current affairs economy february 2012
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eCOnOMIC GROwTh RATeOR 2010-2011 TO 8.4 %
Te Union government on 31
January 2012 revised the economic
growth rate or 2010-2011 nancial
year to 8.4 percent in comparison to the
previous estimate o 8.5 percent. Te
Indian economy grew 8.4% in 2010-
11, lower than the previous estimate o8.5%, on the back o strong arm sector
and services sector growth. Te Indian
economy, Asias third-largest slowed
in recent quarters due to the impact
o the global slowdown, high infation
and high interest rates. Policymakers
estimated growth in 2011-12 to be
close to 7%. 8.4% expansion in the gross
domestic product (GDP) during 2010-
11 was achieved due to high growth in
transport, storage and communication(14.7%), nancing, insurance, real
estate and business services (10.4%),
trade, hotels and restaurants (9%) and
construction (8%). At constant prices,
the primary sector- agriculture, orestry
and shing, showed a high growth o
7% during 2010-11 as against 1% during
the year 2009-10. Te growth rate o
secondary sector stood at 7.2% and
that o the service sector is 9.3% during
2010-11.
GROSS dOMeSTICPROdUCT (GdP)
Gross Domestic Product (GDP) at
actor cost at constant (2004-05) pricesin 2010-11 was estimated at Rs. 4885954
crore as against Rs. 4507637 crore in
2009-10 registering a growth o 8.4 per
cent during the year which is same as
in the year 2009-10. At current prices,
GDP in 2010-11 was estimated at Rs.
7157412 crore as against Rs. 6091485
crore in 2009-10, showing an increase
o 17.5 per cent during the year.
GROSS nATIOnAL InCOMe
Te Gross National Income
registered a growth o 7.9 per cent
in 2010-11 over 2009-10. India's per
capita income grew by 15.6 per cent
to Rs.53331 in 2010-11, crossing the
Rs.50000-mark or the rst time. In
real terms based on 2004-05 prices,
the per capita income grew by a slower
6.4 per cent to Rs.35993 in 2010-11 as
compared to Rs.33843 in 2009-10.
In erms o Foreign Fund fows
January 2012 is the Best Month since
November 2010
As per data published by the market
regulator SEBI on 27 January 2012, net
FII buying crossed the $2-billion markin January 2012 making January the
best month in terms o oreign und
fows since November 2010. FIIs had
recorded a net outfow o $358 million
in 2011. Infows in January 2012 is in
sharp contrast to over $1 billion outfow
in January 2011. Te surge in infows
also helped strengthen the Indian rupee
which closed above the 49-level ater
nearly 10 weeks. Januarys infow gure
however was less than a third o themonthly infow record set in October
2010, when $6.4 billion was pumped in
by oreign und managers. In October
2010 the gures were urther pumped
through the hugely successul Coa
India IPO. SEBIs data showed a net FII
infow o $1779 million. Institutiona
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trading data on the BSE showed net
infow gure on 27 january at Rs 1240
crore, which translates to $252 million.
Te aggregate o the two is slightly over
the $2 billion mark.
MOBILe PhOneCOMPAnIeS TO ShARe 2G
SPeCTRUM OnLy
Te apex decision-making body
o the communications ministry, the
elecom Commission decided to allow
mobile phone companies to share
spectrum. Te Commission has however
limited this acility to 2G airwaves alone.
Second generation (2G) spectrum
is largely used or oering vanilla
voice services. Te telecommnication
companies cannot thereore share 3G
spectrums. Incumbents such as Bharti
Airtel, Vodaone, Aircel and Idea
Cellular took the government to court,
ater the telecom department asked
these companies to terminate their
3G roaming deals. Tese companies
had hoped the Commissions policychanges had hoped that policy changes
permitting the sharing o airwaves,
would put an end to this controversy.
Te companies had signed up 3G
customers across the country riding on
bilateral roaming agreements that allow
these rms to use each others airwaves
and oer high-end data services even
in regions where they do not have
3G spectrum. Te Commission also
decided to introduce slew o riders to
govern spectrum sharing.
Te riders are as ollows:
Only those operators that have
airwaves in a particular region
can share it. Spectrum can
be shared only between two
spectrum holders. A non-licensee
or licensee who has not been
assigned spectrum as yet cannot
be party to spectrum trading.
wo companies can shareairwaves only i their combined
holdings do not exceed the limitsprescribed in the M&A norms.Te elecom Commission hadrecently approved sector regulatorRAIs recommendation thatduring mergers, the combinedentity be allowed to have up to25% o the total airwaves in theregion.
Spectrum sharingdealswill alsohave to be renewed every veyears.
Whenoperators share spectrum,
both companies will have to
pay usage charges on the total
airwaves held jointly. Currently,
operators share between 2% and
6% o their annual revenues based
on the quantity o airwaves they
hold.
Te telcos sharing spectrum
must pay the government the
commercial value o the airwavesit is using. It essentially means,
an operator that has 4.4 MHz o
airwaves, and is sharing radio
requencies with another telco
that has the same amount, must
pay current prices or additional
4.4 units o spectrum it is using.
GROwTh RATe O eIGhTCORe IndUSTRIeS eLL
TO 3.1% In deCeMBeR 2011ROM 6.3% In deCeMBeR
2010
According to the data released by
the Commerce and Industry Ministry
on 30 January 2012, the growth rate o
eight core industries slowed down to
3.1 per cent in December 2011 rom
6.3 per cent in December 2010. Tese
eight sectors had recorded a 6.8 per
cent growth in November 2011. Te
decline in core sector activity was due
to a all in the production o crude oi
and natural gas. Te eight core sectorshave a combined weight o 37.9 per cen
in the Index o Industrial Production
(IIP). Te sectors that showed poor
perormance in December 2011 due to
a all in output include crude oil, natura
gas, petroleum renery products and
steel, while those which ared better
include coal, ertiliser, cement and
electricity. Te growth o these eight
sectors during April-December 2011
was 4.4 per cent against 5.7 per cent
during the corresponding period in
2010.
C R SUndARAMURTICOMMITTee
ReCOMMendATIOn
Government-appointed C R
Sundaramurti Committee submittedits report to nance minister PranabMukherjee. Te report suggested acomplete overhaul o government
accounting norms in order to enorcetransparency and better monitor public
spending. Te proposed accounting
classication structure will provide a
oundation or a more robust public
nancial management which could be
used or enorcing more transparency
and eectiveness o Public delivery
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channels o the government. Te
accounting classication o receipts and
disbursements is prescribed under the
Constitution and is maintained by the
Controller General o Accounts (CGA)
on the advice o the Comptroller andAuditor General o India (CAG).
ReCOMMendATIOnS
Te committee in its report
recommended rationalisation and
reorganisation o the existing account
classication o list o major and minor
heads o accounts (LMMHA) o centre
and states. Te panel also proposed
a multidimensional classication
ramework which has seven mutuallyexclusive segments with their own
individual hierarchical structures.
Te revised accounting
classication codes which are being
perceived as a milestone in the area
o accounting reorms were proposed
to be implemented with eect rom
nancial year 2013-2014. Te proposed
classication structure provides or
capturing expenditure on special thrust
area o government policy objectivessuch as development o women,
schedule castes, schedule tribes, below
poverty line population.
Te Committee is o the opinion
that the recommendations/suggestions
ramed by it would help in the eective
management tools. It would help
national and sub-national governments
or better planning, allocation and
application o resources, and more
eective monitoring o publicspending.
