RE: [IAC#RG] Indian investment in US Bonds

27/8/14

Dear Mr. Nair,

The concerns raised by you are very legitimate but we have to keep in mind the following realities-

1.Indian currency has never been and will not be a major currency in international finance.

2. We have no strength in exporting manufactured goods as China has.Our strength is only in human resource related

 services. We could be strong in 

agri. based products specially Spices but we have no surpluses. Today no body can compete with China. We are stuck at about 300 B. exports. China,s  trade with India is highly lopsided and selectively in favour of China.

3.Foreign loans and investment-As you know treasury bills of US and European countries except countries like Spain greece and to some extent Italian are available at a very low return. But you cant risk investing in high risk countries.

For countries like Germany ,Switzerland and france their own currencies are so strong.

About foreign loans I forgot mention about the loans raised by Corporate sector.It is increasing at a very high rate after the Indian Companies have been allowed to raise foreign currency loans and invest in acquiring foreign

 companies.The Corporate sector has found it convenient to acquire companies rather than make efforts to export goods from India. At some stage it could get  mixed up with foreign currency holdings in foreign banks.The RBI has to keep a close watch on corporate loans.

4.NRI deposits-I agree that if the NRI get 3% in European Bank India should pay upto%5 as fair inducement. But after the foreign currency withdrawl from Stock exchanges and real estate, the rupee came under pressure and inspite of RBI limited interventions, the slide could not be arrested .So the RBI had to increase the deposit rate, I personally would not attribute this to a wrong [olicy of the RBI or its Governor. Regds/JKGaur 

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Date: Tue, 26 Aug 2014 10:43:05 +0530
From: pavannair1@gmail.com
To: indiaresists@lists.riseup.net
Subject: Re: [IAC#RG] Indian investment in US Bonds

Dear Shri Gaur,

    Thank you for your inputs. Entirely agree that the internal debt is a huge burden and most of the borrowing which is about 5 lakh crores goes to pay the interest on the debt. The point I was trying to make was why should a poor and indebted country like India invest 3.5% of its GDP at near zero interest rates when we are borrowing at much higher rates. Indian investment in these bonds exceeds that of several developed countries like France, Canada and Germany. The prudent course would be to reduce borrowing at high rates as also the investment in low yield bonds. Several countries including China have sovereign funds which can be used to finance projects abroad or make investments in markets or commodities. As far as NRIs are concerned, they earn around 2% in deposits abroad so an incentive of say another 2% would have been more than enough to attract investment. This was the norm till a few years ago. Why the sudden generosity to hike rates to be repatriated in foreign exchange and tax free to boot. If an NRI has made his first million dollars, he can put up his feet and retire on an income of 90,000 dollars a year thanks to 'Save India' bonds or whatever they are called. The way to go would be to hike exports like China and reduce imports specially of defence equipment. But that is another story. Pavan Nair 

On Sun, Aug 24, 2014 at 1:47 PM, Gaur J K <gaurjk@hotmail.com> wrote:

24/8/14

Dear Sirs,

Foreign reserves- consist of gold holdings and foreign currency Assets including SDRs. Gold reserves about 260 m.tons. If RBI has invested 70/80 millions in US treasury it is reasonable since our currency is primarily linked to USD> and as you said there cant be  MORE SECURE PLace for parking part of your reserves in US treasury bills. If you consider the investment by Chine haVING TEN TIME OF OUR RESERVES OF MORE THAN 3 TRILLIONS. Chinese were trying to invest in some industries there but the US refused on the ground of strategic industries. Also consider the reserves of Middle Eastern Rulers like Saudi,Kuwait and quatar and others.In short US inspite of being the most indebted country contiues to enjoy unprecedented prosperity on other peoples money and also retains the right to freeze them as it was done in case of Iran.

2.Foreign loans- consists of loans by multilateral agencies, Govt. to Govt., long term and short term and raised by private sector. Most 

of loa ns of multilatral and  bilateral are on concessional rates and long repayment tenure. Since Annual obligation to pay is only about 20/25 billion,the country can afford to pay without any defficulty. In fact the Govt. did  prepay some small loans to european countries who were being difficult. We have come a long way from the specctre of default we faced in late seventies.

3. Exchange rate- depreciation has been occuring since 1967 when Indira Gandhi went to US for Assistance for food grain which was given with two conditions-

Depreciate the rupee by 23/24% and keep the mouth shut on action in Vietnam. The recent depreciation from 2010 onwards has been in spurts-the latest being in Nov.2013 when the rupee felt to almost 68 to a Dollar. Among the various reasons there could also be US overst pressure to open the retail marketing sector and nuclear reactor business. Now the RE hS STABLISHED AT ABOUT 59/60 WHICH IS CONSIDERED TO BE FAIR FOR THE EXPORTS AND ALSO in hibiting imports.

