The Government wants to borrow more in the second-half of this financial year. Thus, fiscal slippage has come to the centre stage along with the discussions on controlling inflation. Spiraling and unabatedly continuing inflation is a concern. But fiscal indiscipline will very much exacerbate inflation.
The reasons the government cited for this was due to lower-than-expected cash surplus at the start of the financial year and also on account of revenue shortfall under the National Small Savings Fund (NSSF). Even though the government indicated that its fiscal deficit calculations remain unchanged, one of the major sources of the budget deficit — considered at the time of the last Union Budget — was small savings schemes of the government. A report of the Finance Ministry released recently said that net small savings deposits turned negative in the first quarter of 2011-12 and it has impacted government's cash management.
Interestingly, interest rates of many savings schemes offered by the government were static since 2003, while bank deposit rates moved up many folds. Various types of small savings schemes offer interest rates between 3.5 per cent and 8.40 per cent. The only scheme which offers a higher interest rate is the 5-year Senior Citizens' Savings Scheme (SCSS) which offers 9 per cent. However, for senior citizens, many public sector banks are offering much higher rates, adding another 25-50 basis points.
Further the government's borrowing programme surprised markets. The government announced its borrowing programme for the second-half of the current fiscal which was higher by Rs.52,900 crore over the market expectations. Yields of the benchmark 10-year Government Securities (G-Sec) had been in the range of 8.28-8.35 per cent till recently. After the announcement of higher borrowing programme by the government, the yields of the 10-year government bonds have shot up by 10 basis points to close at 8.44 per cent in the previous week. Last week, it moved up further to close at 8.55 per cent against 7.93 per cent a year ago. The 5-year G-Sec also was at 8.33 per cent last Friday against 7.75 per cent a year ago.
The deposit rates now hover around 8.50-9.25 per cent as compared to 7-8 per cent a year ago. However, some banks offer higher fixed deposit rates which are floating between 9.50 per cent and 10.50 per cent for various maturities.
Prime Lending Rates
The Prime Lending Rates (PLRs) charged by various banks remain almost static as compared to one year ago at 11-15.75 per cent. The rate for savings bank account had also been revised by the Reserve Bank of India from 3.50 per cent to 4 per cent in May 2011, when it announced Monetary Policy for 2011-12. However, the gap between savings bank rate and other bank rates have been widened significantly. In tandem with rising interest rates, Call Money rate, which is an overnight rate, has also moved up to 8.05 per cent from 5.75 per cent around the same period in 2010.
Meanwhile, headline inflation in August accelerated to 9.78 per cent, its highest in more than a year, from 9.22 per cent in July.
Weekly food inflation as on September 24 accelerated to 9.41 per cent from 9.31 per cent in the previous week. Fuel price inflation moved up to 14.69 per cent as per the latest data of the government. Clearly, the high interest rates being offered by banks make people move out of the small savings schemes. The Shyamala Gopinath Committee on Comprehensive Review of National Small Savings Fund recommended to the government a positive spread of 25 basis points, vis-à-vis government securities of similar maturities with a few exceptions, "taking into account the interests of small savers, and in view of the absence of social security among the unorganised sections of the society, as also the liquidity augmenting measures for various instruments". Exceptions are recommended only in the case of 6-year National Savings Certificate (NSC) and SCSS. The Committee notes that NSC cannot be withdrawn before maturity, which affects its liquidity. Keeping in view the longish tenor of the 6-year NSC and the absence of liquidity, the Committee favours a higher illiquidity premium of 50 basis points (instead of 25 basis points as in the case of other instruments). As regards SCSS where the rate of interest is currently fixed at 9 per cent, the Committee recommended a spread of 100 basis points over and above the secondary market yield of government securities of similar maturity.
