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<br /> <keyword id="6358908" type="PERSON" weightage="20" keywordseo="Raghuram-Rajan">Raghuram Rajan</keyword> is one name that we only heard of when the Reserve <keyword id="6355303" type="CITY" weightage="20" keywordseo="Bank-of-India">Bank of India</keyword> policies and cuts were being discussed. But today, he is in news for some other reason, which is the threat email that the <keyword id="64190" type="POSITION" weightage="20" keywordseo="RBI-Governor">RBI governor</keyword> has received on his personal email id. <br />
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	A top Home Department official told PTI, “RBI Governor Raghuram Rajan has received a threatening e-mail following which his security has been stepped up.”<br />
	 

	"The said letter was received a few days back. We have taken note of it and the RBI Governor's security has been beefed up," Maharashtra's Additional Chief Secretary (Home) K P Bakshi told PTI.<br />
	 

	While the content of the email hasn’t been revealed yet, but speculations doing round suggest that it could also be a mischief by someone. 

	The cyber crime investigation cell of police is looking into the matter and trying to trace the origin of the e-mail, the PTI report further added.  

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	(Image credits: itimes.com)

Is Raghuram Rajan’s life in danger? Cyber Cell is investigating the case

<em><sup>(Image source- Reuters)</sup></em><br /><br />The rumours had been swirling for the past few months. The governor was on his way out. <br /><br />The Reserve Bank of India (<keyword id="30067" type="ORGANIZATION" weightage="20" keywordseo="RBI">RBI</keyword>) and India’s central government, aiming for a big play before general elections next year, had been at loggerheads over a number of things: the RBI’s surplus reserves, credit to small businesses, the stringency of the Prompt Corrective Action framework, the governance of state-owned banks and special funding for non-banking financial lenders.<br /><br />Caught in the crossfire were the governor of the central bank, <keyword id="6375119" type="PERSON" weightage="20" keywordseo="urjit-patel">Urjit Patel</keyword>, and his deputy, <keyword id="6374379" type="PERSON" weightage="20" keywordseo="viral-acharya">Viral Acharya</keyword>. The latter was more <a href="https://www.bloombergquint.com/business/amidst-battle-on-three-fronts-rbis-acharya-puts-the-spotlight-on-central-bank-independence">outspoken</a> about the threats to the RBI’s independence when it came to making decisions about the economy. Meanwhile, the former maintained a dignified silence that characterised his two-year tenure, which commenced shortly before the <keyword id="6354642" type="PERSON" weightage="20" keywordseo="Modi">Modi</keyword> administration’s demonetisation initiative in November 2016.<br /><br />When Patel announced his resignation yesterday, citing the obvious “personal reasons,” it took everyone by surprise, not least of all India’s <a href="https://www.business-standard.com/article/finance/jaitley-was-told-of-urjit-patel-s-decision-to-quit-only-minutes-in-advance-118121001081_1.html">Finance Minister</a>. After a compromise of sorts was reached between the two parties last month, it was widely expected that he would stay on as the head of India’s central bank. It wasn’t to be. <br /><br />The announcement is timely, as it came a day before the results of elections in five states were unveiled, with the ruling party expected to face a number of upsets. <br /><br />It is also significant, as it lays to rest the debate over the Modi administration’s propensity to wield undue pressure and influence over the country’s institutions and regulators. <br /><br />The independence of a central bank is sacrosanct in a democratic country. Patel felt it was in his best interest to resign rather than implement decisions that would hurt India’s economy. His resignation, as viewed by his predecessor <keyword id="6358908" type="PERSON" weightage="20" keywordseo="raghuram-rajan">Raghuram Rajan</keyword>, is an <a href="https://economictimes.indiatimes.com/markets/expert-view/urjit-patels-resignation-should-be-seen-as-a-note-of-protest-raghuram-rajan/articleshow/67027008.cms">“act of protest”</a>.<br /><br />From the Election Commission to the Supreme Court to the Central Bureau of Investigation (CBI), the Modi administration has made its presence felt across most of the country’s statutory institutions. It has systematically undermined them in order to achieve its own aims - a charge it routinely levelled on the previous administration - and has decided against fostering a political environment that encourages disagreement. <br /><br />In a heartening sign, however, the pushback has been evident, whether its four SC judges holding a press conference to declare a conflict of interest over the Chief Justice’s allocation of cases or the CBI Director Alok Verma deciding to take special director Rakesh Asthana, a favoured pick of the current administration, off certain politically sensitive investigations. <br /><br />As it searches for Mr Patel’s successor over the next few weeks, the government will have to weather the financial fallout of such a move and could be forced to give in to the RBI’s demands. Moody’s, a ratings agency, has termed the government’s attempts at interference as <a href="https://www.thehindu.com/business/Economy/curbing-rbi-freedom-is-credit-negative/article25712901.ece">“credit negative”</a>. Markets will be roiled and investors will be wary as uncertainty over the RBI’s short-term mandate persists. Acharya is expected to stay on, which will instill a measure of confidence.<br /><br />As the Modi administration deals with a loss of public faith, it now has the gargantuan task of proving that it can respect the decision-making capacity of these bodies, especially one that is responsible for ensuring India’s financial stability. Thankfully, everyone will be watching closely. <br /><br /><br /><br />SEE ALSO:<br /><br /><a href="https://www.businessinsider.in/reserve-bank-of-india-governor-urjit-patel-resigns-citing-personal-reasons/articleshow/67026294.cms">Reserve Bank of India governor Urjit Patel resigns citing ‘personal reasons’</a><br /><br /><a href="https://www.businessinsider.in/after-weeks-of-tension-the-reserve-bank-of-india-gives-in-to-some-of-the-central-governments-demands-while-retaining-its-independence/articleshow/66705908.cms">After weeks of tension, the Reserve Bank of India gives in to some of the central government's demands while retaining its independence</a><br /><br /><a href="https://www.businessinsider.in/the-spat-between-indias-central-bank-and-the-government-gets-more-heated-as-the-finance-minister-blames-it-for-not-doing-enough-to-prevent-the-countrys-bad-loan-problem/articleshow/66442846.cms">The spat between India’s central bank and the government gets more heated as the finance minister blames the RBI for not doing enough to prevent the country’s bad loan problem</a><br />