Te panel has also carried out
standardisation o coding o all such
entities which are recipient o public
und, as channels o public delivery. Te
measure is likely to acilitate tracking
o fow o unds under a government
programme or scheme rom one level
o governance to another level o
administrative entities.
PRdA ChAnGed The
InCenTIve STRUCTURe TOBOOST nPS
Te poor perormance o National
Pension System, or NPS led the Pension
Fund Regulatory and Development
Authority (PFRDA) to change the
incentive structure or the distributors
rom a xed sum to a percentage o the
investment amount. So ar the points
o presence or the distributors used to
get a fat Rs 20 as initial subscription
charge and Rs 20 or any subsequentinvestment. PFRDAs measure is poised
to serve two purpose- bringing about
a more equitable incentive structure
and incentivizing the distributors to
push NPS.Te regulator proposed to
lay down criteria or pension und
managers and grant licences to anyone
who qualies. Te NPS has seven und
managers overseeing assets o Rs 10000
crore.
NPS was primarily targeted at theunorganized sector, which does not have
any orm o social security. However, so
ar only about 1 million people out o
a workorce o about 400 million in the
unorganized sector have joined NPS.
Floated or civil servants in 2004, the
NPS was opened to all citizens in May
2009 to provide a pension option to 360
million inormal sector workers beret
o any old-age income security.
G.n. BAJPAI COMMITTeeReCOMMendATIOn
Te pension regulator on the basis
o the recommendation o the G.N.
Bajpai committee constituted by PFRDA
to review NPS, xed the incentive at
0.25% o the subscription amount. Te
committee had suggested 0.50% o the
investment, subject to a minimum o
Rs 20 and maximum o Rs 50000. As
per PFRDAs measures announceds
a distributor will get a fat Rs 100 on
initial subscription and 0.25% o theinitial subscription amount. Every year
on subsequent investments, the poin
o presence will be entitled to 0.25% o
that amount. Te minimum that a point
o presence can charge is Rs 20 and the
maximum Rs 25000. Bajpai committee
had observed that the earlier structure
o the pension system was amounting
to the poor subsidizing the richa
person investing Rs 6000 and a person
investing Rs 1 lakh were both payingRs 20. Also the xed sum was acting
as a deterrent to sell NPS amid better
commissions-yielding products such as
insurance policies.
CRR deCReASed TO 5.5PeR CenT
Te Reserve Bank o India (RBI) on
24 January 2012 cut the cash reserve
ratio (CRR) by 50 basis points rom 6
per cent to 5.5 per cent with eect rom28 January 2012. RBI thus released Rs
32000 crore to banks through a hal
percentage point cut in the cash reserve
ratio. Home loans and other loans to
individuals and businesses will become
cheaper with the cut in CRR.Te RBI
also kept the repo rate unchanged at
8.50 per cent or the second consecutive
time ater raising it 13 times between
March 2010 and October 2011. It
lowered its growth orecast to 7% rom
7.6% earlier. Te cut marked RBIs rst
reduction in CRR since January 2009
when it had released unds to stimulate
demand in the wake o the Lehman
Brothers crisis. As a consequence, or
the rst time in over two months, the
rupee touched the 49-mark against the
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dollar in intra-day trade. Te central
bank decided to reverse a two-year
policy o interest rate hikes because o
decelerating growth although infation
continued to remain a concern. RBI was
prompted to ease liquidity because o astructural shortall which was orcing
banks to borrow anywhere between
Rs 1.25 lakh to Rs 1.5 lakh rom RBI
in January. Te RBI's action is seen as
an attempt to strike a balance between
risks to growth and infation.
GeMS & JeweLLeRyexPORTS dIPPed 15%
According to the report by Gems
and Jewellery Export PromotionCouncil (GJEPC) released in January
2012, gems and jewellery exports ell
into the negative zone - down 15% year-
on-year to $3 billion in December 2011.
Te sharp all wa
attributed
to poor
d e m a n d
rom Europe and
the US. Te major export markets
include the UAE & Hong Kong. Te
exports had stood at $3.5 billion in the
December 2010. the overseas shipments
in May 2011 had logged in 33% growth,
touching the peak in 2011-12 scal.
During the April-December period o
2011-12, gems and jewellery exports
grew 11.65 per cent to $32.1 billion,
compared to the the April-December
period o 2010-11.
However, despite the drop in
December, the countrys gem and jewelry
exports still grew in the second hal,
reaching $32.1 billion 11.65% higher
than in the corresponding hal o 2010.
o reduce dependence on traditional
markets, the exporters are exploring
new markets like Latin America, Arica
and Russia. India mainly imports gold
and rough diamonds in large quantities
and re-exports value-added items likejewellery.
CenTRe OR MOnITORInGIndIAn eCOnOMyS
RevIew
Centre or Monitoring Indian
Economy (CMIE) estimated
Corporate Indias sales to
grow 21.6% in 2011-12.
However, prots are
expected to all by 7.2%in the nancial year
2011-12. Excluding
petroleum product
companies, India Inc
is expected to see a
19% growth in sales
in March 2012 quarter.
As per the review, sales
o the manuacturing
sector are expected to have
expanded by 20.7% and that o
the non-nancial services sector by
18.2. Income o the nancial service
have grown by a strong 32% due to high
interest rates and healthy credit growth.
CMIE however expects corporate sales
to drop to 16.8% in the March 2012
quarter due to a sharp drop in expansion
o petroleum products. Prots el
13.2% in the rst hal o 2011-12 due
to steep rise in raw material and ue
prices, high interest rates and delay
in payment o cash subsidy to the oi
marketing companies (OMCs) by thegovernment. Also, a sharp depreciation
in rupee since September 2011 brought
mark-to-market (MM) losses to rms
and thus urther pulled down prots.
In a situation where high inpu
costs and interest rates continue to
haunt Indian companies, the corporate
aairs ministry provided some relie
by allowing capitalisation o MM
losses on long-term loans taken o
the acquisition o xed asset till March2020. Te exemption was earlier
available only till March 2012 and only
to companies which had opted or it
in 2008-09. In spite o this, corporate
India is expected to report substantia
amount o orex losses in the December
2011 quarter since major chunk o
the orex liabilities o corporate India
are short-term, CMIE noted. Forex
however, expected to rise by 9.9% in the
January-March quarter riding on theback o robust 40.2% rise in net prots
o the banking industry. Te net prots
in the banking industry was attributed
to lower provisions and low base.
TOURISM SeCTORCOMMITTee TO exTend
vISA-On-ARRIvAL ACILITy
Inter-ministerial coordination
committee or tourism sector Headed
by Principal Secretary to the PM Pulok
Chatterjee in its meeting on 19 January
2012 decided to extend Visa-on-Arriva
acility to Goa, Hyderabad, Kochi and
Bangaluru airports to help double the
oreign tourist arrivals. Currently, Visa
on-Arrival is extended to 11 countries
including Japan, Philippines, Singapore
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New Zealand, Vietnam and Finland.Te
Visa-on-Arrival acility is now available
at our international airports at Delhi,
Mumbai, Kolkata and Chennai. Tere
were 6.29 million oreign tourists in
2011, out o whom 12761 had availedthe scheme. Upgraded road connectivity
to all major tourist circuits, including
Gangtok and Leh, eco tourism and
reaching out to schools to promote
tourism related vocational schools were
amongst the decisions taken by the
committee.
