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Gujarat has emerged as the best performer in developing startup ecosystem for budding entrepreneurs, according to the ranking of states done by the department of industrial policy and promotion (DIPP).

Other top performers that followed the western state were Karantaka, Kerala, Odisha and Rajasthan.

"This exercise will help all the states to improve the ecosystem for promoting startups," DIPP Secretary Ramesh Abhishek said Thursday.

The rankings are based on the initiatives taken to develop startup ecosystem for promoting budding entrepreneurs.

A total of 27 states and three union territories participated in the exercise.

The ranking framework covers seven areas of intervention and 38 action points, including policy support, incubation centres, seed funding, angel and venture funding and easier regulations.

The government launched Startup India Action Plan in January to promote budding entrepreneurs in the country. The plan aims to give incentives such as tax holiday and inspector raj-free regime and capital gains tax exemption.

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The Reserve Bank of India (RBI) on December 18 said it would inject Rs 50,000 crore into the system in January 2019 through a purchase of government securities.

To discuss the same, CNBC-TV18 spoke to MS Gopikrishnan, head macro trading, SA and financial markets at Standard Chartered Bank and Ananth Narayan, professor of SPJIMR.

“I think the size seems to be on the larger side. Markets were anticipating OMOs till March but the number was much smaller. I would probably put something like Rs 20,000 crore per month from January to March. Against that, we are seeing roughly Rs 50,000 crore per month which seems to be on the higher side. Markets will be surprised on the positive side and I think that will definitely have an impact on the yields in the morning. Just not immediately, in the run up to March, we will probably looking at yields falling further. Oil falling by 7-8 percent is definitely going to add to the positive sentiments to bond markets,” said Gopikrishnan on December 19.

Talking about how the OMO could provide liquidity support to the bond markets, Narayan said, “Overall for this financial year, assuming that they continue with Rs 50,000 crore from January to March, RBI would have effectively purchased Rs 3.36 lakh crore of government securities, which is a staggering 80 percent of the net issuance budgeted for this year by the central government. That is a huge amount of monetisation. It is a huge amount of liquidity support. Clearly, bond markets will celebrate Christmas and Diwali all put together for now. That trend will continue. It does raise larger questions about the medium-term but who bothers about the medium-term, we will worry about it later on."

“Normally when you have fiscal slippages and you have monetary easing to support that kind of fiscal slippages, you would be concerned about inflation, you would be concerned about financial stability but clearly with consumer price index (CPI) prints surprising on the downside, 2.3 percent is a really low number and with oil prices coming off, those fears are relegated for the time being. The nature of our fiscal is not looking good. While we celebrate and while we feel happy about what is going on right now, farm loan waivers as it is even before these farm loan waivers started, we were having sharp reduction in tax collections, we were looking at a one percent slippage before accounting jugglery comes into play and plus now we have a competitive populism being the order of the day. It doesn’t augur well for the quality of the fiscal deficit,”

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The average ticket size of life insurance policies has jumped 2.45 times in almost 10 years. According to data from Kotak Institutional Equities, the average premium collected from a retail customer for a regular payment product was Rs 9,942 in FY09 which grew to Rs 22,549 in FY18. For the eight months of FY19, the average premium rose to Rs 24,395.

A rise in the ticket size means customers are willing to pay a higher premium for products. There is a huge gap that exists between the insurance required and the one taken by the policyholders.

Under-insurance is a reality

India is the second-most underinsured country in the world with an insurance gap of $27 billion (approximately Rs 1.98 lakh crore). A survey by specialist insurance and reinsurance market Lloyd’s said while India’s overall level of insurance penetration (total insurance premiums as a percentage of the gross domestic product) has increased 0.2 percent since 2012, it continues to have one of the highest underinsurance levels globally.

Insurance gap refers to the gap between the actual sum assured required versus that taken. For example, if the insurance needed is Rs 100 and an individual has taken Rs 40, the insurance gap is Rs 60.

Banks vs non-bank insurers

The data showed that insurance companies with banks as a large partner have a much higher ticket size. For instance, ICICI Prudential Life Insurance had an average ticket size of Rs 80,365 for the April to November 2018 period.

Canara HSBC OBC Life Insurance came second with an average ticket size of Rs 70,135. However, this was a drop from Rs 82,365 in FY09.