The resignation of the governor of India’s central bank sends a clear indication about the erosion of institutional autonomy under the Modi administration

<keyword id="6369970" type="UNKNOWN" weightage="20" keywordseo="PSU-Banks">PSU banks</keyword> have seen an unprecedented fall in share value since August 2015, recording a decline of more than 30 per cent in over five months.<br />
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Of course, this has been contributed by the overall investor pessimism in equity markets, triggered by the rout across global markets as the once bellwether Chine stumbled, sending tremors across the globe, and the Federal Reserve raised interest rates after a prolonged gap of over 10 years, leading to capital outflow from emerging markets.<br />
<br /> However, the larger trigger was an astronomical rise in non-performing assets (NPAs) or <keyword id="142154" type="UNKNOWN" weightage="20" keywordseo="bad-loans">bad loans</keyword>.<br />
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The following numbers will give a perspective as to how big the bad loan conundrum is.<br />
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As per the latest quarterly results, the cumulative gross NPAs of 24 listed public sector banks stood at Rs 3,93,035 crore as on 31 December 2015.<br />
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This is nearly 1.5 times their total market value, which stands at Rs 2,62,955 crore. In comparison, the gross NPA of 16 listed private sector lenders stood at Rs 46,271 crore as on 31 December 2015 against their total market value of over Rs 7 lakh crore. Taken together, the cumulative gross NPAs of all listed banks—public and private—has risen to Rs 4.4 trillion, while their total market value stands at Rs 9.6 trillion.<br />
<br /> A loan turns bad if the borrower fails to pay EMI consecutively for three months or 90 days. In other words, <keyword id="6370634" type="UNKNOWN" weightage="20" keywordseo="bad-debt">bad debt</keyword> is debt that cannot be recovered and therefore, worthless to the creditor. It can also be a loan wherein the cost of pursuing the debt is more than the amount a creditor can recover. Overall, till end if December, loans worth over Rs 7 lakh crore went under stress, which means borrowers have not repaid the principal or the interest on loans amounting to such a huge number.<br />
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NPAs that have been rising over the years started raising the ugly head during the UPA regime whose inability to monitor and control bad loans contributed handsomely to the crisis, in addition to the spill-over effect of mounting corruption adding to banks’ woes as banks officials inspired by the increasing channels of kickbacks turned a blind eye to due diligence processes while allocating seeming big loans to sub-prime or less financially qualified borrowers. <br />
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Rising bad loans that sent an alarm towards the fag end of the UPA regime made a much stronger come-back following an initiative by the Reserve Bank of India (RBI) wherein the central bank as part of an asset quality review shed light on several weak accounts, most of which have exposure to the infrastructure sector. <br />
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RBI has set March 2017 as deadline for banks to clean up their balance sheets, forcing them to promptly disclose NPAs, take remedial measures and make adequate provisions in their financial statements. As banks started cleaning up their books, more unwelcome skeletons began to tumble out of their cupboards, revealing the hitherto hidden spectre of really bad debt.<br />
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Banks’ latest quarterly results exposed the extent of damage: IDBI Bank recorded the next biggest loss at Rs 2,184 crore, followed by Bank of India at Rs 1,505 crore, UCO Bank at Rs 1,497 crore, Indian Overseas Bank at Rs 1,425 crore, Central Bank of India at Rs 837 crore and Dena Bank at 663 crore.<br />
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Also, the Supreme Court recently directed RBI to provide a list of companies that have defaulted on bank loans of over Rs 500 crore, while expressing serious concern over the rise in bad loans. The apex court also asked the central bank to provide a list of companies whose loans have been restructured under corporate debt restructuring schemes.<br />
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Surprisingly, shares of PSU banks started declining, reflecting increasing investor mistrust, after the Narendra Modi-led NDA government announced 'Indradhanush', a revamp plan, to infuse Rs 70,000 crore in public sector banks over four years, while banks on their part will have to raise a further Rs 1.1 lakh crore from the markets to meet their capital requirements in line with global risk norms Basel III. In fact, stocks of public sector banks have been one of the worst performers at the bourses over the past six months after Indradhanush was announced.<br />
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Rising NPA levels are so huge that for every Rs 100 parked in shares of public sector banks, investors now carry the burden of Rs150 as bad loans.<br />
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Eroding value of banking stocks has the potential of leaving a larger hole in confidence of global investors in the Indian economy which has already been tarnished by the government’s inability to push forward key reforms.<br />
<br /> Also, despite assurances from those who matter—while <keyword id="1895647" type="ORGANIZATION" weightage="20" keywordseo="RBI-Governor-Raghuram-Rajan">RBI governor Raghuram Rajan</keyword> said the clean-up exercise will lead to stronger balance-sheets for banks, <keyword id="6391015" type="UNKNOWN" weightage="20" keywordseo="Finance-Minister-Arun-Jaitley">Finance Minister Arun Jaitley</keyword> said the NPA problem will soon come under control—rising volume of bad loans, especially that of PSU banks, is threatening to snowball into a larger crisis that can pose a clear systemic risk to the Indian economy, especially going by how the sub-prime debt build-up battered the bellwether banking firms in a mature market like the US a few years back. It is high time the finance ministry and RBI resorted to out-of-the-box measures to defuse the bad loan bomb that is ticking pretty fast.<br />
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(Image: Thinkstock)<br />