It was also decided that a sub-
committee consisting o Member
Secretary, Planning Commission,
Culture Secretary, Secretary(Environment and Forests),
Secretary (Rural Development) and
Secretary(ourism) will identiy the
potential o tourism in rural, eco and
cultural sectors in the country and
submit its report within our weeks.
It was observed that tourism ought
to be seen as development, should be
pro-poor and ocus on employment
creation. Emphasis was on the need to
give tourism a major llip during the12th Plan so as to more than double the
number o oreign tourists arriving in
India and urther encourage domestic
tourism. A co-ordination committee
consisting o Joint Secretaries o
MHA, MEA and ourism Ministry
was constituted to resolve day-to-
day visa related complaints. Te
Ministry o Environment and Forest
were asked to nalise its eco-tourism
policy at the earliest possible ater
analysing the eedback it received rom
dierent quarters. In order to acilitate
connectivity, which is crucial or
tourism, it was decided that Ministry
o Deence (Border Road Organisation)
will expedite ongoing work at Gangtok
and Leh roads which are tentatively
scheduled to be completed by 2014 and
2015 respectively.
hIGhLIGhTS O TheMeeTInG
extend Visa-on-Arrival facility
to Goa, Hyderabad, Kochi and
Bangaluru airports
sub-committee to identify the
potential o tourism in rural,
eco and cultural sectors in the
country
co-ordination committee
consisting o Joint Secretaries o
MHA, MEA and ourism Ministry
constituted to resolve day-to-day
visa related complaints
Ministry of Environment and
Forest asked to nalise its eco-
tourism policy
CultureMinistry asked to adopt
a pro-active tourism policy
which should promote museums,
cultural and heritage sites
Ministry of Defence (Border
Road Organisation) will expedite
ongoing work at Gangtok and
Leh roads
TRAI ORdeRed TO BLOCKBULK InTeRnATIOnAL SMS
Te elecom Regulatory Authority
o India on 20 January 2012 asked telecom
companies to block bulk international
SMS. RAIs move is aimed at giving
mobile subscribers urther relie rom
pesky messages. Te new regulations
on unsolicited telemarketing calls and
SMS were not being properly ollowed,the RAI stated that there were several
incidences o promotional SMS being
routed through the servers located at
international destinations and delivered
to customers registered or not receiving
telemarketing calls. RAI observed that
generally such SMSes originated rom
locations within Germany, Sweden
Nauru, Fiji, Cambodia, Bosnia, Albania
Grenada, the United Kingdom, Jersey
Sint Maarten, onga, Vanuatu, Namibia
Panama, and Antigua and BarbudaTese SMSes contain the headers
which are alphanumeric or starting
with +91 or numbers with internationa
codes. Te regulator thus oredered
all telecom companies to ensure tha
no international SMS containing an
alphabet header or alphanumeric header
or +91 as the originating country code is
delivered through their networks. Also
i any source or number rom outside
the country generates more than 200SMSes an hour with a similar signature
these could not be delivered through
the network.
RBI PeRMITTed BAnKSTO ALLOw hedGInG In
COMMOdITIeS
Te Reserve Bank o India in
January 2012 allowed banks to gran
permission to listed and unlisted
companies to hedge price risk incommodities other than precious
metals in international exchanges. Te
move is aimed at helping the companies
limit losses rom volatility. Currently
banks need RBIs approval to give
permission to companies to hedge.Te
banks were asked to submit an annua
report to the RBI as on 31 March every
year giving the names o the corporates
to whom they have granted permission
or commodity hedging and the name
o the commodity hedged. Beore
permitting the corporates to undertake
hedge transactions, the companies are
required to submit a brie description
o the hedging strategy proposed
including, instruments proposed to
be used or hedging, the names o the
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commodity exchanges and brokers
through whom the risk is proposed to
be hedged and the credit lines proposed
to be availed. Te name and address o
the regulatory authority in the country
concerned may also be given. Size/average tenure o exposure and/or
total turnover in a year, together with
expected peak positions thereo and
the basis o calculation can also be
included.
IndIAn RUPee ROSe By 6.6%
Te Indian rupee rose to a two-
month high and shares climbed on 18
January 2012 as a result o revival o
US dollar fows and also because o theundervalued shares which lost more
than 35% in US dollar terms in 2011.
Te currency rose 1.2% to close at 50.70
to the dollar. It is up 6% in 2012 and
6.6% rom its lie low o 54.30 touched
on 15 December 2011. Tere have been
infows rom FIIs, both debt & equity.
Also, emerging markets are currently
poised to cut interest rates ater Chinas
8.9% economic growth in the ourth
quarter, the slowest in 10 quarters.Terupee could gain urther since demand
or dollars may subside ollowing the
doubling o duty on precious metals
imports.
Te Indian rupee, which was the
worst perormer in Asia in 2011, is
presently turning out to be the best in
2012 due to measures by the Reserve
Bank o India. Te Indian rupee is ound
to be doing well despite imports still
outstripping exports which many say
could return to haunt the currency. Te
benchmark Sensex rose 1.7%, the least
among major markets with Hong Kong,
Shanghai, Korea and Singapore gaining
more. It has risen 6% since January 2,
making it the best-perorming index in
Asia.
COnSUMeR PRICe IndexdOwn By 0.44 %
As per data released by the
government on 18 January 2012,
cheaper ood items, including ruit andvegetables, pulled down the Consumer
Price Index (CPI) by 0.44 per cent
month-on-month in December
2011. Te consumer indices include
ve major groups-ood, beverages
and tobacco; uel and light; housing;
clothing, bedding and ootwear; and
miscellaneous items.Te all was
attributed to cheaper vegetables which
saw a dip o 15.01 per cent month-on-
month to 98.5 points. Te ruit indexalso ell by 3.78 per cent to 122.2 points.
Te CPI, based on retail prices, stood
at 113.9 points in December compared
to 114.4 points in November. At the all-
India level, the CPI or ood, beverages
and tobacco declined by 1.31 per cent
to 112.8 points in December rom 114.3
points in November.
Te index or condiments and
spices went down by 0.64 per cent to
123.9 points. Indices or cereals andpulses on the other hand remained
stable at 107.2 points and 102.5 points.
However, CPI or clothing, bedding and
ootwear stood higher at 122.2 points
on an all-India basis, against 121.5
points in November. Prices in the 'uel
and light' segment also rose by 0.33 per
cent in December vis-a-vis the previous
month, with the index inching up to 120
points rom 119.6 points in November.
RS.20 CRORe OR AnATIOnAL-LeveL UnIIedLICenCe
Te elecom Regulatory Authority
o India (RAI) on 16 January 2012
proposed a ee o Rs.20 crore or a
national-level unied licence under
the new regime, which suggests that
there will be only our types o licence
in uture as against many currently
available across the communication
sector.
TeLeCOM ReGULATOR'SdRAT GUIdeLIneS
OR The new UnIIedLICenSInG
Te drat guidelines proposed three
levels o unied licence at nationa
level, service area level and distric
level. Te entry ee or dierent types o
unied licence is to be Rs.20 crore or
national level, Rs.2 crore or each Metro
and Acategory, Rs.1 crore or each Bcategory, Rs.50 lakh or each C category
service areas levels and Rs.15 lakh or
each district level unied licence.
elecom service providers at
present hold Unied Access Service
Licence (UASL), which authorises them
to provide mobile, xed line, Internet
and long-distance calls and othe
telcom services.