LIC versus the rest

Unlike private sector companies which sell a large proportion of unit-linked insurance plans (Ulips), Life Insurance Corporation of India (LIC) predominantly sells traditional products. The average ticket size for LIC was Rs 13,943 for the April to November 2018 period compared to Rs 5,885 for FY09.

For private insurers, the average for the eight months of FY19 was Rs 52,939 that rose from Rs 18,686 in FY09. The premium collected per policyholder (retail) stood at Rs 52,943 on an average.

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Manas Chakravarty

At last, we know why the central government was so keen on trying to get the Reserve Bank of India (RBI) to part with its reserves or to speed up bank lending. It was a bit of a mystery why the government of the fastest-growing large economy on the planet was so concerned about growth. The results of the state elections tell us that huge sections of the population were being left out of that growth and the ruling party knew that and was terribly worried about it.

The signs of disenchantment have been visible for quite some time. As we pointed out a few days ago, the Reserve Bank of India’s consumer confidence survey showed widespread pessimism about the economy, which has now been translated into votes against the government.

Is there reason for concern? These were state elections, where local issues dominate and things may well be different in the national elections. More fundamentally, as some economic commentators point out, do governments really make all that difference? After all, the UPA-1 coalition government had the support of the communists and what could be more like the kiss of death for markets than communist support. And yet we had a booming economy and soaring markets from 2004-08.

But consider the euphoria in the markets five years ago at the prospect of a Modi government. That optimism was based on the hope that this would be a very different government, especially from the one that preceded it. While no Indian government can afford to alienate international investors and therefore has a restricted menu of choices, it’s also true there’s considerable policy leeway, as evident from the policies, or lack of them, of UPA-II.

True, the high hopes from the Modi government have been dashed. But consider what this government has achieved. Its reforms include: an expansion of market share for the formal economy through the introduction of the Goods & Services Tax, allowing contract labour in all industries enabling businesses to hire and fire, increasing the tax to GDP ratio mainly through an increase in indirect taxes, rolling back subsidies, bringing in an inflation-targeting regime at the central bank, keeping the fiscal deficit under control, enacting a bankruptcy law to end the promoter raj, initiating a clean-up of the real estate sector through RERA, ensuring private sector participation in social programmes such as the affordable housing programme and the health insurance scheme and lastly, ensuring that subsidies are well-targeted through the direct transfer of benefits to bank accounts.

Many of these reforms are an attempt to change the structure of the economy. They are all measures that strengthen the foundations of capitalism in the country. To be sure, the government hasn’t satisfied the votaries of privatisation, demonetisation was a disaster and it has also tried to bend institutions to its will, but then it would be silly to think that this government is a liberal one. Rather, its model is the East Asian one of state-directed capitalism rather than a free market one.

Some complain the government has also had to offer sops to the masses, such as farm loan waivers and the promise of higher minimum support prices. But in a poverty-stricken democracy sops for the electorate are inevitable. What is far more important is that it has attempted to transform India into a hard state, emulating the East Asian regimes which saw rapid growth. The prime minister’s admiration for the Chinese model is well-known.

An added advantage of the ruling party is that it has a second string to its electoral strategy — its Hindutva ideology. This ideology is an attempt to use nationalism, tradition and religion to paper over the gross inequalities and myriad fissures of Indian society, so that the all-important work of capital accumulation necessary for development continues unhindered. In a democracy, there are always pressures to redistribute the surplus, thus leaving less capital for growth. The ruling party’s ideology acts as a counter to this tendency, using religion and chauvinism as weapons for mass mobilization, keeping the masses distracted from economic issues.

But development is also a very disruptive process, destroying livelihoods and uprooting communities. The reforms are at a substantial cost and the benefits often come with long lags. New winners are created, but there are also many losers. The state elections have shown that those who have been left behind are striking back.

The capitalism — with Hindutva — characteristics model of the last four years has attempted to take the country down a road very different from the one it had been on since Independence.  Some believe it is the path to prosperity, others that it will lead to disaster. This model has been badly mauled in the state elections. The national elections next year will be its acid test.

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The Indian government must heed the RBI's message on financial stability, IMF's Chief Economist Maurice Obstfeld has said, amidst reports of friction between the central bank and the finance ministry over several issues, including how much capital the apex bank needs.

Addressing a group of journalists here on Sunday, he also said the International Monetary Fund does not want politicians "manipulating" central banks for political ends.