Why bad loans can pose a systemic threat

<strong><br /></strong><ul><li><strong>A former court staff has accused <keyword id="45053" type="POSITION" weightage="20" keywordseo="Chief-Justice-of-India">Chief Justice of India</keyword> <keyword id="245445" type="PERSON" weightage="40" keywordseo="Ranjan-Gogoi">Ranjan Gogoi</keyword> of making sexual advances at her in his home office, according to a report.<br /></strong></li><li><strong>The appellant has also alleged that she was dismissed when she resisted and that her family members were targeted thereafter.<br /></strong></li><li><strong>Supreme Court of India assembled a special bench, including CJI Gogoi, to hear the case on Saturday.</strong></li></ul>The Chief Justice of India (CJI), Ranjan Gogoi, has been accused of sexual harassment by a former staff, <a href="https://scroll.in/article/920678/chief-justice-of-india-sexually-harassed-me-says-former-sc-staffer-in-affidavit-to-22-judges">according to a report by Scroll</a>. In the wake of this shocking allegation, the Supreme Court of India assembled a special judges’ bench on Saturday (April 20), which CJI Gogoi was also a part of.<br /><br />A former court officer who worked from Gogoi’s home office between August and December 2018 has accused the CJI of making sexual advances adding that when she resisted, she was unceremoniously terminated. In an affidavit, the 35-year old woman has also alleged that even her family members were targeted and harassed after her dismissal.<br /><br />The registrar’s note said that the special hearing was scheduled on a “matter of great public importance touching up on the independence of the judiciary.” Solicitor General Tushar Mehta prodded the Bench to register a complaint in his name but the court refrained for the time being and asked to media to show restraint, responsibility and wisdom so that the independence of the judiciary is not affected by baseless allegations.<br /><br />
  
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<br />“They cannot catch me on money, so they have brought up this. This is the reward a CJI gets after 20 years and a bank balance of 680,000. Independence of judiciary is under very serious threat. I had to tell this from the judicial seat", <a href="https://barandbench.com/live-updates-from-sc-sexual-harassment-allegations-cji/">CJI Gogoi reportedly said</a> in his defence citing that he had less than ten hours to present his defence.<br /><br />Ranjan Gogoi was one of the four judges who came out in an unprecedented press conference in January 2017 protesting against the then CJI <keyword id="6355251" type="PERSON" weightage="20" keywordseo="dipak-misra">Dipak Misra</keyword>. In a letter, four senior judges had said that “there have been instances where cases having far reaching consequences for the nation and the institution have been assigned by the chief justices of this court selectively to the benches ‘of their preference’ without any rationale basis for such assignment.” Gogoi signed off on the letter saying,“it’s a discharge of debt to the nation which we have done.” <br />

India’s chief justice is faced with a shocking sexual harassment charge-- and the Supreme Court just held a special hearing on a Saturday

<ul><li><strong>Myth 1: India’s household savings are strong enough.</strong></li><li><strong>Myth 2: Indians factor in inflation while choosing investments.</strong></li><li><strong>Myth 3: Further interest rate cuts will spur consumption and savings.</strong></li></ul>The biggest myth of all myths in India is that a person may decide to buy a home or a car just because the <keyword id="6354335" type="ORGANIZATION" weightage="20" keywordseo="reserve-bank-of-india">Reserve Bank of India</keyword> (RBI) has cut interest rates by 25 basis points or 50 basis points. The fact is a person buys any discretionary item like a home or a car only when he or she has enough savings, borrowing capacity, and reasonable certainty about the future.<br /><br />Right now, Indian households are running short of all three as visible in the <a href="https://www.businessinsider.in/job-cuts-at-parle-and-britannia-sales-show-indian-economy-is-in-dire-straits/articleshow/70766429.cms">slowing sales of homes, cars, and even items of daily use</a>. Amidst rampant unemployment and slow wage growth, people are eating into their savings and this is dangerous.<br /><br />Slowdown in consumption has been sharper in the last nine months despite <a href="https://www.businessinsider.in/rbi-cut-interest-rates-by-35-basis-points-as-growth-sputters-and-inflation-cools/articleshow/70565859.cms">four interest rate cuts by the RBI</a>, though much of it has not been passed on by the banks. If monetary stimulus was enough, there would be signs of improvement in the economy or the sentiment but there aren’t any. <br /><br />
	
	
	
	
	
	
	
	
	
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<br />On the contrary, lending rates are coming down and so are deposit rates-- and that hurts households directly. Therefore, another interest rate cut may not be the answer to rev up the sluggish economy and household consumption. The calls for further interest rate cuts are based on certain myths.<br /><br /><strong>Myth 1: India’s household savings are strong enough<br /></strong><br />It has been true for decades that Indian households have saved for a rainy day and it is often these savings have been a shield during dire economic crises in the past. However, that is changing for many reasons. “As investment depends crucially on a low cost of capital, reducing real interest rates need not necessarily lower savings when the demographics are favourable,” the 2019 annual economic survey argued.<br /><br />However, India’s household deposits in banks have declined to their lowest level in over a decade as the interest rate offered by banks declined in recent years. Household savings as a percentage of GDP has <a href="https://economictimes.indiatimes.com/markets/stocks/news/fall-in-household-savings-leads-decline-in-net-financial-savings/articleshow/71058730.cms">fallen to 17.2% at the end of March 2019</a>.<br /><br />
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
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<br />Meanwhile, in the two years ending June 2019, personal loans and credit card debts <a href="http://www.forbesindia.com/article/leaderboard/profitability-improves-for-banks-but-deeper-concerns-remain/54783/1">have increased by over 58%</a>, according to RBI data analysed by Forbes. People are either borrowing money or dipping into their savings for sustenance.<br /><br />
	
	
	
	
	
	
	
	
	
	
	
	
	
	
	
	
	
	
	
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<br />So, as savings depleted and loans piled on, investments have gone down. Unsold homes have increased 7% to 1.3 million units at the end of June 2019, according to an independent real estate research firm Liases Foras. <br /><br />However, gold prices hit <a href="https://www.businessinsider.in/10-grams-of-gold-now-costs-40000/articleshow/70838768.cms">a whopping ₹40,000 an ounce</a> last month. And that brings us to the second myth.<br /><br /><strong>Myth 2: Indians factor in inflation while choosing investments.<br /></strong><br />In theory, demand for gold should go down when inflation is low. And price rise in India has been low for over three years.<br /><br />
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
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<br />But gold is an essential part of Indian culture and tradition and even when there is a fall in demand for gold, it is relatively low.<br /><br />The Narendra Modi government has tried to push people away from gold and to invest in more risky financial instruments like the share market and real estate. But as of March 2018, only 8% of household savings are in equity-- though a significant jump from 3% in FY16-- according to RBI data. While the diversification can be celebrated, the market carnage in the last one year has not only dented the confidence of the small investors, it has also made them poorer. <br /><br />Nearly a quarter of all households in India prefer bank deposits, according to an RBI report in July 2017. The pecking order of preference is children, own business, and bank deposits. Only a small fraction of all Indian families save in pension funds, or mutual funds. <br /><br />
	