4. NRI deposits- are strictly not in the nature of loan and their rates have been changing from time to time. We get highest foreign remittances which helps in narrowing the gap between export/import earnings. But honestly, when we are getting 9% on our domestic deposits, why should we grudge the same to NRIs. Why this bias?

In my opinion more worrisome is the domestic indebtedness of the Govt. which is increasing every year and eats away 40% of Govt. revenue as interest  charges. The so called stimuls package of 2008-09 and high deficit financing   

Date: Thu, 21 Aug 2014 16:46:46 +0530
From: sroy.mb@gmail.com
To: indiaresists@lists.riseup.net
Subject: Re: [IAC#RG] Indian investment in US Bonds

Dear Pavan
 
4 words spring to mind.
(A) PONZI
(B) Ever-Greening
(C) Leverage
(D) Corruption
 
Probably RBI is doing in USA what banks like SBI, Syndicate Banks and
  all are doing in India. Its the old scheme of bank skimming, deposit
20% with me at (cheap rates) and I'll keep giving you loans upon loans
upon loans (so long as I keep getting my kickbacks) - Kingfisher,
Bhushan Steels, Pramod Mittal,
   
Experts like Ms Sucheta Dalal etc may have further details
 
Sarbajit
 
On 8/21/14, pavan nair <pavannair1@gmail.com> wrote:
> Thanks Sarbajit. The money could be used to retire government debt on which
  > much higher rates are being paid. Does it make sense if you owe 80 billion
> dollars (the approximate amount of the government debt besides NRI deposits
> of 100 billion dollars) and are paying about 6% interest, to deposit 73
  > billion dollars in US treasuries which yield less that 2% interest. The NRI
> deposit scheme needs to be revised and rates lowered as well as interest
> taxed. If I as a resident Indian am being paid the same interest and taxed,
  > I do not see why NRIs should not be taxed. In fact they should volunteer to
> pay tax since voting rights are also being given. Pavan Nair
>
>
> On Thu, Aug 21, 2014 at 8:31 AM, Sarbajit Roy <sroy.mb@gmail.com> wrote:
  >
>> Dear Pavan
>>
>> I have no inputs on this. Since 2010 the IN Rupee has depreciated by
>> 35% against major currencies. INR has been the worst performing major
>> currency. RBI has probably prudently moved our FOREX reserves into the
  >> safest place it can find :-)
>>
>> NRI's being NRIs, GoI can probably refuse to pay them when the shit
>> hits the fan.
>>
>> Sarbajit
>>
>> On 8/19/14, pavan nair <pavannair1@gmail.com> wrote:
  >> > Dear Sarbajit,
>> >
>> >      I came across a report in the Economic Times of today regarding
>> > the
>> > subject. Here is the link.
>> >
>> >
  >> http://economictimes.indiatimes.com/news/economy/finance/india-among-top-16-lenders-to-us-as-bond-investments-hit-73-billion-in-june/articleshow/40382761.cms
  >> >
>> > I find it inexplicable that we have been borrowing money from NRIs at
>> rates
>> > OF up to 9% per annum for NRO/NRE accounts and lending money to the US
>> > government in the form of US treasuries at very low rates of about 2%.
  >> The
>> > lending to the US has increased by 19% in the last financial year. The
>> > external debt stands at 440.6 billion dollars as on 31 March 2014 and
>> > has
>> > risen substantially primarily on account of increased NRI investment
  >> which
>> > stands at 103.8 billion dollars. The reserves are at about 320 billion
>> > dollars which includes the NRI borrowing. This amounts to a loss of
>> > taxpayer money since we need to buy dollars at existing market rates to
  >> > payout the interest to NRIs. There seems to be an arrangement with the
>> > US
>> > government in return for something unknown, otherwise why should a poor
>> and
>> > indebted country like India lend more to the US than developed
  >> > countries
>> > like France, Canada and Germany. We need to retire debt so that debt
>> > servicing which is at about 25 billion dollars per annum can be
>> > reduced.
>> > May I request you and through you, other members of the list for their
  >> > views as also what action can be taken. Has the Governor RBI got the
>> > authority to invest or is it a Cabinet decision. Regards. Pavan Nair
>> >
>>
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>

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