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Falling global crude prices spell no relief for Indian consumers; petrol hits Rs 86.24 in Mumbai

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The steep rise in fuel prices comes at an inopportune time for the Narendra Modi-led National Democratic Alliance government, which completed four years in power last week. Petrol and diesel prices have been on a tear over the last couple of weeks, and continue to climb even as global prices have begun to ease.

An unchecked rise in retail fuel prices will feed into inflation before long, and with the general election barely a year away, the government faces a difficult choice.

Should crude prices continue to rise, the government will have to decide between taking a hit on its own revenue from fuel, and burdening oil marketing companies by asking them to absorb the higher prices. Simply passing on higher prices to consumers will certainly hurt its prospects in the election next year.

A persistent complaint against the Modi government has been that consumers have not received the full benefits of falling crude prices in the past, but have to shell out more when crude prices rise.

When prices were falling, the government kept hiking excise duty on fuel to make up for the fall in revenue, since taxes on oil are levied as a percentage of its price. So when oil prices fall sharply, the government's import bill shrinks, but its revenue declines too.

Whether deliberate or not, oil marketing companies had suspended the dynamic fuel pricing system at the start of the month, only to resume it two days after the Karnataka election concluded on May 12. Since then, oil marketing companies have hiked fuel prices for 16 consecutive days.

Critics of the government say fuel prices were kept in check to woo voters in the southern Indian state.

During his electoral campaign in 2014, Prime Minister Modi had attacked the Congress on rising fuel prices back then and said that under the BJP’s rule, people would witness a steep decline in petrol and diesel prices, and the rupee-dollar exchange rate. But, truth be told, the PM has clearly failed on this front.

Global crude prices have been on an uptrend since the start of the year, thanks to the Organization of the Petroleum Exporting Countries (OPEC). This meant that the government had to follow suit at some point and hike domestic prices. However, as Russia and the oil cartel agreed to increase supplies, crude prices have eased off considerably.

Brent crude was up 31 cents at $75.61 a barrel early on May 29. It had previously settled at $75.30, which was its lowest since May 8.

Price change

On May 29, the price of petrol was hiked by 16 paise to Rs 86.24 per litre in Mumbai, while that of diesel was hiked by 15 paise to Rs 73.79 per litre. In the national capital, petrol price was increased by 16 paise to Rs 78.43 per litre, and that of diesel was raised by 14 paise to Rs 69.31 per litre.

Since the dynamic pricing system resumed on May 14, petrol and diesel prices have risen by Rs 3.80 and Rs 3.38, respectively, in Delhi.

Failure to curb prices

On May 25, Road Transport and Highways Minister Nitin Gadkari had suggested that petrol and diesel should be brought under the Goods and Services Tax (GST) regime to curb the rise in price. Petroleum Minister Dharmendra Pradhan had also said that the government will intervene to reduce prices. However, nothing has been done so far to reduce the burden on the common man.

What experts say

"If you look at the way stock markets have performed, oil marketing companies have underperformed. This is because the market doesn’t believe that the decrease in prices in global crude, would be passed on [to customers]," said Sreesankar Radhakrishnan, Co-head - Equities at Prabhudas Lilladher.

"Moreover, the government has been pretty clear on pricing and is unlikely to reduce excise, which is one factor why oil marketing companies could continue to underperform," he said.

In a recent analysis of crude oil prices, BNP Paribas said, "Given our baseline estimates of robust demand growth and moderate supply growth we expect the global crude oil market to remain in deficit for the remainder of 2018 and potentially into 2019."

"Demand could disappoint, notably in the non-OECD bloc which accounts for slightly more than half of global demand. The second principal risk, in our view, is higher-than-expected inflation, notably in the US. This could reflect strong growth which is supportive for crude demand, but also would involve tighter Fed monetary policy and a strong US dollar.

"We find it difficult to see Brent crude prices materially above $80/bbl (close to current spot prices) in such an environment. As such, we believe the risk/reward for crude prices is currently skewed to the downside."

RBI appoints Sudha Balakrishnan as its first CFO

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National Securities Depository Limited (NSDL) executive Sudha Balakrishnan has been appointed the first chief financial officer (CFO) of the Reserve Bank of India (RBI) effective May 15.

This is the biggest organisational change since Urjit Patel took over as RBI Governor in September 2016.

Balakrishnan, a chartered accountant, was until recently a vice-president at the NSDL, India’s first and largest depository. She will be the 12th executive director at RBI, and will serve a three-year term.