	
	
	
	
	
	
	
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<br /><br />Very few Indians calculate adjust for inflation before investing or even while evaluating salary hikes. For example, the sentiment triggered by a 10% rise in salary is more or less the same irrespective of whether the inflation rate is 4% or 10%, even though prices have a direct impact on the savings.<br /><br />
  
  
  
  
  
  
  
  
  
  
  
  
  
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<br />A recent research by Motilal Oswal has showed that people invested less in bank deposits because the headline interest rate fell even though they may have yielded more when adjusted for inflation. "Pushing up household savings would require more efforts towards financial inclusion and possibly, incentives,” ratings agency Crisil said in a July 2019 report. As established earlier, that monetary stimulus like interest rate cuts have limited impact as an incentive.<br /><br /><strong>Myth 3: Interest rate cuts will spur consumption and savings<br /></strong><br />Real investments, measured by gross fixed capital formation (GFCF), in the economy grew at an average of 9.2% in the last three years, at twice the rate compared to the preceding five, which included two of the infamous ‘policy paralysis’ period under the Congress-led United Progressive Alliance (UPA) regime when inflation was at scorchingly high level.<br /><br />However, digging deeper into the data, Motilal Oswal found that in the last three years, corporate investments grew over 7% every year compared to 12% in government investment and a measly 2% growth in household investments. This, at a time when inflation was low and interest rates were falling.<br /><br /><strong>The mood is sombre in most Indian homes</strong><br /><br />The reality right now in India is that people are earning less and therefore the benefits of low inflation have not reached them. Small investors have lost money in the stock market. They are either borrowing more or eating into their savings for sustenance. Any further cut in deposit rates will make consumer more cautious because for most Indian families, it’s cash--whether it is at home or in the bank-- that counts. Investments, including buying a home or a car, depends on the near-term cash savings and near-term outlook on earnings. <br /><br />As most families are still reliant on bank deposits either for income or for a rainy day or retirement, any further cut in deposit rates will further affect savings and sentiment, and therefore consumption. The onus should now be on the government to revive investor sentiment via policy stimulus adding to <a href="https://www.businessinsider.in/nirmala-sitharam-address-on-india-economic-stimulus-live-updates-and-highlights/articleshow/70804926.cms" data-type="tilCustomLink" target="_blank">the ones Finance Minister Nirmala Sitharaman announced in late August</a>. <br /><br />As the renowned economist and former RBI governor Raghuram Rajan wrote in his book ‘Fault Lines: How Hidden Fractures Still Threaten The World Economy’, “the more a country finances its investment through its own domestic savings, the faster it grows. Conversely, the more foreign financing it uses, the more slowly it grows.” <br /><br /><strong>SEE ALSO:</strong><br /><a href="https://www.businessinsider.in/narendra-modi-pmeac-comments-on-indias-economic-slowdown/articleshow/70954078.cms" data-type="tilCustomLink" target="_blank">Here’s what Narendra Modi’s closest advisors have been saying about economic slowdown</a><br /><br /><a href="https://www.businessinsider.in/recession-in-india-searches-spike-as-gdp-growth-hits-a-six-year-low/articleshow/70922461.cms" data-type="tilCustomLink" target="_blank">Indians were fearing recession even before data showed that GDP growth hit a six-year low</a><br /><br />

Family savings in India face the threat of more interest rate cuts

TModi-led government at the Centre and <keyword id="6358908" type="PERSON" weightage="80" keywordseo="Raghuram-Rajan">Raghuram Rajan</keyword>’s stand on monetary policy could go on for some more time now. Despite both sides making serious attempts at appearing ‘friendly’ and ‘perfect’ for each other, the <keyword id="6360789" type="ORGANIZATION" weightage="60" keywordseo="Modi-Government">Modi government</keyword>’s aggressive growth stance is something <keyword id="30067" type="ORGANIZATION" weightage="80" keywordseo="RBI">RBI</keyword> Gov Rajan has not always bought into.<br />
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While at a recent function in Mumbai, marking the 80<sup>th</sup><keyword id="6354477" type="PERSON" weightage="80" keywordseo="Narendra-Modi">Narendra Modi</keyword> said that there was a lot of similarity in thought between the government and the RBI, that has not always translated into similarity of action with Modi taking a more aggressive path via his policy decisions to implement rapid growth in the <keyword id="34412" type="ORGANIZATION" weightage="80" keywordseo="economy">economy</keyword>, and the cautious monetary policy stance taken by Rajan on several occasions.<br />
<br /> The recent spate of <keyword id="37018" type="UNKNOWN" weightage="80" keywordseo="interest-rate">interest rate</keyword> cuts by the RBI, on many occasions have been seen by experts as having ‘been tendered under pressure from the growth hungry government’. But Rajan has largely stood his ground, as he does even this time around. In the statement released, Rajan charts five points that clearly suggest that despite all pressures from the government, he will take into account all economic and market indicators before making his next <keyword id="6377314" type="UNKNOWN" weightage="80" keywordseo="rate-cut">rate cut</keyword> announcement. Rajan says in the statement, ‘Monetary policy actions will be conditioned by incoming data.’<br />
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Rajan’s 5 reasons why the next rate cut won’t happen anytime soon:<br />
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·         First, the Reserve Bank will await the transmission by banks of its front-loaded rate reductions in January and February into their lending rates.<br />
·         Second, developments in sectoral prices, especially those of food, will be monitored, as will the effects of recent weather disturbances and the likely strength of the monsoon, as the Reserve Bank stays vigilant to any threats to the disinflation that is underway. The Reserve Bank will look through both seasonal as well as base effects.<br />
·         Third, the Reserve Bank will look to a continuation and even acceleration of policy efforts to unclog the supply response so as to make available key inputs such as power and land.<br />
·         Further progress on repurposing of public spending from poorly targeted subsidies towards public investment and on reducing the pipeline of stalled investment will also be helpful in containing supply constraints and creating room for monetary accommodation.<br />
·         Finally, the Reserve Bank will watch for signs of normalisation of the US monetary policy, though it anticipates India is better buffered against likely volatility than in the past.<br />

The next RBI rate cut could be sometime away! Know why!

