'Some important' reforms in next 6 months: Basu

“Among the reforms that will happen, I hope, is subsidy reform. The finance minister talked about this in his budget. We will try to use the UID system that we are developing to cut down leakage in subsidy,” chief economic advisor, Kaushik Basu told reporters

Washington: After the furore over his remarks to a think tank here, chief economic advisor, Kaushik Basu, feels India will see “some important” reforms in the next six months, including on subsidies and may be partial diesel decontrol and FDI in retail, reports PTI.

However, he feels the “biggest reform” GST (Goods and Services Tax) may be tougher because it is good and not everybody wants it to happen under the present regime.

Mr Basu, whose remarks on Wednesday that no big ticket reform is possible till 2014 elections raised a political flutter back home, said there is a serious risk of another European crisis in 2014 and appropriate measures need to be taken to avert another global economic crisis.

“Among the reforms that will happen, I hope, is subsidy reform. The finance minister talked about this in his budget. We will try to use the UID (unique identification) system that we are developing to cut down leakage in subsidy,” he said in an interview to PTI.

“In India the leakage is so big that if we can cut this down, it will help cut down our fiscal deficit ... So that's a very important reform, which I think will happen,” he said.

On foreign direct investment (FDI) in multi-brand retail, he said, “you can't be 100% sure, but I feel that it's very likely that it will happen. This can be a big boost to Indian farmers and small producers. It will also have an uplifting on investor confidence.”

The other one, which is more difficult politically, is diesel decontrol, Mr Basu said. “May be what can happen is a partial decontrol. This is not a very well defined term. There are different kinds of partial decontrol that you can have. What we should ideally do is to have a small subsidy that is fixed per litre. This will partially shelter the consumer but will allow the rise and fall of global price to be mirrored in India. This is essential for market efficiency,” Mr Basu said.

The chief economic advisor said his remarks at the Carnegie Endowment for International Peace were clear and addressed towards the possible European crisis and had nothing to do with the 2014 general elections as being reported in the media.

“There is nothing to clarify. I meant everything that I said; the lack of clarity was in its reporting,” he said, adding around this central message, he talked about India.

Mr Basu said in his lecture on Wednesday he had said that India needs to strengthen itself for the possible European crisis of 2014.

“Thanks to the strains of coalition politics there is a slowdown in reforms. Nevertheless, we will see some important reforms within the next six months. This is in our political and economic interest. But the biggest reform, the GST, is going to be much tougher because there you need a constitutional amendment,” he said.

In fact, he said, an interesting reason why GST is so difficult is because all parties realise this is very good.

“Therefore, not everybody wants it to happen under the present regime,” Mr Basu said.

He said 2014 was significant in his talk because of Europe and had nothing to do with the Indian elections. “We in India love politics so much that for us 2014 is nothing but the year of Indian general elections. India has gone through a difficult year with some slowdown in growth,” he noted.

“This has three causes: the European crisis, our difficult battle with inflation and the slowdown in decision-making and reforms and the disruption of Parliament that we have seen in the last year,” he said.

“There is a serious risk of another European crisis in 2014,” the chief economic adviser said.

This, he said, was the central theme of his talk at the Washington-based think tank.

“This is not hand-waving but is based on analysis. In December 2011 and February 2012, the ECB (European Central Bank) pumped in about $1.3 trillion of money into Euro Zone banks. This immediately calmed the markets and I think what ECB did was right,” he said.

“But you have to remember that these are loans that have to be repaid in three years. So if Europe does not manage to reform its fiscal system, then three years from now, when the time comes for this huge amount of money injected into the system to be withdrawn, we could see another European crisis, with shock waves for the entire world,” Mr Basu said.

“I argued we have to take measures against this so that we can avert the global crisis of 2014. That was the gist of my talk,” Mr Basu said.


Markets gear up for Akshyaya Tritiya

BSE and NSE, would allow trading till 8pm in gold ETFs (Exchange Traded Funds), which allow buy and sale of the yellow metal in paperless electronic format, on Akshyaya Tritiya day on 24 April 2012

New Delhi: With an aim to cash in on the investor demand for gold on auspicious occasion of Akshyaya Tritiya, the markets have lined up extended trading hours and special incentives for trade in the yellow metal on Tuesday, reports PTI.

Both the leading stock exchanges, BSE and NSE, would allow trading till 8pm in gold ETFs (Exchange Traded Funds), which allow buy and sale of the yellow metal in paperless electronic format, on Akshyaya Tritiya day on 24 April 2012.

Besides, the two bourses have decided to waive the transaction charges for all trades done in Gold ETF securities on that day on account of Akshyaya Tritiya.

The National Spot Exchange (NSEL) has also announced special offers on E-Gold, E-Silver and E-Platinum for Akshaya Tritiya. These include zero transaction charges and waiver of making and packing charges on physical conversion of E-Gold, E-Silver and E-Platinum.

“The day of Akshaya Tritiya in India has been traditionally considered very auspicious for purchasing gold, silver, ornaments, precious stones, real estate and other long term assets,” Religare Broking CEO Gagan Randev said.

It is widely believed that any new venture or asset creation initiated on this day will bring in good luck, growth and prosperity.