"There is debate over whether it's better for financial stability to be the remit of the central bank or an independent regulator...the UK in 1997, split them, then put them back together again," he said, responding to a specific question on the recent developments in India regarding the RBI and the Government.

"I'm not going to take a position on that...But I think...the central bank does have to be intimately concerned with financial stability to some degree and with the payment system," he added.

"We need to think about what is the best institutional framework in which financial policy can be set with regard to long term stability of the economy, not just to performance over political horizon," Obstfeld said.

"Well, I think they (the RBI and the Indian government) have reached an agreement on how to proceed. I think their (RBI) message that financial stability is important is correct. And it is important for the government to heed that," he added.

In November, the Reserve Bank of India (RBI) board held a marathon meeting amid a rift between the central bank and the government over several issues, including how much capital the RBI needs, lending norms for small and medium enterprises (SMEs) and rules for weak banks.

The Reserve Bank of India (RBI) has massive Rs 9.59 lakh crore reserves and the government, if reports are to be believed, wants the central bank to part with a third of that fund -- an issue which along with easing of norms for weak banks and raising liquidity has brought the two at loggerheads in recently.

Responding to a series of questions on the attempt in certain countries like the US, India, Argentina and Turkey to curb independence of central banks, Obstfeld said central banks' role as a financial regulator is critical. Central banks have "much greater power than you thought". They are fundamentally involved in financial stability policy, in fiscal policy, he said.

Obstfeld said if one looks at the record, the decisions taken by central banks worldwide did stabilise the economy by avoiding much worse losses in output and employment.

However, at the same time, he said, their moves also raised questions of transparency and accountability.

"So, it's not a shock that people raise these questions and it does create a challenge for central banks to be more transparent and to communicate more effectively with a broader public about what they are about and what they are doing," Obstfeld said.

If the central bank cannot communicate more effectively about what it is doing, then there is a possibility of political manipulation where politicians attack the central bank and undermine it, he said.

"Clearly, we don't want politicians manipulating the central bank for political ends," Obstfeld added.

After serving as IMF's Chief Economist for more than three years, 66-year-old Obstfeld is set to retire this month-end and will return to the University of California, Berkley. Gita Gopinath, Indian American economist from the Harvard University, would replace him from the first week of January.

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From April 2019, interest rates on retail loans, including those given to micro and small enterprises, will have to be linked to external benchmarks and not the marginal cost of funds-based lending rate (MCLR).

For borrowers, the new framework is aimed at making loan pricing more transparent. But it may also mean more volatility in their EMIs (equated monthly installments).

For banks, the change from MCLR to external rates could put some pressure on their margins and may impact efficient management of their assets and liabilities.

RBI announcement

To bring about more transparency in interest rate calculation, the Reserve Bank of India (RBI) has directed banks to change the manner in which they fix lending rates.

So far, banks were using their own cost of funds, which are internal to the banks, to determine the lending rate charged to different categories of borrowers.

Banks will have to now link to any one of these external benchmarks:

• RBI’s repo rate


• The yield on the government's 91-day treasury bill


• The yield on the government's 182-day treasury bill


• Any other benchmark market interest rate produced by FBIL (Financial Benchmarks India)

Treasury or T-bills are debt instruments issued for one year or less. Their yields fluctuate when they are traded, based on demand and supply.

Final guidelines on the new rates will be released by December end.

Let us now see how this impacts banks and their customers

At a time when banks are already struggling with their asset portfolios, this move may hamper their ability to handle liabilities further.

“This brings in more transparency for customers and banks need to see what is the best external benchmark they can link the loan rates to...We will now have to build margins in the spreads applied to the interest rates,” said PK Gupta, Managing Director - Retail & Digital Banking, State Bank of India (SBI).

To arrive at a final interest rate to offer, banks will add a spread or a margin to whichever benchmark rate they choose for that particular category of borrowers. Once fixed, banks cannot change the spreads for the entire tenure, unless the credit score of the borrower changes.

However, Gupta said this will mostly impact new loans and therefore, will not immediately banks' performance.

"Ultimately, linking to cost of funds will go away and we have to see how much impact it would have on the personal or housing loans," he said.

Transparency and transmission

Earlier, borrowers were offered interest rates linked to benchmark prime lending rates (BPLR) and banks' base rates, and since April 2016, they were offered rates linked to MCLR, which is based on the internal cost of funds of the respective banks.