The Committee, which had given its report in June to the government agrees with the recommendations of the Reddy (2001) and Rakesh Mohan (2004) committees that the secondary market yields on Central Government securities of comparable maturities should be the benchmark for various small savings instruments (other than savings bank deposits, which do not have a fixed maturity). The Shyamala Gopinath Committee also recommended various measures to improve liquidity, flexibility in revising rates and maturities as well as making schemes more attractive for small savers.
The government's apathy towards small savings schemes is clear. If the authorities make the small savings schemes more attractive, more funds will come through this government channel. The government had borrowed Rs.2.50-lakh crore in the first-half of 2011-12 out of the announced dated borrowing programme for the fiscal at Rs.4.17-lakh crore. Taking these figures into consideration, the market was expecting the Reserve Bank of India to announce a dated borrowing programme of Rs.1.67-lakh crore for the second-half of the current fiscal. But the government announced a dated borrowing programme of Rs.2.20-lakh crore, or around Rs.52,900 crore in excess of the anticipated amount. If small savings collections do not improve by the financial year end, the government has to resort to another bout of borrowing. This will make the central bank's position further difficult while shaping its monetary stand for the year 2012-13.
The Hindu, Dt. 10.10.2011
NEW DELHI: India's postal department has rejected the bids of four companies - HCL Comnet, Wipro,Dimension Data and UTL - to build an IT network that connects 30,000 post offices across the country, citing the 'obsolete equipment' being provided by Cisco, the technology partner for these bidders.
After the disqualifications, the department has shortlisted HP, IBM, TCS and Sify for its Rs 1,300-crore project aimed at modernisation of the IT infrastructure of post offices, two officials with direct knowledge of the development told ET. All these companies have opted for a combination of Juniperand HP to be their technological and hardware partners for the project. Cisco is the world's largest company in networking equipment, such as routers, and customer premise equipment. The contract will be awarded after the financial bids of these companies are examined. But the project could run into a hurdle as Cisco has approached the Communication & IT ministry against the rejection of bids of companies partnering with it. It is also learnt that Cisco has besieged the postal department not to open the financial bids of the shortlisted companies until its concerns are addressed. Cisco denied to comment on a detailed questionnaire sent by ET. "As you would expect, several Cisco Partners participated in the RFP process. Any questions relating to that should be directed to the Department of Post," a Cisco India spokesperson said. Department of Post officials who evaluated the bids said companies partnering with Cisco were rejected for three primary reasons. "As per Cisco's own public announcement in November 2010, a significant majority of the routers and switches it plans to supply its partners for this project, has reached their end-of-life. The manufacturing of these products would stop by 2012-end, the period when we will be awarding the contract. Besides, the software updates for these products will also end within two more years," a top official said. This official also added that awarding the project to any company using Cisco hardware would compromise a key requirement of the project being scalable in the future due to obsolete equipment. Cisco did not reply to the allegations despite repeated attempts to reach them. Another official in the postal department explained that all bidders partnering Cisco had submitted an undertaking from the IT hardware major that it would support these products for seven years. Currently Cisco equipment is installed in postal networks across 1318 locations. The successful bidder for the IT project is mandated to buy back this Cisco equipment and replace it with new equipment as per the tender document. "While Cisco offered product support for seven years, it would have resulted in a major scam if the winner of the project is required to buy back existing Cisco equipment in 1318 locations and then install similar hardware in another 21,000 post offices," another postal department official added. The IT networks contract is the second of the eight major projects that is being undertaken by India Post as part of its IT modernization initiative. Recently, Infosys had pipped Tata Consultancy Services (TCS) to bag India Post's 'rural information and communications technology (ICT) system integrator (SI)' contract, worth about Rs 100 crore. IT consulting major Accenture is advising India Post on its new enterprise IT architecture. The consulting firm is also reengineering processes in India Post in one of the largest technology projects in the country. The project was rolled in 2009, but it has seen very slow momentum on the ground since then. India Post which has the largest postal network in the world with about 5 lakh employees, had a negative cash flow of Rs 9,576 crore, last year.
Source : Economic times dated 10/10/2011
Secretary General NFPE