YV Reddy rules out stagflation for now


According to the former governor of RBI and the man who is credited with formulating policies that absorbed the shock emanating from global financial crisis, at present confidence among the industry and investors needs to be improved but that does not mean India is in 2008 crisis like situation

Mumbai: Dismissing fears of stagflation, YV Reddy, former governor of the Reserve Bank of India (RBI) said India is still one of the fastest growing large economies, reports PTI. 
"Where is the issue of stagflation? Though inflation is a concern but that does not mean that we are de-growing. We are still one of the fastest growing large economies," Reddy, who is credited with formulating policies that absorbed the shock emanating from 2008 global financial crisis, told PTI.
"There are issues facing the economy..." Reddy said, adding that some confidence boosting measures are needed.
"Yes, confidence among the industry and investors have to be improved. But that does not mean we are in 2008 crisis like situation," the former RBI governor, who is now the emeritus professor at the Central University of Hyderabad, said.
Reddy was in town for the launch a book containing the unpublished essays of the late RBI governor IG Patel, titled, "Of Economics, Policy and Development: An Intellectual Journey by IG Patel.
The book, launched by Governor D Subbarao at the RBI headquarters this evening, was edited by Reddy along with ex-RBI research director Deena Khatkhate and is published by the Oxford University Press.
Indraprasad Gordhanbhai Patel (November 11, 1924-July 17, 2005) was the 14th RBI governor and served a five-year tenure from December 1977 to 1982.
While 2011-12 GDP growth hit a nine-year low of 6.5%, a slew of financial institutions have significantly downgraded their growth forecasts for this fiscal as well, saying the Indian economy is facing a stagflation-like situation.
Speaking on the relevance of Patel's thinking Monday, Reddy said, the late governor was closely involved in the policymaking for nearly five decades and reading about him can help the current policymakers as his credo was pragmatism in all policy decisions.
When asked if the four-year-old crisis facing the global economy was a failure of economics or its practice by a greedy few, Reddy said the still lingering crisis arose because certain people began to think only in one particular way, which became the over-riding principle of economics.
When asked about his views on the RBI way is handling the crisis arising from the steep fall in the rupee, Reddy said, "we should make a distinction between countercyclical measures and monetary policies. The RBI has been for long following a policy of moderating volatility in the currency market." 
As a prescription for the Eurozone crisis, he said what is needed is a combination of fiscal and financial measures, apart from a political will to resolve the crisis.
"What is happening in the Eurozone is due to the absence of combined effort at the fiscal, financial and political fronts. Therefore, what is needed are some institutional changes. These are very important for the European economies to come out of the crisis." 
Going by the way things are moving in the Eurozone, the region may not even come out of the present crisis before 2014, Reddy said.
On what is the best tool to control inflation, the former RBI governor said, "inflation is not simply a monetary phenomenon, it also calls for prudential measures."


Rupee devaluation of 1966 and its impact

The writer describes the impact of the devaluation of the rupee in 1966 following the first major financial crisis of the government. The second part of the epilogue that describes the unknown triumphs and travails of doing international business

