Current Affairs Economy February 2012

7/29/2019 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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32




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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3




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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34




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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35




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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37




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.

Documents

Current Affairs Economy February 2012