Photo: PTI
Photo: PTI

Narendra Modi in China, Jayalalithaa’s acquittal and a pricey Picasso

Modi's visit results in agreements on security, trade; HC clears path for Jaya's return as CM; and a Picasso painting fetches $179 mn at Christie's

1. Modi goes to China

India and China have decided to increase the number of meeting points for soldiers guarding their undemarcated frontier and set up a task force to look into ways to reduce India’s ballooning trade deficit—two key irritants in ties between the Asian giants. They also signed two dozen agreements in areas ranging from education to railways as Narendra Modi visited China for the first time as prime minister. Economic courtship remains at the top of Modi’s agenda as China is India’s biggest trading partner.

2. Parliament clears black money bill

Parliament passed the black money bill last week with rules likely to provide a 60-day window for offenders to come clean. Those declaring unaccounted income or assets will have to pay a flat 30% tax and a similar penalty in return for not being prosecuted. The new law will not cover those having amounts equivalent to up to Rs5 lakh in bank accounts abroad. According to a Global Financial Integrity report released in 2013, India ranks fourth among developing nations in terms of illicit money flows as a percentage of gross domestic product.

3. CPI, industrial production growth falls

Both consumer price inflation and industrial production (IP) numbers released last week trended lower. The IP numbers owed a lot to the fall in consumer goods demand. A cutback in the rural jobs programme spending, smaller rises in the support prices for crops and unseasonal rains that have compounded rural distress have led to lower rural demand. With wholesale prices contracting and other indicators such as purchasing managers’ indices pointing to a deepening downturn in manufacturing, there is a rise in the chorus of calls for the Reserve Bank of India (RBI) to cut rates.

4. The decline and fall of the overvalued rupee

India is a lot less vulnerable on the external front now when compared to 2013. Yet, there are enough factors to pummel the local currency—higher oil prices, foreign investor pullout and an imminent increase in US interest rates. To top it all, the rupee is overvalued when seen through the lens of the real effective exchange rate, which is the weighted average of a country’s currency relative to a basket of currencies of its trading partners adjusted for inflation. Thus, the fall may, in fact, be welcome.

5. Indian equities hit as money moves to China

Indian equities have plunged the most among emerging markets since March because of over-ownership by foreign investors. Money has been moving to commodities and other equity markets, such as China, that have started performing well. Corporate earnings and industrial production numbers are pointing to a delayed economic recovery. With cash market volumes down, trading on thin volumes has heightened market movement and increased volatility. That can be seen from the crazy swings of the market throughout last week.

6. Bad loans situation may not have peaked: RBI

Indian banks may not have yet seen their bad loans peak, warned RBI governor Raghuram Rajan. His comment comes after rating companies Crisil Rating Ltd and Moody’s Investors Service warned of more pain for the Indian banking system. Crisil on Tuesday said the gross bad debt of the banking system will likely rise to 4.5% of total assets from 4.3% at the end of March. One resolution to this, Rajan said, is through higher economic growth.

7. Cabinet approves changes to child labour act

The cabinet last week approved a ban on employment of children below 14 years, introducing a caveat that these children can pursue non-hazardous family businesses. The government says this step has been taken to encourage learning at home as it can lead to entrepreneurship, but only if the children’s education wasn’t being hampered. In addition, children between 14 and 18 years of age will not be allowed to work in hazardous industries.

8. Centre nod for share sales in NTPC, IOC

The Cabinet Committee on Economic Affairs has approved the sale of shares in state-run oil refiner Indian Oil Corp. and power producer NTPC Ltd as part of its plan to raise Rs69,500 crore from asset sales this financial year. So far, the government has been able to raise only about Rs1,592 crore after offloading a 5% stake in Rural Electrification Corp. last month. In 2014-15, the government raised Rs31,350 crore through disinvestment, just about more than half its target of Rs58,425 crore. The planned share sale, which could fetch close to Rs14,000 crore at current market prices, is critical for the government to narrow its fiscal deficit.

9. Karnataka high court clears Jayalalithaa

The Karnataka high court has cleared former Tamil Nadu chief minister J. Jayalalithaa in the disproportionate assets case. According to its calculations, assets exceeded income by only 8.12% and therefore weren’t disproportionate. But the controversy around the case is far from over. Opposition parties and the Bharatiya Janata Party’s Subramanian Swamy and the prosecutor, B.V. Acharya, have said there were “arithmetic errors" in the high court’s calculations that led to the acquittal.

10. Picasso painting sets record at art auction

Pablo Picasso’s Women of Algiers (Version O) set a record at the Christie’s art auction in New York last week, selling for $179 million. This makes it the third most expensive painting ever sold in the world, with the record set by a Paul Gauguin work at $300 million sold earlier this year. The latter was a private sale, in which prices are difficult to verify. The most expensive painting by an Indian artist sold at an auction in 2013 was V.S. Gaitonde’s untitled work, pegged at $3.7 million.

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