Te UASL is given to companies
with 4.4 Mhz spectrum bundled withit. RAI however, recommended
that the new licence regime will not
have spectrum bundled with it and
the operators will have to bid or the
spectrum separately.
Te regulator also proposed to have
no restriction on the number o players
in a service area. Licence shall be issued
on non exclusive basis, without any
restriction on the number o entrants in
a licence area.RAI proposed that the applicant
company will have to pay one time non-
reundable entry ee beore signing the
license agreement.
Te Department o elecommunic
ations (Do) also issued standalone
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licences separately, like the one or
oering Internet services that are
generally known by the nature o the
service being oered.
IMPORT dUTy On GOLd &SILveR
Te Union government nearly
doubled the import duty on gold and
silver by changing the customs and
excise duty structure on precious
metals. Te measure was adopted by
the government to arrest the widening
current account decit. Te Finance
Ministry by adopting this stand has
moved to a model where customs and
excise will be charged on the value o themetal instead o a fat charge, and will
vary with varying prices o the metal in
the market. Following the governments
decision, gold will now attract an import
duty on 2 per cent o its value on each
day as against the earlier fat levy o Rs
300 per 10 grams. Silver will be charged
6 per cent o its value on each day rom
the earlier Rs 1,500 per kilogram. Excise
on gold will be charged at 1.5 per cent
o its value on each day as against Rs200 per 10 grams, and or silver it will
be 4 per cent as against Rs 1000 per kg.
Platinum and diamond would also cost
more.
IndIA'S exPORTSReCORded A GROwTh O
6.7 %
India's exports recorded a subdued
growth o 6.7 per cent year-on-year in
December 2011 on account o poor
demand in Europe and the US. Te
growth in exports in December 2011
though not robust was higher than
November 2011. Overseas shipments
in Novemeber 2011 had grown by just
3.8 per cent. Tough growth during the
month under review was not robust,
it was higher than in November, when
overseas shipments grew by just 3.8 per
cent. Imports on the other hand grew at
a aster pace o 19.8 per cent year-on-
year to $37.8 billion in December 2011
thereby translating into a trade decito $12.8 billion. During the April-
December period o 2011, exports
aggregated to $217.6 billion, a year-on-
year growth o 25.8 per cent as a result
o the export growth witnessed in the
early months o 2011. From a peak o 82
per cent in July, export growth slipped
to 44.25 per cent in August, 36.36 per
cent in September and 10.8 per cent in
October 2011.
RULeS TO dIReCTInveSTMenT In STOCKS By
OReIGn InveSTORS
Market regulator SEBI on 13
January 2012 unveiled rules or direct
investment in stocks by oreign
investors, including individuals. SEBI's
guideline was issued seeking to put
curbs on opaque structures to prevent
routing o unds by resident Indians.
Te Union government on 1 January2012 decided to allow oreign resident
investors to invest directly in the Indian
equities market, in a move aimed at
boosting capital infows, reducing
market volatility and deepening the
markets. SEBIs guidelines were issued
ollowing this announcement by the
government.
SEBI noted that qualied oreign
investor (QFIs) can buy up to 5% o
the paid-up capital o a company,
with the overall limit capped at 10%
in a company. Entities having opaque
structures, where details o the ultimate
beneciary are not accessible or where
the benecial owners are ring enced
rom each other, will not be allowed
to open demat account as qualied
oreign investor, or QFI. Te regulator
mentioned that the investors will need
to take delivery o shares they purchase
on the local bourses. Sebi specied that
QFIs will have to invest in demat orm
through Sebi-registered depositoryparticipants (DPs) who will have to
ulll the Know Your Customer (KYC
norms. QFIs were barred rom issuing
oshore derivatives instruments or
participatory notes and will also have
to give a declaration to this eect to
the DP. Te Sebi circular however does
not mention whether these investors
can trade in Indias utures and options
segment. DPs will have to ensure that
the same set o end benecial ownersis not allowed to open more than one
demat account as QFI. Also, Foreign
investors, who wish to invest directly in
Indian shares, will also have to obtain
a separate permanent account numbe
or PAN.
Te QFI shall transact in Indianequity shares only on the basis o takingand giving delivery o shares purchasedor sold and it shall not issue oshorederivatives instruments/ participatorynotes. Te DP will have to provide ona daily basis, QFI wise, ISIN wise andcompany wise buy/ sell inormationand any other transaction or anyrelated inormation to their respectivedepositories on the day o transactionTe stock exchanges shall provide thedetails o paid up equity capital o allthe listed companies to the depositoriesonce in six months, periodically andalso provide inormation regardingchange in paid up equity capital in anylisted company immediately.
RBI ISSUed GUIdeLIneS OnCOMPenSATIOn In PRIvATe
& OReIGn BAnKS
Te Reserve Bank o India (RBI) on
13 January 2012 issued guidelines on
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compensation o wholetime directors,
chie executive ocers and other risk
takers in private and oreign banks. Te
central banks directions are aimed at
preventing greed rom destabilising
the institution. Te guiderlines includeprovisions to clawback pay i transactions
ail years ater origination.Te guidelines
based on the recommendations o the
International Financial Stability Board
did not prescribe any quantitative limit
on absolute pay. Te guidelines however
deal with the structure o pay which in
the past avoured excessive risk-taking.
guaranteed bonus has been banned.
Risk management sta will have more
o xed component than the rest.
The RBI GUIdeLIneS
Te norms provided also include
capping the variable component o the
compensation at 70% o the xed pay
in a year. Te compensation practices,
especially o large nancial institutions,
were one o the important actors which
contributed to the recent global nancial
crisis. It was observed that employees
were too oten rewarded or increasingthe short-term prot without adequate
recognition o the risks and long-term
consequences that their activities
posed to the organisations.As per the
guidelines issued, banks are permitted
to exclude the Employees Stock Option
Plan rom variable pay. Te variable pay
would have to be deerred over a period
o three years. Compensation payable
under deerral arrangements should
vest no aster than on a pro-rata basis.
In the event o negative contributions,
bank board would have the option to
clawback this deerred compensation.
Banks will now be permitted to oer
joining bonus only in case o new hires
and will be limited to rst year. Tey
will not be allowed to grant severance
pay other than accrued benets like
gratuity and pension, except in cases
where it is mandatory by any statute.
Foreign banks operating in India will be
required to submit a declaration to RBI
annually rom their head oces to theeect that their compensation structure
in India, including that o CEOs, is in
conormity with the FSB principles and
standards. Private sector and oreign
banks are also required to obtain
regulatory approvals or remuneration
o CEOs and wholetime directors.
IndUSTRIAL PROdUCTIOnBOUnCed BACK wITh A
GROwTh O 5.9 PeR CenTIn nOveMBeR 2011
As per the Index o Industrial
Production (IIP) data, industrial
production bounced back with a
growth o 5.9 per cent in November
2011, marking a ve-month high in
a reversal rom the negative trend
witnessed in October 2011. Te Index
o Industrial Production in 2011 was
noted to be very volatile. With this, the
IIP growth during the April-November
period o 201112 stood at 3.8 per cent
as compared to 8.4 per cent in the
same period o 2010-11. Te industriaproduction had registered a 6.4%
expansion in November 2010. Output
had grown 7.8 percent in the 2010/11
scal year that ended in March, slower
than 10.5 percent clocked in the 2009-
10 scal. Growth in the manuacturing
sector, constituting over 75 per cent o
the index, went up by 6.6 per cent inNovember as compared to o 6.5 per centin November 2010. Electricity also saw arobust growth o 14.6 per cent during themonth under review as compared to 4.6per cent in November 2011. Productiono consumer goods witnessed a healthy13.1 per cent increase as compared to a
mere 0.7 per cent growth in November
2010. Inrastructure sector output
which contributes nearly 38 percent to
industrial production, grew 6.8 percen
in November 2011.
