Cabinet has cleared an ordinance to penalize those with old notes after December 30th. The notes of 500 and 1000 denomination were demonetized as of November 08th and individuals have time till December 30th to exchange these old notes. The ordinance that was promulgated today includes a fine and imprisonment for possession of old notes. The ordinance will also extinguish the liability of the RBI and the government with respect to these old notes so that any future litigation is ruled out.

Global acclaimed academician, Dr. Viral Acharya, has been appointed as the deputy Governor of the RBI for a period of 3 years. Viral is currently the C.V. Starr professor of Economics in the Department of Finance at NYU Stern University. Interestingly, he is one of the co-authors of a paper on sovereign bonds along with the former RBI governor, Dr. Raghuram Rajan. Ironically, Viral is also one of the key proponents of the theory of creating a “Bad Bank” to take over the bad assets of the banking system, a proposal that was vehemently opposed by Dr. Raghuram Rajan. Whether Viral’s appointment is a precursor to the creation of a bad bank remains to be seen.

The NSE filed for its IPO to raise Rs.10,000 crore from the market. Being an offer for sale (OFS), there will be no fresh capital coming into the company but existing shareholders will be offloading their stake in the NSE. This IPO will give the NSE a market valuation of Rs.53,000 crore ($8 billion) to begin with. Currently, MCX is already a listed exchange but it had listed itself as a commodity exchange before the merger of FMC into SEBI happened last year. Of course, NSE still does not have a full-time CEO after the abrupt resignation of Chitra Ramakrishnan last month.

As the deadline of December 30th to complete the demonetization process approaches, the banks are already urging the RBI to extend the cash restrictions further. Currently, the banks do not have the requisite liquidity available with them to service huge cash demands. Hence extending the curbs on cash transactions at banks will be the only option left. It now looks like the cash curbs may continue long after the December 30th deadline is crossed.

The INR hit a 4-week low at 68.24/$ as pressure mounted from Importers and banks to cover year end exposures. Sustained capital outflows also added to the weakness of the rupee. With the dollar strengthening further due to the hawkish view given by the Fed that also added to the weakness in the INR. The rupee had last touched a low of 68.34/$ on December 01st. However, leading banks like Deutsche Bank have already estimated the INR at beyond 72.5/$ as the dollar was likely to strengthen further and capital flows from emerging markets will keep the INR under pressure.

In a scathing analysis, Deloitte has found that the NSE systems were easily prone to manipulation. This was part of the forensic report submitted by Deloitte in late December and the same has been mentioned as a risk factor in the Draft Red Herring Prospectus (DRHP) filed by the NSE. The report found that some brokers got the advantage to connect to the exchange faster than others. The lack of a clear policy for laying fibre optic cables also was a reason for this preferential treatment accorded to certain brokers by the NSE. It is probably coincidental that a few days after the SEBI report, Chitra Ramakrishnan resigned from the post of the CEO of NSE.

Japan’s industrial output rose the most in the month of November over a 5-month period. Industrial production was up by 1.5% against a consensus expectation of de-growth of -1.7%. Retail sales were up by 1.7%, one of the best retail performances by the Japanese economy. Export volumes in November were up by 7.4% with exports to China rising by 16%. After strengthening to 100/$, the Yen has given away gains and gone close to 116/$. This depreciation in the Yen has helped Japan to give a boost to its exports.

The GST Council has still not been able to take a final call on compensation to states. In fact, the issue of compensation to states and control remain key issues to be sorted out. The government will be keen to sort out these issues at the earliest since that will enable to get the enabling bills passed in the budget session. Even if the enabling bills are passed in the budget session, it is doubtful if the GST can be implemented effective April 01st as the corporate level readiness is still lacking. Due to the demonetization, most states will need higher compensation and additional provision will have to be made by the centre for the same.