RBI has been on the look out for a CFO since May 2017 when it first advertised for the post. A foreign bank executive was reportedly selected for the post, but declined to join due to differences in remuneration.

National Securities Depository Limited (NSDL) executive Sudha Balakrishnan has been appointed the first chief financial officer (CFO) of the Reserve Bank of India (RBI) effective May 15, according to a news report.

This is the biggest organisational change since Urjit Patel took over as RBI Governor in September 2016.

Balakrishnan, a chartered accountant, was until recently a vice-president at the NSDL, India’s first and largest depository. She will be the 12th executive director at RBI, and will serve a three-year term.

RBI has been on the look out for a CFO since May 2017 when it first advertised for the post. A foreign bank executive was reportedly selected for the post, but declined to join due to differences in remuneration.

India state banks' bailout stumbles as losses mount

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When the government announced a surprise $32 billion bailout plan for the nation's state-controlled banks last October, credit rating firms and the nation's central bank saw it as a huge step to getting the industry back to robust health and lending more to businesses and consumers.

But their optimism may have been majorly misplaced judging by the latest numbers coming out of the banks. And that may in turn crimp economic growth in Asia's third-largest economy.

Thirteen state banks have reported combined losses of $8.6 billion for the year to March - including $6.5 billion in the last quarter - and their non-performing loans have surged nearly a fifth from end-December levels. Two state banks have reported modest profits and six are still to report.

While many of the banks, including top lender State Bank of India, have said the worst is probably over, they still see one or two more quarters of pain. That means more bad loans getting disclosed and loss provisions shooting up as a central bank order will cause more debt defaulters to be dragged into bankruptcy.

"The government capital is only going to just plug the hole, there is definitely no growth capital," said Udit Kariwala, an analyst at Fitch Ratings' India Ratings & Research. He said smaller state lenders with limited ability to raise capital from the market will have to curtail their lending.

The 21 state lenders hold two-thirds of India's banking assets, and accounted for the bulk of the record $150 billion of soured loans in the banking sector last year.

The banks, which have been blamed for indiscriminate lending to sectors such as metals and power that turned sour, can still be held responsible for much of the balance sheet carnage.

A more than $2 billion fraud at India's second-biggest state lender, Punjab National Bank, disclosed less than four months ago, not only left a hole but also underlined how weak the banks' grip on risk is.

Exacerbating the problems is a move in February by the Reserve Bank of India, the nation's central bank, to withdraw half a dozen loan restructuring schemes that banking experts said were helping banks to avoid disclosing dud loans. It also tightened other rules governing bad loan accounting.

In addition, the RBI this month banned Dena Bank, a loss-making smaller state-run lender, from making any new loans. Days later, Allahabad Bank, another smaller state-run lender, said it had been asked by the regulator not to increase the number of risky loans and costly deposits on its books due to its capital and leverage position

Bank analysts say more state banks could come under similar restrictions aimed at conserving limited capital. The RBI already has 11 state lenders under its "prompt corrective action" framework that restricts them from expanding.

That is not all. Capital needs will also be exposed by global banking rules fully kicking in by March 2019. They mandate banks to have a minimum core capital ratio of 8 percent, and at least six banks, including PNB are short of that number.


Under New Delhi's recapitalisation plan - aimed mainly at driving credit growth in an economy where bank loans are the main source of funding for everything from buying a car to building a port - the government has already injected about 880 billion rupees ($13 billion) into 20 banks as of end-March.

It has 650 billion rupees to inject in the current fiscal year, and the banks themselves were supposed to raise 580 billion rupees through share and asset sales.

Some, including SBI and PNB, last year raised funds from share sales, but several others have postponed such plans.

Kariwala at India Ratings estimates the banks now need 800 billion to 1 trillion rupees to fund soured-asset provisions and maintain minimum capital ratios alone, which means there will be little left from the bailout for lending growth.

Some bank analysts say the government may have to increase the size of the bailout.

Certainly, bank lending - and its impact on growth - will be on Prime Minister Narendra Modi's agenda ahead of a general election that has to be held within a year.

"Given how the stocks are doing, the nearly 0.6 trillion rupees banks need to raise looks difficult. So, the government may have to slightly increase the amount they are planning to inject," said Srikanth Vadlamani, vice president of the Financial Institutions Group at Moody's Investors Service.

Moody's said this week that PNB alone would need 120-130 billion rupees of new capital in the year to March to achieve an 8 percent core capital ratio. At the end of the last quarter it was at just 5.95 percent.


