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The RBI Does A Sleight Of Hand

The RBI has asked all scheduled banks to maintain an Incremental Cash Reserve Ratio of 10% with effect August 12 which is meant to absorb surplus liquidity in the system

By Govindraj Ethiraj
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RBI Sleight of hand
On today’s episode, financial journalist Govindraj Ethiraj talks to Dr Brinda Jagirdar, well known economist, director on IDFC Bank and former State Bank Head of Economic Research as well as Kuldip Kumar, partner at Mainstay Tax Advisors LLP and an old PWC hand.

Our Top Reports For Today

  • <01:00> RBI does a sleight of hand, increases incremental cash reserve ratio, acknowledges higher inflation, leaves rates unchanged with Dr Brinda Jagirdar
  • <08:21> China in deflation, what does that mean!
  • <10:21> A record number of Indians filed tax returns. What does this really mean? with Kuldip Kumar 
  • <18:11> The story of Ferns N Petals, the unicorn who could have been but decided not to. A conversation with Vikaas Gutgutia


NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.


Well, the dreaded moments have come and gone.

The Reserve Bank of India addressed food inflation as we speculated it would but left interest rates unchanged, which was largely expected.

There was a googly of sorts.

It asked all scheduled banks to maintain an incremental cash reserve ratio or ICRR of 10% with effect Aug. 12.

This is ostensibly meant to absorb surplus liquidity in the system due to various factors, including the deposit of Rs 2,000 currency notes. Even after the temporary ICRR, there will be adequate liquidity in the system to meet the credit needs of the economy, Das said.

Since the ICRR is only a temporary measure, the RBI would review it on or before Sept. 8. The existing CRR remains unchanged at 4.5%, Governor Shaktikanta Das said yesterday.

The announcement of this ICRR was a surprise move as it had not been imposed since demonetisation in November 2016.


So the benchmark lending rate of 6.5% has been left alone for the third consecutive time.

The RBI is now projecting CPI-based retail inflation at 5.4 per cent for the rest of the year.

Quick reminder. Last figure that came in was 4.8% and economists are on record on this station in recent weeks to say it was surely going to head upwards.

The Reserve Bank also expects the headline inflation to witness a spike in the near months on account of supply disruptions due to adverse weather conditions.

You may recall we spoke about this yesterday, how changing weather is almost the single biggest factor disrupting the agricultural economy and thus supply and prices of produce right now.

This is not something we are actually prepared for. Maybe most of the world is not. But that will not change how the poorer in India whose lives and livelihoods are linked to agriculture will be hurt most.

Meanwhile, for those who are still seeking greater convenience in making payments, the RBI has proposed the launch of conversational payments’ on UPI, wherein the users can engage with an AI-powered system to make transactions. It will initially be available in Hindi and English.

Efficiency is good but too much efficiency I feel has some downsides.

For example, I do hope there are sufficient last second provisions to ensure I can stop the transaction if I don’t want to go ahead with it. Or if I change my mind, which always happens.

Anyway, RBI has also proposed to facilitate offline transactions on UPI using NFC to ensure speedy transactions in areas where internet/telecom connectivity is weak.

Now, to get a sense on where the RBI’s policy statements actually land, I reached out to Dr Brinda Jaghirdar, well known economist, director of IDFC Bank and former State Bank Head of Economic Research .

China In Deflation. What A Concept!

As India grapples with rising inflation and skyrocketing food inflation, our neighbour across the mountains who we would like to be competitively viewed against is having the exact opposite problem.

All this became very clear and obvious with the latest or July data when consumer and producer prices fell together for the first time since 2020.

So why is this happening to China which is a generally vigorous economy ?

And what can we take away from China’s experience, even if tangentially ?

The first thing is that most countries like India have seen a post-pandemic surge in demand but it did not happen in China.

Consumer spending is muted and the country has been grappling with a long property slump, which has held people back from buying big and small ticket items, though seemingly more of the former.

Bloomberg says a price war among carmakers has added to deflationary pressures, while companies are also cutting prices to reduce the excess stock they built up over the pandemic. 

The only area where prices are not falling is services, such as travel and restaurants, which has surged since pandemic restrictions.

Falling prices are an interesting phenomenon.

Once they start falling, consumers could well wait for longer to see where it settles. This in turn puts pressure on businesses for whom lower prices obviously mean lower revenue and profits.