<ul class="summary-list"><li>Mohamed El-Erian once again took aim at the Federal Reserve over its lateness in fighting inflation.</li><li>The risks associated with the lack of "first best" measures are compounded by instances of confusing communication coming from the Fed, he said.</li></ul><p>Top economist Mohamed El-Erian has once again taken aim at the Federal Reserve over its lateness in fighting inflation and underscored the threat of the institution's credibility being chipped away. </p><p>In a <a href="https://twitter.com/elerianm/status/1663202124686131200/photo/1" target="_blank" rel="noopener noreferrer">tweet</a> on Monday, El-Erian flagged risks tied to the Fed not making the "first best" measure in handling the US economy, coupled with the central bank's instances of "confusing communication" that's eroded the power of its forward policy guidance.</p><p>El-Erian, who is the chief economic adviser at Allianz, has repeatedly criticized the US central bank for reacting too late to an inflation surge that started in 2021, and then unleashing a series of sharp interest rate hikes last year as consumer prices surged the most in four decades.</p><p>His tweet was in response to a <a href="https://www.reuters.com/markets/us/market-amid-calm-fed-brews-next-storm-2023-05-29/" target="_blank" rel="noopener">Reuters article </a>about how the Fed's steadfast pursuit to control inflation by aggressively rising interest rates risks an economic downturn for the US economy.  </p><p>He pointed to commentary from  Raghuram Rajan, former Indian central bank governor and University of Chicago's Booth finance professor, who told Reuters that the Fed is "a little bit in a situation where they're damned if they do, and damned if they don't." </p><p>That's because "If they do raise short-term policy rates, clearly, at some point, something more breaks," Rajan said, adding that he thinks there is a slim chance the Fed will be able to maneuver a soft-landing. That's a scenario when economic growth slows but avoids a recession. </p><p>"This is an illustration of what happens when policymakers fall so far behind in responding to a major challenge(s)," El-Erian tweeted, reiterating that the <a href="https://markets.businessinsider.com/news/stocks/mohamed-el-erian-fed-inflation-monetary-policy-risk-volatility-credibility-2023-5?_gl=1*1dqvv4f*_ga*NTQwNTIzMjY5LjE2NzM5NjU3NzI.*_ga_E21CV80ZCZ*MTY4NDgyNjUwNS4zMzYuMS4xNjg0ODI2NTA2LjU5LjAuMA..">discord between Fed signals and investors' interest-rate expectations</a> can cause turbulence in the market. </p><p>The Fed raised interest rates for the 10th time in a row this month – from near-zero last March to upward of 5% in May. While inflation cooled to 4.9% in April from last summer's peak of 9.1%, it still remains way above the Fed's 2% target.</p><p>El-Erian <a href="https://markets.businessinsider.com/news/stocks/mohamed-el-erian-jerome-powell-fed-inflation-losing-credibility-2023-4?_gl=1*gtgedx*_ga*NTQwNTIzMjY5LjE2NzM5NjU3NzI.*_ga_E21CV80ZCZ*MTY4NDM5ODA5Ny4zMjUuMS4xNjg0Mzk5MDQyLjIwLjAuMA..&amp;utm_medium=ingest&amp;utm_source=markets">has previously</a> said that under the leadership of chairman Jerome Powell, the US central bank risks being remembered "as the Fed that undermined its own credibility, its political autonomy, and America's crucial anchoring role at the center of the global economy."</p><p>In March, El-Erian said he thinks there's no <a href="https://markets.businessinsider.com/news/stocks/banking-crisis-fed-economy-el-erian-trilemma-inflation-growth-stability-2023-3?_gl=1*3yd47c*_ga*NTQwNTIzMjY5LjE2NzM5NjU3NzI.*_ga_E21CV80ZCZ*MTY4NDgyNjUwNS4zMzYuMS4xNjg0ODI2NTA2LjU5LjAuMA..">"first best policy response"</a> the Fed can take any more, as "everything would have collateral damage and unintended consequences." </p>

Mohamed El-Erian once again takes aim at the Fed over delay in fighting inflation

<ul><li>A video of a crying child migrant worker shows him stuck in the city under threat of being beaten up by the police if he doesn’t go home — without any way to get there.</li><li>Hundreds of thousands of <keyword id="64595" type="PERSON" weightage="20" keywordseo="migrant-workers">migrant workers</keyword> all over the country are stranded in urban India with no way of getting back to their villages.</li><li>The sudden announcement by Prime Minister Narendra Modi to implement a 21-day lock down has restricted public transportation and sealed off borders.</li><li><a href="https://www.businessinsider.in/searchresult.cms?query=coronavirus&amp;sortorder=effectivedate">Follow the comprehensive coverage of the coronavirus pandemic and its impact, and other useful resources that can help you in the fight on Business Insider India.</a></li></ul>When Prime Minister Narendra Modi appealed to people to stay indoors for 21 days, he was talking to people who have homes. The country however is full of people who have no homes, no savings, and no way to stock rations. <br /><br />
  
  
  <div type="image" title="mig1" msid="74823653" hostid="261" caption="&amp;lt;p&amp;gt;Migrant workers stranded at the Delhi-Ghaziabad trying to head home during the Coronavirus lock down&amp;lt;/p&amp;gt;"></div>