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PMO dIReCTed CASh-RIChPSUS TO InveST AROUnd`.1.76 LAKh CRORe OR
STIMULUS
Te Prime Minister's Oce on 11January 2012 directed cash-rich public
sector undertakings (PSUs) to invest
around Rs.1.76 lakh crore, including
Rs.1.41 lakh crore domestically to act
as a stimulus in the next scal (2012-
13). At a meeting chaired by Prime
Minister's Principal Secretary Pulok
Chatterjee, 17 companies with cash
and bank balances in excess o Rs.1000
crore were identied to undertake
these investments primarily in theinrastructure sector. Te PSUs will
invest Rs.1.41 lakh crore domestically
in 2012-13 and Rs.35009 crore overseas.
Te Principal Secretary observed that
the PSU investment could provide
stimulus to the economy and asked
the companies to draw up credible
investment programmes and implement
those with an objective to achieve the
maximum benet or the companies
themselves as well as the national
economy. Among the companies,ONGC is projected to invest the
maximum amount o Rs.53526 crore-
Rs.33,065 crore in the domestic market
and Rs.20,461 crore overseas. NPC
will invest Rs.20,995 crore domestically
and Power Grid Corporation o India is
to invest Rs.20000 crore.
dePARTMenT OIndUSTRIAL POLICy And
PROMOTIOn nOTIIed100% dI In SInGLe-BRAnd
ReTAIL
Te Department o Industrial
Policy and Promotion (DIPP) ON 10
January 2012 notied the rules allowing
100% oreign direct investment (FDI) in
single-brand retail. Currently 51% FDI
is permitted in this segment o retailing
which was opened to oreign players
almost six years ago.
Removal o the investment cap will
help global ashion brands, especially
rom Italy and France, to venture alone
in the growing Indian market. Shares
o retail giants Kishore Biyani-led
Future Group rm Pantaloon Retail
(India) surged by 10% to an early high
o Rs 161.40, while Provogue (India)
zoomed up by 14.22% to Rs 28.10 on
the BSE ollowing the announcement
by the government. In a similar ashion,
Koutons Retail gained 12.52%, Shopper's
Stop rose by 9.38%, ata Group retail
venture rent Ltd advanced by 5.50%and Vishal Retail jumped by 4.98%.
Te decision to increase FDI in single-
brand retail was taken by Cabinet on
24 November 2011 along with the
decision to open the gates or overseas
investment in multi-brand retail. Te
government was however orced to put
FDI in multi-brand retail on hold in the
ace o opposition by several political
parties, including UPA ally rinamool
Congress.In respect o proposals involving
FDI beyond 51%, the mandatory
sourcing o at least 30% would have
to be done rom the domestic small
and cottage industries which have a
maximum investment in plant and
machinery o USD 1 million (about Rs
5 crore).
MOOdyS UPGRAdedShORT-TeRM COUnTRy
CeILInG On OReIGnCURRenCy BAnK dePOSIT
ROM nP TO PRIMe
Te Finance Ministry announced
on 10 January 2012 that rating agency
Moodys Investor Services upgrade the
short-term country ceiling on oreign
currency bank deposit increasing
rom NP (not prime) to Prime (P-3)
Upgradation suggested acceptable
ability to repay short-term obligations
Prime alls under the investment grade
while not prime is a speculative gradeTe upgradation will improve fows
rom oreign institutional investors and
fows rom non-resident Indians will also
accelerate. In December 2011, Moodys
upgraded the credit rating o Indian
governments bonds rom speculative
to investment grade. Te rating agency
had also upgraded the long-term
government bond denominated in
domestic currency rom Ba1 to Baa3
Te long-term country ceiling onoreign currency bank deposit was also
upgraded rom Ba1 to Baa3. Te move
was expected to encourage FIIs to
increase their exposure in gilts and help
companies raise unds rom abroad at
competitive rates.
dI InTO IndIA wenT UPBy 56%
Foreign direct investment (FDI
into India went up by 56% to $2.53billion in November 2011, indicating
an improvement in investor sentiment
In September and October 2011, the
infows were down by 16.5% and 50%
year-on-year respectively.During the
April-November period, the FDI was
up by 62.81% rom $14.02 billion in
2010. Cumulative fows or the April-
November period stood at o $22.83
billion, surpassing $19.43 billion
achieved in the ull nancial year
2010-11. Te country had received
$1.62 billion overseas investmen
in November 2010. In 2010-11, FD
into equity had dipped 25% to $19.43
billion, rom $25.6 billion in 2009-10
In 2008-09, FDI stood at $27.3 billion
Analysts opined that i the upward
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trend in FDI continued, the FDI in the
current nancial year 2011-12 will cross
$30 billion. Te develoment is to have a
positive eect on rupee in the oreign
exchange market. Te selling pressures
in the stock market rom the oreigninstitutional investors and rising trade
decit had led the rupee to decline by
about 15% since August 2011. Sectors
which attracted the maximum unds
include services, construction activities,
power,computers and hardware,
telecom and housing and real estate.
Mauritius, Singapore, the US, the UK,
the Netherlands, Japan, Germany and
the UAE are major sources o FDI or
India. Te Moody's upgraded India'sshort-term oreign currency rating rom
speculative to investment grade.
UnIOn GOveRnMenT TOInCenTIvISe UnLISTed
PSUS TO heLP TheM COMeUP wITh InITIAL ShARe
OeRInGS
Te Union government decided
to incentivise the unlisted PSUs to
help them come up with initial shareoerings in the stock market in 2012-
13. Currently, there are about 50 PSUs
which are listed and their shares are
actively traded in the stock market.
Tere are about 50 more o such
government-owned rms which are
eligible but unlisted or various reasons.
Te government already decided that
unlisted PSUs with no accumulated
losses and having earned net prot in
three preceding years should comeout with initial public oerings (IPOs)
even as the state holding would not
come below 51%. One o the options
to incentivise the PSUs or IPOs is
to put this task in the memorandum
o understanding (MoU) which an
individual enterprise signs with its
administrative ministry. Under the MoU
system, annual targets are set or the
PSUs and CEOs get personal appraisal
points i the tasks are achieved.
While about 50 PSUs including
Hindustan Aeronautics Ltd and Heavy
Engineering Corporation Ltd which
can be listed on stock exchanges did
not opt or the same.Te government
had set a target o raising Rs 40,000
crore through stake sale in PSUs in the
current scal. In the three remaining
months beor the scal year 2011-12
comes to end, the Finance Ministry is
working on several methods including
share buyback by cash-rich PSUs. Te
Ministry has been able to receive Rs1145 crore through disinvestment in
Power Finance Corporation.