I had seen the front page of The Statesman early one morning, like all other newspapers in Calcutta, covered the big rupee devaluation story. As I cabbed down to Hare Street, near the GPO to reach our office, all that came to my mind was the 57.4% increased rupee income on our exports as I had a couple of shipments underway at the port, and the loading was going on.
It took me a little while to realise that my import cost would go up too by a similar amount. By about 9.30am I had the statement of shipments ready underway, import license in process (under issue) and those I would be submitting in the next quarter. By 11am, I had a call from Dr RK Singh's office asking for some leading exporters to come to his office for discussions, while he had already begun his talks with the ministry. I think it took two or three days before the ministry called for a discussion, seeking Council’s detailed recommendations to work out the revised incentive scheme to become operative.
A delegation was to proceed to New Delhi and to prepare what would be the best method to overcome the effect and to take advantage of the devaluation. I was one of the candidates chosen to join the delegation; others were drawn from the managing committee, including Dr RK Singh, Ram Lal Rajgariha from Calcutta; K Rajagopalan (DGTD) joined us in Delhi; so did PC Agrahari of EEPC Delhi office. There were couple of others who came and participated in the discussions but it was the final team of Rajagopalan, Singh and me who sat through the night to finalize the details covering some 300 items. These were the recommendations of the Council that were typed and submitted some 72 hours after the formation of the committee.
When I returned back to base, Kish Kapoor wanted to have details of the discussions which I refused to divulge as a matter of principle. I was hauled to the office of Jan Manekshaw and I repeated my stand, saying that it was of a confidential nature and it cannot be made public. Jan Manekshaw agreed with my stand, much to the displeasure of Kish Kapoor. It took a couple of months before the final announcement was made by the government.
Our exports, which slackened a bit due to the devaluation effect and scare, began to revive and our shipments continued to many countries in the Far East and Africa. Trips abroad were undertaken by my bosses and I was hurt. It was at about this time, a Drawback Sub-committee meeting was to be held in Madras by EEPC. I went there in the absence of Chandubhai Udheshi of Metro Exports, chairman of the panel.
It was during short this trip, when I paid a courtesy visit to our (Indian Cables) office, NV Sadagopan introduced me to one K Srinivasan, saying that he was one of the most accurate astrologer whose predictions had never gone wrong!  After my experience, a few years earlier, I was sceptical, but gave in to temptation.  KSV, as he was called, made some calculations, and on the next day predicted: “I will tell you the answer to the question you have in mind and that is when you will go abroad.” And, without waiting for my response, he proceeded to say: “You will not be sent abroad by Indian Cables; rather, you will be sent by the Government of India and that too, not before 22 July 1969”.  I was too dumb-struck to respond, and, he promised to send the detailed chart and workings later.
When I returned back to Calcutta, we had received basic tender details from Arabi WLL, with whom I was corresponding, trying to achieve a breakthrough in Kuwait. The power cables enquiry sent by him was large (worth some $2.5 million) and it would tie up our capacity in some areas. Already, there was talk of forming consortiums to deal with large enquiries, and after a quick meeting, the first Power Cables consortium was established, with Indian Cables as one of the seven prospective suppliers. I was nominated as its secretary. Immediately, we formed another consortium for supplying (tendering) overhead conductors, with Peer Mohammed of Aluminium Industries as its chairman, and I was to be the secretary as well. We notified the Government and the EEPC, which backed the idea to the hilt and work progressed well.
After a great amount of work involving meetings of all power cable manufacturers, the final bid was made, and Indian Cables deputed SK Ghose, our sales manager, to proceed to Kuwait to submit and do his best to obtain the contract, with the help of Arabi WLL. It was RB Ghosh (commercial manager) and Ajit Kahali (technical manager), SK Ghose and myself went by train to Delhi (as there was a plane strike) and did the final work.

