Exports
Rupee's link with exports is weak: Ind-Ra
While the Indian rupee can act as an enabler for export revival, it is unlikely to be a primary driver, says the ratings agency
 
India Ratings and Research (Ind-Ra) says the country's export performance is likely to stay weak in FY2017 as global economies face headwinds to their growth prospects. While the rupee can act as an enabler for export revival, it is unlikely to be a primary driver. Ind-Ra says it expects the rupee to weaken and trade at an average of 67.5 per US dollar.
 
"A revival in global consumption will be the key for improvement in India’s export trajectory. Evidence of the impact of the exchange rate on exports’ performance does not suggest strong linkages. Consequently, benefits of the weak exchange rate are unlikely to have a desired impact. With global outlook subdued, the recovery of Indian exports is likely to be protracted," the ratings agency said in a note.
 
Ind-Ra said it believes the government’s focus on infrastructure investment is likely to enhance India’s export competitiveness compared to its peers.
 
The ongoing slowdown in India’s merchandise exports over the year has drawn focus of stakeholders, in a bid to support the trade dynamics. It is in this context, that the rupee’s relative strength compared to its peers is believed to be at the centre of a raging debate, on the impact it has on India’s competitiveness in the global market. 
 
The Bank of International Settlements’ measure of India’s real effective exchange rate (REER) stands at 104.34 as of January 2016 (indicating over 4% of scope for further depreciation), while most peers are running significantly weaker exchange rates, the ratings agency said.
 
 
Ind-Ra said evidence of the links between trade performance and currency movement has been weak, in the sample of countries it analyses. Barring the recent past, an appreciating rupee has been accompanied with robust export growth, while weaker exchange rates have not necessarily translated into an export push, it added.
 
According to the ratings agency, the primary drivers of exports are India’s established competence in key areas – namely refining, precious metals, pharmaceuticals and transportation equipment, which has enabled the country to hold on to its share in the global market. 
 
"Additionally, consumption trends in the trading nations have a significant bearing on export performance. In such an event, outlook of major developed economies is likely to determine demand for Indian goods. The concentration of Indian exports is mainly to US, Europe and the Middle East. While the former two are battling with fragile growth impulses and deflationary pressure, the collapse in oil prices has impacted demand from the Middle East. The revival of India’s exports is unlikely in the near term, as the growth outlook for developed economies remains lacklustre," Ind-Ra said.
 
 
Exports from sectors like petroleum refining, chemicals and pharmaceuticals have, unarguably, witnessed subdued growth and even fallen in some cases in the last year. Global deflationary pressures and tepid demand have eroded headline export growth however, the ratings agency says, a look at the volume growth suggests that headwinds to India’s exports are pronounced on account of price pressures and not necessarily in quantity.
 
 
"In this context, India’s calibrated stance to diversify both the export composition and destination has enabled overall export performance to stay supported," it added. 
 
 
Ind-Ra feels that the key challenge for India will be to maintain its overall competitiveness, at a time when other emerging markets (EMs) and China may pose a bigger competition. It says, "India majorly exports intermediate goods, thus moving up the value chain could be an alternative. A more near term and multi-linked benefit is likely in the form of infrastructural development. It may enable the private sector to enhance their cost competitiveness on a global platform, while providing an impetus to domestic growth as well. In this context, the introduction of Goods and Services Tax (GST) is yet another policy measure that seeks to rationalise existing tax structures and harmonise costs for major firms, domestically."

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Farm GDP may hit 7%-8% on the back of a good monsoon
During 2003 and 2010, agriculture GDP had expanded by an average of 8.5% following years of poor rainfall, points out a report
 
With the India Meteorological Department (IMD) prediction of an above normal monsoon, the agricultural gross domestic product (GDP) is most likely to witness a robust performance in current fiscal and may even touch 7%-8% mark, says State Bank of India (SBI) in its Ecowrap report.
 
SBI in the report says, "We have only one concern though. India’s dry regions tend to start running short of water at this time of year - but this year’s drought is particularly severe (10 of the country’s 29 states) because poor monsoons across much of the country in both 2014 and 2015 have left dams and reservoirs with unusually low water levels. The Government has taken a number of steps, like sending a water train, to relieve a parched region but we believe there are three industry categories namely, food products and beverages, textiles and paper and paper products will get affected most from this water crisis. Our internal estimate suggests that these three industry segments may push down IIP-Manufacturing growth by around 50-70 basis points (bps).
 