<br />The worst affected are migrant workers who are stranded, homeless, and hungry — who do not fear <keyword id="1754604" type="PERSON" weightage="20" keywordseo="coronavirus">Coronavirus</keyword> but starvation. One such heartbreaking story is that of a 15-year old construction worker in Delhi was seen sobbing since he doesn’t have a way to get back home. He told NDTV that he has been roaming the streets for three days with the police threatening to beat him up if he didn’t have a place to go. <br /><br />
	
	
	<div type="twitter" handle="mukeshmukeshs" handlename="Mukesh singh sengar मुकेश सिंह सेंगर" image="http://pbs.twimg.com/profile_images/753210663862935552/I89-qVy1_normal.jpg" favoritecount="22070" retweetcount="10767" status="आनंद विहार बस अड्डे से बड़ी संख्या में मजदूर तपके के लोग पैदल जा रहे हैं,दिल्ली से वापस अपने घर जाना  चाहते हैं,ले… https://t.co/DoP0BVGKZS" createdat="1585045107000" id="1242395346849783809"></div>







<br />READ ALSO: <a href="https://www.businessinsider.in/india/news/fm-nirmala-sitharaman-26th-march-speech-highlights-and-updates/articleshow/74825011.cms">These are the highlights of the Finance Minister’s speech on financial stimulus to battle the impact of coronavirus lockdown</a><br /><br />He’s only one among hundreds of thousands of workers in the unorganised sector that travel to urban cities looking for work. Over 90% of India’s unorganised sector are migrant workers where no health nor social benefits exist. The wages are low and many don’t have savings to fall back on. As public transportation is closed, going back home is not an option either.<br /><br />
  
  
  <div type="image" title="mig7" msid="74823590" hostid="261" caption="&amp;lt;p&amp;gt;Migrant workers make their way home on foot&amp;lt;/p&amp;gt;"></div>







<br /><strong>Some workers choose to walk home<br /></strong>In a travesty similar to Biblical lore, some labourers decided to go back home, on foot. In Gujarat, over 2,000 daily wage workers chose to walk all the way home to Rajasthan — many without food or water, according to the <a href="https://indianexpress.com/article/coronavirus/india-lockdown-rajasthan-migrant-workers-in-gujarat-leave-for-homes-on-foot-6330853/">Indian Express</a>. It took the group of men, women and children 14 hours to reach Dungarpur Village, the nearest border. <br /><br />
  
  
  <div type="image" title="DHPHOTO" msid="74823380" hostid="261" caption="&amp;lt;p&amp;gt;Workers walking home from Gujarat to Rajasthan&amp;lt;/p&amp;gt;"></div>






<br />On being stopped by the border authorities, some were loaded onto trucks and others had to walk another two hours to the bus station in hopes that one will take them home.
<br /><br />In Northern India, migrant workers from Nepal are stranded at the border as per <a href="https://www.aljazeera.com/news/2020/03/india-fight-coronavirus-takes-toll-migrant-workers-200324084150540.html">Aljazeera</a>.<br /><br />
  
  
  <div type="image" title="mig6" msid="74823444" hostid="261" caption="&amp;lt;p&amp;gt;Workers in Ahmedabad packed up and migrating out of the city during the Coronavirus lock down&amp;lt;/p&amp;gt;"></div>







<br /><strong>Help for the poor<br /></strong>In Delhi, homeless shelters are overrun and migrant workers have no choice but to stay within the city with borders sealed. Most of these workers are from remote villages, many all the way in Bihar over 1,000 kilometers away, where walking home isn’t an option.<br /><br />
  
  
  <div type="image" title="mig4" msid="74823523" hostid="261" caption="&amp;lt;p&amp;gt;Homeless migrant workers forced to sleep at railways station in Chennai during the Coroanvirus lock down&amp;lt;/p&amp;gt;"></div>







<br />States like Uttar Pradesh and <a href="https://www.businessinsider.in/india/news/coranavirus-cases-in-kerala-news-and-updates/articleshow/74775194.cms">Kerala</a> announced small amounts of monetary assistance to help the vulnerable sections of society tide through the lockdown. <br /><br />
  
  
  <div type="image" title="mig2" msid="74823562" hostid="261" caption="&amp;lt;p&amp;gt;Migrant workers in Kerala line up for essential supplies&amp;lt;/p&amp;gt;"></div>







<br />However, India’s welfare programmes are far from adequate. The added stress of the lockdown is only compounded by the limited resources. Even though the fiscal situation is tight, experts like <a href="https://www.businessinsider.in/finance/news/raghuram-rajan-says-save-people-before-saving-the-economy/articleshow/74792120.cms">Raghuram Rajan</a> and <a href="https://www.businessinsider.in/politics/india/news/former-finance-minister-chidambaram-lists-out-how-much-the-government-should-pay-indians-during-the-lockdown/articleshow/74808154.cms">P Chidambaram</a> recommend putting cash in the hands of those who need it most after addressing healthcare concerns.<br /><br /><br />See also:<br /><br /><a href="https://www.businessinsider.in/india/news/heres-how-a-21-day-lockdown-might-help-break-the-covid-19-chain/articleshow/74802999.cms">Here's how a 21-day lockdown might help break the Covid-19 chain</a><br /><br /><a href="https://www.businessinsider.in/india/news/a-whole-lot-of-doctors-reportedly-forced-to-reuse-same-mask-for-a-week-are-crying-for-support/articleshow/74802854.cms">A whole lot of doctors reportedly forced to reuse same mask for a week are crying for support</a><br /><br /><a href="https://www.businessinsider.in/india/news/heres-what-you-can-access-during-the-21-day-lockdown-across-india/articleshow/74798770.cms">Here’s what you can access during the 21-day lockdown across India</a><br /><br /><br />

A sobbing child migrant worker stranded in Delhi without shelter, job and a way back home — is only one among lakhs of his peers