I was in touch with SK Ghose in Kuwait and after the tender opening, we were overjoyed to be the lowest and mostly likely to be the successful bidder, if the consortium offer submitted by
Indian Cables was accepted. We broke through for the first time with the cable contract with the ministry of electricity and water and many others followed later.
Back in Calcutta, I arranged with Amin Chand Pyarelal group to give us APJ Akash to carry the cargo from Calcutta (InCab and Fort Gloster cables). The same vessel picked other supplies from Bombay and delivered the first lot of the order before time in Kuwait, establishing firmly our foothold in that country.   
As secretary of the consortium, I obtained railway concessions for all the exporters involved in the deal; part of our own shipment was carried by rail to Bombay to join the vessel (with our courier going in the train, with special permission).  It was all done with military precision.  It was a proud moment and achievement that can never be forgotten.
Meantime, Arun Basak had become MD of Indian Cables; Arvind Gersappe, an electrical engineer from GE had joined us, as did others like AK Sircar from Union Carbide; PK Mukerji ex-Dunlops, who was happy to meet me; and M Banerjee had taken over as personnel manager.
Jan Manekshaw continued as deputy MD of the company, but remained my idol. He was one of three people—Prem Pandhi and RK Singh being the other two—who shaped my life and future, and supported me right through.
I was in cloud nine when the first shipment took place from Calcutta, and we all had returned from the port, after loading the first consignment. On 28 February 1968, in an interoffice memo, an announcement was made, whereby Arvind Gersappe was made the manager exports, and no mention of my status, although, although I was in charge of exports.  No doubt, Arvind Gersappe was (and is) a nice person, extremely hard working and pleasant, it was difficult to swallow this unexpected onslaught. I submitted my resignation and sought to be relieved as soon as possible.
Lala Bishan Swaroop Agarwal, the father of ‘Usha’ brand, who travelled by road to establish the name, had often spoken to Dr RK Singh, telling him that he had a place for me in his organisation whenever I wanted, which I was informed several times earlier. After I recovered from my initial shock, I spoke to him, and he asked me to join him as a divisional sales manager as soon as I was relieved.
My work with him lasted just one year; when the Council had a vacancy in Middle East. There were several candidates who could fill the bill, including myself, for they wanted someone who had good commercial and export experience in India. In the end I was the selected to be sent on a three-year mission.
I was sent on a Bharat Darshan, visiting offices and factories to get first-hand knowledge of products and services that India could offer. I was on the last lap of tour in New Delhi, on my first leg of the tour covering the metropolitan cities, when I was asked to return back to Calcutta, which was due anyway, on the following day. When I returned and was at the Bharat Batteries’ factory, I was asked to report to Girish Chandra, who went around with me to the Reserve Bank of India (RBI) and other offices, and was told that I was leaving for Beirut that night, on the first available flight, which was a Pan Am 002. I had no time to even say goodbye to my family and friends, but I caught the flight.
It was only some three weeks later, I discovered the detailed chart that KSV had made in Madras way back in 1964, about my trip overseas. I could not believe my eyes that he had predicted the very date on which I actually took the flight!
As I run through my life, I would like to pay homage to some of my friends, mentioned in the series, who have passed away, and pray that they may rest in peace. There are many others whose names I have not mentioned for no reason except they made a silent contribution and advice in my work and life, all which I cherish.

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US. He can be contacted at [email protected].)




4 years ago

Dear Mr.Ramdass, A very truthful journey of 1966.But i will very much appreciate how the 1966 devaluation affected India, its economy, its place as a investment destination and other economic areas are explained.thanks

Weakness on Sensex, Nifty may continue: Monday Closing Report

If the Nifty manages to close above any previous day’s high, the downtrend may reverse

The volatile market pared its gains in the second half of trade on selling pressure in IT and metal stocks and settled lower for the fourth day in a row. Today the Nifty fell to a low of 5,190 and closed almost at that level. The index closed below its 20-day moving average of 5,222. If the index manages to close above any previous day’s high we may see some gains, else we may see the benchmark finding its first support at 5,160 and then at 5,075. The National Stock Exchange NSE saw an extremely low volume of 51.57 crore shares.


The market opened marginally higher on cautiousness ahead of the release of the country’s inflation data later in the morning. On the other hand, markets across were in the positive  as worries about a slowdown in China eased and the government, on Sunday, assured of additional initiatives to spur growth.


The Nifty opened five points up at 5,232 and the Sensex started the day at 17,242, a rise of 28 points over its close on Friday. The Sensex hit its intraday high in initial trade with the index rising to 17,282 while the Nifty touched its high in the noon session at 5,247.


Meanwhile, the benchmarks hovered on both sides of their previous close in the absence of any positive triggers. The market emerged into the positive in the late morning session as the wholesale price index (WPI) based inflation for June eased to 7.25% from 7.55% in the previous month.