“While there is a visible surge in purchase of physical gold on Akshaya Tritiya over the years, consumer interest in purchasing non-physical gold on this day has also increased significantly over the last couple of years,” Mr Randev said.

On Akshaya Tritiya in 2011, investors traded in gold ETFs with turnover exceeding Rs500 crore on NSE and BSE, which is more than double the volumes of 2010.

This year also, the volumes are expected to exceed the last year’s levels, Mr Randev said.

Gold ETFs, by far the most popular form of investment in non-physical form, are traded like shares and are backed by physical holdings of the yellow metal. Investors need to open a demat and broking account with any brokerage firm to trade in over a dozen Gold ETFs currently available in the market. One unit of gold ETF is equivalent to approximately one gram of gold.

NSE said that gold ETFs have seen a phenomenal growth on its platform since being launched in 2007. From a traded value of Rs1,172 crore in 2008-09, the value increased to Rs11,532 crore in 2011-12—a growth of 883%.

The assets under management, in Gold ETFs, have also seen a huge spike over the years. They have gone up from Rs3,765 crore in March 2011 to Rs9,516 crore in March 2012. NSE further said that some of its members have also started offering SIPs (systematic investment plans) on gold ETFs, making it even more convenient for investors. The returns are linked to the domestic price of physical gold in gold ETFs, but they spare the investors the trouble of buying and keeping the yellow metal in physical form.


SEBI mulls safeguards against ‘flash crash’ menace

The Indian markets have witnessed at least three cases in the past few days when the value of a stock or index plunged sharply within a few seconds

New Delhi: Market regulator Securities and Exchange Board of India (SEBI) is looking to strengthen the risk management framework of Indian stock market to ring-fence it against a ‘flash crash’ like scenario—where value of a stock or index get severely beaten within seconds due to a punching error or even a manipulative trade, reports PTI.

The Indian markets have witnessed at least three cases in the past few days when the value of a stock or index plunged sharply within a few seconds.

Although top officials at SEBI and stock exchanges are not willing to call them ‘flash crash’ cases, as a recovery was quite fast in those cases, a consensus has emerged that systems need to be strengthened to avoid any similar, or even worse, cases in the future, sources said.

In most likelihood, these were cases of ‘fat-finger trade’—a term used for punching error or wrong pressing of orders on the trading terminals, a senior official said.

The upcoming guidelines for stress testing of stock exchanges would ensure that appropriate systems are in place to safeguard the interest of investors from any ‘flash crash’ like scenario, he added.

On Friday, 20 April 2012, the Nifty futures witnessed a sharp plunge of nearly 7% for a few seconds, and some market players put the blame on a huge sell order executed by mistake. The day also saw a sharp plunge in Infosys futures.

However, the recovery was fast, limiting the estimated loss from the two freak trades at less than Rs10 crore.

Later, NSE clarified that “the trading systems worked normally and all the trade executions were within the price limits prescribed by SEBI. The exchange is examining the causes for the sudden fall in the Nifty, as part of normal investigation procedure.” NSE further clarified that no trades were cancelled or annulled by the exchange.

However, these two freak trades came within days of the two benchmark indices Nifty and Sensex witnessing a sharp plunge for a few minutes, which is widely expected to have been caused by huge sell orders in some blue-chip stocks.

Also, last year on Diwali day (26 October 2011), the BSE had to annul all its derivatives trade executed during its Muhurat Day trading after some freak trades were noticed.

Earlier on 1 June 2010, a presumably freak trade pulled down the share price of Reliance Industries by nearly 20%, while the benchmark index Sensex also fell by more than 400 points within minutes to a one-year low.

The US markets witnessed a far worse ‘flash crash’ on 6 May 2010, when its benchmark Dow Jones index fell by over 900 points, or about 9%. The US market regulator had later proposed safeguards like circuit-filters to tackle such cases and is still working on a concrete and long-term solution.

The Indian market already has circuits in place to avoid any large-scale fall. These circuits come into effect after a movement of at least 10% in the case of indices, but there are no circuits for large blue-chip stocks.

While there have been no major ramifications so far from various ‘freak’ trades in the Indian market, the regulator wants to put in place a robust system to safeguard the markets against any across-the-board panic sale due to sharp plunge in one individual security.

The stress test would prepare the bourses for handling situations where any sharp fall in share prices of one stock, possibly because of a freak or wrongly-entered trade order, can result in panic-selling by investors.

In addition to freak trades, the stress test would also measure the stock exchanges’ preparedness for situations when any sharp plunge in any one stock, due to reasons like negative news flows such as frauds and scams, can affect the broader market sentiment.

SEBI had begun the process of framing a policy on the stress test long ago, but some market players are said to have resisted the move at that time.

Senior SEBI officials had even discussed the possible safeguards against flash crash-like situations among themselves, as well as with outside experts, about a couple of years ago. However, it could not reach any concrete conclusion earlier, but considerable progress has been noticed in the past few months.

Earlier this month, SEBI announced additional checks and balances for algorithmic trading to minimise the possibilities of any flash crash. Such trading activities allow for much faster execution of trade orders with the use of latest software solutions.


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