When Raghuram Rajan took over as RBI’s governor in September 2013, he promised a far-reaching overhaul of the legacy banking system. Unlike his predecessors, Rajan, an alumnus of <keyword id="2930706" type="UNKNOWN" weightage="20" keywordseo="IIT-Delhi-and-IIM-Ahmedabad">IIT Delhi and IIM Ahmedabad</keyword> who went on to receive his PhD in management from <keyword id="54274" type="ORGANIZATION" weightage="20" keywordseo="MIT">MIT</keyword> Sloan <keyword id="191757" type="ORGANIZATION" weightage="20" keywordseo="School-of-Management">School of Management</keyword> for his thesis titled ‘Essays on Banking’ in 1991, brought in a sense of direction and independence in the central bank’s policy-making process. <br /><br /> In fact, <keyword id="417932" type="ORGANIZATION" weightage="20" keywordseo="Indian-Banking">Indian banking</keyword> sector has seen more changes over the last few years than what it has witnessed over the preceding 50 years, barring former Prime Minister Indira Gandhi’s decision to nationalise banks in the country, based on the argument that banks had been largely serving industrialists and they should serve the poor as well. <br /><br />

	The policy changes initiated recently by the government and structural changes brought in by Rajan are yet to get translated into a palpable reality but are expected to change the way banking functions in the country within say five years.
<br /><br />

	To start with, instead on a near-monopoly of public sector banks, which now account for over 77% of the loan market, will soon be history. According to experts, instead of a clutch of public-sector banks playing a dominant role, offering the entire bunch of banking offerings, the country is moving towards a stage which will be marked by diluted presence of PSU banks and increasing share of niche banks that offer only specific products or cater to a particular group of customers. The shift towards an increasing number of niche banks was evident in the number of applications that came before RBI for getting licence for payments banks and small finance banks. Over 100 entities have applied for licence to set up these niche banks, though RBI is expected to exercise caution while awarding licences. Besides, the postal department's plan to eventually become a full service bank could hamper the monopoly that state-run lenders enjoy in the hinterlands.
<br /><br />

	The recent decision by the government to capitalise public sector banks, based on their efficiency, is likely to snap the muscle power that PSU banks enjoy. As consolidation gains momentum, weaker banks, which  struggle to manage mounting non-performing loans, reducing their ability to raise capital from the market, may be forced to come under wraps of bigger ones or stop business.
<br /><br />

	As customer preferences change radically due to technological innovations, banks that rely on savings deposits to attract customers are likely to face oblivion soon.
<br /><br />

	According to analysts, mobile as well as any-time, anywhere banking is expected to bring in a sea change in the sector. This combined with the larger participation of the unbanked in the mainstream banking space through the government’s persistent efforts to move on to a stage of ‘inclusive banking’, will transform the sector in a few years from now.
<br /><br />

	However, the growing threat of non-performing assets (NPAs) continue to be a drag on the government’s and RBI’s plans to revamp the banking sector.
<br /><br />

	Bad loans—loans that are six months or more in arrears plus those whose terms have been altered to make repayment easier—account for more than 12% of total assets of in public-sector banks in the country. Considering the fact that public-sector banks account for more than 70% of the loan market, the challenge seems insurmountable.
<br /><br /> According to the <keyword id="156153" type="ORGANIZATION" weightage="20" keywordseo="Ministry-of-Finance">Ministry of Finance</keyword>, though public sector banks’ representation of a huge portion of (77%) of the loan market, their combined market capitalisation is only 36% of the banking sector's total market cap. On the contrary, private sector lenders' market cap is 74%. <br /><br /> In the first week of June, RBI cut its main benchmark rate by 0.25 percentage points for the third time this year, to 7.25%. Despite repeated cuts and the RBI’s fervent pleas to pass on the effects of the rate cut to customers, banks have been cautious in announcing reduction in rates as they continue to battle the mounting challenge of bad loans. This has forces RBI to express concern that the lacklustre growth in bank credit may push up <keyword id="22195" type="COMPANY" weightage="20" keywordseo="Inflation">inflation</keyword> from below 5% currently. <br /><br />

	This clearly suggests that the government and the central bank have to first control the growing challenge of NPAs so that the banking sector can effectively transit to the next stage of a futuristic makeover.

	(Image: Thinkstock)

Will public sector lenders prevent banking industry’s futuristic makeover?

