attached to India that it requires external help.
     

With the election year coming up next fiscal, Syrian crisis blowing over and, more importantly, the Federal Open Markets Committee (FOMC) meeting coming up mid-September to decide the quantitative easing tapering timeline, there is only so much room for policy makers to manoeuvre and wriggle India out of the crisis in terms of capital inflows and outflows. India needs to export a lot more than normal. A lot depends on Rahuram Rajan and his actions when he becomes the RBI chief. But he does not have magic bullets.
 

“Continuing concerns on the growth outlook, rising credit risks, deteriorating bank asset quality and worsening fiscal pressures suggest that risks remain skewed to the downside over the next six months. Thus, we maintain our negative view on India’s economic outlook,” the report concluded.

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COMMENTS

Naresh

3 years ago

Cut it any way, the bottom line is that India needs sweeping political change at the Union level. All reforms are being held up because of the Congress led UPA and they are trying to buy time until 2014 by introducing populist bills like Food Security which will further damage India's financial prospects. So I say it again - without political change, India will not come out of this rabbit hole.

Ramesh Poapt

3 years ago

In the light of the above, I request Moneylife to provide detailed article from their Economist about precautionary steps(SOS) to be taken by Indian investors, middle class households,sr.citizens and to all those who will suffer the most.

gsk

3 years ago

The upside rs.80 is my calculation and he satisfied with 75 is the question. In mu opinion it has to touch 80 quickly and then they may com and settle around 70 - 75, No govt. or RBI can help it to stop reaching 80

REPLY

Suiketu Shah

In Reply to gsk 3 years ago

agree 100%.am quite amused at this idea of citizens giving gold to the govt to arrest the freefall of the Indian rupee.Who wl trust the govt with our gold?!!!!!! Very humourous suggesations coming up,utterly ridiculously humorous shd I say!

Suiketu Shah

3 years ago

very good article but we already know this since 2 weeks thanks to ml good updates:)

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The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)