 
Parts of Maharashtra are reeling under drought-like conditions with key Indian reservoirs at a decadal low. A normal monsoon this year will boost agricultural productivity as well as farm income. Because of deficient monsoon rains in last two years, the country’s foodgrains production declined to 252 million tonne and 253 million tonne in 2014-15 and 2015-16 respectively from a record production of 265 million tonne in 2013-14, the report added. 
 
After two successive years of below normal monsoon, the IMD has forecasted that this year’s monsoon will be around 106% of long period average (LPA). Interesting to note that since 1999 (when IMD predicted 108% rainfall), this is the highest ever rainfall projection by IMD. Several agencies from around the world, including the IMD, have hinted that this year monsoon could be better than previous years. The key reason being a waning El Nino: a meteorological phenomenon associated with the heating up of the Central Pacific and frequently responsible for drying up monsoon rains in India.
 
This time, even the private forecaster Skymet also predicted that the south-west monsoon is likely to remain ‘above normal’ at 105% of LPA, with a model error of ± 4%. In a month-wise prediction, Skymet stated that during June and July, the monsoon would be 90% and 105% of LPA while for the months of August and September, the cumulative rainfall would be 108% and 115% of LPA, respectively.
 
 
There is 94% probability that monsoon will be normal to excess this year. By and large, there will be fair distribution of monsoon across the country. But North-East India and South-East India, particularly Tamil Nadu, may get slightly less than normal rainfall. Though there is no need of worry regarding below normal rainfall in North East India, this is a slight concern for Tamil Nadu as it holds a share of about 7% of total rice production in the country. Drought-hit Marathwada is also likely to receive ‘good’ rainfall. 
 
Since 1950, there have been 23 El Nino years and 22 La Nina years. This year is expected to be La Nina year and research suggests that monsoon rainfall over the country, as a whole was deficient or below normal during 65% of the El Nino years. However, during 71% of the years followed by El Nino years, monsoon was normal and above (=96 % of LPA). The latest forecast from the Monsoon Mission Coupled Climate Model indicates that El Nino conditions to weaken to moderate to weak levels during the first half of the monsoon season and El Niño -Southern Oscillation (ENSO) neutral conditions likely to get established thereafter.
 
An analysis of monsoon forecast (1st and 2nd stage) since 2008, indicates that only once IMD has increased its second stage forecast (2014), else the forecast was remained same or slightly less than the first. Even after a maximum decline of 3 percentage points in second stage forecast, which will be released in June 2016, going by historical trends, this year monsoon would still be dubbed as ‘normal’.
 
SBI in the Ecowrap report said, "We believe that the agricultural GDP is most likely to witness a robust performance in current fiscal and may even touch 7%-8% mark because of the IMD projections. This is given that there are instances where agri-GDP has in fact expanded in years of deficient rainfall (in 2003, and 2010 agri-GDP expanded by an average of 8.5% following years of poor rainfall). This may pull up GDP by as much as 50bps."
 
"We maintain that over a point of time as pulse prices decelerate, the pace of price increase will come down. This will mean we will be working on possibly a negative contribution of pulse prices in headline consumer price index (CPI), as a significant base effect will be involved, as we move progressively towards the second half of current fiscal. This will mean the Reserve Bank of India (RBI) will have more firepower to cut rates possibly by up to 50bps. Also, with central India being the home to pulses forecast, it received adequate rainfall in FY2017, and this will only strengthen our case," it concluded.

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Aadhaar-linked Digital Wallets: Loophole allows loot by scamsters

While the government is busy patting itself on high enrolment for Aadhaar identities, there seems to be a lack of focus on validation of the database. This is providing fraudsters a quick new opportunity to loot Aadhaar-linked users of new age payment wallets

 

Micro payment systems and digital wallets have proliferated thanks to active support and encouragement from the central government. Most of these tout their simplicity and ease of usage through Aadhaar linked bank accounts that have minimal identification requirements. As is inevitable in India, where financial literacy is abysmal, scamsters are taking advantage of loopholes in digital wallets and lack of verification and authentication in the Aadhaar enrolment process. 
 