21 COMMOdITyexChAnGeS In IndIA ROSe
66%
As per the Forward Markets
Commission data released on 9
January 2012 that the turnover o the
21 commodity exchanges in India
increased by 66% to Rs 137.22 lakhcrore till December 2011 in the current
scal (2011-12). Te turnover o these
exchanges had stood at Rs 82.70 lakh
crore in December 2010. Te maximum
trade was seen in gold, silver, guar seed,
crude oil, soya oil and chana. According
to FMC data, the turnover in the
bullion segment rose more than two-
old to Rs 80.36 lakh crore during the
April-December period o the 2011-
12 scal rom Rs 37.54 lakh crore in
the corresponding period in 2010. Te
maximum turnover o . 12,40,500 crore
was posted by MCX inDecember 2011
ollowed by NCDEX (Rs 179490 crore),
NMCE (Rs 27826 crore), ICEX (Rs
23,655 crore) and ACE (. 12,713 crore).
AdB LOAn TO InAnCeROAd PROJeCTS In nAxAL-
hIT AReAS CLeARed
Te Union government in January
2012 cleared an external loan to nancepart o the programme launched by the
Ministry o Rural Development in le
wing extremism-aected villages. Te
clearance is or a loan o $500 million
rom the Asian Development Bank
(ADB) to speed up construction o
rural roads. Union Ministry o Rura
Development (MoRD) issued directions
or negotiating and early signing o
the loan, which his Ministry to gather
resources to give thrust to the PradhanMantri Gram Sadak Yojana (PMGSY)
Te ADB, which has already extended a
loan o $800 million was petitioned with
a resh proposal or rural connectivity
investment programme to construct or
upgrade 7000 km o roads connecting
eligible habitations in Maoist-aected
States o Bihar, Chhattisgarh, Madhya
Pradesh, Odisha, West Bengal, besides
Assam where too the PMGSY has
progressed with little to cheer.
Te demand or the loan was made
in the backdrop o the MoRD's multi-
winged programmes in the let wing
extremism-aected areas, under which
Central orces assist execution o welare
and development schemes to wean the
local people rom the path o naxalism
Te MoRD has been providing incentives
and assistance to the local people
particularly tribals, to reduce poverty
and ensure economic growth o the
region. Rural connectivity is considered
pivotal to the success o this stratagem
As per the programme proposed by
the MoRD, the Union governmen
will supplement with a contribution
o $127.6 million, in addition to the
$5000 million to nance the projec
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that includes setting up o training and
research centres pertaining to rural
roads. Te programmewas supposed
to have covered all habitations with a
population o 500 people (250 people
in the case o tribal and hilly areas) by2007. Provision o rural connectivity
to habitations o 500 people in general
areas and 250 people in tribal areas need
to be worked upon on pririty basis.
IRdA InTROdUCedUnIORM ASSeT-LIABILITyMAnAGeMenT nORMS OR
InSUReRS
Insurance regulator IRDA on 4
January 2012 introduced uniormasset-liability management norms or
market players to ensure their solvency.
Insurance Regulatory and Development
Authority (IRDA) announced a
broadly-dened uniorm ramework or
reporting asset liability management
activities adopted by lie and non-lie
insurance companies. Te regulator
also asked rms to undertake stress
tests to ascertain their ability to meet
nancial obligations in the event o acrisis. IRDA has issued these guidelines
to bring about uniormity in the ALM
norms being ollowed by both lie and
non-lie insurance companies.
IRdA GUIdeLIneS
Te IRDA guidelines require the
ALM (asset liability management)
policy to be approved by the board o
the insurer. Such board-approved policy
is to be submitted to the IRDA within
90 days. While approving the ALM
policy, the board is to take into account
the asset-liability relationships, the
insurer's overall risk tolerance, risk and
return needs, solvency positions and
liquidity requirements. Te guidelines
also make it mandatory or the board
to requently review the ALM policy
o the insurer. Any change in the policy
must be reported to the regulator.
Under the uniorm ramework,
insurers have to put in place an eective
mechanism to monitor and manage their
asset-liability positions. Te objective
is to ensure that their investment
activities and assets positions are in
sync with their liabilities, risk proles
and solvency positions.
Te guidelines, which would come
into eect rom 1 April 2012, make it
mandatory or insurance companies to
prepare an ALM policy as well as get it
approved by the Insurance Regulatory
and Development Authority (IRDA) by
end o March 2012.
Te insurers are also required
to develop and implement controls
and reporting systems or the ALM
policies that are appropriate or their
businesses and to the risk to which
they are exposed. Tey would have to
put in place eective procedures or
monitoring and managing their asset-
liability positions to ensure that theirinvestment activities and asset positions
are appropriate to their liability, risk
proles and solvency positions.
BeneITS O ALM POLICy
Te Asset-Liability Management
(ALM) norms are critical or the
sound management o the nances o
the insurers that invest to meet their
uture cash fow needs and capital
requirements. Te ALM policy will
enable the insurers to understand
the risks they are exposed to and
develop ALM policies to manage them
eectively. Te ALM can be used to
measure the interest rate risk aced by
insurers.
nO LOATInG InTeReSTRATeS On SMALL SAvInGS
SCheMeS
Te Finace Ministry on 4 January
2012 claried that the rates applicableon small savings instruments schemes
would be announced on April 1 each
year and the rate would remain valid
till the maturity o the scheme. Te
Ministry stated that barring the Public
Provident Fund (PPF), the rates o
interest on all small savings schemes
will remain xed throughout the tenure
o investment. o clear the conusion
over the returns on investment in smal
savings schemes, the Finance Ministrypointed out that the rate prevailing a
the time o investments will remain
xed and unchanged till the maturity o
the investment. Any revisions in interes
rates in the subsequent years would
only be applicable to the investments
made in the relevant period. However
the rate o interest or the 15-year PPF
scheme would not remain xed or the
entire period as the interest accruals
in the PPF account each year wouldvary, depending on the interest rate
announced or that particular year. For
PPF, the interest rate xed every year
will be applicable to all PPF accounts.
Te government had hiked the
interest rates on small savings deposits
schemes o various maturities with
eect rom 1 December 2011 to chane
the outfow o unds rom small savings
schemes administered by the Nationa
Small Savings Fund (NSSF) in viewo the investor preerence or bank
term deposits. Te clarication rom
the Finance Ministry came in the ace
o ears that the revision o interest
rates on small savings schemes rom
1 December 2011, are foating rates
and that the rates will undergo change
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in sync with fuctuations in yields on
government securities. It had also hiked
the interest rates on PPF deposits rom
8 per cent to 8.6 per cent while raising
the ceiling on annual contributions to
the und to Rs.1 lakh rom Rs.70000.Interest rates on Post Oce Savings
Accounts rose to 4 per cent rom 3.5 per
cent. Similarly, interest rates on deposits
o various maturities o one year, two
years and ve years too were raised
rom December. Te sale o Kisan Vikas
Patra (KVP) has been discontinued
rom November 30, 2011. Te maturity
period o Monthly Investment Schemes
(MIS) and National Savings Certicates
(NSCs) been reduced rom six years tove years.
RBI deCIded TO eASeLIQUIdITy By BUyInG
BACK GILTS
Te Reserve Bank o India on 3
January 2011 decided to conduct an
open market operation (OMO) to
inject more liquidity into the system.
Te RBI will buy up to Rs 12000 crore
o government bonds via open marketoperations on 6 January 2012, including
the 10-year paper which till recently
was the benchmark paper. Te central
bank has decided to ease liquidity
by buying back gilts or an amount
o R10,000 crore in the backdrop o
banks accessing the Reserve Bank o
India (RBI)s borrowing window or
more than R1 lakh crore each day. RBI
announced an auction or R10,000
crore worth o bonds, otherwise known
as open market operation (OMO).Te OMO announcement came ater
the market trading hours. the Reserve
Bank o India decided to conduct open
market operations consistent with the
stance o the monetary policy and based
on the current assessment o prevailing
and evolving liquidity conditions.