This and more leads to a fairly vicious cycle of deflation.

Right now in India, many companies are doing well because the cost of their raw materials has come down. And there are some cases like edible oils where prices have fallen and the consumer impact is positive but has been negative on companies like Adani Wilmar.

Bloomberg says in Japan, falling prices took hold in the 1990s and contributed to a prolonged period of stagnation that’s still haunting the world’s third-largest economy. The country is still dealing with the question of how to spur economic growth in a sustainable way. 

The Bank of Japan’s deployment of negative interest rates has done little to move the needle, prompting new tweaks to monetary policy this year.

India’s Tax Department Has Better Data, Could It Target More Effectively Then

More Indians are filing tax returns and paying tax.

For the last year, 2022-23, individual tax filers who disclosed an income below Rs 5 lakh per annum stood at 4.65 crore, making it the highest category of tax filers, income tax data has shown. 

The category that disclosed income above Rs 5 lakh per annum but below Rs 10 lakh was the second highest, standing at 1.1 crore tax filers. The highest tax-paying income range of Rs 1 crore had 1.69 lakh individuals. This of course is one of India’s biggest economic conundrums which I will return to shortly. Hint, only more insights, not a solution, yet.

The growth in the number of taxpayers in the income bracket above Rs 50 lakh has been the highest compared to other income brackets.

Prior to the pandemic, this stood at 3.42 lakh tax filers before taking a hit during the pandemic to 2.63 lakh filers. This rose to over 5 lakh tax filers in FY23.

Broadly, more people have entered the taxable income and higher income slab categories because of better compliance and data collection through annual income statements.

To get a sense of what the trends are telling us and also how the Government can better expand its tax net by better targeting, I reached out to Kuldip Kumar, partner at Mainstay Tax Advisors LLP and an old PWC hand.


Why India’s Largest Floral Retailer Held Out Against Raising Funds For Years

The company that could have raised funds but did not.

Vikas Gutgutia comes from a family of flower retailers but has taken the venture to a place where few have attempted or even seemingly tried. 

Ferns & Petals, or FNP has set up India’s largest floral and gift delivery network. It started by delivering fresh flowers the same day and then moved on to embracing the whole gift including cakes, chocolates, plants and then finally international.

The interesting thing about this business is that there have never been too many competitors or players jumping into replicating the model. Or become unicorns.

Vikaas Gutgutia, founder of Ferns N Petals, says he never wanted to raise capital. And held out till last year when he raised pre-IPO funding of around Rs 200 crore from a private equity firm.

Interestingly, Gutgutia’s setbacks have come more from mistakes he’s made, like a reckless diversification rather than the boring business of flower retail or gifting. I caught up with him on The Core Report’s Weekend Edition and asked him, among other things, about what flowers Indians like the most ?


Don't forget to tune in tomorrow for The Core Report’s Weekend Edition, a longer conversation on a single topic or person on most weeks.

Among Other News...

A new media giant has been created

The Mumbai bench of the National Company Law Tribunal (NCLT) on Thursday approved the merger scheme between Zee Entertainment Enterprises Limited (ZEEL) and Culver Max Entertainment (Sony).

The deal has been underway since December 21, when the first agreement was signed.

The merger will of course open up other questions, including on who will run the company. 

Recently, the Securities Appellate Tribunal (SAT) declined to overturn the interim order issued by the Securities and Exchange Board of India (SEBI) prohibiting ZEEL Chairman Emeritus Subhash Chandra Goenka and his son Punit Goenka from serving as directors or executives of publicly listed firms.


And before I go, for those who follow fashion and luxury, a big deal is imminent and another one led by an American company of a European major.

Owner of the brand ​​Coach Tapestry  is in talks to buy Capri Holdings, parent of well-known fashion brands Michael Kors, Jimmy Choo and Versace. 

WSJ says the deal, which has been under discussion for months, could be announced soon barring any last-minute snags. 

Capri has a market value of $4 billion; Tapestry’s is around $10 billion. Including a typical premium, a deal could value Capri in the high single-digit billions.

American companies have been scooping up fashion brands in a bid to take on LVMH and Gucci parent Kering, but are still dwarfed by the European giants, which have been striking deals of their own, the WSJ says.

Yes, most if not all of these brands are available in most cities in India.

That’s it from me, have a great weekend ahead and see you on Monday.