However, the indices erased their gains in post-noon trade and dipped into the red following a statement by agriculture minister Sharad Pawar that sustaining a high growth in foodgrain production would be a challenge in view of the setback in the monsoon so far.


With the key European markets trading lower in early trade, the Indian market settled lower on selling pressure IT and metal sectors. The Nifty declined 30 points to closed below the 5,200-mark at 5,197 and the Sensex finished trade at 17,103, down 110 points.


The advance-decline ratio on the NSE was negative at 608:1051.


Among the broader indices, the BSE Mid-cap index declined 0.62% and the BSE Mid-cap index contracted 0.61%.


BSE Healthcare (up 0.94%); BSE Consumer Durables (up 0.77%) and BSE Oil & Gas (up 0.07%) were the sectoral gainers. The key losers were BSE IT (down 2.34%); BSE Metal (down 1.98%); BSE Realty (down 1.61%); BSE TECk (down 1.30%) and BSE Capital Goods (down 1.02%.


The top Sensex gainers were Bharti Airtel (up 3.85%); Dr Reddy’s Laboratories (up 1.81%); Maruti Suzuki (up 1.62%); Cipla (up 1.17%) and ONGC (up 0.77%). The main losers were Tata Steel (down 3.95%); TCS (down 3.16%); Jindal Steel (down 2.69%); Tata Motors (down 2.63%) and Infosys (down 2.48%).


The top two A Group gainers on the BSE were—Bharti Airtel (up 3.85%) and Muthoot Finance (up 3.48%).

The top two A Group losers on the BSE were—Jaypee Infratech (down 5%) and Adani Enterprises (down 4.60%).


The top two B Group gainers on the BSE were—Thirumalai Chemicals (up 19.99%) and IG Petrochemicals (up 19.93%).

The top two B Group losers on the BSE were—PM Telelinks (down 19.97%) and Mahalaxmi Rubtech (down 14.31%).


The top performers on the Nifty were Bharti Airtel (up 3.80%); Maruti Suzuki (up1.73%): Dr Reddy’s Laboratories (up 1.72%); Axis Bank (up 1.35%) and Bank of Baroda (up 1.29%). The main laggards on the index were Tata Steel (down 4.26%); TCS (down 3.69%); Tata Motors (down 3.03%); Jindal Steel (down 2.91%) and Reliance Infrastructure (down 2.84%).


Markets in Asia closed mostly higher on hopes of fresh initiatives by the Chinese government to boost growth. The government will step up policy fine-tuning in the second half of this year to support growth, Premier Wen Jiabao said.


The Hang Seng rose 0.15%; the Jakarta Composite climbed 0.69%; the KLSE Composite advanced 0.59%; the Straits Times added 0.11% and the KOSPI Composite gained 0.27%. On the other hand, The Shanghai Composite tanked 1.74% and the Taiwan Weighted lost 0.20%. The Japanese market was closed for a local holiday.


At the time of writing, two of the three key European indices were in the red and the US stock futures were in the negative, indicating a subdued opening for the US markets.


Back home, foreign institutional investors were net buyers of shares totalling Rs281.13 crore on Friday while domestic institutional investors were net sellers of equities amounting to Rs370.41 crore.


Ind-Swift Laboratories’ board has approved the corporate debt restructuring programme to recast its nearly Rs600-crore loans. The company currently has term loans worth about Rs600 crore and is seeking two to three years time for repayment under the CDR. The stock tumbled 6.90% to close at Rs47.20 on the NSE.


Tata Communications has spread the reach of its Video Connect Network to Nigeria through a partnership with Main One Cable Company. The video connect service will allow Nigerian broadcast and production companies to distribute live videos in international markets. Similarly, the African nation will also have access to international broadcasts. The stock dropped 2.70% to close at Rs238.05 on the NSE.


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