Banks have been borrowing in excess
o R 1 lakh crore a day rom the RBI's
liquidity adjustment acility (LAF) or
repo window. Te liquidity decit in
the system in recent weeks has been
way beyond the limit o 1% o the netliabilities o the system, or around Rs
55000 crore.
SeBI ALLOwedAUCTIOnInG O
SeCURITIeS
Te capital market regulator SEBI
on 3 January 2012 allowed auctioning
o securities through stock exchanges
and introduced a new method or
institutional placement o stocks.Te move was directed to kick-start
government's divesment programme
as well as help promoters o companies
to sell a part o their holdings. As per
the auctioning route, a special window
can be used by promoter stakeholders
to sell at least 1% o the paid-up capital
o a company. It is similar to the block-
deal mechanism or secondary stock
market transactions, but with lesser
restrictions. Te auction method canbe only used by promoters o top 100
companies based on average market
capitalisation or sale o their stakes.
InSTITUTIOnALPLACeMenT PROGRAMMe
(IPP)
Under the institutional placement
programme (IPP), shares can be sold
only to qualied institutional buyers.
Exchanges will provide a separatewindow or the oer or sale o shares
which will co-exist with the normal
trading hours. promoter or promoter
group o companies however will not be
allowed to bid or the shares. Allotment
will be done either on price priority or
clearing price basis proportionately and
would be overseen by the exchanges.
SEBIs measure is considered to be
very progressive step towards creating
an organised and eective mechanism
that will not only acilitate und raising
but also assist companies to comply with
the listing norms in a non-disruptive
manner.
Tere shall be at least 10 allottees in
every IPP issuance. No single investor
shall receive allotment or more than
25% o the oer size.
For the purpose o compliance with
public holding norms, SEBI had earlier
directed all such promoter shareholders
to dilute their equity stake to 75% or
below by June 2013 through public
oering o shares. Te companies were
also barred rom using the qualied
institutional placement ( QIP) route or
diluting promoters' shares. However
the new institutional placement route
can be used or either resh issue o
shares or dilution by the promoters
through an oer or sale.
Te IPP method can be used to
increase public holding by 10% and
could be oered to only qualiedinstitutional buyers with 25% being
reserved or mutual unds and insurance
companies.
Under the IPP, companies will have
to announce the ratio o buy-back, as
is done in the case o rights issues and
x a record date or determination
o entitlements as per shareholding
on record date. Besides improving
eciency, the revised buy-back process
is expected to give a air deal to alshareholders.
RePORT On BILL TO AMendORwARd COnTRACTSReGULATIOn ACT 1952
Te Parliamentary Standing
Committee submitted its report on a
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bill to amend the Forward Contracts
Regulation Act 1952. Parliamentary
Standing Committee on consumer
aairs, ood and public distribution,
chaired by Congress MP Vilas Baburao
Muttemwar, submitted its report onthe FCRA (Amendment) Bill 2010 to
Parliament on 22 December 2011.Te
current department-related standing
committee (DRSC), set up in 2009,
was asked by the Lok Sabha speaker
in December 2010 to prepare a report
on the bill and submit it to the Lok
Sabha Secretariat. Te committee in
its report recommended a doubling o
the maximum penalty or trading rule
violations to Rs 50 lakh. Te standingcommittee report suggested raising the
upper limit on penalties or oences like
insider trading to Rs 50 lakh rom Rs 25
lakh stipulated in the Forward Contracts
Regulation Act (FCRA) Amendment
Bill 2010. Insider trading involves
using unpublished price sensitive
inormation or personal gain. Te bill
seeks to empower commodity utures
market regulator Forward Markets
Commission on par with its securitiesmarkets counterpart. It is seen as the
single-most important reorm in the
eight-year-old commodity exchange
market.
The RePORT
Te report recommended that
options be introduced or the benet
o stakeholders. Te inclusion o the
clause was one o the reasons why the
bill in its earlier avatar during the UPAI regime aced resistance. Tose who
had opposed the bill then especially the
Let parties argued that options would
increase speculation in commodities.
Te report suggested that options will
actually make it easier or armers
and smaller users to participate in the
derivatives market as trading lot sizes
will be lower than in utures contracts,
where the minimum traded quantity or
most arm products is 10 tonne.
investing in an option also tends to
minimise losses as only the premium
to buy (call option) or sell (put option)
is orgone in the event o prices
moving adversely. a utures position
taken by a trader is on the other hand
marked to market daily. Marking to
market involves daily settlement o the
dierence between the prior agreed
price and the daily utures price. It
can thus lead to huge losses alongside
supernormal prots.
IMPLeMenTATIOn O LevyOn RAILwAy ReIGhT
SeRvICe deeRRed
Te implementation o levy on
railway reight service was put o
once again in the backdrop o high
infation. Te levy is now likely tocome into orce rom 1 April insteado 1 January as announced earlier. Televy on transport o goods by rail wasdeerred or the sixth time. Finance
Minister Pranab Mukherjee in the2010-11 Union Budget had broughttransport o goods by railway underthe service tax net rom 1 April 2010.However, the proposal was vehementlyopposed by Railway Ministry earingadverse impact on goods movement,orcing the government to deer itrepeatedly. Railway Ministry is o theopinion that any levy on reight servicewould adversely impact the industry.
Movement o coal and cement among
others goods would become costlierwith the imposition o service tax.
GOveRnMenT APPROvedRILS $1.529 BILLIOnInveSTMenT PLAn
Te Union government on 3 January
2012 approved Reliance Industries'
(RIL) $1.529 billion investment plan
or developing our satellite elds in the
fagging KG-D6 block. RILs investmen
plan will boost alling output in the
Krishna-Godavari Basin KG-D6 block
Te investment proposal was signedby the three partners in the block- RIL
UK's BP Plc and Niko Resources o
Canada and the representative o DGH
Te KG-D6 block oversight committee
which includes ocials rom the Oi
Ministry and its technical arm, the
Directorate General o Hydrocarbons
(DGH), met or the third time in three
months on 3 January to nally approve
the proposal. Te MC approval, which
is the nal approval an operator needsbeore beginning work, put a cap on
the cost o developing the our elds
that surround the currently producing
Dhirubhai-1 and 3 (D-1 & D-3) elds in
the KG-D6 block. Te cost cannot vary
by more than 15%. Te MC had at its
two previous meetings in November
and December 2011 reused to approve
the eld development plan (FDP) or
the Dhirubhai-2, 6, 19 and 22 (D-2
D-6, D-19 and D-22) elds ater thegovernment representative raised
certain objections. RIL agreed to cap
spending on the our elds at $1.529
billion, plus or minus 15%.
exPORT dUTy RAISed OnIROn ORe exPORTS TO 30 %
Te Union government raised the
ad valorem duty (export duty) on iron
ore exports to 30 per cent rom 20 per
cent. Te decision is expected to step upnances o cash-strapped governmen
by around Rs 8500-9000 crore. Te
Federation o Indian Mineral Industries
the apex body o miners however
complained that Indian ore would no
longer be competitive internationally
Te increase in export tax could lower
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the prot margin o Sesa Goa Ltd.,
India's largest iron-ore exporter by
volume. Steel Minister Virbhadra Singh
always wanted more restrictions on
exports. Based on his ministrys inputs,
Finance Minister Pranab Mukherjeehad earlier imposed a 20 per cent duty
on exporting the domestically mined
mineral.