Businesses, especially the smaller ones, are already complaining of not getting the loans they want.

In February to March, lending to small businesses dropped 0.2 percent, though overall lending grew 5.9 percent.

For importers, a major channel of funding - overseas credit through letters of undertakings from Indian banks - has been shut after the PNB fraud, forcing those businesses to depend more on domestic rupee loans.

The Indian government will ensure that all state banks including the weaker ones meet the minimum regulatory capital ratio, said Rajeev Kumar, the top bureaucrat overseeing the banking sector at the finance ministry.

He also said with the planned recapitalisation some of the banks will have room to grow, while bad loan recoveries in the bankruptcy process will further aid banks' bottomlines, He said he expects the banks woes to subside in a quarter or two.

"Whenever you do the cleaning part, a bit of dust, a bit of pain, upfront is okay," said Kumar. "It's only one quarter that you have to just wait."

Subsidising petrol, diesel will be at the cost of welfare schemes, says Nitin Gadkari

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Union Minister Nitin Gadkari has said that subsidising petrol and diesel to bring down their retail prices will take money away from government’s social welfare schemes, according to an Indian Express report.

Gadkari said that the increase in oil prices is “unavoidable” as India is now linked to the global economy.

“This is an unavoidable, economic situation. It is directly linked to the global economy. If we have to sell it (petrol/diesel) cheap, it means we will have to buy it at higher prices and subsidise it here,” Gadkari told the newspaper on May 23.

“If we subsidise that, all the money from our social security schemes will vanish,” he added.

The union minister said that money may have to be taken away from irrigation schemes, free LPG for villages scheme, rural electrification project, Mudra scheme and other Central schemes.

“Now there is a health insurance scheme planned for 10 crore families. There is the crop insurance scheme. We have only a limited amount of money. So if we subsidise (petrol/diesel), toh gadbad ho jaayega [that would create issues],” he stressed.

When asked whether taxes levied on petroleum products should be cut to bring prices down, Gadkari explained, “That is the foundation of the economy. If anything has to be decided on that, our finance minister will decide.”

Gadkari stated that the government was working on increasing use of biodiesel, methanol, ethanol and electric vehicles as alternatives.

Meanwhile, petrol and diesel prices continued to soar and touched another peak on May 24. Petrol was hiked by 26 paise to Rs 85.29 per litre in Mumbai.

This is the 11th straight hike in a row. Diesel prices on the other hand, were hiked by 16 paise to Rs 72.96 per litre in Mumbai. Petrol prices in Delhi were increased by 26 paise to Rs 77.47 per litre and diesel by 15 paise to Rs 68.53 per litre.

Brent crude futures, the international benchmark for oil prices, traded above $79.47 a barrel on the ICE.

While a reduction in excise duty is being considered, the Centre is in discussion with states to cut Value Added Tax (VAT) on petrol and diesel.

Govt can reduce petrol price up to Rs 25 but won't do: P Chidambaram

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Amid rising criticism over steep hike in fuel prices, senior Congress leader P Chidambaram today claimed it was possible to cut up to Rs 25 per litre in petrol prices but the government will not do so.

In a series of tweets, the former finance minister said the bonanza to central government is Rs 25 on every litre of petrol and this money rightfully belongs to the average consumer.

"Central government saves Rs 15 on every litre of petrol due to fall in crude oil prices. Central government puts additional tax of Rs 10 on every litre of petrol.

"It is possible to cut up to Rs 25 per litre, but the government will not. They will cheat the people by cutting price by Rs 1 or 2 per litre of petrol," he said on Twitter.

More than a week after state-owned oil firms ended a 19-day pre-Karnataka poll hiatus on revising fuel prices, petrol and diesel rates have touched record highs.

Petrol costs Rs 76.87 per litre in Delhi and diesel costs Rs 68.08 a litre. In the last nine days, petrol price has risen by Rs 2.24 a litre and diesel by Rs 2.15.

Rates vary from state to state depending on the incidence of local sales tax or VAT. The prices in Delhi are the cheapest among all metros and most state capitals.

The central government levies Rs 19.48 a litre of excise duty on petrol and Rs 15.33 per litre on diesel.

State sales tax or VAT varies from state to state. Unlike excise duty, VAT is ad valorem and results in higher revenues for the state when rates move up.

In Delhi, VAT on petrol was Rs 15.84 a litre, and Rs 9.68 on diesel in April. Now, it is Rs 16.34 on petrol and Rs 10.02 a litre on diesel.