A chilling report from a report from Trak.in, describes how five students of engineering from Kolkata were able to siphon off Rs8.6 crore using a simple loophole in one of the digital wallets launched by a private bank. "Last December, one of the prominent private banks launched their own digital wallets, and enabled wallet-to-wallet cash transfer facility for their customers. However, the bank was not aware of a security loophole in this whole process. In case the recipient’s Internet connection is switched off, then the money is not debited from the sender’s bank account; but the bank pays the money. This major security flaw was caught by an engineering student called Jewel Rana, who formed a gang of five other students, and then started exploiting it for quick cash. Within four months, Rs8.6 crore were robbed from the bank," the report says.
 
What is more shocking in this case is that the gang procured thousands of pre-activated mobile SIM cards that were seeded with the bank accounts. The report says, "From the border district of Murshidabad, Jewel (Rana-the gang leader, who found out the loophole) and his gang were able to get thousands of pre-activated SIM cards, which were used to open 2,000 bank accounts, and which in turn were used to open 18,000 digital wallets. These wallets were then used to siphon off money from the bank. Innocent villagers from the nearby cities were given incentives to open bank account using the fake SIM numbers (seeding the mobile number with their accounts); and these formed the base of the whole scam."
 
Here both the mobile service providers and the bank appear to have clearly failed to follow the know-your-customer (KYC) norms as well as property verification of the customers. One of the reasons for banks could be the usage of Aadhaar number for opening accounts. In fact, for opening a basic Jan Dhan bank account, just a signature of the applicant across her photo before the bank officials is enough. Add to this, an Aadhaar number and there are no questions asked for KYC norms.
 
The possibility of loopholes in digital wallets coupled with bank accounts opened with Aadhaar numbers gives on a golden platter, a huge opportunity to scamsters to siphon off money.
 
According to other report from Trak.in, new breed of online fraudsters are fostering on the vulnerabilities of Aadhaar (as identification tool), and siphoning off the hard earned money via illegal methods. Citing a report from Times of India, it says, "...it was revealed that Hyderabad alone is getting 20 cases a day, related to Aadhaar card frauds. 40%-50% of those who are scammed are not even aware of this new cheating mode."
 
As the investigative officials have discovered, there are two different ways these fraudsters are attacking Aadhaar number holders. "In the first case, a tele-caller will call you up with this script: 'Hello, sir/ madam, the bank has decided to link your Aadhaar number with debit card for better customer service'. Gullible customers will happily provide them with the details they are asking; and very smartly, the fraudsters will extract details of CVV number and expiry dates (which are only known to the customer). Immediately, these fraudsters will generate an OTP, which is received by the victim instantly. Now, the OTP will act as a further trust factor for the victim, especially the ones who have never done OTP based transactions, and they will share that as well. They think that the OTP will be used for linking their bank accounts with Aadhaar number. Once OTP is generated and shared, the fraudsters use various ecommerce portals to purchase as many products as that five to 15 minute window of OTP validation provides. By the time, the victims understand this, his/ her bank account is debited with thousands of rupees. The other way to trick bank customers is to ask their alternate number; and an OTP is sent to that in order to make the victim believe that indeed their bank accounts and Aadhaar number is being linked," the report says.
 
According to the report, Freecharge, Paytm and Oxigen have been using Aadhaar number based verification since past several months.
 
What is more alarming in this situation is there is a huge number of newcomers into banking channel, however, neither the government nor the banks are interested in spreading financial literacy. Add to this, the lack of financial literacy is not limited to poor or illiterate people. According to Standard & Poor's Global Financial Literacy Survey, 76% of Indian adults do not understand key financial concepts including risk diversification, inflation and compound interest. Interestingly, the difference in the level of financial literacy between the richest (26%) and poorest (20%) is only six percentage points. 
 
Having identified a huge problem, it is the duty of the government and its regulators to ensure that people get the best possible protection and redress. Else, the number of fraud cases through new payment instruments and the so-called 'all-in-one' identification proof are bound to grow exponentially.  

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COMMENTS

Mukesh kamath

1 year ago

Even me taken for a ride... It happens all the time. HDFC bank and ICICI bank keep calling me to ask if i have a loan in their bank. If i say no they change tack and ask why not? Unscrupulous people may get hold of our e-Aadhaar card and create a fake documentation and get loans sanctioned. Banks also don't do enough due diligence.

jaideep shirali

1 year ago

They say a chain is as strong as its weakest link. I am amazed that banks have been so casual on the security aspects of such transactions

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