Shipments rom the South Asian
country decreased 28% between April
and November to 40 million tons,
according to the Federation o Indian
Mineral Industries. Volumes were
hit by a mining ban in the southern
state o Karnataka, a reeze on sale o
old stocks in western Goa state andtransport bottlenecks in the eastern
state o Orissa. India exported 97.64
million tons iron ore in 2012. Prior to
the export tax change, industry ocials
had estimated exports in 2011-12 to
be between 60 million and 65 million
tons because o mining-related issues.
As a result o high export tax and
railway reight, India's iron-ore exports
is not likely to exceed 50 million tons
in 2011-12. Te Supreme Court hadin early 2011 banned mining in the
major iron-ore producing districts o
Karnataka to prevent illegal mining and
environmental damage. In Goa, moves
to reduce environmental impact and
illegal mining aected production. Te
two states account or around 70% o
India's iron-ore exports.
CIL APPROved TheSwITChInG OveR
TO GROSS CALORICvALUe-BASed PRICInG
MeChAnISM
State-owned Coal India (CIL)
announced on 2 January 2012 that
its board approved in a meeting held
on 30 December 2011 the switching
over to internationally-accepted
Gross Caloric Value-based pricing
mechanism. Te new system is based
on the recommendations o the
Integrated Energy Policy Committee
and the Expert Committee on RoadMap or coal sector reorms. Te board
approved switching over o non-coking
coal pricing rom Useul Heat Value
based grading system to Gross Caloric
Value (GCV) based classication
with eect rom 1 January 2012. GCV
measures the amount o heat released
by carbon and hydrogen in coal when
it is heated and is an internationally
accepted pricing mechanism. the
UHV mechanism was ollowed inIndia Howeverbecause o the high-ash
content in Indian coal. Te UHV took
into account the heat trapped in ash.
In Indian coal, GCV is 25% higher than
UHV. Te Coal Ministry mentioned
that the pricing o coal on GCV-based
mechanism was not likely to lead to any
signicant change in pricing. Te new
system will incentivise improvement
in quality, resulting in better quality o
coal to consumers and commensurate
revenue realisation or coal rms.
RBI STUdy SOUGhT CAPOn BORROwInGS BynBCS ROM BAnKS
Reserve Bank o India (RBI) raised
red fags over the high dependability
o non-banking nance companies
(NBFCs) on the banking system
because the apex bank eels that
the higher dependence would mean
systemic vulnerability in the context
that NBFCs are involved in higher risk
activities vis--vis the banking system.
Te higher borrowings o NBFCs
rom the banking system tend to raise
concerns about their liquidity position.
More so, i such reliance happens to
increase urther. Te banking systems
exposure to NBFCs-D (deposit taking
was observed to have considerably
increased over the years. Te concerns
to be urther accentuated in case the
banks own liquidity position becomestight at the time o crisis or even at crisis
like situation. Te consolidated balance
sheets o NBFCs (both the categories i.e
deposit taking and non-deposit taking
and systemically important companies
revealed that more than 68 per cento the consolidated balance sheetconstitutes borrowings. 30 per cenresources o the total 68% are borrowedrom banks and nancial institutions asat the end o March 2011. Borrowings by
way o debentures issued by the NBFCsconstituted around 33 per cent and owhich a sizeable portion is subscribedby the banking system.
IndIAS exPORTSReCORded SLOweST In
TwO yeARS
As per the to Commerce Ministrydata released on 2 January 2012, Indiasexports recorded their slowest pace ogrowth in 1two years at 3.8 per cent in
November 2011 as a result o the globaslowdown. Moderation in demandin developed markets also impactedexport. Te growth rate was the lowestsince October 2009, when exportedhad contracted by 6.6 per cent. Tecommerce ministry had overestimatedexports by over $9 billion due tosotware upgrade and punching errorsthat prompted a revision o data revision
or the previous eight months. Te data
on engineering exports was infated by
around $15 billion, while export o gems
and jewellery and petroleum products
was underestimated by $12 billion.
exPORT
Exports grew 3.87% to $22.3 billion
in November, 2011, compared to $21.49
billion in November 2010. exports
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or the current scal is expected to be
around $280 billion, below the $300
billion target or 2011-12 due to global
economic slowdown. Te country's
overseas shipments had amounted
to $21.48 billion in November 2010.According to export body Fieo Director
General Ajay Sahai, urther decine in
export will push export growth ina
negetive zone. From 82 per cent in July,
export growth slipped to 44.25 per cent
in August, 36.36 per cent in September
and 10.8 per cent in October. In the
eight-month April-November period,
exports aggregated to $192.69 billion,
a year-on-year growth o 24.55 per
cent. Experts opined that the country'sexports growth during the entire scal
would stand at about 20 per cent.
IMPORT
Imports were up 24.5% at
$35.92 billion in November 2011. In
November, 2010, imports aggregated
$28.84 billion. Oil imports grew by
32.28 per cent to USD 10.3 billion in
November 2011 while non-oil imports
rose by 21.69 per cent to $25.6 billionvis-a-vis the year-ago period. Between
April and November oil imports
stood at $94.1billion, an increase o
42.67% compared to $65.97 billion in
November 2011. Non-oil imports, a key
gauge o economic activity, rose 25.46%
to $ 215.41 billion during the April-
November period.
TRAde deICIT
Imports grew at a aster rate o
24.5 per cent year-on-year to $35.9billion in November 2011 which in the
process translated into a trade decit o
$13.6 billion. Between April-November
exports grew 33.2% to $192.7 billion
while imports also rose 30.2% to $
309.53 billion. Te trade decit during
the eight months o the scal year
thereore stood at $116.8 billion.
PMI ReLeASed By hSBC
Te HSBC Purchasing Managers'Index ( PMI) - a headline index
designed to measure the overall
perormance o the manuacturing
sector - registered 54.2 in December,
up rom 51.0 in November. Te PMI
was released by the banking major
HSBC on 2 January 2012. Te index
indicated the strongest improvement
in business conditions since June 2011.
New orders rom overseas clients also
grew at a aster pace than November2011, the second consecutive expansion
ater shrinking or our months. Indias
manuacturing activity was at a a six-
month high in December 2011 on
account o an increase in actory output
and new orders rom domestic and
international rms. Te HSBC Markit
India Manuacturing PMI jumped to
54.2 rom 51.0 in November, its bigges
monthly rise since April, 2009.
Te index stayed above the 50 mark
that separates growth rom contraction
or 33 months now. Te PMI or
Purchasing Managers Index dipped to
50.4 in September 2011.
Data released by the government
had showed a 5.1 per cent contraction
in the IIP numbers in October 2011
its slowest since March, 2009. Te
successive rate hikes by the RBI and
weak macroeconomic conditions
domestically and globally were blamed
or the contraction. Te ociaindustrial output data showed actory
output plunged 5.1% in October
raising worries about the health o
the manuacturing sector. Tis was
the rst all in industrial output in
nearly two years. Manuacturing
sector employment also increased
slightly during December 2011, ending
a period o job losses that had set in
during August 2011. Costs went up on
higher prices o raw materials and ueon the input ront, adding with higher
demand. Te demand rom clients
allowed manuacturing companies to
increase output prices at an accelerated
pace to pass on the costs.
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