Every rupee cut in excise duty on petrol and diesel will result in a revenue loss of Rs 13,000 crore.

The government had raised excise duty nine times between November 2014 and January 2016 to shore up finances as global oil prices fell, but then cut the tax just once in October last year by Rs 2 a litre.

Subsequent to that excise duty reduction, the Centre had asked states to also lower VAT. Just four of them -- Maharashtra, Gujarat, Madhya Pradesh and Himachal Pradesh -- reduced rates while others including BJP-ruled ones ignored the call.

In all, duty on petrol rate was hiked by Rs 11.77 per litre and that on diesel by 13.47 a litre in those 15 months that helped governments excise mop up more than double to Rs 2,42,000 crore in 2016-17 from Rs 99,000 crore in 2014-15.

BNPM gets green nod to increase bank note paper production

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The government's Bank Note Paper Mill India (BNPM) has received green signal to increase the production of bank note paper at its Mysuru unit in Karnataka from 12,000 tonnes per annum (TPA) to 16,000 TPA. BNPM is a jont venture of Bharatiya Reserve Bank Note Mudran (BRBNMPL) and Security Printing and Minting Corporation of India (SPMCIL).

The company had sought environment clearance (EC) for increasing the bank note paper production from 12,000 TPA to 19,000 TPA without adding any machinery and pollution load.

"The Environment Ministry, however, gave the EC for raising the production up to 16,000 TPA after taking inputs from the expert committee," a senior government official said.

The approval is subject to compliance of certain conditions including developing greenbelt in 33 per cent of the project area.

BNPM presently has developed greenbelt in 8.5 acres out of the total area of 41 acres. The expert panel of the ministry, however, has observed that the plantation being developed was not as per the Central Pollution Control Board (CPCB) norms, the official added.

The BNPM's unit at Note Mudran Nagar in Mysuru has a state-of-art machinery imported from Germany and other European countries. Raw material used for manufacturing of currency paper is 100 per cent cotton sourced from neighbouring countries.

Rise in crude prices poses risk to India's current account deficit: Report

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Crude oil prices may rise further in the coming months, following which India's current account deficit will be around 2.4 percent in 2018-19, says a Goldman Sachs report. According to the global financial services major, the rise in international crude prices poses risks to India's current account deficit.

"Our commodities team expects oil prices to continue to rise over the course of this summer, before moderating slightly at the end of the year. We recently increased our 2018-19 current account deficit (CAD)forecast to 2.4 percent of GDP (from 2.1 percent of GDP earlier)," Goldman Sachs said in a research note.

CAD widened to 2 percent or USD 13.5 billion in the October-December quarter of 2017, up from 1.4 percent, or USD 8 billion, in the corresponding period a year ago.

Globally, brent broke through the USD 80 a barrel mark yesterday for the first time since November 2014.

"The recent spike in oil prices following the withdrawal of the US from the Iran nuclear deal poses additional upside risks to our headline inflation forecast. We estimate that a 10 percent increase in crude oil prices leads headline inflation to rise by 10 basis points," the report noted.

Goldman Sachs forecasts 2018-19 headline CPI inflation to average 5.3 percent.

On RBI's policy stance, the report said, a more hawkish stance by the central bank is likely following a weaker currency (the rupee has depreciated by 6.6 percent against the US dollar year-to-date) and concerns over a rising current account and fiscal deficit.

The Reserve Bank will announce its second bi-monthly monetary policy on June 6.

"We expect RBI to keep policy rates on hold at its meeting on June 4-6, but shift to a hawkish tone," it noted.

The first bi-monthly monetary policy meeting of 2018-19 was held on April 4-5 and the panel had decided to maintain status quo on the interest rate citing inflationary concerns.

Private sectors of India, US and Japan have key role in development of Indo-pacific: Official

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The private sectors from India, the US and Japan have a key role to play in the development of infrastructure in the Indo-Pacific which has "vast opportunities" for the companies of the three countries to be the "pioneers" in the region, a senior American diplomat has said.

Acting Deputy Assistant Secretary for South Asia Thomas Vajda said the private sector played a central role in developing the connectivity and networks that promote prosperity.

Vajda welcomed the recent initiative of US Chambers of Commerce to create Indo-Pacific Infrastructure Trilateral Forum, which brings together private sector companies from India, the US and Japan for building infrastructure in the region.

"In addition to the work of governments, it is essential to remember the central role the private sector plays in developing the connectivity and networks that promote prosperity and bring us closer together," Vajda told PTI.