<p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"></div><p></p></div></div>When Donald Trump was running for president, he said companies should "buy American and hire American."</p><p>But in manufacturing these days, buying American often means creating jobs for robots, not humans.</p><p>The story of SoftWear, a sewing-automation company in Atlanta, should throw some cold water on Trump's dreams of returning thousands of Americans to manufacturing jobs.</p><p>SoftWear started with a group of Georgia Tech professors playing around with robots and became a company because of an earlier "Buy American" push.</p><p>Since 2002, a rule known as the Berry Amendment has prohibited the Defense Department from procuring "food, clothing, fabrics, fibers, yarns, other made-up textiles, and hand or measuring tools that are not grown, reprocessed, reused, or produced in the United States."</p><p>The DOD quickly learned why nearly all clothes are made overseas these days.</p><p>Making clothes in the US is prohibitively expensive, because workers expect to receive decent wages for their labor. So what did the military do? It invested in automation. The Defense Department's Advanced Research Projects Agency <a href="https://www.fbo.gov/index?s=opportunity&amp;mode=form&amp;id=54151eccf003c66ee3598b285fc092fe&amp;tab=core&amp;_cview=0">granted</a> Georgia Tech with $1.26 million to develop robotic sewing machines.</p><p>That result was SoftWear. And even its sewing robots, it turns out, don't actually produce any clothes in the US.</p><p>SoftWear's CEO, Palaniswamy Rajan, 46, moved to the US from Bangalore, India, and never looked back. He's unapologetic about eliminating mechanical jobs like sewing, arguing that automation lets workers focus on more interesting, bigger-picture tasks - and often in better, higher-paying jobs. While the US producers rank third after China and India in textile exports, the country imports about 97% of its clothes, Rajan says.</p><p>Most young people nowadays would rather work in services than in a factory, he says, so why try to recreate a world that is long gone and wasn't all that great to begin with? "It's an idealization of the past, as if the past were always so rosy," he said.</p><p>"Do we really want phone operators plugging in your phone connection, people having hard physical-labor jobs in factories," he said, that are physically straining and often unhealthy?</p><h2><strong>America's manufacturing retreat dates back to disco</strong></h2><p>The story of the Atlanta-based startup is emblematic of the challenge facing one of Trump's central campaign promises: to "bring back" millions of manufacturing jobs to hard-hit regions of the US.</p><p>US manufacturing employment has been declining since a 1970 peak, a drop that accelerated after China's entry into the World Trade Organization but, tellingly, <a href="http://www.businessinsider.com/trump-keeps-picking-trade-battles-in-all-the-wrong-places-2017-3">not after the US entered the North American Free Trade Agreement </a>with Mexico and Canada in 1994.</p><p><div class="KonaFilter image-container display-table"><div><div class="image on-image"></div><p></p></div></div>Trump has argued widely in favor of ripping up trade agreements and threatened to impose tariffs on key trading partners, arguing that NAFTA was "<a href="http://www.businessinsider.com/trump-wants-to-speed-up-the-nafta-talks-2017-2">the worst trade deal in the history of the country</a>" and calling the Trans-Pacific Partnership, which his administration has already jettisoned, a "rape of our country." He has also <a href="http://www.businessinsider.com/author/pedro-da-costa">threatened to leave or simply ignore the WTO</a>, a move that could unravel the global trading system.</p><p>But SoftWear's business, along with so many others across the US, should remind Trump of a factor he has yet to acknowledge: the role of automation in reducing the number of manufacturing jobs available. Rajan's firm employs just 20 people, though he plans to hire 15 more in the coming year.</p><p>That fits a nationwide pattern of manufacturing output hitting record highs in recent years, even as manufacturing employment continues its steady decline.</p><p><div class="KonaFilter image-container display-table"><div><div class="image on-image"></div><p></p></div></div></p><p>"The fact that the U.S. manufacturing sector <a href="https://www.technologyreview.com/s/602869/manufacturing-jobs-arent-coming-back/">has been succeeding by many measures</a> in recent years makes Trump's promises seem like false dreams," Mark Muro, a senior fellow and the director of policy at the Metropolitan Policy Program at the Brookings Institution, wrote in MIT's Technology Review. "No one should be under the illusion that millions of manufacturing jobs are coming back to America."</p><p>Indeed, despite Trump's public rhetoric about pressuring the air-conditioner maker Carrier to keep jobs in Indiana instead of sending them to Mexico, the company's CEO later acknowledged the result would be, you guessed it, <a href="http://www.businessinsider.com/united-tech-ceo-says-trump-deal-will-lead-to-more-automation-fewer-jobs-2016-12">greater automation</a>.</p><h2><strong>Welcoming our robot overlords</strong></h2><p>The rise of robots lends a sense of <a href="http://markets.businessinsider.com/news/stocks/these-companies-cant-stop-talking-about-going-digital-2017-3-1001816417">urgency in US business investment in new digital technologies</a>, according to a recent report from Morgan Stanley. Corporate managers' interest in new digital technologies has surged, the bank's analysts said. "Several companies have made digital appointments in recent months, and outlined their respective strategies at capital markets events."</p><p><div class="KonaFilter image-container display-table float_left"><div><div class="image on-image"></div><p></p></div></div>In contrast with Trump's focus on immigration as a threat to jobs, President Barack Obama touched on <a href="http://www.businessinsider.com/watch-president-barack-obama-full-farewell-speech-transcript-2017-1">the issue of automation in his farewell address</a>, saying: "The next wave of economic dislocations won't come from overseas. It will come from the relentless pace of automation that makes a lot of good middle-class jobs obsolete."</p><p>Just how big a drag automation has been on factory employment is still open to debate. The US economy has lost some 5 million manufacturing jobs since 2000, a decline of nearly 30%, to 12.3 million jobs. There has been a substantial recovery since the depths of the Great Recession, but nothing on a scale that could reverse the preceding decades' losses.</p><p>But one study from Ball State University finds "<a href="http://conexus.cberdata.org/files/MfgReality.pdf">almost 88% of job losses</a> in manufacturing in recent years can be attributable to productivity growth, and the long-term changes to manufacturing employment are mostly linked to the productivity of American factories." In other words, robots, not outsourcing or trade competition, are the culprit.</p><p>Others are less sanguine. A 2014 study from MIT's Daron Acemoglu, David Autor, and coauthors found "net job losses of 2.0 to 2.4 million stemming from the rise in import competition from China over the period 1999 to 2011."</p><p>Autor himself, however, is optimistic about the prospects for automation to generate better, higher-paying jobs. He <a href="http://economics.mit.edu/files/11563">wrote in a separate paper</a> that the rapid pace of recent technological growth had not, for the most part, wiped out a significant portion of jobs but instead changed the labor market in myriad ways, many positive: "Automation does indeed substitute for labor - as it is typically intended to do. However, automation also complements labor, raises output in ways that lead to higher demand for labor, and interacts with adjustments in labor supply."</p><p>That may be especially the case in the services economy, which accounts for some 80% of spending in the nearly $19 trillion US economy.</p><p>JPMorgan said on February 27 that it was launching software that could accomplish in seconds <a href="https://www.bloomberg.com/news/articles/2017-02-28/jpmorgan-marshals-an-army-of-developers-to-automate-high-finance">the same amount of work it would take lawyers 360,000 hours</a> to do. This kind of surge in productivity is hard to fathom - and lawyers aren't even part of the manufacturing industry. Not yet anyway.</p>    <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/7-mega-billionaires-who-made-a-fortune-last-year-2017-3">7 mega-billionaires who made a fortune last year</a></h3>        <div>            <div>        <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="txZTM5YTE64gA4GFRYvPGavZ6kzc9laH" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div>        </div>        </div>            </div>

You Searched For "Rajan under threat" and got 10 results

Is Raghuram Rajan’s life in danger? Cyber Cell is investigating the case

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