The external benchmark rates will be more aligned to market rates and therefore, could result in more transmission of RBI's policy rate actions.

Karthik Srinivasan, Group Head- Financial Sector Ratings ICRA said this is expected to improve the transparency in loan pricing by banks as the existing benchmarks, especially the base rate, have not led to a full transmission of the benefits of a decline in cost of funds for banks.

"Furthermore, the profitability of banks may see a higher volatility, unless they are able to raise floating rate deposits linked to external benchmarks," he said.

Frequent EMI changes, less awareness

Although the external benchmark rates are more transparent, they can be volatile, which means customers' EMIs may change more frequently.

“It will also depend on how strong a bank’s treasury book is to decide on the rates. Also, while the rates may look attractive to begin with, but banks may add T-bill rates plus 1.5/2 percent spread (margin) which may not serve purpose," said Sukanya Kumar, Founder of RetailLending.com, a home loan advisory firm.

"So, I don’t think rates will change immediately for the customers. But maybe overtime if customers understand the T-bill rates and the linking of rates and banks take responsibility of awareness, it may help going forward," she said.

Also, most individuals rarely spend time to understand how their home loans work.

"Not all customers shifted from BPLR to MCLR system quickly which was better than the previous arrangements due to want of understanding of the home loan products," Kumar said.

As banks await the final guidelines, consumers may well want to learn more about how they can avail the benefits of more transparent interest rates.

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The Monetary Policy Committee (MPC) had voted 5:1 to maintain the repo rate at 6.50 percent in the October 2018 policy review, after having hiked rates twice in the previous two policy reviews. However, it had changed the stance of monetary policy from neutral to calibrated tightening, which had suggested a continuing likelihood of future rate hikes.

This expectation has been belied by subsequent data. With sub-4 percent CPI inflation for three consecutive months, a sharp correction in crude oil prices and the strengthening of the rupee, the repo rate appears unlikely to be changed in the upcoming policy review.

Although the CPI inflation in Q3 FY19 is likely to lag the MPC's estimate, a rate cut is ruled out given the change in stance to calibrated tightening and the high core-CPI inflation print for October 2018.

Following the year-on-year (YoY) disinflation in retail food prices in October, the outlook for food inflation remains somewhat mixed. Market prices of various crops are trending well below the revised minimum support prices, easing concerns about the inflationary impact of the latter while casting doubt on the sustainability of rural demand going ahead.

Following the late withdrawal of the monsoon rains, the sharp deficit in post-monsoon rainfall has led to a decline in reservoir storage levels and a delay in rabi sowing, which may create price pressures over the next few quarters.

Additionally, inflation risks related to fiscal factors, such as the staggered pay revision by some state governments and expenditure announcements by the central and various state governments, cannot be ruled out.

Geopolitical developments and supply-demand balances would continue to influence crude oil prices, and consequently, the sentiment toward the rupee and the domestic inflation outlook. We do not expect a sharp rebound in crude oil prices or a re-testing of the all-time low by the rupee in the second half of FY19, which should ease inflationary concerns.

On balance, the CPI inflation in FY19 is likely to average 4.2 percent, only mildly higher than the MPC's medium-term target of 4 percent. Therefore, the likelihood of a rate hike in the February 2019 policy review appears subdued, in ICRA’s view.

The expectation of status quo on the policy rate, the announcement of a pipeline of OMO purchases by the central bank in December 2018, and the correction in crude oil prices would keep a check on G-sec yields in the immediate term, despite continuing concerns of a potential fiscal slippage relative to the budgeted target for the central government in FY19.

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Union minister Ashiwini Kumar Choubey said on Tuesday if more individuals decide to donate their organs it will bring a huge change in the country's healthcare sector and many lives can be saved.

The Union minister of State for Health and Family Welfare was addressing the gathering at 9th Indian Organ Donation Day celebrations by the National Organ and Tissue Transplant Organisation (NOTTO) under the aegis of the Health Ministry.

"There are lakhs of people who wait at top hospitals for life-saving transplants amid acute shortage of donors. There is a need to spread awareness about organ donation and bridge certain gaps. Even if a section of individuals decide to donate his or her organs, it will bring a huge change," Choubey said.

The programme was also attended by Union Minister of State Anupriya Patel.