"There are vast opportunities for our companies to be pioneers in this area," he said after US India Business Council (USIBC) and US Japan Business Council (USJBC) the two international wings of US Chambers of Commerce - launched Indo-Pacific Infrastructure Trilateral Forum early this week.

"We are grateful that USIBC and USJBC are leading the charge by hosting engagements such as the Indo-Pacific Infrastructure Trilateral Forum, which help support quality, best value, and sustainable infrastructure development in the Indo-Pacific region," he said.

As one of the primary architects of the region's security and economic systems, the US has a strong interest in seeing the Indo-Pacific continues to thrive, Vajda said.

"We firmly believe that upholding a free and open Indo-Pacific begins with working alongside our like-minded partners to ensure the freedom of the seas and skies, promote market-based economics, support good governance and liberty and insulate sovereign nations from external coercion," he said.

"We remain committed to this region because its success is, and has always been, collectively, our success," he said.

Recognising the massive and pressing need for infrastructure investment in the Indo-Pacific, the State Department in February hosted delegations from Japan and India in Washington for an inaugural Trilateral Infrastructure Working Group meeting, he added.

Subsequently, the Acting Assistant Secretaries from the South Asian and East Asian Bureaus travelled to New Delhi in April for a successful US-India-Japan Trilateral Dialogue.

First crude oil cargo from Abu Dhabi departs for Mangalore's strategic crude oil reserve

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The first consignment of 2 million barrels of crude oil from the UAE for India's strategic petroleum reserve at Mangalore is en-route to India and will help it deal with supply side disruptions, Minister for Petroleum and Natural Gas Dharmendra Pradhan has said.

The cargo is the first under an agreement between Abu Dhabi National Oil Company (ADNOC) and the Indian Strategic Petroleum Reserves Ltd (ISPRL), an Indian government-owned company mandated to store crude oil for strategic needs.

The loading of approximately 2 million barrels of ADNOC crude oil was witnessed by Pradhan and Sultan Ahmed Al Jaber, UAE Minister of State and ADNOC Group CEO, at a ceremony in Abu Dhabi yesterday.

Speaking on the occasion, Pradhan said: "The UAE is the first country to invest in India's Strategic Reserves Programme. This important partnership will further strengthen the close energy cooperation that exists between India and the UAE and builds on the historic acquisition of a stake in the Lower Zakum offshore concession by Indian companies."

In February, ONGC Videsh Ltd and its partners had acquired a 10 percent in the Lower Zakum offshore oilfield in Abu Dhabi for USD 600 million.

"The strategic reserve will provide a boost to India's energy security and help us deal with supply side disruptions. While part of the stored oil will be used for commercial purposes by ADNOC, the major part will be purely for strategic purposes.”

Al Jaber said that the strategic reserve project represents an important new energy partnership with India that leverages the UAE and ADNOC's expertise and oil resources. "With this partnership, new market opportunities will open up for ADNOC, as we not only help to ensure the energy security of the UAE's largest trading partner, but also gain greater access to one of the fastest-growing markets for high-quality crude oil. Our increased presence in India, will also catalyse demand for our own refined and petrochemical products," he said.

Indian energy demand is forecast by the International Energy Agency (IEA) to grow by more than any other country in the period to 2040, propelled by an economy that will grow to more than five-times its current size and by population growth that will make it the world's most populous country.

India's energy consumption is expected to more than double by 2040, accounting for 25 per cent of the rise in global energy, and the largest absolute growth in oil consumption.

India is 82 per cent dependent on imports to meet its crude oil needs, eight per cent of which is supplied by the UAE.

NINL records highest ever pig iron production

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Neelachal Ispat Nigam Limited (NINL) has recorded its highest ever single-day pig iron output since its inception with production of 2,772 ton of pig iron on May 12.

The Kalinga Nagar-based integrated steel plant, with production of 2,965 ton of hot metal on the same day, also recorded its highest ever single-day hot metal production since its inception in 2002, a company release said.

The earlier highest single-day pig iron production of 2,605 ton had been achieved a day before on May 11, 2018, while the previous best hot metal production at 2801 ton was recorded on October 26, 2009, the release said.

Vice-Chairman and MD of NINL S S Mohanty has congratulated the NINL collective for the feat.

The NINL aims to produce more than 3,000 ton hot metal per day and has immediate plans to resume steel billet production with maximum capacity utilization of the steel melting shop.

The NINL has lined up several activities this financial year to strengthen its bottom line which includes steel billet production and operations of its captive mines.

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